Whether you received a large bonus at work or a windfall from a family member, you’re probably not complaining if you suddenly have an extra $100k. But while the extra wealth might be helpful to your financial situation, you likely still have a lot of questions and may be wondering how to invest $100k. There are lots of options, depending on what you value and your finances.
There are many ways to invest $100,000, from real estate to starting your own business. Keep reading to learn how to invest 100k and what you can do to help your money grow even more over time.
What to do with $100k: 4 Investment ideas
Tempting as it may be to spend your 100k on a lavish vacation or a new luxury car, the more practical idea is to put your money to work for you.
Investing your money can help it continue to grow over time, ultimately giving you even more wealth than before. This can be a big benefit in your lifetime, but it also helps build generational wealth for your descendants.
Let’s take a look at four investment ideas for your $100,000:
- Retirement accounts
- Real estate
- Brokerage accounts
- Savings accounts
1. How to invest $100k for retirement
Approximately 62% of Americans between the ages of 18 and 29 have a retirement account, according to The Motley Fool. However, they also state that only 30% of them feel prepared for retirement.
If you have a retirement account, adding 100k could be a big step in funding your retirement income. If you don’t already have a retirement account, your $100,000 is a great way to get started with a leg up toward retirement savings.
But adding money to your retirement account isn’t just about increasing your income in retirement — it’s also a good way to potentially save on taxes. Your windfall may come with a hefty tax bill, depending on how you got the money. By investing your 100k into retirement savings, you may be able to save on taxes.
For example, you exceeded all of your sales goals this year and earned a 100k bonus. You might be able to save on next year’s income taxes by maxing out your 401k. If you’re wondering, “Should I max out my 401k?” it reduces your taxable income, which in turn lowers your tax bill.
It’s important to note that you probably won’t be able to invest your full 100k into retirement savings alone.
Retirement accounts generally have contribution limits. Contributions to a 401k account are limited to $22,500 in 2023, according to the IRS, for example.
Contribution limits might mean you have to invest part of your 100k elsewhere, but investing in retirement is still a great place to start.
Common retirement accounts
There are three common types of retirement plans: 401k, individual retirement accounts, and defined benefit plans.
A 401k is an employer-sponsored plan that lets you contribute part of your paycheck directly to the plan. The plan is managed by your employer, which can limit your investment and management options and lead to higher fees than other types of accounts.
Individual retirement accounts (IRAs) are owned by individuals, meaning you have full control over your account. Your employer is not connected to your IRA, and you can choose almost any type of investment you like (depending on where you open your account). Fees on IRAs tend to be lower than other account types because you can choose low-fee or no-fee investments.
However, contribution limits are lower, which makes it difficult to quickly build wealth through contributions.
Finally, a defined benefit plan — most often called a pension — is an employer-sponsored plan that makes regular payments to retired employees.
The plan is owned by the employer, who uses their own formula to determine retirement payments. The formula generally takes into account the employee’s time with the company and salary.
Defined benefit plans are most often funded by the employer, but the rise in the popularity of the 401k means fewer companies are offering pensions than in the past.
2. Investing $100k in real estate
When it comes to investing 100k, real estate investing might be at the top of your list. One of the biggest barriers to entry to making money in real estate is the initial investment. Buying a house to rent out, for example, could take some serious upfront capital.
That’s why finding yourself with 100k could be a great time to start real estate investing. Real estate uses real property — from single-family homes to commercial buildings — to generate income, usually through rental or lease payments.
Depending on how you invest your money, passive real estate investing can even be a passive income stream that doesn’t require hands-on management. After all, who wants to get maintenance calls from tenants in the middle of the night?
Real estate investing for beginners, however, might be overwhelming. Luckily, you don’t have to go out and buy a four-plex building to start investing.
There are several ways to get started in real estate without buying a property on your own, including real estate investment trusts or REITs.
Direct real estate vs. REITs
Buying a house, apartment complex, or commercial building to rent for income is often referred to as direct real estate investing or investing in real property. There are a lot of upfront and recurring costs to this method.
For one, you’ll have to purchase the property and make any necessary repairs or renovations. Even after renting the property, you’ll need cash to cover maintenance, taxes, insurance, and other ongoing costs. And, of course, the property could potentially lose value over time.
