Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He and his wife are "empty nesters" living in New Hampshire.
Many millions of people might wonder why how to invest $100,000 $500,000, and even $1 million would constitute a problem. But it can be a problem, albeit a good one.
It’s a problem because:
- a) a lot of people are better at earning and saving money than they are at investing it,
- b) investing education isn’t taught in school or college (unless you’re a finance major), and
- c) many people come into six figures through windfalls, like an inheritance.
Any of those situations would leave you with a large amount of money, while not necessarily knowing how to invest it. In this guide, we’re going to cover strategies to invest at each of the three dollar-thresholds.
But before we dive into specific strategies and allocations for each of the three investment portfolio sizes, let’s start by laying some basic ground rules.
That’s mostly about setting the proper financial foundation, as well as strategy parameters.
Top Ways to Invest $100k to $1 Million
Precious Metals IRA
High Yield Savings
9 Basic Rules for Investing
Before you start investing or reorganizing your portfolio, first make sure the following nine factors are firmly in place.
They’ll help you whatever your financial situation is, and especially if you’re looking to reach the $100,000 mark, and even to grow it from there.
Be sure you have a stable income
The basic idea is that you will live on your earned income, so that you won’t need to tap your investments for basic living expenses.
A stable income gives you the ability to separate your cost of living from your investments. And that gives them the time and room they need to grow without being reduced by withdrawals.
There’s no point investing money if your income will be uncertain.
Have an emergency fund set up and fully funded
Most financial experts recommend you have an amount equivalent to between three- and six-month’s living expenses.
An emergency fund is important because it will enable you to weather short-term storms without needing to liquidate investments.
The money should be held in an FDIC insured high-yield savings account. A financial institution like a credit union or high-yield online banks pay the highest interest on savings accounts.
With $0 minimum balance
CIT Bank Savings Builder
With $100 minimum balance
at CIT Bank,
Make sure your debt situation is under control
Here’s what you need to keep in mind: it makes little sense to invest and earn 2%, 5%, 7%, 10% or 12% on investments while you’re paying 15%, 20%, or (gasp) 25% on debt.
It’s a losing proposition, because you’re losing more wealth on your debt then you’re gaining on an equivalent investment amount. This doesn’t mean you need to get completely out of debt before you begin investing and shooting for your financial goals.
But you should have a minimal amount of high-interest debt, as well as a plan to pay it off as soon as possible.
This gets down to the good debt vs. bad debt debate. Generally speaking, a mortgage is considered good debt, because it carries a low interest rate and is secured by an appreciating asset.
Similarly, car loans typically have low interest rates and enable the purchase of a necessary asset for earning a living.
You may be carrying either or both for most of your life. And that’s okay, as long as you can easily afford the payments within your earned income.
Student loans are a gray zone. On the positive side, the loans are taken to give you the ability to earn a living (hopefully).
But they’re completely unsecured loans, and often have variable interest rates. And because they’re often large amounts, it may take many years to pay them off.
You may just need to ride this one out at the same time you’re building your portfolio of investment vehicles. Few would argue however that credit cards are the real culprit.
They typically have interest rates of 15% to 25%, which is a lot more than you can earn on your investments on a consistent basis.
If you have significant balances, you’ll need a plan to pay these off, even if that means delaying investment contributions.
Determine your asset allocation between equity investments and fixed income assets
One of the most fundamental decisions you’ll need to make about investing is the allocation between risk investments (equities) and safe investments (fixed income).
One of the best ways to do this is a formula loosely referred to as 120 minus your age.
For example, if you’re 30 years old, you subtract 30 from 120, so 90% of your portfolio should be in equity investments, and 10% in fixed income.
If you’re 50 years old, you’ll subtract 50 from 120, so that 70% will be in equities and 30% in fixed income. It’s just a rule of thumb, and you can tweak it to fit your investor profile and preferences.
