Last Updated on February 27, 2023 by George
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Investing one million dollars is often considered a significant decision. The first million is indeed hard to earn, but once someone has hit it, the money should begin working for them, so they do not need to.
Scroll through this article to find out the ways and things to consider on how to invest 1 million dollars!
An individual with a one million dollar investment will have plenty of attractive options for creating a diversified portfolio. Whether the funds will be in the stock market or an investment account, the thought that these funds can gain interest and grow over the years can be exciting.
However, there are many options to choose from when investing a million dollars. Before proceeding, consider all the investment alternatives to ensure the money will go to the best choices possible.
Gold IRA
Gold individual retirement accounts (IRAs) are retirement plans that utilize investment commodities, such as gold and silver, to help investors achieve their retirement goals. Diversifying a financial portfolio with precious metals is wise as it has various benefits, including security and stability.
Solid gold IRAs are often one of the most potent alternative asset classes that can play an essential role in an individual’s retirement portfolio. They deliver one of the safest, most conservative investment vehicles available while offering the potential to generate strong returns over time.
The benefits of investing in gold IRAs are numerous, especially as the economy becomes increasingly volatile. Unlike other securities, such as stocks or bonds, gold assets remain resilient when other investments falter.
One of the most crucial grounds to have a gold IRA is that millionaire investors can transform their hard-earned funds into an asset that sustains its worth for a longer term. After all, rare metals like silver and gold are one of the few metal assets that only appreciate their value as years go by.
Stock Market
The stock market is a great avenue to invest money if they have a million dollars. Stocks can generate high returns through growth in share prices and dividends. However, it is crucial to remember that the market is volatile and bears an increased risk.
Although a high-risk investment class, investing in the stock market is still safe. As with all investment types, one must dig deeper and plan accordingly to make wise decisions that will not lead to losses.
Investors with robust risk tolerance can start investing in individual stocks from major stock exchanges. And there are a few types of stocks they can choose from.
1. Growth Stocks and Value Stocks
Growth stocks are businesses rapidly expanding their cash flow, profits, and revenues at rates higher than the rest of the market. On the other hand, value stocks trade at lower prices than their fundamentals suggest.
Both stocks are suitable for more risk-tolerant individuals. For those with 1 million, investing in both stocks makes sense as they can quickly help them achieve financial freedom.
2. Dividend Stocks
This is where firms return profits to their shareholders via dividends. They offer double value to dividend stock investors by providing income and potential share price appraisals.
3. Preferred Stocks
Shares from preferred stocks differ from the common ones as they carry a par value, which is irrelevant to their current market prices. Preferred stocks pay guaranteed dividends as a percentage of their par value.
Moreover, wealthy long-term investors prefer this type as it holds superior protection in case of bankruptcy.
Bonds
Those experienced investors already know about the balanced portfolio mix: 60 percent for stock and 40 percent for bond investments. Individual stocks can already provide money growth, but owning bonds on the side can add to capital preservation. This is an amazing time to take advantage of today’s lower interest rates.
Bonds are available in different kinds. Investors can choose between corporate, treasury, or municipal bonds. Further, bonds pay interest revenue and the total face value at maturity.
Indeed, bonds are safe and secure investments. However, it is vital to remember that their price fluctuates as interest rate shifts. Note that every investment still bears the risk of losing — it is not constantly gaining.
Rental Properties
Most people believe purchasing rental properties is the best option for investors looking for portfolio diversification merged with healthy risk-adjusted returns. Real estate properties also allow investors to generate revenue and grow their personal capital in various ways:
- Equity appreciation occurs when the property’s value increases over the long term
- Passive income via recurring cash flow
- Tax benefits like deducting business and operating expenses and depreciation expenses to lessen taxable net income
Investors can diversify their assets among different investment classes, such as commercial, land, industrial, and residential. Recent technologies also make remote real estate investing more manageable and a better option for investors in high-cost-of-living cities like San Francisco and New York.
Investing in remote real estate is a perfect option for investors looking for low-cost properties in the market with higher yields. Further, local real estate units can handle the daily details of property management.
An individual’s hard-earned one million dollars can go further and possibly generate higher returns because real estate properties are financed and leveraged — all these positive gains while potentially spreading out risk.
For instance, instead of spending one million dollars in cash for a tiny apartment building in one market, someone can buy a much more extensive investment portfolio of a single-family home in various high-growth markets throughout the United States.
ETFs
Investing in exchange-traded funds (ETFs) is a good investment technique for acquiring exposure to bonds and stocks without making specific bets. One of the known firms Vanguard offers a wide range of exchange-traded funds (ETFs).