The biggest benefit to direct investing, however, is the chance for higher payouts. By owning the building outright, you don’t have to share profits. You might also be able to make money quickly by flipping properties.
That being said, owning real property — even with a property management company — can be a big hassle. A real estate investment trust, which you may also know as a REIT, is a company that owns real property, like a hotel or office building, and provides a real estate investment option for people who don’t want to own their own properties outright.
REITs offer ownership shares of their portfolio of real estate to investors, much like a company stock. As an investor, you purchase shares in the REIT and receive dividends from the company’s profits. You can also sell your shares to make a profit if the price goes up, just like a stock.
Investing in REITs lets you get into real estate investing without the high startup cost. They also give you an easy way to diversify your investment portfolio.
However, you won’t have control of the properties the REIT company owns or the price of rent. The lack of direct involvement in REITs might make it feel more like stock investing than real estate investing.
3. How to invest $100k in a brokerage account
If you’re wondering what you should do with 100k, a brokerage account will likely be part of your investment plan.
A brokerage account is an investment account which lets you buy and sell stock market assets like stocks, bonds, and funds. Unlike retirement accounts, brokerage accounts have no contribution limits.
However, brokerage accounts also don’t typically have tax advantages like retirement accounts.
The good news is that investing in a brokerage account is one of the simplest ways to build wealth. Even better, the money you earn isn’t tied to retirement, so you can access your money without penalties at any age.
As you grow your investment portfolio, you’ll begin to earn portfolio income from dividends and interest.
In most cases, brokerage investing is a fairly hands-off method of investing. This is especially true if you hire a financial advisor or use a robo-advisor to automate your investment decisions.
Figuring out how to invest 100k in a brokerage account comes down to personal preference. You’ll want to consider your risk tolerance and how you want to make money (dividends vs. buying and selling shares) when choosing investments.
Typically, there are five types of investment vehicles in a brokerage account:
- Stocks
- Bonds
- Mutual funds
- Index funds
- Exchange-traded funds
Stocks
Stocks are pieces of ownership of a specific company. Each piece of ownership is called a share. You can buy and sell shares to make money, typically by buying at a low price and selling your shares at a higher one.
Investing in stocks may allow you to earn big profits, but you have to pick the right ones. A person who invested in Google, Apple, or Amazon when the stocks first became available likely made a large profit from selling the shares within the last few years.
However, there’s no proven way to pick a stock that will make it big. You might also choose a stock of a company that goes out of business, leaving your investment nearly worthless. This chance of loss is why stocks are considered the riskiest type of investment. But you can learn how to research stocks to improve your chances of success.
Bonds
A bond is a loan you make to an organization, often a government entity. The bond issuer, such as a city government, uses your bond purchase to raise capital.
In exchange, the organization agrees to pay you back with interest for a specific duration. You’ll receive a set interest payment, meaning you can calculate the rate of return on your investment.
The downside to bonds is the low rate of return. Many bonds offer low interest rates, which could limit your ability to grow significant wealth through bond investing.
On the other hand, bonds can be a low-risk investment option as many government-issued bonds are backed by the entity offering them.
Mutual funds
A mutual fund is basically a managed portfolio of bonds, stocks, and other assets. It can be a good way to diversify.
The benefit of mutual funds is the ability to invest in lots of different assets without having to individually pick each one. This also means mutual funds tend to be slightly lower risk than individual stocks because you’re spreading out the risk among many stocks.
The drawback of mutual funds is their fees, which tend to be higher compared to other investments like ETFs.
Additionally, you might only have access to certain mutual funds within a retirement account, like a 401k.
Index funds
Index funds are technically a sort of mutual fund, but they’re considered passively managed funds, states Forbes. This means an index fund isn’t being actively managed by a fund manager who picks specific assets.
Instead, index funds try to follow what a market index does, for instance, the S&P 500. The fund holds stocks of companies within the chosen market index. When the market goes up, the index fund tends to rise in value.
Without a fund manager, index funds tend to have lower fees than their managed counterparts. While index funds tend to build wealth slowly, they tend to perform very well over a long time. This makes investing in index funds a great low-cost, low-management option if you’re deciding how to invest 100k for the long term.
