Last Updated on February 27, 2023 by George
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When you’ve got half a million at hand, investing is the best thing you can do with it. This is considering that you don’t need it shortly. However, few people know where to start investing and what they can do to grow their money further.
Multiple investment types are available today, so you don’t need to put all your eggs in one basket and risk inflation and market fluctuations.
Let’s talk about how to invest 500k and what you can do to diversify your portfolio to achieve financial freedom.
It is always a better idea to think ahead of your future, especially regarding the financial status you want to achieve. Whether or not you have the money right now, there are multiple ways in which you can build your wealth.
Many experts suggest starting with investments when you are young is best. However, it still depends on what you need and your financial capabilities at the given moment. If you’re considering investing at least $500,000, you should be careful about the techniques and strategy you will follow to increase that value over time.
Focusing on your diversified portfolio is one of the first things you should do. Looking for the options that work best for you and will give you radical growth will benefit you the most.
If you are young and still decades away from retirement, investing in riskier options is fine and is more likely to give you higher gains. On the other hand, those near their retirement age should scale down to less risky investments and instead focus on safer securities.
Depending on your risk tolerance and time horizon, they will diversify your acquired assets across markets. This provides better security because each investment type varies in investment risks. If one market gets hit by a particular crisis, you still have other types of investments to rely on. Doing this protects your assets against large market fluctuations.
The inflation we are currently facing right now may continue for the following years, so it is essential to make strategic investment moves that will protect your funds from the dollar’s loss of value.
Risk tolerance and capacity should always be included in the discussion when discussing investments. Risk capacity refers to your ability to handle short-term losses for better returns in a later period. In contrast, risk tolerance is the amount of risk you are willing to take when putting your funds into various investments.
Where to Invest $500k Today?
With the many investment options available, choosing where and how to invest $500k can be stressful and exciting. You should research the best way to invest a lot of money, as this can make a huge difference in your life.
If you invest half a million dollars and leave it for a few decades in a secured investment, it can grow twice its original value and even more. Still, thinking about how you will invest $500,000 to get your target returns is essential. Many factors play into it, and it doesn’t always happen the way you have in mind.
For example, leaving your money on an option that grows at 6% can grow your money to about $1.6 million in 20 years, while a 10% can give you a nest egg of nearly $3.4 million. Your initial actions on your investment options will make a huge difference in what you can get during your retirement.
Your best choice at the given moment is to consult qualified financial advisors to help you with your current financial situation.
To get a better grasp of where to invest your half a million dollars, these are the different asset classes that you can choose from:
Gold IRA
Gold is one of the most priceless items in the world, making it the perfect asset for investments. It is not easily affected by market fluctuations, so it’s understandable why most people turn to gold during difficult times.
The good thing about gold is that it increases in value over time, especially when there is economic uncertainty. It is also less likely to lose value even if you keep it stored for decades.
Self-directed IRAs, the retirement account that allows many investors to invest in gold, are much easier to control than any other type of investment. You can choose which assets to include in the account based on what you think is best for you.
There are different kinds of gold that you can get, ranging from coins, bars, and special bullion. You can also invest in other precious metal options like silver, platinum, and palladium. All of them serve as an excellent hedge against inflation.
You should know that gold is not available with standard brokerage accounts. You will need to find a separate gold IRA firm that offers products that suit your preference.
Usually, the company provides specialists or custodians to help you with the processing. Each company varies in the services and product range, so choose the one you like best. Some of the companies that you can check out are the following:
- Oxford Gold Group
- Birch Gold Group
- Goldco
- Augusta Precious Metals
- Noble Gold
- American Hartford Gold
Gold IRA is best for people looking for ways to keep their money’s value as a diversification strategy.
Pros
- Gold prices protect your fund from inflation
- Excellent diversification option aside from traditional stock market investments
Cons
- Physical gold can be stolen
- Returns are not always guaranteed
Real Estate
Real estate investing provides investors with significant capital appreciation over time. For example, farmlands grow significantly in value, mainly if they are located in agriculturally strategic areas.
You should know that the location of a particular real estate property is essential to its value. The best investment option is those located in urban real estate areas because they are more likely to increase in price as the city grows.
One good example is Boston, where property values doubled in five years. Usually, 500k is enough to cover an entire property or the down payment.
The value growth varies from one city to another, so you have to be smart when choosing the location of the property you’ve been eyeing. However, this doesn’t mean real estate investing is always a good idea. It still comes with risks and potential losses when done carelessly.
Investing in real estate sounds easy as it is when you have $500,000, but keep in mind that you will also handle all the work that comes with owning a property. For a rental property, you will need to do the furnishing, groundwork, monthly expenses, and more.
You will be the one to find tenants as well and make sure to cater to their needs within the agreement. When it comes to rental payments, you will also need to handle that on your own.
Still, this is a good option for earning money passively. Rental income is excellent, especially when the housing market is not as affordable as it used to be.
