Last Updated on January 11, 2023 by pf team
Figuring out how to invest 100k won’t be easy since the market is a fast-changing environment, and market declines are inevitable (at some point). However, buying quality investments and diversifying your portfolio will yield consistent returns.
If you have 100k to invest, there are lots of attractive opportunities. You can turn that $100,000 into $1 million and hit your investment goals, for instance, retire early, or purchase that lavish property you have always wanted to own.
You also need to minimize fees and taxes while you invest $100000 as this amount is enormous, and these small deductions will significantly impact your investment over time.
In this article, you’ll learn how to invest 100k, so keep reading.
In this article :
Best way to invest 100k
The best way to invest 100k involves a combination of strategies, including minimizing fees and taxes, passive investing, and dollar-cost averaging. Let’s take a closer look at what each one of them entails.
Invest to Minimize Fees
Investment fees are unavoidable while you invest, but the good thing is that you can control them, unlike other factors such as the Federal Reserve policy decision, which you can’t influence.
Although you might underestimate the benefit of minimizing investment fees, these pesky little expenses can make a severe dent in your investment portfolio over time. Studies have even shown that investments charging higher fees in most cases perform poorly compared to those with lower costs.
Before you start thinking about ways to minimize investment fees, you must first understand them. From expense ratios to advisor expenses, here’s an overview of the fees you should be looking to minimize.
The expense ratio is a fee charged relative to assets under management. It pays for administrative and any other operating costs incurred. This fee is deducted annually, so you should not mistake it for a one-time expense.
For example, a 0.03% expense ratio means you are paying $30 per year for $100,000 invested. If the expense ratio is increased to 0.85%, this tells us that you are paying $850 per year for $100,000 invested. The more the operating expenses, the lower your returns.
Actively managed funds usually have higher expense ratios than passively managed funds. Investors should always pay attention to the expense ratio before choosing an appropriate fund.
Financial Advisor Fees
Financial advisors will charge you for their services. But what if you are unhappy with what you get yet feel you’re paying a lot of money? Choose a Robo-advisor instead of a full-service financial advisor.
Besides low cost, you’ll also benefit from automated investing strategies because Robo-advisors rely heavily on technology. Remember, your goal is to get the best value for your money.
Whether buying and selling investments through a traditional full-service broker or an online brokerage account, you’ll pay a certain amount of trading fees. This is the premium brokers charge you for their investment services.
Trading fees vary depending on the broker and the security you are trading. Some brokers may charge a flat trade fee, while others set the amount based on the volume of your trades.
And do trading fees matter? Yes, because the more you trade, the more you may pay in fees.
If you want to reduce the amount you pay as trading fees, ensure you understand what percentage of fees brokerage charges before signing up for an account. Various brokers offer commission-free trading, which you should take advantage of to cut down on costs.
Apart from the fees mentioned above, there are other costs you may incur while investing. Some brokers charge brokerage fees which you pay them for holding your account. Examples of such expenses are maintenance fees, paper statement fees, and inactivity fees, among others.
Invest to Minimize Taxes
There are many legal ways to reduce or eliminate taxes on your investment income. Like other fees, taxes can take a bite at your investment earnings, so it pays to know the best techniques to keep them as low as possible.
The best strategy to get tax advantages is to invest in tax-exempt accounts, which include Roth 401(k), Roth 403(b), and Roth IRA. Unlike traditional 401(k)s and 403(b)s, Roth accounts guarantee tax-free income.
Roth IRAs come with even more benefits on top of tax-free withdrawals. These accounts don’t have required minimum distributions (RMDs), so you can leave more inheritance to your heirs.
You only have to roll over your Roth 401(k) and Roth 403(b) into a Roth IRA to avoid RMDs after you reach age 72. Overall, Roth accounts beat traditional accounts in many aspects.
Passive investing is an approach that involves buying and holding assets for a long time. This strategy limits buying and selling of investments which makes it cost-effective.
On the other hand, active investing is all about frequent trading with the help of a portfolio manager. The primary goal of active investing is to beat average index returns. It involves much analysis to determine when you should buy or dispose of an asset.
Passive funds aim to match the returns of an index, whereas active funds intend to outperform a given index like the Russel 2000. You should choose passive investing over active investing to enjoy low fees, and pay the least taxes possible. Historical performance depicts passive funds as the better investment of the two, as they have earned investors more income.
With dollar-cost averaging, you invest a fixed amount of money at regular intervals, so your purchases are spread out. This method supports your efforts of investing regularly.
