If you've saved or come into $100,000, you're well ahead of most immigrants in the United States. Almost three-quarters of Americans don't have $1,000 saved, which means they can't get through a basic emergency without borrowing money.
Your $100K puts you in an advantageous position, but you’re probably wondering what the best way to handle your $100K is. It's a large amount of money, but what are the right ways to invest?
There isn't a one-size-fits-all answer, but we'll show you plenty of options so that you can choose the best place for your funds and your lifestyle.
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How Do You Want to Invest?
First, ask yourself how involved you want to be in handling the money. In other words, do you want to be directly responsible for your money’s growth, or would you rather be more hands-off? Do you want to be a DIY investor, or would you like personal guidance?
If you want to invest yourself, you’ll need an online discount broker. With an online broker, you do the investing, but on their platform. Consider these factors before choosing:
The type of investments you're interested in
The type of trading you want (active or passive)
The platform's fees (this is especially important for day traders)
The minimum balance requirement
If you'd rather have personal guidance, you’ll want a financial advisor. There are two types of financial advisors:
Robo-advisor - If you prefer automated investing, a Robo-advisor is a good choice. Robo-advisors do the investing for you after you answer questions about your risk tolerance and goal timeline.
Full-Service Financial Advisor - If you want full-service investment advice, including how to manage your money outside your investments, a full-service financial advisor is a better option. With both options, look closely at the fees, as they can quickly eat up any profits you might make from your investments.
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Where to Invest $100K
Once you decide the type of investor you are, it's time to think about where to invest 100K. Where you invest depends on your risk tolerance and goal timeline.
The more time you’re willing to take, the more risks you can take, and the less time you’re willing to take or the lower your risk tolerance, the less risk you can take. For example, investing in stocks is a riskier investment with a long-term end goal, whereas investing in bonds is a lower risk.
Most investors fall somewhere in between preferring high and low-risk investments, but regardless, it’s a good idea for every investor to diversify their portfolio. Here are the top types of investments to consider.
1. Exchange-Traded Funds
Exchange-Traded Funds (ETFs) are a low-cost investment that diversifies for you. They are baskets of stocks that cover an industry or theme. Already diversified and not actively managed, ETFs are a great way to take advantage of the market's performance without the high cost of stock trading. You can choose broad or narrow themes, the niche you're most interested in, and pay low costs for the passively managed fund.
Investing in individual stocks is risky. If you know what you're doing and you diversify your portfolio, it may pay off. Most DIY investors use a financial advisor to invest in individual stocks. Robo-advisors tend to stick to ETFs and mutual funds rather than stocks, but there are a few exceptions. Putting a small portion of your 100K in stocks is a great way to make your portfolio aggressive if that's your goal.
3. Peer-to-Peer Lending
Peer-to-Peer (P2P) lending makes you a lender, along with hundreds or thousands of other investors. Using a P2P platform, you choose who and how much you will invest your money based on the information provided. Most platforms allow you to diversify your investments by investing as little as $25 in each loan. P2P investments provide a passive income in the form of interest payments and often have returns between 5-10%.
4. Investment Real Estate
$100,000 is enough to buy a property outright or serve as a hefty down payment on an investment home. If you've always wanted to be a landlord, now's your chance. It’s simple: you buy a property, fix it up (if needed) so that it's suitable for renters, and then rent it out. Once you subtract any expenses you have incurred, such as the house’s mortgage, the rent becomes your monthly cash flow. Additionally, you are also earning the home's equity and capital gains for when or if you decide to sell in the future. Owning an investment home provides plenty of tax breaks in the form of business write-offs, but be sure to watch the capital gains taxes when you sell.
5. Real Estate Investment Trusts
If your focus is on real estate, consider a real estate investment trust (REIT), a specialized form of real estate exchange-traded fund. You invest the money into the trust, and the fund manager handles the rest, including diversifying the fund's money in various investments. REITs trade on the market and work much like an ETF or mutual fund.
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Other (Less Exciting) Places to Invest $100K
If investing $100K in a risky investment doesn't sit well with you, here are some other options that aren't as exciting. They result in lower rewards but require less risk.
6. Money Market Account
A money market account is a cross between a checking and savings account. You earn higher interest rates than a savings account because they have higher minimum balance requirements, but you still have check-writing privileges, typically up to six checks a month. An FDIC-insured money market account is very low risk.
Government and corporate bonds are a great low-risk investment. It’s not a bad idea to offset a risky stock or real estate portfolio with bonds for a lower risk. Bonds have much lower rates of return, but they're almost guaranteed to return your investment.
8. Certificate of Deposits
Certificates of Deposit (CDs) are accounts you tie your money up in for a predetermined amount of time. If you leave the money until maturity, you receive a set interest rate. If you withdraw the funds before the term expires, you'll pay the penalty. So only choose CDs with terms that you are comfortable with, ensuring you’re okay with leaving the funds untouched for that amount of time.
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Steps to Take Before Investing $100K
Before you invest $100K, take stock of your current financial situation. Ask yourself:
Do I have an emergency fund? Your emergency fund should have three to six months of expenses in it. If you don't have one or have used some of it, make sure it's fully funded first. Investing won't do you any good if you can't cover the cost of basic emergencies.
Did I max out my retirement contributions? If you have a 401K, at least match your employer's contribution to get free money. Ideally, though, you'll max out your $19,500 contributions to your 401K and $6,000 to an IRA. That still leaves plenty of money to invest elsewhere, but you will be able to enjoy the tax savings on at least a portion of the funds.
Do I know how to track my investments? Once you decide where to invest, and you do it, you must track them. Whether you use an app, like Personal Capital, a Robo-advisor, or a human advisor, tracking is crucial. Not only will you know your net worth, but you'll keep track of your fees and know how well-balanced your portfolio is at any time.
How will I rebalance my portfolio? Even the best-planned portfolio will change over time. If your stocks increase, for example, your stock allocation becomes heavier than your bond allocation. This rocks the boat with your diversification. If you had a 50/50 portfolio but suddenly have a 70/30 portfolio, that may be too risky for you. Knowing how you'll rebalance or who will rebalance for you is crucial. Pro-tip: Many Robo-advisors automatically do this for you.
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What to Do with $100K: It's Your Choice!
Deciding what to do with $100K is ultimately a personal decision: it takes some soul-searching. Think about your goals and risk tolerance. How much risk can you stomach? What is your goal with the money?
If you have long-term goals, such as retirement, you can look at riskier portfolios that include stocks and real estate investments. If you're a more conservative investor or have a shorter timeline, choosing less risky investments will help you reach your goals faster. ETFs and bonds are a great option.
If you want to diversify your funds even further, you can put some away in a CD or money market account while investing the rest, allowing each portion to grow at different rates.