ETFs
Exchange-traded funds, also called ETFs, are similar to mutual funds in that they’re a portfolio of assets sold as one unit. Like mutual funds, you can get access to multiple investments while buying and sharing shares of an individual ETF.
Additionally, ETFs tend to work like index funds specifically because they’re built to track certain market movements.
For example, you can choose ETFs related to certain industries.
While ETFs are built similarly to mutual funds, they trade more like stocks. Mutual funds have one price per day, whereas ETFs can be purchased and also sold throughout the day, and the price will fluctuate with the market. ETFs also usually have lower fees than mutual funds.
4. Savings accounts and other liquid investments
While you can make a lot of money investing in real estate or even the stock market, you could also potentially lose money.
Additionally, these assets may make it more difficult to access cash quickly, such as in an emergency.
The solution? Keep some of your money in highly liquid accounts such as checking, savings, or money market accounts. While stocks, bonds, and other investment options are considered liquid assets, having a protected cash fund can help you get the money you need quickly without the chance of it losing value.
These types of accounts are typically interest-bearing, so you’ll still make some money from your deposits.
In addition, keeping money in an FDIC-insured bank means you won’t lose money if something happens to the bank up to a certain amount.
The general recommendation for cash accounts is to keep around three to six months of living expenses for emergencies. This amount lets you have enough for unexpected expenses without losing potential returns by holding too much money in cash.
Expert tip: How 100k keeps earning money
Leverage the power of compound interest with your 100k! Wondering how does compound interest work? Compound interest is the money you earn from your already-earned interest.
This means you earn interest on the total amount in your account, not just your initial deposit.
So if you invest your 100k, over time, it will continue to provide interest indefinitely in some cases.
5 Factors to consider before deciding how to invest $100k
There are a few things you’ll want to do before choosing what to do with 100k. Taking the time before investing will help you choose the investments that make the most sense for your financial situation.
Before investing your money, here are five factors to consider:
- Make a plan for your money
- Pay off debt
- Build emergency savings
- Diversify your portfolio
- Know your tax situation
1. Make a plan before deciding what to do with $100k
Having $100,000 is a life-changing amount of money for many people. The possibilities of what you can do with your money may seem endless, but it’s worth taking a step back before investing.
Take the time to think about what you want to do with your money by asking yourself these questions:
- What do I hope to gain from my investment? Money? Assets like real estate?
- What is my risk tolerance?
- Do I know the tax implications of my investments? Do I owe taxes on the money I received?
- What are my long-term financial goals? Early retirement? Pay off my mortgage? Put my kids through college?
- Is there anything I want to spend part of my 100k on before investing it?
Without a solid investment plan in place, you run the risk of investing your money in a way that will lose money.
For example, you get excited about a new company and put all of your money into their stock. The company doesn’t perform as well as you hoped, and your investment value falls.
In addition, investing without a plan doesn’t always have catastrophic consequences. If you invest your money without a plan for it, you might simply end up with investments you don’t enjoy or don’t want to deal with.
Say you are buying a house to rent out, and you become a landlord. After a few years, you realize you’re not making much money from the property, and you don’t enjoy being a landlord.
This is why it’s essential to think about what you want to do with the money before jumping in to something without researching.
2. Deal with debt before investing $100,000
Debt can be an unfortunate part of life, and a lot of Americans have it.
A study by TransUnion found that the average credit card debt balance per consumer is around $5,733. That debt can quickly eat into returns on investments if not dealt with first.
By paying off debt — especially types of debt such as high-interest debt with credit cards — before investing your 100k, you can take your earnings from your investments as pure profits. If you leave your debt to keep growing, your overall investment earnings will be reduced by your debt plus interest.
For instance, suppose you have $10,000 in credit card debt and have $100,000 to invest. The credit card interest rate is 15% per year, and you expect to make 6% in gains from your investments.
If you don’t pay off your credit card debt, you’ll have $1,500 in additional interest added to your credit card balance. Your investments made $6,000 in interest.
$6,000 – $1,500 = $4,500 in profit
On the other hand, let’s say you pay off the $10,000 you owe and invest the remaining $90,000. You wouldn’t have any interest costs because you’ve paid off the credit cards.
However, you’ll make $5,400 in earnings from your investments.
By paying off your debt first, you’ve almost made an additional $1,000 from investing. Over time, these additional earnings will really add up.
