How to invest 100k

Last Updated on August 8, 2022 by pf team

If you have $100K, you are in a solid position to achieve financial independence. Now it’s time to decide how to invest 100K and possibly grow it into millions of dollars.

Building an investment portfolio that can stand the test of time and will not lose value in unexpected crises is essential. 

With this much cash, choosing investments that maximize return and minimize taxes and fees is important. Here’s how you can start investing your 100000$. 

how to invest 100k
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Best ways to invest 100k 

There are many options to invest your 100k, but some are better than others. No matter what you do, ensure you are aware of all the available investing options. Here are the best ways to invest $100K to grow your money with time. 

Invest to minimize fees 

The purpose of investing is not only to grow your money but also to reduce fees and taxes. You must look out for investment products that have low fees, like Robo-advisors. They automatically invest in products based on your risk appetite, financial goals and investment criteria. 

Betterment is an excellent option if you are a beginner looking for a hands-off investing approach. Here’s why you should consider this Robo-advisor. 

  • Portfolio customization: Betterment allows you to choose different investment strategies based on your goals. It will recommend the portfolio based on two parts. One is the fund selection, and the other is asset allocation.
  • Tax management: Betterment sets itself apart with the best tax-management features. Tax-loss harvesting is a standard feature that allows you to rebalance the portfolio holdings to restrict the capital gains tax. It also has a Tax Coordinated Portfolio feature which will allocate the investment in specific assets across the tax-advantaged retirement and taxable accounts to reduce the tax liability.

M1 Finance is an excellent alternative for low-cost investing but ideal for a hands-on investing approach. Here are the two best features of this Robo-advisor you should consider. 

  • Finance pies: M1 Finance will maintain your portfolio in a pie form, and you will be able to see a virtual representation of it. The slices will grow or shrink based on whether the portfolio is underweight or overweight against the target allocation.
  • Minimization of tax: M1 has a tax minimization feature that allows you to sell the asset positions in a tax-favorable manner. The sale will be prioritized so that it helps reduce the taxes. 

Tax-advantaged accounts

When deciding how to invest 100k, paying low taxes or no taxes legally should be part of your core investment strategy. It is always a good idea to maximize your tax advantage accounts before investing in non-tax advantage accounts. You can do this by using tax-exempt accounts and tax-deferred accounts.

Tax-exempt accounts 

  • Roth IRA is a great way to start saving for your retirement. The withdrawals from Roth IRA remain tax-free, and you will only pay taxes when you put money in the account.
  • Roth 401(k) is offered by the employer and has the features of 401(k) as well as a Roth IRA. The contribution will be made from the income already taxed, and there are no income limits for Roth 401(k). So, this account is available for everyone.

Tax-deferred accounts 

Besides the above-mentioned tax-exempt accounts, you can consider tax-deferred accounts like the traditional IRA, 401(k), 403(b), 457(b) plans, and SEP-IRA. Let’s look at them in detail.

  • Traditional IRA: The traditional IRA is designed to help you save money and is also a tax-deferred account. The IRA is ideal if you want to build a retirement fund.
  • 401(k): A 401(k) is an employer's account for their employees. Your contribution will not be taxable until you withdraw them.
  • 403(b): The difference between 401(k) and 403(b) is that public schools and charities offer 403(b), and it lets employees defer their salary into individual accounts.
  • 457 (b): This plan is specifically for the local and state government employees and the employees of specific non-profit organizations.
  • SEP-IRA: The SEP-IRA is much like a traditional retirement account for business owners. The contribution remains tax deductible, and the investments will grow tax-deferred till retirement.

Passive investing

Passive investing is a strategy followed by many investors today and you should consider this strategy when deciding how to invest 100k. It is the opposite of active investing where you have a hands-on approach to handling your investment. In contrast, the passive investment strategy maximizes your returns by reducing the buying and selling of your investment products.

Investing in exchange-traded funds or index funds is a common passive investment strategy used today. Since both the investment products track a representative benchmark, like the S&P 500 index, it will automatically give you diversification and reduce portfolio risk. 

The goal of passive investing is to build wealth gradually. It is often known as a buy-and-hold strategy. Through this investment strategy, you do not make a profit from the short term price fluctuations but you take home a significant amount of profit when the market posts positive returns over time. 

When you own small pieces of several stocks, you enjoy returns simply by holding your investment throughout the upward and downward movement of the stock market. It is a cheaper, low-risk investment strategy that posts superior results in the long-term. 

Another benefit of the strategy is that its buy and hold feature will not result in capital gains for you. With passive investing, you keep your eyes on the prize and ignore the short term noise in the market. 