Fixed income investments
No matter what your age, income, or investment temperament, you should have at least a small amount of your portfolio allocated to fixed income investments.
These aren’t meant to be anything fancy – their primary purpose is capital preservation. For example, should the stock market start to crash, your fixed income allocation will be unaffected by that activity.
Not only will that reduce volatility in your portfolio, protecting at least a portion of it, but it will also leave you with cash available after the bear market ends.
You’ll be able to draw funds from your fixed income allocation to begin to invest in stocks at a discount.
Be careful how you interpret this as well. Investment and financial advisors frequently lump fixed income investments into the very generic term “bonds”. But that’s not necessarily what we’re talking about here.
Instead, you should focus on financial assets that are both interest-bearing and totally safe.
Short-term (safe) securities vs. long-term (speculative) securities
The problem with the term “bonds” is that it can include securities with terms of 10, 20, or 30 years. While those securities might be interest-bearing, they won’t necessarily protect you in a falling market environment.
Longer-term bonds, those with maturities of 10 years or more, are what is known as interest rate sensitive. While they may pay their full principal balance upon maturity, their value between now and then can rise and fall with interest rates.
For example, when interest rates rise, the value of a 20- or 30-year bond can fall. When interest rates fall, the value of the same security can rise.
In that way, long-term bonds behave much more like stocks than they do like truly safe assets. Since we’re most concerned with safety of principal, the potential for the bonds to fall in value is the biggest concern.
For that reason, you should favor truly safe investments for this portion of your portfolio.
That includes certificates of deposit, short-term U.S. Treasury securities, and high-grade bonds with maturities of less than five years.
Equities – risk investments
In the jargon of the financial industry, this usually refers to stocks and the funds that invest in them. And while stocks might make up the bulk of the equity portion of your portfolio, they’re hardly the only type of equity investments.
One popular alternative is real estate, which you can invest in by buying an individual property or investing in real estate investment trusts or real estate crowdfunding platforms (more on that later on).
You might also consider long-term bonds in this category, since they behave more like stocks.
If you believe future interest rates will be lower, long-term bonds can be an excellent way to not only earn interest, but also to reap capital gains.
Consider alternative investments
In conventional discussions of investing, stocks and bonds dominate the conversation. But as your portfolio grows, you may want to consider alternative investments. These can include precious metals, cryptocurrencies, commodities, and hedge funds.
They’re most recommended for those with larger portfolios, since they tend to be more risky. But they’re also often the exact asset classes that perform best when traditional financial assets are sliding.
Even a small allocation into alternative investments can help protect your portfolio in an unstable market environment.
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Set up various dedicated accounts
You’ve undoubtedly heard the saying don’t put all your eggs in one basket, and that totally applies to investing.
Not only do you need to diversify the asset classes and individual securities in your portfolio, but also the accounts themselves.
The basic strategy is to have totally separate accounts, each having a specific purpose.
An emergency fund parked in a high-yield savings account is one example. But you may also want to have your fixed income investments held in CDs at a bank, or in short-term U.S. Treasury through Treasury Direct.
On the retirement front, you may have the bulk of your funds held in an employer-sponsored retirement plan.
But it may also be a good idea to have a self-directed IRA as a way to invest in assets that are not available through your employer plan. This will be especially important with alternative investments.
You may also maintain a taxable investment account or brokerage account through an investment platform of your choice. It can be an account where you invest in alternative assets, actively trade, or hold non-core investment positions.
With separate accounts set up for very specific purposes, you’ll be better able to match investments with their intended purpose. And you’ll also avoid the tendency to rely on a single account to cover multiple purposes.
Have a plan in place to regularly contribute to your investments
Despite the high-altitude claims coming out of various corners of the financial universe, very few people invest their way to wealth. This is especially difficult if you are anywhere in the middle class.
For most, building wealth will be a combination of regular contributions and accumulated investment earnings.