3. Build emergency savings
Do you have a rainy day fund or emergency fund with at least three to six months of living expenses?
If not, filling your emergency fund should be your top priority when choosing how to invest 100k.
An emergency fund is a cash account you can use to easily access money in — you guessed it — an emergency. Common financial emergencies where you might need cash include:
- Home repairs
- Car repairs
- Medical bills
- Divorce
- Losing your job
- Unexpected travel (such as to visit a dying family member)
To calculate how much emergency savings you need, you must first determine your monthly expenses.
Add up your monthly recurring expenses, such as mortgage or rent, car payment and insurance, average utility bills, cell phone bills, and average credit card bills. You’ll then take the total of your average monthly expenses and multiply it by how many months’ worth of savings you hope to have.
For example, your total monthly expenses average $4,000. You want to have between three and six months of savings, so you’ll need to put $12,000 to $24,000 into your emergency fund.
Generally, the best place for an emergency fund is a high-yield savings account. These give you easy access to your money, as you can usually tie them to a checking account at the same bank for instant transfers.
Additionally, by opting for a high-yield account, you’ll earn interest on your emergency savings, further growing your rainy-day fund.
4. Diversify your portfolio
Does the thought of losing even a small amount of money on the stock market give you the shivers? Or, do you have no problem losing some money with the hopes you’ll make more overall?
These situations refer to your risk tolerance or how much risk you’re willing to take on in your investments. Those with lower risk tolerance generally invest in lower-risk assets with the hope they won’t lose money and will make steady but smaller earnings.
Someone with a higher risk tolerance might be willing to invest in a riskier asset, such as an unproven stock, in the hopes that the returns will be higher than other investments.
Regardless of your individual risk tolerance, it’s recommended that you do what you can to lower your risks when investing. One of the easiest ways to lower investment risk is to diversify your portfolio.
Diversifying a portfolio means investing in a range of assets to offset the individual risk of any single asset.
For instance, if you only invest in newly-released stocks, you’re at a higher risk of losing your money if all of those companies go bankrupt.
On the other hand, you could invest some money in stocks, some in bonds, some in index funds, and some in ETFs across various industries. This widens your portfolio’s ability to bounce back after an individual company or market sector loses value.
5. Understand the tax implications
Depending on how you get your $100,000, you may have a hefty tax bill to look forward to. Some scenarios, such as receiving a life insurance benefit payout, are not typically taxed, explains the IRS.
In that case, you’ll have the full $100,000 to invest how you like.
However, if you get 100k from a bonus at work, severance payment, or other type of income, you can expect to owe taxes on the money.
For example, if you receive a $100,000 year-end bonus in the form of a check, you’ll be taxed 22% for federal taxes, or $22,000, according to CNBC Select. That leaves you with $78,000 to invest — a fair bit lower than the 100k you started with. You may also owe state taxes on your bonus in addition to federal taxes.
It’s always a good idea to talk with a tax expert when you come into a large sum of money. They’ll help you determine if you owe taxes and the amount and may be able to provide strategies to help reduce your tax bill.
You should also consider tax implications after you decide what to do with 100k. Depending on how you invest the money, you may have to pay taxes on the earnings.
Short-term gains vs. long-term gains
Capital gains is the term for the money you make on the sale of an investment. Let’s say you buy stocks for $100 and sell them for $200. You made $100 in capital gains on your investment.
These gains can be short-term or long-term, depending on how long you own the asset.
- Short-term gains: Profit made on assets held one year or less.
- Long-term gains: Profit made on assets held over one year.
When you sell an asset, you often have to pay capital gains taxes. This tax is higher for short-term capital gains and lower for long-term capital gains.
In many cases, you can save money on taxes in your investment accounts by keeping your assets for over a year.
Investing $100k over time
In most cases, it’s best to avoid investing all of your money at once. That’s because markets fluctuate over time. Even if you invest in a variety of assets, you could be investing at a high point in the market.
Instead, consider investing your money over time. You can keep the balance of your 100k in a high-interest savings account to help it make money while you slowly invest it.
An easy way to automatically invest over time is a strategy called dollar cost averaging. Dollar-cost averaging works by investing a portion of your money at regular intervals. This strategy reduces the risk of trying to “time the market,” which often doesn’t work for the majority of investors.