Pros
- You can get started with $500 through crowdfunding real estate platforms
- Exposure to residential and commercial real estate
Solid returns
Cons
- Returns are not always guaranteed
- Investment is not liquid
Stock Market
If you want to invest your $500k in long-term investment, it’s good to put such a large sum of it in the stock market. Your existing funds in 401(k) and other retirement plans are primarily invested in this asset, and you can open a separate retirement account for non-traditional assets.
It is common for retirement plans to be tax-advantaged. You can also sell stocks and other securities in this account, making it more accessible than other retirement options.
However, keep in mind that the stock market is easily affected by economic crises, so you have to watch out for that. Your money can be worthless if your stocks are caught at the lowest price possible due to unforeseen circumstances.
If you think investing and getting stock market exposure would benefit you, you should seek financial advisors that can teach you how to invest money more responsibly. Some apps and technologies keep you up with the latest updates on the market.
Stock market investment is best for people who want long-term growth for their money. This can also expose investors to how the market works and create a balanced investment portfolio.
Pros
- Better long-term returns
- Liquidity
Cons
- Returns are not always guaranteed
- Market risk
Exchange-Traded Funds (ETFs) And Mutual Funds
The thing about Index funds is that they are predictable, boring, and safe. Those words are perhaps some of the best you’d want to be associated with your money.
Most of the time, investing an amount like $500k is scary for such a volatile market. A larger amount invested in the stock market involves more risk than investing a small amount.
What you can do instead is to put your money in exchange-traded funds (ETFs) or a mutual fund. They tend to be safer than other investment options but will only generate average returns. Unlike in the stock market, your money will not grow as much, but you will still see some gains over time.
ETFs can include stocks from various companies, such as technology, healthcare, commodity, and other industries. They tend to be pricier because professionals manage mutual funds, but that only means they maximize their power to look for higher returns.
Pros
- Immediately reinvested dividends
- Limited capital gains tax
Cons
- Less diversification
- Lower dividend yields
Annuities
Fixed annuities are an excellent option for many investors looking for rewarding long-term commitments. Unlike the others, these are insurance contracts that allow you to gain a fixed income throughout your lifetime. That lessens the risk of possible losses.
If you are planning your investment portfolio, consider investing in a fixed annuity as a long-term vehicle.
Pros
- Customization
- Tax-deferred growth
- Guaranteed to generate income.
Cons
- Complexity
- Higher up-front costs
High Yield Savings Account
In most cases, putting your $500,000 into a savings account can be tempting. Fortunately, there are better ways to do this! You can put your money in high-yield savings accounts that accrue 20 to 50 times the expected return on regular savings accounts.
Different types of high-yield savings accounts depending on the bank you work with. Experts believe that the “Savings Builder account” provided by CIT bank is among the best.
Investors in this plan are eligible for an Annual Percentage Yield (APY) of up to 40%. The account requires a minimum $25,000 balance, or you can make a $100 deposit monthly to get the returns.
Pros
- Insured against bank failure
- Interest compound
- Easy access to funds
Cons
- Withdrawal restrictions
- Inflation may erode the earnings over time
Hedge Funds
Even though hedge funds are not entirely a secret, the average investor may know very little about this type of investment.
Hedge funds are among the types of assets considered pooled investments. It works by combining the money from investors to purchase assets in its portfolio, then proceeds to distribute the income from the investments on a pro-rata (per-share) basis.
Hedge funds generally take higher-risk positions and seek higher rates of return than other products. They do it by taking more aggressive positions. Hedge funds tend to be more exotic and risky than mutual funds.
Although hedge funds are relatively more profitable, they have more significant risks than the rest and face different regulations. The general public is not eligible to hedge funds as they are private assets. Only accredited investors with market knowledge, usually sophisticated people with high net worths, can buy into a hedge fund.
In addition to the high barrier, this type of investment also requires a six-figure minimum buy-in, and it can cost you at least $500,000.
Pros
- Higher flexibility
- Aggressive investments
- Expert advice
Cons
- High fee
- High risk
Emergency Funds
The recent pandemic caught everyone by surprise when it hit, and almost everybody was unprepared for what was happening. Many people lost their jobs, and the hospital bills are piling up, while some were comfortable and not rattled by the current economic changes. The difference between the two types of people during that time is planning.
People often forget the importance of emergency funds and regret it later when the crisis is at full pace. There’s no certainty in the future, so you might want to invest in an emergency fund while it’s still early. You wouldn’t know when you will need the money to save you from any problems, and it’s always better to have a backup plan.
You have two options when investing in an emergency fund — choose a specific medium for its positive dividends or diversify your investment.
You don’t have to put your money into an emergency fund in one go. Instead, you can make gradual investments. Emergency funds can help you hedge against inflation and other economic problems that may arise in the foreseeable future.