The advantages of dollar-cost averaging outweigh the benefits of lump-sum investing, especially when you have a lot of funds (in this case, 100k). You’ll buy your target investment(s) at a high and low price when you accumulate at regular intervals. But when you spend all your money at once, and it happens that the market is up, you could sell your investment at a loss later.
Dollar-cost averaging is especially great to use during bear markets and recessions when investors are filled with the fear of entering the market. You will probably score a few good deals by buying at meager prices and then selling high.
Beginning investors who lack the experience to time the market should use dollar-cost averaging to reduce the impact of price volatility. The strategy is also suitable for long-term investors who don’t have time to track the markets.
Where to Invest 100k
If you are wondering where to invest 100k, you have a lot of places to put your money. There are a few right spots you can invest your six-figure amount and turn it into more. Below is a guide on the places to invest 100k.
An Exchange Traded Fund (ETF) is a collective investment composing stocks, bonds, and other asset classes usually traded as one. ETFs comprise many assets, so they are diversified.
Investing in ETFs is lucrative because they combine the benefits of stocks and mutual funds. Like stocks, you are free to buy or sell ETFs at any time when the market is open, and you can purchase on margin, and short sell them. ETFs can also track a particular sector, index, or commodity.
Some of the most popular ETF classes are:
Growth ETFs focus on investing in rapidly growing companies hoping to get above-average returns. The Vanguard Growth ETF (VUG) is an example of a Growth ETF with top holdings including Apple and Amazon. It focuses on the performance of the CRSP US Large Cap Growth Index.
Another popular growth ETF is the iShare Russell 1000 Growth ETF (IWF), which tracks large and mid-capitalization equities. The fund invests in Tesla, Microsoft, Apple, NVIDIA, and others.
Schwab U.S. Large-Cap Growth ETF (SCHG) is another popular option. The fund tracks the performance of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index.
Tech ETFs buy and sell shares of companies within the technology industry. A good example is Vanguard Information Technology ETF (VGT). It focuses on the performance of an extensive index of companies in the information technology sector.
Next on this list is iShare U.S. Technology ETF (IYW), which targets U.S. software, hardware, electronic, and IT companies in the tech industry. Some of its holdings include Apple, Microsoft, NVIDIA, and Broadcom.
Technology Select Sector SPDR Fund (XLK) also falls under the tech ETFs. The XLK allows investors to invest in various powerhouse technology firms. This ETF includes companies that offer wireless telecommunication services, IT services, semiconductors, and more.
Real Estate ETFs
Real estate ETFs invest in real estate service firms, real estate investment trusts, and real estate development companies.
The Vanguard Real Estate ETF (VNQ) is a popular real estate ETF. This fund invests in companies that purchase hotels, office buildings, and other real property.
Charles Schwab US REIT ETF (SCHH) is also part of real estate ETFs. The investment tracks the return of an index comprising U.S real estate investment trusts under the umbrella of equities.
One more real estate ETF you can invest in is the iShares US Real Estate ETF (IYR). The fund tracks an index of US equities within the real estate sector.
Long-Term Bond ETFs
Long-term ETFs invest in fixed-income securities that take more than ten years to mature. Bonds with longer maturities are good investment options when interest rates are declining because when rates fall, the value of long-term bonds increases.
An example is the iShare 20+ Year Treasury Bond ETF (TLT). It tracks the performance of an index comprising the U.S. bonds with remaining maturities of more than 20 years.
Vanguard Long-Term Corporate Bond ETF (VCLT) is also among the common long-term bonds. The fund mainly invests in high-quality corporate bonds whose weighted average maturity is between 10 to 25 years.
Investors willing to buy a long-term ETF can also pick the ProShares UltraShort 20+ Year Treasury ETF (TBT); ProShare Advisors LLC manages that. It invests in U.S Treasury securities with a remaining maturity of more than 20 years.
P2P lending involves individuals lending money directly to others in need of credit. Investing your 100k in P2P lending gives better returns than other investments like deposit accounts.
Getting started as an investor is easy since you only need to open an account with your preferred site and deposit the money you want to lend in the form of loans. Loan applicants can check offers and pick the one that suits them. The platform handles everything for you, so you shouldn’t worry about dealing with borrowers.
One site that connects you with borrowers is MyConstant, allowing you to choose between lending USD or crypto. The platform requires borrowers to provide crypto collaterals, and this protects your investment from default. Anyone who needs a loan from MyConstant must deposit at least 200% of the amount they intend to borrow in cryptocurrency.
Owning a piece of a company in the form of stocks is a wise investment to make with your $100,000. The stocks you buy give you returns as the company grows. There are various stock categories you can choose from.
The value of growth stocks appreciates faster than the market average. Growth stocks earn you investment income by multiplying your capital.