Using the two in tandem is the best strategy to build wealth in the shortest amount of time. That’s because your investment portfolio will be growing from two directions – contributions and investment earnings.
If you’re serious about building wealth, you’ll need to work just as hard on the contribution side as you will on the investment portion.
At a minimum, you should be making regular payroll contributions to your employer-sponsored retirement plan.
But you should also do your best to regularly increase your emergency fund, your fixed income holdings, a self-directed IRA account, and any taxable investment accounts you have.
It’s a tall order, but it’s doable. You’ll need to develop the discipline to live beneath your means and, if necessary, to develop additional income streams.
But get this process going in the right direction early, and you can become wealthy in years, not decades. Now that we’ve covered the basic rules of investing, let’s move on to how to invest $100,000, $500,000 – and even $1 million.
How to Invest $100,000
$100,000 is the beginning of a serious investment portfolio. But you’ll still need to keep your feet on the ground. It’s not the kind of money that will allow you to take serious risks.
At this level, you’ll want to err on the side of conservatism, and keep your investments pretty basic. To do that, you’ll need to create a good balance of relative safety with steady growth.
From this point, your primary goal is to grow your portfolio into something much larger. But the last thing you need is to take the type of risks that can set you back in a major way.
Definitely Payoff Any “Bad Debt”
Yes, we covered this topic under the Basic Rules of Investing above, but it needs to be emphasized that this portfolio level. It makes absolutely no sense to be paying 20% on credit cards while your portfolio is averaging maybe 7% per year.
If you have more than a couple thousand dollars in credit card debt, paying it off should be your first “investment”.
Max-out Your Employer Sponsored Retirement Plan
Remember how I said one of the most important strategies at this portfolio level is the grow it into something bigger? This is one of the best ways to do it.
For 2020, the maximum contribution to most employer-sponsored retirement plans is $19,500, and $26,000 if you are 50 or older.
To put that in perspective, just maximizing your contribution at $19,500 will increase your investment portfolio by nearly 20% per year.
And if your employer provides a matching contribution, that’ll make the increase even more dramatic. It’s too big of a benefit not to take full advantage of. And you’ll get a tax break when you do it.
If you’re not sure how to invest in your employer-sponsored retirement plan, there is help available. A service known as Blooom can manage your employer-sponsored retirement plan for you for just $10 per month.
You don’t even need your employer’s approval. You can simply sign up for the service, and Blooom will take over the management of your plan for you.
That’s a pretty basic strategy, but that’s what you should be going for at this portfolio size.
Why we like Blooom:
Bloom is a robo-advisor that primary focuses on workplace retirement plans like 401(k)s. For a low fee, they manage your account, so you can enjoy your nest egg when you retire.
Monthly fee: $10
Account minimum: $0
Promotion: $99 per year
Invest through a Robo-advisor
While $100,000 may be the start of what we can consider to be “real money”, it may not be quite enough to justify creating your own portfolio of individual stocks.
You can consider investing in mutual funds or exchange traded funds (ETFs), but a better and simpler way may be to just turn the investment job over to a robo-advisor.
Those are automated, online investment platforms that create your portfolio and manage it for a very low annual fee.
With $0 minimum balance
With $500 minimum balance
With $0 minimum balance
at M1 Finance,
Robo-advisors create your portfolio mix by determining your risk tolerance. You can be deemed conservative, moderately conservative, moderate, moderately aggressive or aggressive.
If you primarily intend to hold stocks through a robo-advisor, you’ll need to choose an aggressive risk tolerance that will emphasize equities.
These services tend to favor bonds, rather than truly safe investments. You should hold those elsewhere, and emphasize stocks with your robo-advisor account.
Real Estate Investment Trusts (REITs)
One of the favorite investments of the wealthy is commercial real estate. But even as an investor with a moderate sized portfolio, you can still get into the game through REITs.
REITs are like mutual funds for commercial real estate. They hold many properties, often in a single category type.
