How to Invest $100K
If you’re looking for a good way to invest $100k, there are a couple of things to nail down right away. First, consider your financial circumstances. Then decide how to invest $100k. That is, picking suitable securities and investment style.
Look at Your Personal Economy
Every investor has their own unique set of circumstances. Are you trying to fund your retirement? Child’s education? Perhaps a bequest? Before you look for the hottest tech stock, decide on a goal for your $100k.
Having a goal will give you an idea of your time horizon. For instance, if you’re saving for education, you have a good idea of when you’ll need the funds. If you’re investing for retirement, you’ll be investing your $100k for the rest of your life. If you’re setting aside money for children or grandchildren, you’ll be investing for longer than your lifetime.
Best Ways to Invest $100k
For shorter-term goals like education, saving for a home, or some other large purchase, you might want to be more conservative when you invest $100k. Investing in stocks might not be the best approach. Stocks can have significant swings up and down. The last thing you want is to have a significant downturn right when you need your money. Consider highly rated bonds, treasuries, or bond funds.
For longer-term goals like retirement, consider how many years you have until you retire. The longer you have until retirement, the more aggressive you can be with your $100k.
For example, if retirement is a decade or more into your future, you should consider putting more into stocks. If you’re approaching retirement or currently retired, you should consider putting more into bonds.
Although stocks can go through periods of ups and downs, they typically offer a higher rate of return in the long run compared to bonds. Bonds generally are safer but lower return investments.
If your goal is to leave your $100k to your heirs, your investment time horizon is likely much longer. A portfolio of stocks might be a good idea.
Choose the Right Account
Your goal can also help you identify the right type of account to invest $100k. For example, every state offers a 529 college savings plan. Contributions to 529 accounts offer state tax deductions for educational savers. Though, each has an annual contribution limit.
Other short-term goals might be more suitable for a taxable brokerage account or a savings account at your bank. These accounts have no limits on contributions, and you can withdraw funds at any time.
There are many different types of retirement plans. Retirement savers should consider Roth IRAs, Traditional IRAs, SEP IRAs, or 401(k)s. Each account has contribution limits, withdrawal dates, required minimum distributions, and other considerations. A financial advisor can also help you decide which is right for you.
If you want to leave money for your heirs, it might be wise to consult with an estate planner. Each state has laws regarding how a deceased person’s assets are passed. Those laws will not likely match your goal. An estate planner can help you decide which account type is appropriate and make sure your $100k is passed along according to your wishes.
Should You Invest $100k, at All?
If your personal economy involves debt, you might be better off paying it off. Credit card interest rates are usually very high. If you invest $100k, your portfolio might not earn a higher rate of return than you’re paying on your credit card. Your $100k might be better off used to pay off high-interest credit card debt.
Most investors have a home mortgage. Consider using your $100k to pay it off. If you can eliminate your mortgage payment, you’ll be saving on interest, and you’ll have much more disposable income each month. Plus, getting rid of your mortgage payment before retirement, your retirement savings will go much further for you.
Another option is a charitable donation. Charitable donations may be tax-deductible. In addition, humankind will thank you!
How to Invest $100k
There are countless investments in which you can put your $100k. These could be stocks, bonds, mutual funds, ETFs, or other securities. These investments can be passive, active, or even a mix of stocks and bonds.
Passive investing is a hands-off approach to investing $100k. Investors can put their $100k into an index fund and let it go. Index funds invest in stocks or bonds that track a specific market. For instance, an index fund might get you the same return as the S&P 500 index or the NASDAQ index.
Active investing can mean a few different things. One is to invest $100k into a mutual fund with a portfolio manager who will try to create an attractive return on your investment. Active mutual funds can be invested in stocks, bonds, or a mix of both.
Do It Yourself
Some investors might prefer a more hands-on role when they invest $100k. Stick to the stocks and bonds of companies with which you’re familiar. Also, remember to do your stock valuation. It is always a good idea to have an idea of how much each share or bond is worth.
In addition, remember to reallocate your portfolio as things change. For instance, the closer you are to your goal, the more you might want allocate to bonds or bond funds.
About BJ Cook
BJ Cook is a long-time stock nerd. He has held several roles in the equity research world and earned the right to use the CFA designation in 2014. When he’s not writing for Investment U, you can find him searching for new investment ideas. Outside the investment community, BJ is a die-hard Cubs fan.