If you believe everything you hear about the financial prospects of most Americans, you might think the chance of reaching your retirement goals is fairly poor. After all, we’re told over and over that young people are drowning in student loan debt, and that a large percentage of Americans don’t have $400 to cover an emergency expense.
Most are also painfully aware that the average retirement savings by age are downright disappointing. For example, figures from the Vanguard show that the typical worker ages 25 to 34 had an average of $33,272 in their 401(k) account in 2021, and those ages 35 to 44 had an average of $86,582 saved.
Meanwhile, individuals ages 45 to 54 had an average of $161,079 in a 401(k) account, and those closest to retirement (ages 55 to 64) still had just $232,379 stashed away in a 401(k) account. And these numbers are up significantly with the bull market we’ve all benefited from. Yikes!
However, the reality isn’t always as grim as it’s made out to be. According to a 2021 study by Northwestern Mutual’s Planning and Progress initiative, millennials have an average balance of $51,300 and their retirements accounts are $63,300.
Regardless of bad news about the economy, a certain percentage of the population is making great strides when it comes to building long-term wealth.
If you’re among these individuals who have $100,000 to invest, you can continue growing your wealth in a few ways.
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How to Invest $100k Starting Today
Most know they should invest so their assets can grow and compound over time, but where do you invest that much money? And do you invest it all in one place?
As a financial advisor, I personally suggest diversifying $100,000 across many types of investments that can help you reach your goals. Here are seven ways you can invest $100,000, starting right now.
1. Invest in Stocks
How Much: Invest 40% to 50% of your portfolio
Purpose: Long-term growth
Risk Level: Varies
Investing in the stock market is easily one of the best ways to build long-term wealth. After all, the average stock market return has fallen somewhere between 7% per year and 10% per year depending on the timeline you refer to. Some years bring significantly higher returns.
For example, the Dow Jones Industrial Average brought in a 18.65% return in 2021 in the midst of the post-pandemic recovery.
How to Get Started: Betterment is a robo-advisor that uses computer algorithms to make smart investment decisions on your behalf. With Betterment, you just open an account and answer questions about your goals, your investing timeline, and your tolerance for risk.
From there, Betterment creates a portfolio of stocks and other securities that make sense for what you hope to accomplish.
Who It’s Best For: Betterment is best for hands-off investors who want to invest in the stock market without picking stocks or doing a ton of research.
| Betterment Pros | Betterment Cons |
| Betterment charges .25% to .40% to manage your portfolio, which is less than traditional financial advisors | Hands-off investing isn’t for everyone |
| Uses technology to make smart investment decisions on your behalf | Some investing platforms (like Robinhood and M1 Finance) let you invest in the stock market with no commissions or fees |
| Set it and forget it |
2. Invest in Real Estate
How Much: Invest 10% to 15% of your portfolio
Purpose: Long-term growth and diversification
Risk Level: Medium
In addition to stock market exposure, you might also want to invest in residential or commercial real estate. You can do this by purchasing properties and becoming a landlord, but you can also invest in real estate with a more “hands-off” approach. This is possible thanks to real estate investment trusts or REITs.
How to Get Started: Fundrise is a platform that makes it easy to invest into real estate without having to own physical property or deal with the grunt work of a landlord.
You can invest in a starter portfolio with Fundrise for as little as $10, and you can add money to your account as often as you want. For accredited investors interested in investing $100,000 (or more) into real estate may be interested in Fundrise’s Premium account level. This account offers more customized portfolio strategies and exclusive access to their Investor Relations team.
Note that, in 2021, Fundrise brought investors an average return of 22.99%. I can confirm those returns, because my Fundrise account performed almost identically. If you’re looking for another crowdfunding real estate option, consider Realty Mogul.