This can be retail space, office buildings, large apartment complexes, industrial facilities, warehouse space, and many other variations. Some will even hold a mix of different property types.
One of the big advantages of REITs is geographic diversification. A single REIT may hold properties in dozens of major markets around the country.
That will provide some protection in case one region of the country experiences an economic downturn. Equity REITs have outperformed stocks by a margin of 12.87% to 11.64% between 1978 and 2016.
But apart from the slightly higher performance, REITs represent a diversification away from an all-stock equity portfolio. And since REITs generate both dividend income and capital appreciation, they often outperform a bear stock market investing plan.
REITs are not only a way to increase your portfolio performance, but they can also stabilize returns during turbulent markets. Investing perhaps 10% of your total portfolio in REITs is a solid strategy at this portfolio level.
Keep Your Fixed Income Investments Close to Home
There are ways you can diversify your fixed income investments to increase your annual returns. But with a portfolio of $100,000 or slightly above, you’ll want to lean conservative.
Keep your money invested in short- to medium-term CDs or short- to medium-term U.S. Treasury securities (maturities no more than five years).
With a portfolio of around $100,000, you may still need to access some of your fixed income investments in a personal crisis. Keep it simple, at least until your portfolio is bigger.
How to Invest $500,000
Once your portfolio reaches $500,000, you’ll be in a position to take more risks – and gain higher rewards in the process.
The basic portfolio strategies aren’t radically different from what you would do with $100,000. But you will add variations in almost all allocations in your portfolio.
Enhance Your Fixed Income Portfolio
Even at this portfolio size, you’ll still need to have a significant investment in totally safe, fixed income investments. But you’ll have the critical mass to enhance your returns.
For example, while most of your fixed income investments should be in CDs and U.S. Treasury securities, those typically pay around 2% or less.
You can increase that return by investing even a small portion in somewhat riskier fixed income investments.
P2P lending platforms are websites where investors fund loans directly to borrowers. Though there is some risk of default with these loans, investors have been reporting yields in the 10% range.
Because of the risk, you certainly don’t want to invest all your fixed income portfolio in P2P lending. But you can improve your returns by investing just a portion.
For example, let’s say you decide to invest 20% of your $500,000 portfolio – $100,000 – in fixed income investments. 80% of that is invested in CDs paying 2% per year, and earning $1,600.
But you invest the remaining 20% – $20,000 – in P2P lending, paying 10%. That’s an annual return of $2,000.
When you add the return from the two investments together – $1,600 from the CDs, plus $2,000 from the P2P loans - your total return is $3,600.
That will produce a combined return of 3.6% on your $100,000 fixed income portfolio, compared to just 2% if the entire amount had been invested in CDs alone.
By adding a small slice of your fixed income portfolio – just 20% – to P2P lending, you’ll increase your fixed income return by 80%. With a total portfolio of $500,000, you can afford the extra risk.
on Prosper's website
on LendingClub's website
on Upstart's website
Move Beyond Robo-advisors
Robo-advisors tend to work best for smaller investors. Yes, they can still work for those with larger portfolios - but once your portfolio reaches $500,000 and up, you may want a more aggressive and personalized investment strategy.
One way to do that is through traditional human guided investment advisors. They typically require a minimum portfolio under management of $250,000, and some look for $500,000 or more.
You can expect to pay an annual fee of between 1% and 2% of the assets under management. But you’ll get a more personalized portfolio, with hands-on management – as well as access to a dedicated investment manager.
If you don’t like the price or the investment minimum of a traditional investment advisor, you can go with Personal Capital. They require only $100,000 of assets under management and charge an annual fee of 0.89%.
That’s much higher than robo-advisors, but a good bit lower than traditional investment advisors. What’s more, you’ll get the kind of customized portfolio and direct access to investment managers that are available with traditional investment advisors.
If you want to begin self-directed investing, many investing platforms now offer full investing services with no commissions charged on stocks, options, or ETFs.
