Summary: In this article, you will learn how to invest $100k to make $1 Million. Topics include: five factors that impact how to invest, deciding which type of investor you are, where to invest $100k based on your unique goals, real estate and business investing, and how to invest $100k safely.
- Five Factors That Impact How To Invest $100k
- What Type of Investor Are You?
- Where to Invest $100k
- How to Invest $100k Safely
- How to Invest $100k in Real Estate
- Investing $100k in a Business
- Best Ways to Invest $100k
- One Last Thought…Educate Yourself!
So you are looking to invest $100k. First off, congratulations on having $100k in the bank! You are among a very low number of individuals able and ready to invest that amount of money. Whether the $100k came from an inheritance, selling a home, or simply saving your hard-earned money, there are some exciting investment opportunities that await you.
Before we dive into the nuts and bolts of your investment options, let’s start with the assumption that you are in good financial standing. What I mean by this is you already have a few key things taken care of.
First, you have an emergency fund set up covering at least 3 to 6 months worth of expenses. Second, you have no debt in the form of high-interest credit cards. And third, you have a retirement account setup that you have been and will continue to contribute to consistently and/or have maxed out your contributions for the year.
If any of the above three have not already been taken care of, start there. Once you’ve checked these three boxes, you are now ready to look at your investment options. Because there are so many different ways to invest, especially with such a large chunk of money, your next step will be to evaluate your financial goals.
Five Factors That Impact How To Invest $100k
1- What Are Your Financial Goals?
You should build an investment plan based on your financial goals. Do you want to grow your retirement accounts? Are you looking to set up a college fund for your kid? Are you trying to get out of your apartment and into a home? Do you want to generate monthly income from your investments?
Sit down and take some time to write down your financial goals, according to where you are currently and where you hope to be in five, 10, 20 and 30 years. Once your goals are clearly defined, it will be much easier to decide how to invest your $100k.
2- What is Your Timeframe?
Your timeframe is how long you plan on holding an investment. If you know you’ll need access to your investments sooner than later, it’s a good idea to go for a less aggressive investing strategy.
For example, putting a bunch of money into equities (aka stocks) may not be the best short-term investment strategy because you can count on the stock market fluctuating. What if you needed to pull your money out of stocks sooner than expected and the market happens to be down? You’ll likely lose money.
How long you can afford to invest plays a huge part in deciding where to invest you. If you’re investing for something long-term, like retirement, you’ll have a good idea of how long you plan to hold your investments, depending on your age.
3- What Are Your Individual Circumstances?
Your age, overall health, yearly earnings and family status (if you have multiple kids at home, pay alimony, take care of an ailing parent, etc.) are all questions to ask yourself before investing. Do you expect to receive an inheritance down the road? If you are confident you have enough money to be comfortable if your investments dip for a period of time, consider a more aggressive strategy.
4- What is Your Risk Tolerance?
Use the answers to the above questions to determine your overall risk tolerance. If you can’t afford to lose your investment, you have a low risk tolerance. If you would be relatively unaffected with the loss of your investment, your risk tolerance is very high.
5- Are Your Emotions in Check?
We may consider ourselves very logical most of the time. But when it comes to something like money, very logical people can make very emotional decisions. Money is emotional, and the emotions that come with a huge loss can cloud anyone’s vision.
This leads us to our next subject, what type of investor are you?
What Type of Investor Are You?
Do-it-yourself investors like to take the hands-on approach. It’s not only the cheapest option, it’s now easier than ever to create and manage your own portfolio. Managing your own portfolio means you get to pick and choose exactly where you want to put your money (i.e. stocks, bonds, mutual funds, ETF’s, etc.) and how much to invest. This is where emotion can sometimes overpower logic. If you consider yourself a DIY investor, make sure you feel confident in keeping your cool during potential market lulls.
Before you decide which assets you’d like to invest your money in, think about the trading style that best fits you and your life. Are you an active trader, day trader or interested in passive investing. Depending on how much time you want to spend and and how involved you plan to be, will help decide your trading style.
Automate – Robo Advisor
There are several companies that offer robo advisors to manage your portfolio. The automated investment route may suit your lifestyle, especially if you are just starting out and are not sure how to get started. Robo advisors are a low-cost/low-hassle solution to investing. And even better, if you have questions or want to have a more customized portfolio, investment advisors are available to help.
Full-Service Guidance – Financial Advisor
The benefit to hiring a financial advisor is that you have a professional handling all of your investments. They can make recommendations, manage your portfolio based on market trends and offer overall financial planning for the future. While this is the most expensive option, it may be just what you’re looking for, especially if you’re about to invest $100k.