Pros
- Save money on interest
Cons
- Unexpected costs
- This may lead to higher financial stress
Treasury Bonds
Treasury bonds are another good investment option for your $500k. It became highly preferred in recent years due to its stability compared with other assets.
The governing authorities issue treasury bonds, unlike corporate bonds released by private equity. They are great when you are already nearing retirement and looking for a more stable income. It still works great for younger investors for its good ROI values.
In the US, there are varying forms of bonds. This can confuse beginners, so let’s take a moment to understand them further:
Treasury Bills
Treasury bills are short-term securities that can mature in only a year. However, their maturity timeline still varies. Aside from the 52-week variation (one year), you can also get one that ranges from 4 to 26 weeks.
1. Treasury Notes
Unlike the bills, these securities are not long-term or short-term. They are usually in the middle and can mature from 2 to 10 years.
2. Treasury bonds
These can mature in over 10 to 30 years. If you have a qualified financial advisor, they may recommend you to these if you are looking for a more beneficial and functional retirement plan.
3. Treasury Inflation-Protected Securities
This type of security is also referred to as TIPS, and the only difference it has from the rest is how its valuation follows inflation trends.
Pros
- High credit quality
- Tax advantages
Cons
- Low yield
- Interest rates risk
Cryptocurrency
Cryptocurrency has recently been the top talk in the mainstream media thanks to its impressive returns. The most popular cryptocurrency at the moment is Bitcoin, and the waves it’s been making are just hard to ignore. As of writing, the current value of 1 Bitcoin is roughly $20,000, but many experts believe it can reach an average of $200,000 in value in a few years.
Aside from Bitcoin, there are other cryptocurrencies that you should look into as well that possess the same explosive growth potential. Like in stocks, it also requires strategy on where you will put your money and how long you will hold onto it before selling.
Anyone can invest in Bitcoin on their own and with other cryptocurrencies through mobile apps. However, some firms include them as an asset for IRAs. If you are interested, you can always ask them and consult with an expert so you can familiarize yourself with the industry.
Pros
- You can access it through mobile apps
- Potentially long-term returns
Cons
- Risky when investing huge amounts for beginners
- Possible to lose all investment when the market crashes
Buy a Business
A nest egg of $500k is enough to get you started with a business you love. It can be a franchise, a home-based business, a service, or anything else you have in mind.
It also comes with risks, especially in the beginning. You will not immediately earn passive income and have to put in 100% effort to make it work. In most cases, business owners create a brand they can eventually sell if it succeeds.
Although investing in a franchise is more convenient because you’ll already have the resources and brand presence in public, investing in an online business is always the better option. It doesn’t require a storefront and will only cost you a couple of hundred dollars.
There are many websites out there that provide hosting so you can start selling your products. You usually need to create the domain name, blogs to monetize, and deals to offer your customers. It also provides ways to earn money, such as affiliate marketing, ads, product sales, etc.
Pros
- Small initial investment
- Potential income is unlimited
- Plenty of ways to earn
Cons
- No guarantee of success
Open a Solo 401(k)
One of the best ways to make long-term investments is opening a solo 401(k), but only some are eligible for this type of account. It would help if you had self-employment income to qualify for a solo 401(k). If you have your own business, you should be the only employee except with a business partner or spouse.
These retirement accounts allow self-employed workers to defer up to 100% of their income with a maximum of $22,500. When you are 50 or older, this limit is $30,000.
If you are an employer, you can contribute around 25% of your income with a maximum total contributions cap of up to $60,000.
If you are sure with a solo 401(k), you should work with a brokerage firm. Choose the one that provides good service and has an excellent reputation for handling clients.
Pros
- Save money for retirement
- Reduces your tax bill in the year you contribute
- Ability to choose your investment option
Cons
- Limitations to accessing the funds before your retirement
- Requires additional IRS paperwork
Your Investment Style Or Risk Tolerance
All of the investment options suggested above are excellent choices for investing your $500k fund, but you need to take time to consider all of your options to maximize what you can do with your money.
Before you make any rash decisions, you should start asking yourself first:
- What is your target investment timeline?
- How comfortable are you with innovations and technology?
- How high is your risk tolerance?
- When will you need your money?
- Do you need help investing your funds?
The answers vary for everyone. People have different needs and financial goals, so it is all up to your considerations on how you want to invest your $500,000. You should get help building your diversified portfolio from experts and reputable their-part firms.
If you do not need the money for a decade or two, investing it in real estate, cryptocurrency, and the stock market will benefit you more. Regarding your tolerance risk, you should consult your financial advisor to choose which assets and products work best.
Final Thought – How To Invest 500k
If you still need clarification about how to invest 500k, you should reach out to a financial advisor and discuss your investment preferences with them.
You’re not required to know everything to begin investing. As long as you have a goal regarding your finances and retirement plans, that is enough for you to start.
Pay attention to diversification so you wouldn’t put your entire investment at risk of too many losses. Even though there are many possibilities with investment, you should always prioritize safety and fund security.
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