Exchange-traded funds purchase portfolios of bonds, stocks, or index funds based on favored indexes like Nasdaq 100, Russell 3000, and S&P 500. Individuals can also buy shares of exchange-traded funds that invest in different industry sectors, such as health care, international companies, real estate, technology, and precious metals.
However, before adding an exchange-traded fund to the investment portfolio, it is necessary to understand that ETFs should match the market segment performance they are investing in instead of outperforming it.
Buy a Business
An individual with one million dollars can simply skip the central public exchange intermediary and directly invest in a business. They do not have to buy shares of company stock or an exchange-traded fund. When done precisely, acquiring a business may be one of the most promising ways to invest money.
There are two unique ways to invest in a business. It is either they buy or build one of their own, or they can finance as a partner of an existing enterprise.
Starting a business is riskier, but the generated returns will be higher. On the other hand, investing in a current enterprise has a lower risk due to its established track record. However, as an investor, they should have complete confidence in their business companions.
Either way, they can generate returns on one million dollar investment, unlike traditional investments, such as bonds, stocks, and annuities.
CDs and Money Market Accounts
Certificates of deposit or CDs and money market accounts or MMAs are two of the safest and most secure ways of earning returns while having effortless access to one’s cash. However, their ease of access and interest rates differ.
Most often, certificates of deposit rates have fixed values. They tend to have more increased rates than money market accounts because they only access investors with their funds once their term ends. The money gets locked up for months or years, and early withdrawals may result in penalties.
On the other hand, money market accounts provide access to funds and interest rates compared to regular savings accounts. Money market accounts let investors withdraw funds without penalty; at the same time, their rates can change over time.
Private Lending
Private or peer-to-peer lending is when people lend their capital to other investors, organizations, and professionally-managed real estate funds. This investment type refers to funding from sources not regulated as public lending institutions or the conventional financial services industry.
Further, private lending is asset-backed. A private lender makes their funding decisions based on the viability of the underlying acquisition. Financial advisors call it hard money lending because of being secure by hard assets like real estate.
Unlike conventional lending, private lending offers much shorter-term loans. This is perfect for home improvement or debt consolidation. Moreover, personal loans benefit small business owners seeking more working capital to buy real estate property and equipment or expand their own business.
Investors prefer borrowing from a private lender because they focus more on assets, not financial history. They look for borrowers with above-average financial histories and strong credit scores. Plus, they can fund loans quickly.
In addition, yields in private lending can be much higher than other securities like traditional stocks and bonds. However, private loans are less liquid — investors’ money gets tied up for several years.
This is why it is imperative for individuals with one million dollars to speak with a certified financial professional or their financial advisor first about the amount of money for personal lending allocation.
Crowdfunding
Crowdfunding lowers the barriers of entry for investors. It refers to using a small amount of capital from several people to fund a business or raise money. However, they restrict who can invest and how much they can contribute.
One of the most significant benefits of crowdfunding is that people can allocate small portions of their one million dollars to various asset classes and business sectors. For illustration, real estate crowdfunding platforms let people invest in high-quality assets, such as new residential subdivisions and apartment buildings.
However, many crowdfunding deals offer a potentially heightened return in exchange for a higher risk. There is no guarantee that the said project will break ground. They can be illiquid as well. People can not just buy and sell the same way they do in stocks, bonds, and real estate.
Crowdfunding is also accessible on different social media platforms. It has created an effortless opportunity of raising millions of dollars. To this day, there are various crowdfunding platforms on the internet where individuals and entrepreneurs come together to invest.
There are also many real estate crowdfunding platforms to pick from. Each has its specialization. For instance, investors can choose a platform that funds individual commercial buildings. Or they can select fix-and-flip opportunities or individual residential properties.
They give a forum to anyone with an idea to pitch in front of people willing to finance. Two of the most popular crowdsourcing platforms are Patreon and Substack. They offer a way for creative individuals to sustain their work by receiving a more steady income.
Another popular crowdfunding platform is GoFundMe. Since its foundation, the website has already raised 15 billion dollars from more than a hundred million donors. It is a crowdfunding site for people seeking medical or disaster expenses.
Lastly, crowdfunding firms reserve the right to limit or freeze withdrawals during economic uncertainty. This could mean not being able to get back cash when people need it most.
REITs
Real estate investing is indeed expensive. It urges more active involvement, unlike stock trading or exchange-traded funds. But for anyone who has too much cash at their disposal, say 1 million dollars, they have a massive edge over moderate investors.
Unlike crowdfunding, real estate investment trusts or REITs present a safer and more secure way to invest. Real estate investment trusts are publicly traded on major stock exchanges and set up as funds that operate in income-generating real estate properties.
Aside from investing in retail shopping centers, office buildings, single-family homes, and apartment buildings, some real estate investment trusts let investors focus on niche asset classes like data centers, self-storage facilities, and cell phone tower sites.