Where to Invest $100k
Deciding where to invest your $100k should depend on your goals. Are you looking to grow your money over the long-term? Are you wanting to produce monthly income from your investments? Is your risk tolerance low and a safer investment strategy is more your speed. Next, let’s talk about your options for each type of strategy.
Stocks are shares in public companies that are traded on the stock exchange or through brokers. A stocks worth is based on investors perceived value and future earning potential. It’s well-known that stocks can experience both large and small fluctuations in value. But you can minimize that risk by diversifying your portfolio through investing in a number of stocks across different industries.
Commodities are assets like silver, gold, agricultural products and oil. A commodity investment is more volatile than stocks, produces no ongoing earnings and its price is completely determined by future sale value, aka an educated guess.
US Government Bonds are safer investments, as they are insured by the government. Investors will receive income via interest, however, as they are secured by the government, returns are usually limited, yielding around 3 percent.
Other Bonds have the potential to produce higher returns when issued by corporations, municipalities and foreign countries. While the yields may be higher, the risk also increases with these types of bonds.
Personal Loans Investing or Peer-to-Peer (P2P) Lending, can offer many advantages including, strong returns, passive income, and helping borrowers that need a loan. P2P lending is a newer type of investing and has become accessible and easy to invest in through online platforms.
You can even invest as little as $25, just to try it out. I’d suggest investing between $2,500 and $5,000, especially if you’re just starting out and go from there. As P2P’s are gaining more popularity, investors are using this type of lending to diversify their portfolio.
How to Invest $100k Safely
Savings and Money Market Accounts provide guaranteed safety up to $250,000 at each bank or institution. You also have full access to your money at any time. These FDIC-insured accounts yield low returns, usually around 1 percent, but are your safest bet to keep your money secure and accessible.
Certificates of Deposit or CDs are also protected by the FDIC and can earn higher returns if you are willing to leave your investment in a CD for a few months or years. Many institutions offer 5-year CDs with returns around 3 percent.
How to Invest $100k in Real Estate
There are three primary ways you can invest in real estate: traditional real estate, REITs and Crowdfunding Real Estate. Each comes with its own set of risks, demands, challenges and passive income potential.
Traditional Real Estate
We’ve all seen shows on tv about people buying real estate, fixing it up, and selling it for profit. While it may look easy-ish and have massive profit potential, what they don’t show is when a flip turns into a flop. While there is potential to generate a return on “flipping” a house, there’s also potential to lose a lot of money. If you are interested in going this route, we recommend diligently running the numbers to ensure they add up to produce a positive ROI. Stick to those numbers as if your money depends on it, because it does!
Investing in traditional real estate can also mean buying a single-family home or condo, townhouse or apartment, living there until you’ve outgrown it and instead of selling your property to buy a new home, you decide to hold onto it as an investment property. If you’ve purchased in the right market, renting out your property can generate passive income, cover your mortgage and then some.
In her book, Retire Rich with Rentals, our very own Kathy Fettke, Founder and Co-CEO of RealWealth shares her tips and insights on investing in real estate.
According to Fettke, “There’s a big difference between cash flow and quality. You may find a house that seems like a great deal. It may be priced well below market value; and when you run the numbers, it looks like it can produce a good cash flow. But…just because a property has cash flow on paper, doesn’t mean it’s a quality investment.”
Fettke goes on to say, “…A high quality home may not look like it has as much cash flow on paper, but you need to run a few more numbers. Once you consider the increased chance of appreciation and the lower cost of maintenance on a house in a good area with quality tenants, you can actually make much more sense than that “bargain property”.”
An important question to ask yourself is whether you want to take on the responsibilities of being a landlord or hire a property management company. Whatever you decide, run those numbers to make sure you’re earning income instead of losing it. Holding onto your quality investment property for the long-term is your best bet for building equity and producing passive income through real estate.
Real Estate Investment Trusts (REITs)
Real estate investment trusts are companies that sell shares in their different real estate investments. Instead of buying an apartment or home to generate passive income, investors can now buy into bigger real estate projects through REITs.
Exchange Traded Funds (ETFs)
ETFs allow investors to buy into multiple stocks, instead of stocks in just one company. As different markets fluctuate, you’ll be taking advantage of growing markets in one sector that may offset losses in other, underperforming sectors. Investing in ETFs will diversify your portfolio and can minimize risk, especially if you put your money into a variety of sectors.
You also have the ability to diversify or spread your risk across multiple REITs via REITs ETFs of your choosing. So instead of putting all of your money into one investment property, investors can buy into multiple real estate projects using ETFs.
