Have you ever heard stories about how famous athletes try to invest millions of dollars, yet end up just wasting all of their money away and ending up penniless? It’s a sad but true common theme for people who suddenly come into any sort of wealth.
Investing 1 million dollars may seem like an impossible task, but it is actually quite doable. Although this downturn and previous recessions have caused many hardships, the number of people who have saved up one million dollars or more for retirement is still increasing.
The saying goes that it’s harder to make the first million. When you have made your first million dollars, your money will start to work hard for you so that you don’t have to.
What are some common ways to invest one million dollars to make more money?
7 Ways to Invest $1 Million Dollars
When you have a lot of money to invest, you can create a diversified portfolio by investing in a variety of assets. Here are the widely-believed top 7 ways to invest $1 million dollars today (in no particular order):
1. Stock Market
Stocks provide investors with the potential to earn money through dividends and by selling their shares for more than they paid for them. According to Kiplinger.com, stocks with the highest dividend yields as of October 2020 include Diamondback Energy, The Williams Companies, and ConocoPhillips, with dividends of 4.9% or more. Companies that offer a high yield on their stocks may also be high-risk.
If you had invested in the S&P 500 four years ago, you would have gained over 80%, even without the help of a Betterment robo-advisor. Of course, the stock market can also be volatile. If you had purchased shares in the S&P 500 in 2016 and held on to them until 2020, when the market bottomed out, you would have only made a 3% return on your investment.
A majority of advisers believe that a well-rounded portfolio includes 60% stocks and 40% bonds. Although stocks like Amazon can offer investors growth potential, bonds are generally seen as a way to preserve capital, especially given today’s lower interest rates. There are various types of bonds, including corporate bonds, municipal bonds, and treasury bonds.
Bonds provide interest income and will mature at the full face value, but the price may change based on interest rate fluctuations. You can lose money on a bond if you sell it for less than you paid, or if the issuer defaults on the payments.
Crowdfunding is when a group of people invest money into a new business venture. This can be something like video game creation, electric vehicles, television series, or real estate projects. One of the main benefits of crowdfunding is that you can spread your investment across different areas and types of assets.
You can invest in high-quality assets, such as apartment buildings and new residential subdivisions, through real estate crowdfunding platforms. These platforms also allow you to invest in debt investments, by loaning money to developers.
Often, the most profitable crowdfunding investments are available only to accredited investors. If you want to invest in crowdfunded investments, you need to have a high net worth. This means that you need to have a lot of money.
Many crowdfunding deals offer a high return, but this is offset by a high level of risk. It is not known when or if a new development project will start. Your investment in a crowdfund may not be easily sold or exchanged.
Many different companies, like Vanguard, offer exchange-traded funds (ETFs). These are funds that trade on exchanges, usually tracking one specific kind of index. Mutual funds are a bit different than ETFs in that they trade once a day vs. throughout the day at an exchange.
An ETF is a type of investment fund that owns a portfolio of stocks, bonds, or index funds. You can also purchase shares in an ETF that invests in specific industry sectors, such as technology, healthcare, precious metals, international companies, and real estate.
Before investing in an ETF, it is important to understand that these types of funds are designed to track the performance of the market segment they are investing in, rather than outperform it.
5. Buy a Business
An alternative to buying shares of a stock or an ETF is to invest in a business. Many investors who have one million dollars to invest bypass the public exchange and invest directly in a business. Investing in a business can be a very profitable way to use your money if it is done correctly.
There are two primary methods of investing in a company. There are a few options if you want to get involved in business. You can buy an existing business, start your own, or invest in a business as a partner. Although starting your own business can be riskier, it can also generate higher returns. An existing business is less risky to invest in because it already has a history, but you will need to be completely trusting and confident of your partners in the business.
No matter what route you take, if you invest your million dollars in the right business, you will make more money than you would with traditional investments such as CDs, annuities, bonds, and stocks.
6. Private Lending
Although you can make private or peer-to-peer loans online, they may be riskier than traditional real estate investments. While private lending does come with some risk, the potential rewards could outweigh those risks, especially if you only invest a small amount and don’t put too much of your money into it.
Private loans made for a short period of time can be used by consumers to either consolidate debt or fund home improvement projects. Small businesses may also use these loans to acquire additional working capital, finance business expansion, purchase equipment, or invest in real estate.
Alternatives to traditional stocks and bonds, such as yield-bearing investments, can provide higher returns. However, private loans are not as easily convertible to cash as other loans because you normally have to wait several years for the loan to mature.
If you lend money to someone, there is a chance they will not pay you back unless you have an asset to back up the loan. If you plan on allocating money for personal lending, you should speak to your CFP or financial advisor.
7. Invest in Real Estate
After investing in stocks, I would almost certainly want to put money into real estate. I’m talking about investing in real estate in a much more passive way either through investing in Real Estate Investment Trusts (REITs) or owning real estate outright.