Who It’s Best For: Fundrise is ideal for investors who want exposure to real estate without having to own physical property.
| Fundrise Pros | Fundrise Cons |
| Minimum balance of $500 required to get started | Not a liquid investment; can take months to cash out |
| Exceptional returns so far (average return of 22.9% in 2021) | Past results are not a guarantee of future returns |
| Only pay 0.15% in annual advisory fees |
3. Invest in Cryptocurrency
How Much: Invest 5% of your portfolio
Purpose: Diversification and long-term growth
Risk Level: High
Investing in digital currency, like Bitcoin or Ethereum, can help you diversify your portfolio while positioning for long-term growth. Many experts believe that, despite the high values of some crypto investments, this industry is still in its beginning stages. This means you could potentially get into crypto on the ground floor and receive huge returns over time.
Of course, the opposite is also true. Cryptocurrency is incredibly volatile so far so you can just as easily lose all, or part, of your investment.
How to Get Started: BlockFi is the premier option for investing in crypto since there are no minimum balance requirements or hidden fees. You can open a BlockFi account and fund a crypto purchase right away. Then, use its mobile app to buy more cryptocurrency, trade, or sell it.
Currently, BlockFi lets investors purchase and trade BTC, ETH, LTC, PAXG, and USD-based stablecoins like USDC, USDT, GUSD, and PAX.
Who It’s Best For: Cryptocurrency is very volatile so make sure you have money to lose before you invest. However, crypto is still a smart choice for long-term investors who want to diversify their $100,000 as much as they can.
| BlockFi Pros | BlockFi Cons |
| Invest in most major cryptocurrencies | Cryptocurrency is volatile and has a relatively short history |
| No minimum balance requirement | You’ll need to research cryptocurrencies beforehand |
| Buy, sell, or trade with the mobile app |
4. Buy a Business
How Much: Varies
Purpose: Long-term growth
Risk Level: Varies
How It Works: Many experts (including me!) believe the best way to build long-term wealth is through entrepreneurship and owning your own business. After all, you can only earn so much when you work for someone else.
As an entrepreneur, the sky is truly the limit when it comes to bringing in cash. If you can find one process that turns a profit and you can replicate it, you can earn millions of dollars — even while you sleep.
If you don’t believe this can work, I am living proof. I have made millions of dollars with this website alone.
How to Get Started: You can always look into buying a franchise or building a business from scratch. To get started quickly, I suggest looking at Flippa.com to find the best small business ideas on the web.
Flippa is a platform that lets you buy websites that you can use to sell products or services. You can purchase domain names and even full-fledged websites with content, which you can use for affiliate marketing, display ads, and other online marketing strategies.
Who It’s Best For: Earning money online can work for anyone, but especially for people who have the grit and determination that an online business requires. Since start-up costs can be low, this is also a good option for people who want to own a business but don’t have millions to invest right away.
| Buying a Business Pros | Buying a Business Cons |
| Buying a website on Flippa can be an inexpensive way to buy your own business | No guarantee of success |
| Unlimited income potential | Learning curve to get started |
| Run your business online |
5. Invest in Gold
How Much: Invest 10% to 15% of your portfolio in alternative investments, including gold
Purpose: Diversification
Risk Level: Medium
Many experts suggest investing part of your portfolio into gold or other precious metals as a hedge against inflation. This is mostly based on the fact that, as prices rise, the price of gold tends to rise right along with the cost of living.
How to Get Started: If you want to get started investing in gold, there are plenty of strategies to try. For example, Orion Metal Exchange lets you invest in gold within an IRA. You could also use a vendor like Oxford Gold Group, Lear Capital, or Goldco to buy physical gold. You can even invest in gold via ETFs or cryptocurrency.
Who It’s Best For: Investing in gold is best for anyone who wants a hedge against inflation. Gold is also a good option for your portfolio if you want to invest in assets that operate independently of the stock market.
| Investing in Gold Pros | Investing in Gold Cons |
| Gold tends to hold value (or increase in value) during a recession | Physical gold can be lost or stolen |
| Multiple ways to invest in gold | Might not increase in value during a robust economy |
| Helps diversify your portfolio |
6. Open a Solo 401(k)
How Much: Varies
Purpose: Retirement planning and long-term growth
Risk Level: Varies
If you own your own business, researching all of the different retirement accounts available to you is critical to long-term wealth. One account, called the Solo 401(k), can be incredibly advantageous. It lets you save significantly more for retirement and reduce your taxable income at the same time.