If the concept of ETFs is confusing, there is always the automated investing option. Several investment platforms online offer a risk survey to help build a portfolio unique to your goals.
Investor Tip: REITs can be an excellent option for those looking to get their feet wet in real estate investing. BUT, you will have little control over where your money is going, so it’s essential to do your due diligence on the REIT that will be managing your investments.
Crowdfunding Real Estate
Crowdfunding is a somewhat new real estate investment opportunity where individuals can pool their money together to participate in bigger real estate deals. The money pooled from multiple investors is used to fund the project.
Investors can be rewarded or receive a return through a set dollar amount, much like a loan, or given a cut when the project is completed and generating income. The idea is giving investors the opportunity to take part in big real estate deals, that they would otherwise miss out on, due to the huge amount of capital required.
Investor Tip: Crowdfunding has the potential to make investors a lot of money. Our advice is to educate yourself in real estate and make sure the crowdfunding platform you choose to invest in, knows their stuff and is building or investing in the right markets.
Tips From a Real Estate Investment Expert
VP of Growth at Bigger Pockets, Brandon Turner shares what you can do with $100,000 in real estate:
“$100,000 could do a few things for you in the real estate realm, depending on your risk level. You could buy a nice house in the suburbs for around $100,000 and just collect the cash flow on that home without needing to pay a bank. Or, if you wanted to use some of leverage on your money (thus increasing both risk and potential profit,) you could put that $100,000 and buy more than $100,000 worth of real estate. For example, you could buy a $500,000 apartment complex and put your $100,000 as a 20% down payment. Or you could buy five $100,000 houses and put a 20% down payment on each. Personally, I’d go for the apartment complex, but that’s my bread and butter. This is great thing about real estate investing – there are so many great options that fit different personality types, locations, and income levels!”
Investing $100k in a Business
Investing in a great business idea could double, triple or even quadruple your investment, that is if all goes well. If it doesn’t, and according to statistics, 50% of new businesses fail within the first five years, you could risk losing your entire investment. This makes investing in a new business venture the riskiest type of investment. The reward is high, but so is the risk.
The risk is why banks make it extremely difficult to get a loan for a business venture. If there’s no collateral, the investment must be treated like venture capital, with the assumption that there’s a 50% chance you’ll get your money back.
Getting a loan for something like an investment property is much easier to do, because the bank looks at your finances showing that you can afford the monthly loan payments and haven’t taken on debt you can’t afford. In the event you are unable to pay the mortgage on the property, the bank can use the property as collateral and get their money back, thus minimizing risk compared to a business investment.
On the other hand, if you are interested in the success of a business that is a couple years old but has strong growth projections, you can buy shares in the company. You’ll have a stake in the company but will lower your risk of losing your entire $100k investment.
Many investors will choose to buy shares in “Blue Chip Stocks,” which are individual stocks in companies that have a proven history of performing well. These are companies that most consumers are familiar with and have been around forever.
Best Ways to Invest $100k
The best advice I can give you is to invest in ways that will balance risk while still allowing your money to grow. A good balance between risk and reward. Examples of diversifying your portfolio to reduce risk is to invest in a few of the following:
- Real Estate
- Rental Property
- Raw Land
- Index Funds
- Blue Chip Stocks
One Last Thought…Educate Yourself!
Because there are so many different investment strategies and options, it’s vitally important to educate yourself. Take advantage of all the free information and resources available online. Talk to experts and professionals in each investment sector and learn from their successes and failures.
If investing in the stock market piques your interest, start your learning there. If real estate sounds more appealing and fits your lifestyle and goals, start exploring all the different options, run the numbers and keep your emotions in check before jumping into anything.
RealWealth offers incredible amounts of information and resources for any type of real estate investor. From easy-to-understand articles on complex topics, to what we consider the best markets across the country, our goal is to provide you with all the information and tools to be a successful real estate investor.
If you are interested in learning more about ways to invest, check out our recently updated article, “8 Great Ways You Can Invest One Million Dollars.”
Deciding how to invest $100k to make $1 million may seem like an overwhelming task. The good news is, you’re looking for ways to make your money work for you, instead of just letting it sit in a low-interest savings account. Having $100k to invest is a great problem to have.
No matter how or where you decide to invest your money, minimize risk by spreading your money across various industries or markets and keep your finger on the pulse of these investments (or hire an expert). You’ll quickly learn which type of investing you prefer and how you could potentially turn your $100k investment into $1 million.
Fettke, Kathy. Retire Rich with Rentals. 2014.