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 seven common ways to invest one million dollars to make more money?
Key Takeaways:
- Embrace Diversification: The article underscores the significance of spreading your investments across different asset classes to mitigate risk.
- Stock Market Investments: While stocks can offer potential earnings through dividends and capital gains, they also have volatility.
- Bonds for Capital Preservation: Bonds, particularly in today’s lower interest rate environment, are considered a safer option for preserving capital and providing a steady income.
- Crowdfunding as an Option: Crowdfunding presents an opportunity to diversify investments across different sectors, albeit with a higher risk profile.
- ETFs for Market Tracking: Exchange Traded Funds (ETFs) offer a way to track the performance of specific market segments.
- Direct Business Investment: Buying or starting a business can be profitable if managed correctly, offering direct control over your investment.
- Real Estate for Tangible Assets: Investing in real estate directly or through Real Estate Investment Trusts (REITs) provides a tangible asset that can appreciate over time and generate income.
7 Ways to Invest $1 Million Dollars
When you have a lot of money, you can create a diversified portfolio by investing in various assets. Here are the widely-believed top 7 ways to invest $1 million dollars today (in no particular order):
- Stock Market
Stocks allow investors 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 4.9% or more dividends. 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.
- Bonds
Most advisers believe 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, municipal, and treasury bonds.
Bonds provide interest income and will mature at the total face value. Still, 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
Crowdfunding is when people invest money into a new business venture. This can be 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.
Through real estate crowdfunding platforms, you can invest in high-quality assets, such as apartment buildings and new residential subdivisions. 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. You must have a high net worth if you want to invest in crowdfunded investments. This means that you need to have a lot of money.
Many crowdfunding deals offer a high return, offset by a high level of risk. It has yet to be discovered when or if a new development project will start. Your investment in a crowdfund may be challenging to sell or exchange.
- ETFs
Many different companies, like Vanguard, offer exchange-traded funds (ETFs). These funds trade on exchanges, usually tracking one specific kind of index. Mutual funds differ from ETFs in that they trade once a day vs. throughout the day at an exchange.
An ETF is an investment fund with 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 crucial 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.
- Buy a Business
An alternative to buying shares of a stock or an ETF is to invest in a business. Many investors with one million dollars to invest bypass the public exchange and invest directly in a company. If done correctly, investing in a business can be a very profitable way to use your money.
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 generate higher returns. An existing business is less difficult to invest in because it already has a history. Still, you will need to be completely trusting and confident of your partners in the business.
No matter what route you take, investing your million dollars in the right business will make more money than traditional investments such as CDs, annuities, bonds, and stocks.
- 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 has some risks, the potential rewards outweigh those risks significantly if you only invest a small amount and don’t put too much of your money into it.
Consumers can use private loans made for a short period 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 more easily convertible to cash than other loans because you usually have to wait several years for the loan to mature.
If you lend money to someone, there is a chance they will only pay you back if 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.
- Invest in Real Estate
After investing in stocks, I want to put money into real estate. I’m talking about investing in real estate much more passively, 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 similarly. You can think of a REIT as a mutual fund that invests in real estate instead of stocks. Your investment allows you to buy a share of a real estate property, and you can earn money from the acquisition 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 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 out our article on what is turnkey real estate.
This helps me stack passive income and is a critical component of my quest for financial freedom through passive income.
There are many 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, preferably six months, before deciding. If you have a large sum, investing is the best thing to do. 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 prefer to part it in a cash-value insurance policy with a guaranteed return.
It would help if you thought 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 money in a Certificate of Deposit (CD). 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. However, it also allows you to withdraw the money to go on a spending spree.
You can get meager interest rates by opening a savings account or CD with an online bank like Capital One 360, CIT Bank, or UFB Direct (currently paying 2.21%). You should be able to bank with them online, no matter your state. 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.
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.
It isn’t necessary to pay off your loan balance in full. Instead, 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 not to have those unwanted $100 credit card bills each month? If you reduce 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 must also pay off your department store credit card and personal loan debt.
You will 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 with 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, keeping at least 18-24 months worth of monthly expenses in your back pocket is sensible. Think of it as the Ultimate Emergency Fund.
The biggest thing this will give you is peace of mind that you have all of your expenses covered in case of a financial storm.
Where is the best place to put a large amount of money? Many good online banks are 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 favorite place to save an emergency fund is inside a cash-value life insurance policy. They provide flexibility and access to cash in several days but still offer a guaranteed rate of return. These policies are also referred to as infinite banking policies.
Bottom Line
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 cash flow for you month in and month out.
Investing in both real estate and having a risk-reward balance is possible, 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.
Frequently Asked Questions (FAQs):
Q: What are some ways to invest $1 million?
A: The blog suggests investing in the stock market, bonds, crowdfunding, ETFs, buying a business, private lending, and real estate.
Q: What should I do before investing a large sum like $1 million?
A: The blog recommends starting with liquid guaranteed income, using CDs and online savings accounts, paying off high-interest debts, and boosting your emergency fund.
Q: What is the difference between investing in an ETF and buying a business?
A: An ETF is a fund that owns a portfolio of stocks or bonds while buying a business involves directly investing in a company.
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor, media buyer, faithful Red Sox Fan.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here, or get a hold of him on Facebook or Twitter.
