How to Invest 100k?
On the lines of investment, this is a problem all potential investors love to have. Voila! Suddenly you have $100,000 in your hand. Maybe you inherited from a family member or your savings over the years has built up to this amount. Regardless of the source, it’s time to get serious about investing with several investment options at your disposal.
Be advised that this is discretionary cash in hand assuming you are free from outstanding debts of any type. Otherwise, the first priority would be to pay off your debts from this chunk of cash.
Another requirement would be to create an emergency fund (if you don’t have one) to meet any unexpected expense.
Alright, assuming you don’t have any outstanding debts and you already have an emergency fund in place, it’s time to invest this whopping amount with a thoughtful approach. But before investing, consider the following points and take steps to fulfil each:
What Type of Investor Are You?
Investing your money is not just about choosing some random investment vehicle. You have to think clearly and evaluate what type of investor you are. Deciding where and how much you want to invest can be both exciting and overwhelming.
You can be a DIY investor and do your own research, open a brokerage account and start accessing the financial products. You can hire a full-service financial advisor and seek guidance on investment options, financial planning and manage windfall.
But, before you decide an investment vehicle (or multiple investment vehicles), you should assess some critical factors.
Secure Your Nest Egg
You can put a chunk of this amount for savings and make it work for you. It’s important to fund your retirement account first and then think about children’s education and other commitments. Maximize your retirement account by taking advantage of your 401 (k) plan. You can also invest in IRAs and save yourself from high taxes.
Be Vigilant About Fees
Keep the number of fees you owe to the minimum. Always be vigilant and make efforts to avoid fees from piling up. Remember, every single dollar spent towards fees cannot recoup and has no chance to grow.
Reviewing your portfolio and making specific adjustments is worth the effort. However, don’t change the current asset allocation completely to accommodate the new chunk of money. Instead, carefully review the overall mix of investments.
Investment tools can change over time. Check where your portfolio is unbalanced and address those areas to restore the balance. By doing this, you are diversifying your portfolio and reducing exposure to potential risks.
You can consider asset reallocation if there are several readjustments to be made depending on any major life changes coming your way.
Factors Influencing the Investment of $100k
Figure out your goals and how you’ll go about fulfilling each of them. Do you intend to buy an apartment or a bigger home? Maybe you want to fund children’s education. You plan to visit your favourite tourist location. Whatever the goal, take time to understand the priority and move accordingly.
This depends on your goals and the time needed to hold the investment for each goal. For a short time horizon, investing in equities is not advisable. Stocks can fluctuate and, funds can be unavailable in the short term. If you invest for retirement, the time horizon will be affected by your age and the years left for retirement.
These refer to your age, your health condition, your earnings, your marital status and others. It also depends on the amount of money you currently have and how much you may get in the future. If you can stay secure during a market downfall, you can invest aggressively.
The above three factors influence your risk tolerance and dictate how much of your investment you can afford to lose, in case it happens. Depending on this, you can choose to invest a substantial amount in investment saving account that earns you interest.
Your emotions play a significant role in how you choose to invest and how you can handle a market downfall. Your emotions also decide your willpower in sticking to a specific investment strategy.
Remember, there is no one “best way” to invest $100k and, there are numerous options and investing can seem a daunting task. Developing financial knowledge is a critical aspect to grab rewarding opportunities while investing.
After doing all the required groundwork and evaluating the factors that influence your investments, let’s now look at various investment options.
Best Investments for $100k
This is by far the quickest way to let your funds grow. You need to spend time and do thorough research on industries offering stocks. Because where there is a potential for huge gains, there is also the potential for a huge loss. You should have substantial knowledge of technical analysis and fundamental analysis before choosing any stock to invest in.
This is typically a loan made by an investor to a business for a fixed period of time. The bond is to be repaid back with interest to the investor. They are less risky compared to stocks and, you can opt for government bonds or municipal bonds.
You need not buy an actual apartment but, real estate investment funds. Most real estate companies offer shares in their real estate investments and allow diversification. Investing in real estate offers amazing tax benefits.
Real estate with equity crowdfunding
This is a better option compared to investing in real estate and dealing with its complexities. Here, you can lend your money to real estate developers and earn a solid return ranging from 8% to 15% annually.The actual property and skilled investors ensure your investments are safe.
Virtual currencies like Bitcoin
It’s another smart investment option since the currency is not bound to any government. This means the currency’s value doesn’t drop if a particular economy falls. However, since its speculative in nature, they are prone to fraud and that can be too risky. Thorough research and complete awareness are required before going ahead with virtual currencies.
Exchange traded funds are an all-time popular investment vehicle among investors. It’s very easy to diversify your portfolio since ETFs feature stocks from several companies. This way, you can invest in numerous sectors and dramatically reduce the risks. This way, you can invest in numerous sectors and dramatically reduce the risks. Your investment portfolio will not be affected much if one sector is not performing. Due to their dynamic nature, ETFs perform well in different market conditions.
It’s a basket of investments featuring only bonds, only stocks or a combination of both. You can tie up with a mutual fund manager who will provide financial advice and invest on your behalf. You have to discuss your requirements with the manager to make the best use of resources available.
You can take a slow and thoughtful approach to invest. Index funds are all about tracking the performance of the entire stock market. Through this method, you can invest in several companies and enjoy added protection in case some companies struggle.
Index funds are naturally diversified and, hence bring more variety with a lower risk. Index funds are about passively monitoring the market resulting in less taxable income for investors.
Other Safer Savings Options
Do you already have investments in place? Looking for safer ways to invest your $100k? If that’s the case, you need to choose low-risk investments. A savings investment account is an alternative,and you will receive 2% annual yield.
Another option to secure your investments is putting them in a certificate of deposit. These investment vehicles feature a specific set term up to 10 years. You cannot draw the amount until maturity. You are bound to earn higher interest on your investments put in a jumbo CD. You enjoy a higher and guaranteed pay-out at the end of the term.
How Should You Invest Your Chunk?
Let’s assume you have evaluated your options and planned the perfect asset allocation. However, investing the entire amount at once is not advisable. It’s wise, and it pays to time your investments over a set period, probably through dollar-cost averaging strategy.
Spacing out your investments reduces the risk of losing big since markets fluctuate between the highs and lows. The dollar-cost strategy is useful to regulate market fluctuations and to mitigate risks.
The Final Word
Investing $100k is an intimidating process and carries the risk of making mistakes. Since it’s a huge amount, with multitude of investment options available, it’s always wise to speak to a financial expert before investing.
Aqualified financial advisor is a specialist in structuring financial plans and investing assets by logic and reasoning. They consider your current financial situation and your financial goals and devise a plan to help you achieve these goals with minimum risk.
Irrespective of how you choose to invest, being free from debts and having a secured emergency fund in hand provide that extra shield against unforeseen risks.
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