These are stocks in large companies with a reputation for solid growth. Investing in blue-chip stocks also earns you dividends.
Value stocks are shares trading cheaply, yet they have a vast potential for long-term growth. These kinds of stocks will give you massive returns when their prices rebound.
Mid-cap stocks represent relatively smaller companies. The benefit of investing in mid-cap businesses is that they have a higher growth potential than small-cap companies and are almost as stable as large and established companies.
Other types of stocks you can buy are dividend stocks, large-cap stocks, and income stocks.
You may also want to select stocks depending on the stock market sector. The most popular sectors include healthcare, technology, energy, financials, real estate, consumer staples, and communication services.
While investing in individual stocks is considered high risk, companies like Tesla and Amazon have delivered attractive gains over the years.
Cryptocurrencies offer investors great investment opportunities. You should buy these high-risk, high-reward assets when you have 100k to invest. Another reason to invest in cryptocurrencies is that digital currencies have a limited supply, and it’s impossible to weaken their value by inflation.
While bitcoin is the best-known digital currency, thousands of cryptocurrencies are in the market. Other cryptocurrency projects you might want to invest in include Ethereum (ETH), Binance Coin (BNB), XRP, Cardano (ADA), Solana (SOL), Polkadot (DOT), Polygon (MATIC), Dogecoin (DOGE), Avalanche (AVAX), ChainLink (LINK), ApeCoin (APE), The Sandbox (SAND), and Fantom (FTM).
If you want to invest in crypto coins, you can buy them on crypto exchanges like Coinbase. Start by creating an account with the exchange, deposit fiat money, and then buy the cryptocurrencies of your choice.
Investors may also invest in cryptocurrencies by buying crypto ETFs. Cryptocurrency ETFs track the price of one or many digital currencies, and their prices fluctuate with time. You can trade these funds on a daily basis.
An excellent example of a crypto ETF is ProShares Bitcoin Strategy ETF (BITO), a Bitcoin ETF approved to trade in the U.S markets. This ETF bets on the anticipated future price of Bitcoin. Another one is the BLOK ETF which invests in companies that deal with blockchain technologies.
Buying index funds is a smart way of building a diversified investment portfolio. An index fund is a type of mutual fund that tracks a market index and is only traded at the end of the trading day.
Index funds offer benefits such as low expenses. These funds are passively managed, so that they will charge you lower fees than actively managed funds. Index funds also have a lower tax on capital gains thanks to their low turnover ratio.
Examples of popular index funds are:
Schwab S&P 500 Index Fund (SWPPX) – It’s a low-cost fund that tracks the total return of 500 leading U.S companies. The fund’s most extensive holdings include Apple, Johnson & Johnson, and Microsoft.
Fidelity ZERO Large Cap Index Fund (FNILX) – This fund tracks the total return of large-cap U.S companies. FNILX invests at least 80% of its assets in the stocks of these companies.
Vanguard 500 Index Fund Admiral Shares (VFIAX) – The VFIAX fund exposes investors to the top 500 U.S companies spanning various sectors. The fund is part of the Vanguard Funds fund family.
There are more index funds investors may opt to buy, like Vanguard Russell 3000 Index Fund (VRTTX) and Fidelity Total Market Index Fund (FSKAX).
Real estate investing is a great way to diversify your $100,000 investment while you earn above-average returns. There are two major forms of real estate investing: real estate investment trusts (REITs) and buying traditional real estate.
Various options are available if you prefer investing in Real Estate Investment Trust (REIT) ETFs. The first alternative is the Vanguard Real Estate ETF (VNQ), which invests in companies that purchase office buildings, hotel buildings, and other real property.
Second, there’s the Charles Schwab US REIT ETF (SCHH). This fund tracks the return of an index comprising U.S. real estate investment trusts. Another typical REIT ETF is the iShares US Real Estate ETF (IYR), which tracks an index comprising US equities within the real estate sector.
As an investor, real estate should be part of your portfolio for various reasons. First, real estate provides you with cash flow. Renting out your property gives you monthly income, unlike other investments which don’t provide cash flow.
Real estate usually appreciates, at least in the long run. The land and buildings you buy today will be worth more in the future. Sometimes you may renovate a property to increase its value.
You may also be eligible for tax breaks and deductions when you invest in real estate. One more thing is that you can use your real estate to access loans easily and then use this money to expand your portfolio.
A major disadvantage of real estate investing is that it can be capital intensive. If your goal is to allocate just a small amount of money to real estate, then real estate crowdfunding is your go-to investment. It gives you exposure to real estate for as low as $500.
