If you have $100,000 to invest – from an inheritance, a bonus or a lottery ticket – this is an excellent opportunity to start (or continue) securing your financial future. With that much money, you have several investment options, and the best one for you depends on your goals, risk tolerance, and time horizon. Here are eight of the best ways to invest $100,000 to help you and your family build wealth and financial stability over time.
What to consider before investing $100,000
With $100,000 in your pocket, you may be eager to start investing and making money. However, it's a good idea to prioritize two financial goals first:
- Pay off high-interest debt. The average credit card interest rate is 22.77%, which is significantly higher than the average stock market return. If the return you expect to make on an investment is lower than the interest on your debt, paying off the debt is generally a better use of your money. Are good optionscredit card balance transferofdebt restructuring loan.
- Build an emergency fund. Risking money in the stock market is not a good idea if you don't have a financial cushion to fall back on. Aemergency fundabout six months' worth of living expenses can keep you afloat if you have unexpected expenses or suddenly lose income. Keep in mind that even if your job is secure, you may need to take some time off from work to deal with a family emergency. Consider parking your emergency fund in onesavings account with high returns.That way you can access the money when you need it, while earning a decent return in the meantime.
It is also important to consider your objectives, time horizon, and risk tolerance before investing. Are you saving for a down payment on a house, school for the children or retirement? Will you need the money in a year, 10 years or 30 years? Are you comfortable taking a bigger risk for higher potential?
departments? Do you want to choose and manage your investments yourself or do you prefer a hands-off approach? Answering these questions will help you determine the best ways to invest $100,000 to build wealth for you and your loved ones.
8 Ways to Invest $100,000
1. Maximum contributions to retirement accounts
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Managed accounts charge an annual fee calculated quarterly and based on your assets under management (AUM). The rates are 0.50% for up to €100,000 in assets under management, 0.40% for the next €150,000, 0.30% for the next €150,000, and then 0.20% for assets under management greater than €400,000.
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vanretired eggsshould be the next focus once your high interest debt is under control and you have an emergency fund in place. IRAs and 401(k)s (and other employer-sponsored savings plans) offer a tax-advantaged way to save for retirement. With $100,000, you can increase or maximize your annual contributions to either type of account. Start by contributing enough to your 401(k) plan to get the full match if your employer offers this benefit (the match is like getting free money), and then max out your IRA.
OfThe IRA contribution limit is $7,000 in 2024, up from $6,500 in 2023. If you're 50 or older, you can contribute an additional $1,000 annually. A 401(k) plan has higher contribution limits. For 2024, employee 401(k) contributions are limited to $23,000, with a $69,000 limit on combined employee and employer contributions. (Contributing that much usually means the employee is making additional after-tax contributions to his 401(k) if his plan allows it.) The limits for this year have increased from $22,500 to $66,000 in 2023. In both years, you can Earn $7,500 in catch - a premium on top of the employee and employer limits if you are over 50 years old.
Here is a summary of the IRA and 401(k) contribution limits for 2023 and 2024:
| 2023 | 2024 | |
|---|---|---|
IRA contributions | $ 6.500 | $ 7.000 |
IRA contributions if you are age 50 or older | $ 7.500 | $ 8.000 |
401(k) employee contributions | $ 22.500 | $ 23.000 |
401(k) employee contributions if you are age 50 or older | $30.000 | $ 30.500 |
401(k) employee + employer contribution | $ 66.000 | $ 69.000 |
Employee 401(k) + employer contribution if age 50 or older | $ 73.500 | $ 76.500 |
2. Invest in mutual funds, ETFs and index funds
Purchase of shares in amutual fund, exchange traded fund (ETF)or an index fund can be a good option if you do not want to opt for individual investments. All of these funds have asset baskets that provide a simple way to diversify your portfolio, but there are some differences worth noting.
Mutual funds are bought and sold once a day after the market closes through the mutual fund or a broker. Actively managed mutual funds have professional fund managers who select the securities in the fund and make decisions on behalf of the fund's investors. This means that the costs are generally higher than with ETFs and index funds.
ETFs typically track an index, such as the S&P 500, and are bought and sold on exchanges through brokerage firms such as J.P. Morgan self-directed investing. ETFs trade like stocks, so their prices fluctuate during the trading session, and you can place different types of orders, such as limit and stop-loss orders. ETFs are offered across all asset classes, from traditional investments to alternative assets such as currencies and commodities.
Index funds are investment funds that track the performance of a specific market index. Rather than selecting individual investments, the fund purchases all (or a representative selection of) the securities in the underlying index. Like mutual funds, index funds trade once a day after the market closes. Historically, index funds have consistently outperformed actively managed mutual funds in the short and long term, making them a good option for investors interested in a simple, low-cost investment.