Popular examples include E*TRADE, Ally Invest and Merrill Edge. If you’re unsure about self-directed investing, you can get help at a very low cost.
By subscribing to the Motley Fool Stock Advisor, you’ll get investment advice from one of the most respected names in the industry. And the service requires a subscription fee of only $99 per year.
Buy Investment Property
At the $100,000 portfolio level we recommended real estate investment trusts. But with $500,000 or more to invest, you can consider buying an investment property directly.
You’ll be in a position to make the substantial down payment investment most lenders require. But if you can rent the property for at least enough to cover the monthly payment and maintenance expenses, your tenants will pay off your mortgage.
By the end of the mortgage term, you’ll own the property free and clear. But as time goes by, and rents increase, your profit on the investment will also go up each year.
Once you own an investment property free and clear, it turns into a veritable moneymaking machine.
Alternative Investments Should Be in Your Portfolio
By the time you reach the $500,000 portfolio level, you should be looking to put at least a small percentage of your money into alternative investments.
There are a wide variety of choices here, but one that’s become very popular is cryptocurrencies. You can invest in popular cryptocurrencies, such as Bitcoin and Ethereum, through cryptocurrency exchanges, like Coinbase.
There, you can buy and hold your cryptocurrency, and when the time comes, you can sell it. Another alternative investment worth considering is farmland. Yes, farmland.
Not many investors give it a thought, but it’s had a long-term annual return of about 11.5%. You don’t have to buy farmland directly either. Instead, you can do it through a specialized investment service, like AcreTrader.
You can invest money across several different properties using the service. But it’s the kind of investment that may take years to pay off, so patience is required.
Fees: 0.75% annual fee plus closing fees
Minimums: 5,000 to $10,000 depending on project
Promotion: No promos
Consider a Precious Metals IRA
One of the single biggest enemies of investors at all levels is inflation. Whether it’s 2% per year, 5%, 10%, or something much higher, it gradually reduces the value of your portfolio.
While it affects both large and small investors, larger investors – those with $500,000 or more – are in a better position to deal with it.
One of the best ways is through a precious metals IRA. You can use it to hold gold, silver, and other metals – as well as other alternative assets – right in your IRA.
The advantage is that those investments can grow on a tax-free basis. But an even bigger advantage is that precious metals have more than kept pace with inflation.
For example, gold was priced at $20 until 1933 - but the current price is well over $1,500. Gold hasn’t just kept up with inflation – it’s greatly exceeded it.
That’s the kind of protection you need in your retirement portfolio, and it will be best served through a precious metals IRA. Precious metals IRA custodians we recommend include:
5% back on metals over $50k
on Goldco's website
Waived fees on larger investments
on Advantage Gold's website
Waived fees on larger investments
on Regal Asset's website
The advantage with any of these custodians is that they specialize in precious metals and alternative assets in an IRA. They understand the markets, and the mechanics of how to include them in your account.
How to Invest $1 Million
If your portfolio has reached $1 million or more, you’ll have more investment options than ever before. It will simply be a matter of choosing the right strategies to maximize your growth.
Payoff All Debt – Good and Bad
When we were discussing $100,000, I recommended paying off bad debt – high interest credit card debt. But once your portfolio reaches the $1 million level, you should give serious consideration to paying off all debt.
That certainly includes auto loans and student loans. Even though the interest rates on those loans may be reasonable, they’re still higher than what you will earn on totally safe investments.
Meanwhile, the monthly payments represent a drain on your cash flow. That will limit the amount of money available to put into additional investments.
You should pay off any and all non-housing debts, and even consider housing debts if it makes sense.
Consider a Traditional Investment Manager
If you don’t like the idea of managing your own investments, you should turn the job over to an investment manager.
One example is Fisher Investments. They require a minimum investment portfolio $500,000, which means you can turn 50% of your portfolio over to them to be professionally managed.