With a Solo 401(k), small business owners can defer up to 100% of their compensation to a maximum of $20,500 in 2022 (or $27,000 if you’re aged 50 and older). However, you can also contribute up to 25% of compensation on the employer side for a maximum contribution of $61,000 for most people in 2022 (not counting catch-up contributions for those ages 50 and older).
Obviously, saving that much for retirement could position you to retire earlier, retire wealthier, or both. In the meantime, contributions to a Solo 401(k) can be deducted from your taxes in the year you contribute.
How to Get Started: You can open a Solo 401(k) with any online brokerage firm, including options like Betterment, TD Ameritrade, and more.
Who It’s Best For: If you’re self-employed and want to save money for retirement while saving money on taxes, contributing to a Solo 401(k) is a no-brainer.
| Solo 401(k) Pros | Solo 401(k) Cons |
| Contribution limits are higher than traditional retirement accounts | You cannot have employees (other than a spouse) if you want to use a Solo 401(k) |
| Reduce your taxable income, and thus your tax bill | Solo 401(k) requires more IRS paperwork than other accounts, including the SEP IRA |
| Save money for a fruitful retirement |
7. Set Up a Trust (or Give Tax-Free Money Now)
How Much: Varies
Purpose: Wealth and estate planning
Risk Level: Low
Setting up a trust can be a smart move if you have $100,000 or more to invest, and want to have a say in how these funds are passed on to your heirs. A trust lets you place your assets in the hands of a trustee who helps distribute your money to your heirs, based on your wishes.
Be aware that you can give a certain amount of cash to your heirs each year without any tax consequences. For 2022, the annual gift exclusion amount is the same as last year, or $16,000.
If you plan to pass money to your heirs and you want them to have cash now for higher education, a home purchase, or business investment, then you can give up to the gift limit without tax penalties on either end.
How to Get Started: You can set up a trust with an estate attorney, but you can also set up one using a platform like LegalZoom.
Who It’s Best For: Giving money away isn’t for everyone. However, investors with considerable assets they will likely outlive should consider how they’ll pass on wealth to their heirs.
| Setting Up a Trust Pros | Setting Up a Trust Cons |
| Create a legal process for your assets once you pass away | Requires considerable research and planning |
| May help your heirs avoid probate | Cost involved in setting up a trust |
| Could help your heirs save on inheritance taxes depending on where you live |
Your Investment Style
Outside of these investment options, I believe most people should also keep 10% to 15% of their portfolio in cash. However, you won’t want to keep your extra money under your mattress! Instead, open a high-yield savings account that lets you earn a decent return on your savings.
Considering the average savings account only returns .06% right now, according to the FDIC, the account you use to store your savings matters more than ever. Sadly this interest rate is a 50% improvement from a year ago! 😂
Beyond having some money set aside for emergencies or a rainy day, also think about your investing style before you invest $100,000 or any other amount. For example, consider how much risk you want to take, how long you can leave your money to grow, and whether you want to invest on your own or get some help from a third-party platform.
If you’re someone who wants to invest independently, then some options to consider include investing in cryptocurrency with BlockFi, investing in gold, or even investing with a Solo 401(k) and hand-selecting the securities in your account.
If you want some help figuring out how to invest your $100,000, on the other hand, then opening an account with Betterment or Fundrise could be a better fit.
The Bottom Line
If you have $100,000 burning a hole in your pocket, then you should absolutely invest this money for long-term growth. Since that’s quite a bit of money, however, spread out your investment so you’re not “betting the farm” on a single strategy.
The seven investment options above are my personal recommendations. Keep in mind that other investment strategies might work better if you have a smaller amount to invest, like $100 or $1,000.
No matter what you do, don’t let fear of investing force you onto the sidelines. Sure, $100,000 is a lot of money, but it could be worth a lot more later on if you invest it today.
The post 7 Smart Ways to Invest $100k appeared first on Good Financial Cents®.
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