3. Buy dividend stocks
When you own dividend-paying stocks, you can receive the dividend in cash or cashgeninvesterethem. Cash dividends provide income, while reinvesting allows you to acquire more shares of the same company over time, potentially increasing future dividends and long-term returns. While it may be tempting to buy stocks with the highest dividends, above-average returns could indicate a problem with the company. Instead, the best dividend-paying companies increase their dividends steadily over time. For example "dividend kings" is an exclusive group of stocks whose dividends have been rising for at least 50 consecutive years.
4. Buy bonds
Bonds can play an important role in diversifying your investment portfolio, balancing your stocks and potentially reducing the risk of all your investments falling at the same time. As a bond investor, you receive regular payments (or 'coupons') with which you can generate income.
Government bonds (also called 'Treasuries') are generally considered the safest investments because they are backed by the full faith and credit of the US government. Other types of bonds include corporate bonds and municipal bonds (the gains on the latter are exempt from federal taxes). Instead of buying individual bonds, many investors turn to bond ETFs or mutual funds, which can be an affordable and simple way to invest in a broad portfolio of bonds.
5. Consider alternative investments
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Alternative investments fall outside the usual stock, bond and cash offerings. Examples include precious metals, cryptocurrencies, real estate, and collectibles such asbeautiful art. Alternatives are often more complex and risky than traditional investments, but they can provide diversification and higher potential income – if you're comfortable with the risk.
6. Invest in real estate
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With €100,000 you can invest in a rental property to generate a steady income stream and take advantage of numerous tax benefits. If you'd rather not be a landlord, consider a real estate investment trust (REIT) – a company that owns and operates income-producing properties such as office complexes and apartment buildings. Alternatively, you can invest in real estate crowdfunding, where you can pool your money with other investors to buy real estate as a group and share in the profits.
7. Fund a Health Savings Account (HSA)
With a health savings account (HSA), you set aside pre-tax money to cover medical expenses like prescriptions and doctor visits, lowering your healthcare costs. Contributions are tax deductible and you can invest the money to grow the account. Withdrawals are tax free if used to pay qualified medical expenses, and unused funds roll over from year to year. Once you turn 65, you can use your HSA for anything, but it will be taxed as income if they are not qualified medical expenses.
HSAs always combine with onehigh deductible HSA eligiblehealth insurance (check your policy to make sure you can open and fund an HSA). For 2024, the premium limits are $4,150 for self-only coverage and $8,300 for family coverage, compared to $3,850 and $7,750 in 2023. If you're 55 or older, you can contribute an additional $1,000 each year as a catch-up contribution. Make sure a high-deductible plan makes sense for you or your family before choosing this route.
8. Park your money in a high-interest savings account or CD
If you're still deciding how to invest your money, make sure it's kept in a safe place, such as a high-yield savings account or a certificate of deposit (CD). Bail held onFDIC member banksInNCUA-lidkredietverenigingeninsured up to $250,000 per deposit per financial institution. .
These accounts also pay some of the highest interest rates in years. For examplebest savings accounts with high returnscomes out to 5% APY, and thebest cd'soffer more than 5.5% APY. Of course, savings rates aren't guaranteed, so focus on CDs if you want to maintain a competitive price for a while, usually anywhere from three to sixty months.
TIMESTAMP: An advisor or robo-advisor can make investing easier
A $100,000 windfall can help secure your financial future, but not everyone likes deciding what to do with that much money. If you don't have the time, interest, experience, or confidence to build a diversified investment portfolio, a robo-advisor or financial advisor can help.
Robo-advisors likeM1 Financeuse computer algorithms to build a diversified portfolio based on your objectives and risk profile. As robos become increasingly popular, several investment giants such as Charles Schwab, Fidelity Investments, and Vanguard are introducing their own robo-advisor platforms. Some platforms also allow you to consult a financial planner or advisor for regular check-ins or help with specific questions. Robos typically charge a monthly fee or annual management fee based on your account balance, typically 0.25% to 0.50%.
For more guidance, consider hiring a financial advisor who will evaluate your current financial situation, help you prioritize your financial goals, and develop a personalized plan to get you there. Depending on the type of financial advisor you have, they can also help you in areas such as college planning, retirement planning, budgeting, insurance, debt management, tax planning, estate planning and more. Importantly, a financial advisor can also recommend the best places to store your investments, such as a taxable investment account or a taxable retirement account.
**Empower Personal Wealth, LLC ("EPW") compensates Time Stamped for new leads. Time Stamped is not an investment client of Empower Advisory Group, LLC.
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WiserAdvisor.com is a free, independent and unbiased matching service that helps individuals find and connect with the best financial advisor for their needs. Qualified consumers receive a personal match with 2-3 screened advisors for comparison.
Most financial advisors charge a percentage of your assets under management – typically 0.25% to 1% – while others charge a flat hourly or annual rate. Advisors also often charge a commission for the products you buy, such as annuities or life insurance. Online services such asWiserAdvisorcan match you with a financial advisor to help you get the most out of your $100,000.
The information presented here was prepared independently of TIME's editorial staff. For more information, see ourOverkant.