But you can also go with Personal Capital. They also handle multi-million dollar portfolios, and do it at a generally lower fee than the competition.
Spread Your Investment Wings
With a portfolio of at least $1 million you’ll be in a position to consider more speculative investments. There are plenty of options here, too.
One is to invest in upstart businesses. You’ll invest as a silent partner in a rising business that needs capital. This is often referred to as being an angel investor, and is traditionally been reserved only for the very wealthy.
But online platforms like Angels + Entrepreneurs Network are opening this lucrative investment opportunity for those with smaller investment amounts.
It’s an excellent opportunity to turn $50,000 into something much more in just a few years.
Another speculation is fine art. Again, once reserved for the very wealthy, a platform known as Masterworks allows you to buy shares in rare works of art.
Unlike day trading, where you literally complete your trades in the same day, swing trading involves buying and selling individual securities over several days or weeks.
Given that stock prices rise and fall within often predictable ranges, swing trading allows you to exploit those price changes.
It’s an opportunity to make a series of often predictable gains in your stock portfolio, without needing to wait years to see results.
If you’re interested in swing trading, look into Jason Bond Picks. It’s a program that will teach you the ins and outs of swing trading, enabling you to increase your equity portfolio returns.
We must warn that all these recommendations are speculative in nature. Collectively, no more than 5% or 10% of your portfolio should be invested in these areas.
Invest in Real Estate through Real Estate Crowdfunding Platforms
With this portfolio this size you can certainly consider investing in individual properties. But if that doesn’t interest you, you can instead invest through real estate crowdfunding platforms.
Unlike REITs, real estate crowdfunding platforms typically allow you to select the real estate investments you will participate in. You can even choose how you do that – through equity, debt, or preferred equity.
These tend to be a more speculative investment than REITs, and for that reason many require you to have accredited investor status.
But since you have a portfolio of at least $1 million, you’ll qualify for that status. That means you’ll be able to invest in virtually any type of real estate crowdfunding platform.
Three real estate crowdfunding platforms that have become very popular in recent years include:
With $500 min. investment
on Fundrise's website
.30% to .50% annually
With $1,000 min. investment
on Realty Mogul's website
With $10,000 min. investment
on Crowdstreet's website
Open a Precious Metals IRA
This has already been discussed in the $500,000 portfolio, but it becomes even more important if you have $1 million or more. A 5% to 10% allocation into precious metals is the typical recommendation, especially for a large portfolio.
It will not only provide inflation protection, but also a form of portfolio insurance if the financial markets come, glued.
Once you reach a point where you have at least $1 million in investable assets, you’ll need to become increasingly aware of macroeconomic and global financial developments.
That has to do with the value of currencies (including the US dollar), potential financial collapse, geopolitical crises, and even political and social unrest.
Because precious metals are the one asset that isn’t simultaneously someone else’s liability, they can’t be defaulted on. This makes them one of the best ports in a storm during serious big picture disasters.
And the fact that they have functioned as money for thousands of years adds the test of time to the equation. If you have at least $1 million in your portfolio, you need to add portfolio insurance in the form of a precious metals IRA.
Once again, the precious metals IRA custodians we recommend are:
5% back on metals over $50k
on Goldco's website
Waived fees on larger investments
on Advantage Gold's website
Waived fees on larger investments
on Regal Asset's website
How Will You Invest Your Money?
As you can see, the basic strategies when investing $100,000, $500,000, and even $1 million, don’t change substantially.
But what does change are the details – where you’re specifically making your investments.
As your portfolio grows, you’ll have more investment options. You can then take on greater risk, which will ultimately translate into higher rewards.
That doesn’t mean you have to go crazy with high-risk investments. 80% to 90% of your portfolio should be invested in more conservative, traditional investments.
But with a larger portfolio, you can and should be prepared to commit between 10% and 20% to high risk/high reward investments.
That won’t get you overnight riches, but it will supercharge your returns, allowing you to increase your portfolio even faster.