How to Invest 100k to Make $1 Million
You can make $1 million from an initial amount of $100,000 by choosing suitable investments and thinking long-term. Other alternatives may give you the same returns within a shorter time, but they are super risky – patience wins.
For instance, assuming that the U.S stock market continues to deliver an average annual return of 7% in the future, investing 100k to make a million dollars will take 33 years. If you are willing to contribute an extra $1000 monthly, you will have a million dollars in 21 years.
Purchasing S&P 500 ETFs and growth stocks is the best way to invest 100k to make $1 million. Some leading S&P 500 ETFs are VOO, SPY, and IVV.
The Vanguard S&P 500 ETF (VOO) invests in stocks within the S&P 500 index. Looking at this fund’s returns over the last three years proves it’s an excellent investment. It registered annual total returns of 31.46%, 18.35%, and 28.66% in 2019, 2020, and 2021 respectively.
The SPDR S&P 500 ETF (SPY) also tracks the Standard & Poor’s 500 index. Since its inception, this ETF has yielded an average annual return of more than 10%.
Finally, there’s the iShares S&P 500 ETF (IVV) which provides investors with the performance of the S&P 500 index. It has generated an average annual return of 14% in the past five years.
A few examples of growth stocks with solid returns over the years are Costco (COST), Amazon (AMZN), and Apple (AAPL). Anyone who invested $100000 on December 31, 2003, in Costco stock could have 2966 Costco shares valued at $1.5 million.
Costco is a membership warehouse club that offers members high-quality merchandise at reasonable prices. Amazon is an online enterprise that sells electronics, books, toys, and other products, while Apple designs and manufactures smartphones, tablets, personal computers, to name but a few.
Best Way to Invest 100k For Income
Put your money in dividend ETFs and dividend-paying stocks if your goal is to invest 100k for income.
Dividend ETFs like VIG, SCHD, and DGRO are solid choices for your investment portfolio. The Vanguard Dividend Appreciation (VIG) tracks the S&P Dividend Growers Index. On the other hand, the Schwab U.S Dividend Equity (SCHD) focuses on the Dow Jones U.S Dividend 100 index, and the iShares Core Dividend Growth ETF (DGRO) offers exposure to U.S stocks concentrated on dividend growth.
Some of the best dividend-paying stocks are part of the dividend kings, a phrase referring to companies that have increased shareholder dividends for at least 50 consecutive years. They include Procter & Gamble (PG), Johnson & Johnson (JNJ), and 3M (MMM).
Procter & Gamble (PG) is a manufacturing company that produces personal care and hygiene products like soaps, detergents, baby diapers, toilet paper, and odour eliminators. The company increased its dividend for the 66th consecutive year in 2022, and investors see it as a reliable income source.
Johnson & Johnson (JNJ) operates in the healthcare field. It researches and develops healthcare products, for example vaccines and surgical implants. In 2019 Johnson & Johnson’s board voted to increase quarterly dividends for the 58th consecutive year.
3M (MMM) manufactures various products, including adhesive tape, abrasives, and dental products. This stock has registered 64 years of consecutive dividend increases, so it’s one you can count on.
Best Way to Invest 100k Safely
If you are a risk-averse investor, low-risk investments like CDs and money market accounts are viable alternatives for you. A certificate of deposit (CD) earns you interest on the money you invest for a fixed period. While CDs may not give you high returns like stocks, they are a safer investment.
Money market accounts are a type of savings account where you can invest your 100k. MMAs are also very safe investments and are insured by the FDIC, just like CDs. Make sure to shop around for top rates if you prefer any of these options.
Track Your Net Worth
Tracking your net worth is essential as it helps you monitor all the assets you’ve accumulated while investing. You should have all your investment accounts in one place to make it easier to manage your investments. After all, multiple accounts mean more emails to respond to and many passwords to recall.
Having the right tools to track your investments saves you a lot. For the purpose of monitoring your assets, you can use a platform like Personal Capital. This tool will track stocks, index funds, and even cryptocurrencies.
Personal Capital updates your net worth automatically. Better still, they have a smartphone app just in case you need to check your accounts regularly.
Conclusion: How to Invest 100k
At the end of the day, it’s your obligation to decide how you will invest your 100k. Before buying any asset, research all your options. You may then pick from stocks, index funds, ETFs, real estate, or lend your money to peers.
Remember to track your portfolio to get a better picture of your net worth. Once you start making significant gains, reinvest the profits to build even more wealth.
Disclaimer: This content is for informational purposes, not financial, legal or tax advice. You are advised to do your research or consult a financial advisor before making any investment decisions. Plainfinances are not responsible for any outcome of using the information contained in the article.