For most investors scared of the hassle of dealing with real estate investments, owning shares of real estate investment funds could be the next best thing for them. This is because 75 percent of real estate investment trust capital is in real estate investments. Further, 90 percent of the net income gets distributed to shareholders as dividends.
Before anything else, remember that real estate investment funds do not provide similar benefits as directly owning real estate properties. Real estate investment trusts (REITs) are stocks that share the same market volatility. This means that REIT share prices also decrease when the stock market declines.
What to Consider Before Investing 1 Million Dollars
Before making a particular investment decision, investors need to sit down and take an honest look at their entire financial situation, especially if they are an investor who has never made a financial plan before.
Those with one million dollars can have endless options. However, before getting to where to put them, it is crucial to consider the following:
Set your Financial Goals
Investing is a tricky thing to master, but one of the most critical steps is learning what kind of investor they are. Every investment journey should start with setting a goal. People must know why they are investing since this is an important factor in determining how they can invest.
For instance, if an individual is still young and wants to invest for retirement, they start by buying volatile stocks. They would probably want to build an investment portfolio that is light on less risky investments, such as bonds, and heavy on risky investments, like stocks.
In addition, having clear financial goals in mind can make it easier to reach them. With one million dollars, they should take financial goal-setting more seriously.
Create a Timeline
After setting financial goals, investors must create a timeline for financial success. This can help in choosing which short-term or long-term investment option is best. It can also include how much risk they are willing to take or their income needs.
A timeline can guide investors in their decision-making process, identify gaps in their money plan and prioritize what is important to them. It helps clarify the steps needed to determine financial goals and when investors will complete each step.
In addition, knowing the time horizon is necessary to adjust an individual’s investment goals to the risk they take. For instance, if an investor wants to double their money in a year, they should invest and assume various risks than if they are going to achieve them in ten years.
There are typically three different time horizons to choose from the following.
1. Short-term
This refers to investments in which investors can get their money in less than a year. Short-term investments focus on stability and protection because investors do not have the luxury of recovering quickly from a market crash.
2. Medium-term
This refers to investments in which investors should not need the money for between one and seven years. However, compared to short-term horizon investments, medium-term generate a higher return.
3. Long-term
This goes for investments of more than ten years. Investing in a longer time horizon can add in more risk, but with potential high return. In other words, investors concentrating on long-term investments focus on profitability rather than capital preservation.
Determine Your Risk Tolerance
Another thing to consider is risk tolerance. After all, all investments have some degree of risk. The top concern for individuals investing in cash or cash equivalents is inflation risk, which is the risk that inflation will erode and outpace returns over time.
Risk tolerance specifies the willingness of an investor to accept an investment loss for increased returns. It is also one of the most crucial factors when investing, as it helps investors plan their investment portfolios and how they can invest adequately.
Some investors are inherently more comfortable with enduring risks than others. On the other hand, market volatility can be quite stressful for some investors. This is why it is crucial to assess an investor’s risk comfort level before investing is vital.
Younger investors are more willing to take risks since they have more time to pursue potential returns and recover from losses. However, there is no one-size-fits-all risk tolerance.
Understanding one’s risk tolerance is a prerequisite for proper investment allocation. This is why it is essential to seek guidance from financial advisors before putting money away for investing. It can help make a tailor-fitted investment plan for an investor’s risk appetite.
Many factors influence an individual’s financial risk tolerance. Listed below are the significant factors to consider when assessing risk tolerance.
1. Age
Younger investors usually have higher risk tolerance because they have a longer time to realize gains, recover from losses, and have more earning power. As they approach retirement, their investment strategy becomes more focused on safer and fixed passive income investments.
2. Income
The risk tolerance of a portfolio depends on how much risk it can take. For example, a high-income earner can withstand more losses and volatility because of having a higher cash flow than someone just starting and striving to build their career and net worth.
3. Health
Some people are prone to severe medical conditions that may get worse. In this case, risky investments may not be wise, especially if they still need to set up an energy fund or insurance to cover medical expenses.
Investors have three main categories based on how much risk they can handle. It includes aggressive, moderate, and conservative.
Aggressive risk investors take massive risks and are usually wealthy individuals not afraid to lose some funds, while moderate risk investors balance their investments between safe and risky asset classes. Lastly, conservative investors prioritize avoiding losses over making potential gains.
Set up an Emergency Fund
If a person invests money before building up an emergency fund, they bear the risk of using up all their retirement savings in case of a financial crisis.
Although it may seem ridiculous to be anxious about setting up an emergency fund if someone already has a million dollars, it is still hard to determine what tomorrow may bring.