In addition, dollar cost averaging lets you purchase more shares when prices are less expensive and fewer shares when prices are more expensive, leading to a lower average cost per share.
Do I need a financial advisor to invest $100k?
If you’ve unexpectedly received $100,000, you may wonder, “Do I need a financial advisor?” – well it can be a good idea. Financial advisors can help you invest 100k, as they help their clients invest, save, and manage their finances.
In many cases, a financial advisor is like a personal finance coach who can help you better understand your financial situation. They can help you navigate your investment options and develop a financial plan that works for you.
On the other hand, financial advisors could be expensive, depending on their fee structures. They’re also not the professional you likely need if you have tax questions.
In that case, you should seek out a tax professional such as a CPA (Certified Public Accountant).
How should I invest $100,000 to make $1 million?
To invest 100k and make $1 million will take time and patience, and the ability to invest for the long-term. It’s unlikely to happen overnight without potentially devastating risks.
Long-term investing strategies, such as investing in index funds, are often the preferred way to increase the value of your portfolio without inviting a high level of risk.
How can I invest $100k to create passive income?
Investing 100k for passive income is possible if you consider businesses that run themselves or start investing. Passive income is a type of strategy that lets you earn money without actively working. You’ll continue to earn while you eat, sleep, or read the best side hustle books.
But most passive income streams require a lot of work to get started — or a lot of cash. Luckily, if you’ve found yourself with 100k, starting a passive income stream could be a quick way to make extra money.
1. Buy vending machines or ATMS
You can buy vending machines or ATMs and place them at various businesses or locations for a fee, like rent. When someone uses the machine, the money they spend (or ATM fees) is your revenue. You then regularly check the machines for money — and to restock products or cash — to collect your profits.
This stream isn’t perfectly passive since you’ll have to physically visit the machines for maintenance, restocking, and collecting profits.
However, you could hire someone to take care of the day-to-day operation of your business.
2. Purchase a laundromat
Owning a laundromat lets you earn money as long as people are using the machines. There are a lot more expenses in owning a laundromat than other types of passive income ideas, such as utilities and machine maintenance.
However, laundry services are an ongoing need for almost everyone, making a laundromat a relatively safe investment.
3. Flip domain names
Did you know you can buy and sell internet domain names, sort of like stocks? You might consider starting a side business doing this.
It works by buying a domain name you think someone will want for their business.
For example, the person who first purchased “apple.com” was likely able to sell it for a large profit when the technology company needed the domain.
Although many big-name domains are already bought and paid for, you can still make money flipping domains. There are even marketplaces where you can easily buy and sell domain names directly.
4. Rent out quality items
Say you decide to buy a luxury car with your 100k. You can still make money on your purchase by renting out your vehicle for a premium.
And this strategy works with any high-quality items you own. Are you into designer handbags? You could rent them out to people looking for a bag for an event. Other items to rent out include high-quality power tools or yard equipment, an RV, sporting goods, or quality baby equipment.
5. Buy a successful business
A common passive income idea is to simply purchase an already profitable business. You take over ownership and continue to let the business run as it has been to make money.
Unfortunately, it takes quite a bit of upfront capital to do this. Luckily, if you have 100k to invest, you could likely find an existing business within that budget or qualify for a business loan with a 100k down payment.
How much interest can you earn on $100k?
If you’re earning compound interest on your 100k investment, there’s almost no limit to how much interest you can earn on 100k.
However, how much you’ll actually earn in interest depends on a few factors, including where you invest the money and how often you withdraw funds.
For example, if you put your 100k in a typical savings account, your interest rate might only be about 0.5% per year, explains the FDIC. Even with compounding interest, you’re unlikely to make a large amount in interest earnings.
Creating a diversified portfolio of investments, however, could yield a much higher interest rate.
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Leverage these tips on how to invest 100k for your future!
Figuring out what you should do with 100k can be a daunting — and exciting! — task.
If you’ve found yourself with $100,000 to invest, your first step should be to make a plan for your money. You may want to talk with a tax professional and financial advisor to help create an investment plan that will help you maximize returns on your investments.
Remember to take your time deciding about your 100k, and be sure that the investments you choose are the best ones for you that will bring you financial success.