There are a variety of REITs that are popular to invest in and they all function in a similar manner. You can think of a REIT as a mutual fund that invests in real estate instead of stocks. Your investment gives you the opportunity to buy a share of a real estate property, and you can earn money from the investment as it grows and produces income.
What are some popular REITs? New Residential Investment Corp., Sun Communities Inc., and American Tower Corp. are all examples of companies that you might hear about. There are also real estate index funds and exchange-traded funds (ETFs) to choose from, such as Vanguard Real Estate Index Fund Admiral Shares (VGSLX) and Schwab U.S. REIT ETF (SCHH).
Although I can’t speak for everyone, I enjoy investing in real estate through a passive investment approach. I buy real estate through turnkey real estate companies and then outsource the property management of these properties to a property management company. If you’d like to become more familiar with that, check our our article on what is turnkey real estate.
This helps me stack passive income and is a key component of my quest for financial freedom through passive income.
There are a ton of ways to invest in real estate and those are just a few of them.
Before You Invest a Million Dollars
Start with Liquid Guaranteed Income
So, if you were to win the lottery or come into a large sum of money, the first thing you should do is.
You sit on it and do nothing.
You should sit on the item for at least three months, and preferably six months, before making a decision. If you have a large sum of money, the best thing to do is invest it. This way you can grow your money while keeping it safe. Save your money while you figure out what to do next.
Park it in a safe place. I personally prefer to part it in a cash-value insurance policy that has a guaranteed return on it.
You need to think of it like this. Where should you park your money so that you won’t spend it?
Certificates of Deposit (CDs)
I would invest some of the money in a Certificate of Deposit (CDs). CDs help you avoid bad decisions because you lose money if you withdraw from the CD before it matures.
A CD is a safe and almost guaranteed investment you can make. You can put your money in a savings account to earn interest while you decide where to invest it long-term.
Online Savings Accounts
Another place where you can safely store your million dollars is an online savings account. An online savings account provides more flexibility than a CD, although it also allows you to withdraw the money so you can go on a spending spree.
You can get some very low interest rates by opening a savings account or CD with an online bank like Capital One 360, CIT Bank, or UFB Direct (which is currently paying 2.21%). You should be able to bank with them online no matter what state you live in. Or decide to buy your mansion in.
A CD or online savings account provides guaranteed security – even if you only keep your money in these accounts for a short period of time.
Pay off Debt
We are going to pay off the debt you have. Are you going to pay off all the debt you have? Not necessarily.
I won’t too much into
Robert Kiyosaki refers to having “Good Debt” & “Bad Debt“.
If you have been able to secure a 30-year mortgage at less than 4%, it would be counterproductive to pay it off early. That’s cheap money.
I don’t think it’s necessary to pay off the balance of your loan in full. Rather, why not use that money to invest in income producing assets.
Pay off what I’ll refer to as “bad debt”.
Wouldn’t it feel great to not have those unwanted $100 credit card bills coming in each month? If you reduced the amount you owe on your credit cards, you could start investing that money instead of using it to pay the monthly interest on your debts.
You also need to pay off your department store credit card debt and any personal loan debt.
You are going to want to pay off student loan debt as soon as possible (if you still have it at this point in your life). Although this statement is true, any other debt that has double-digit interest rates should no longer exist. Pay it off and be done with it.
Keep in mind that you should stop using credit cards. Paying off debt does not mean you can charge more. Why would you need more credit cards if you just won a million dollars?
Boost Up Your Emergency Fund
As you will have a lot of extra cash, it is sensible to keep at least 18-24 months worth of monthly expenses in your back pocket. Think of it as the Ultimate Emergency Fund.
The biggest thing that this will give you is peace of mind that you have all of your expenses covered in case of a financial storm comes in.
Where is the best place to put a large amount of money? There are many good online banks available, such as Capital One 360 and TIAA Bank. Or, you could deposit it into a Discover Bank Certificate of Deposit.
The amount of money sitting there doing nothing is likely more than you have had in your life, but that is okay. You’ve now turned a new leaf. It’s a new you, so enjoy it.
My own personal favorite place to save an emergency fund is inside of a cash value life insurance policy. They provide flexibility and access to the cash in several days, but still provide a guaranteed rate of return. These policies are also referred to as infinite banking policies.
You can put all of it into a single stock, you can buy a bunch of different stocks, or you can even buy a small business If you have one million dollars to invest, you can invest it all in one stock, multiple stocks, or even buy a small business. The key is to pick investments that will produce cashflow for you month in and month out.
It is possible to invest in both real estate and have a risk-reward balance, which is advantageous for many people who have one million dollars.
How would you invest $1 million dollars? Let us know in the comments below.
Leave a Reply