Additionally, maintaining an emergency fund ensures individuals have a solid foundation before building their investments. Savvy investors understand that having an emergency fund is a top priority. It is the barrier between daily expenses and long-term investments, providing quick access to cash whenever needed.
A fully-funded emergency fund should cover at least six months’ costs. For this, investors should put their money somewhere insured and liquid. Every financial advisor would recommend having a large portion of emergency funds in a high-yielding savings account.
Maximize your Retirement Plan Contributions
Many people need to acknowledge the importance of maximizing retirement plan contributions. The longer they let their shares ride in retirement, the more they will eventually get back.
For instance, investors must fully fund individual retirement accounts (IRAs), 401(k), and SEP-IRA retirement accounts before jumping to alternative investments. This is because they will have more peace of mind knowing they have already settled their retirement money.
Furthermore, by increasing the contributions to their retirement plan, they will gain more benefits and lower their taxes in the future. For example, self-directed individual retirement account investors have additional tax-free funds if they wish in real estate.
Pay Off ‘bad’ Debt
In simple terms, bad debts are any borrowed money not paid on time. It also includes missing payments from overlapping increases of penalties. This can potentially harm one’s financial standing.
For people with 1 million sitting in their banks ready to invest, there is no good reason to make monthly payments on bad debts, such as personal loans, car loans, credit cards, and loan shark deals. However, remember that not all debts are bad.
Wisely using conservative leverage and good debt can help investors grow their investors, especially in income-generating real estate. In addition, consistently paying off bad debts on time can help with their credit scores. This can make it easier for investors to qualify for better interest rates and loans.
Again, being in debt is not as bad as most people painted it to be. The right sort of debt can substantially impact one’s financial well-being positively. For instance, having student loan debt can pay off in the long run.
Although education costs have been rising, people with degrees are more likely to qualify for high-paying jobs. Moreover, some student loans have a lower interest rate and are tax-deductible.
Another example of good debt is small business expenses. Starting a business is another investment that is good for the future. One can consider it good debt if it succeeds and increases one’s income.
The last example is real estate investments and mortgage loans. Renting out and buying and selling properties encourage high returns. Despite being long-term loans, mortgages come with lower interest rates. Plus, they are tax-deductible.
Advice for Picking Your Investments
When looking for where to invest, the investor will try not to lose money. But how exactly do they pick suitable investments? Consider the following advice before putting one million dollars away for investment.
Consider Working With a Professional
Considering an individual has one million to invest, they must be brilliant in financial management. Most people believe that they need at least two million dollars to retire. And one million dollars is a small amount these days, given the economy.
Someone with one million dollars should consider working with a professional, such as a financial advisor. It can be their best bet in helping their money grow. In addition, financial advisors do not make monetary decisions depending on their emotions, unlike the investors themselves.
Working with a financial advisor can help clients plan for their future and create a more stable lifestyle. They also perform necessary evaluations ensuring investors make intelligent choices. Moreover, they can help understand one’s risk tolerance and align them with the set goals.
Hiring a financial advisor can be a big step. But finding a good professional is the first step in understanding finances. They can guide clients through the process of investing, retirement, and anything related to money management.
Furthermore, many financial advisors already work with high-net-worth individuals one-on-one. With this, they will manage someone’s investments and guide overall financial management, like estate planning.
Be Mindful of Fees
Hitting a million-dollar mark is not the end. Have a plan in place to make them grow and work. With a proper investment vehicle, anyone will be cruising toward financial freedom. But before anything else, investors should be conscious of the fees of every investment they venture into.
Tracking investments and being mindful of costs are two of the most crucial qualities for investors. As investors pull together various assets, they should also find ways to track them constantly.
In addition, one million dollars can quickly go if someone is not money mindful. If they decide to go another route, like dabbling in alternative assets or investing in real estate, make sure they account for potentially higher expenses for their projected returns.
Simplicity is Often the Best
Compound interest and time are two of the most effective elements investors have on their side. This is why keeping investments uncomplicated and sticking to a sound investment plan often yields the target results. This is also better than micro-managing every aspect of their investment portfolio.
Investing one million dollars is a big deal and often a life-changing event. Simplicity is often best when investing, as many investments require more time than they are worth. Investors should think carefully to ensure the money gets used in the best possible way.
Final Thought – How To Invest 1 Million
Finding out where to fund such a massive amount is a relevant question for almost everyone. Fortunately, there are a variety of strategies available for every investor.
The best thing about reaching the million mark is that it gives individuals plenty of investment options. However, the essential investment pursuits are similar as if they have a much smaller fund.
People will still opt to develop the best variety of income, growth, and capital preservation combination. The thing is, everything is possible, but it requires diversifying their funds. Fortunately, this article covers all of them.
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