Where to invest 100k

We covered the best ways to invest 100K now, let’s see where to invest 100k. There is no dearth of investment products available in the market today. From the stock market, index funds to real estate, and bonds to ETFs, you can invest a part of your 100000$ in different products and enjoy portfolio diversification. Each investment product carries unique risk-return criteria. Let’s take a look at them in detail. 

Stocks

The stock market is a great place to build wealth, and despite the recent volatility, it has a history of generating solid returns in the long term. If you choose to invest in dividend-paying and quality growth stocks, you can enjoy the income in the form of dividends and capital appreciation.

If you pick stocks from the dividend aristocrats list, those companies have increased their dividends yearly for at least 25 consecutive years. A better option is to choose stocks from the dividend kings list. This is an exclusive group of dividend-paying stocks that have increased their dividends for at least 50 consecutive years and are part of the S&P 500 index.

Companies like American States Water (NYSE: AWR), Dover Corporation (NYSE: DOV), and Procter& Gamble (NYSE: PG) have increased their dividends consecutively for 67, 66, and 65 years.

Apple Inc. (AAPL), Alphabet Inc. (GOOG) and Amazon.com, Inc. (AMZN) are notable growth stocks that can offer capital appreciation over the years. You can invest in all of these stocks through M1 Finance. 

ETFs

Exchange-traded funds or ETFs are similar to stocks and offer diversification and track a commodity, index, or industry. They are very liquid and can be bought and sold just like shares. ETFs are a great way to invest in stocks if you are a beginner without knowledge of the stock market. 

The first ETF, SPDR S&P 500 ETF, is actively traded even today and tracks the S&P 500 index. You can invest in it through M1 Finance or Betterment. Besides that, there are several types of ETFs you can choose from. 

They include active ETFs, passive ETFs, commodity ETFs, currency ETFs, stock ETFs, bonds ETFs and more. Consider your investment period and risk appetite, and then choose one. They are also one of the most tax-efficient investments compared to stocks and mutual funds. 

Index funds 

An index fund is similar to a mutual fund but tracks a market index, and you cannot buy and sell it like stocks. You can only trade index funds at the end of a trading day. It is an investment product that will replicate the return of some market indexes, and investors have poured millions of dollars into index funds over the past few years. They are also considered as tax-saving investments. 

Index funds are stock portfolios managed by expert professionals. Since the funds invest in multiple stocks, it generates an opportunity to enjoy higher returns while diversifying the portfolio. You can invest part of your 100000 dollars in some top fund families, including Ishares, Vanguard or Fidelity, through Betterment and M1 Finance.

Real estate

Not everyone likes to dabble in real estate, but if you have enough money and are wondering where to invest 100000$, the real estate industry can be great. The traditional ways of owning real estate are still intact, and history has shown that real estate can be a great way of generating wealth.

It can also help fight the market movements. You can invest in a property and enjoy its rental income, or you could consider flipping it. However, if you do not want to take the trouble of owning and managing the property, consider real estate crowdfunding. 

It is gaining traction today and has become the first choice of many investors. You can also consider investing in real estate investment trust ETFs through M1 Finance. They are passively managed and mirror REIT indexes. It is a way of reducing risk while enjoying the diversification of the portfolio. REIT ETFs pay regular high dividends on your investment and can be traded on the stock exchange. 

Bonds

Bonds have been a preferred choice of investment for conservative investors for years. They generate steady income in interest and ensure that your investment remains safe over the tenure. You can consider investing a part of the fund in U.S. savings bonds and U.S. treasury security bonds.

They are high-grade bonds with minimal risk and offer consistent, steady returns even when the stock market is down. Since the federal government secures them, the risk of losing your money is nil. You can start your investment for as low as $25 and buy bonds from the U.S. Department of the Treasury, banks or credit unions. 

Alternatively, you can consider investing part of your 100000 USD in Bond ETFs to build a diversified portfolio with some top-quality bonds. The bond ETF will trade on an exchange just like the stock and offers competitive performance at a low cost. 

Betterment and M1 Finance offer to build a portfolio with top-rated bonds for you, including the Vanguard Total Bond Market(BND), which has a low-expense ratio and is an intermediate-term bond offering solid returns.

How to invest 100k to make $1 million

Every investor’s goal is to grow their investment funds, and when you invest $100k, the dream is to make $1 million. Yes, it is possible if you make the right investment choices. Choosing an index fund that tracks the S&P 500 instead of investing in individual stocks will significantly reduce your risk.

We used the SmartAsset investment calculator to understand better how long it can take to reach 1 million dollars. A lot depends on your current age, retirement target age and how you invest. If we assume the S&P average return since inception of 10% and if you start at the age of 25, it could take another 25 years for you to reach $1 million.

Now, if you start at 45, and it takes 25 years for it to hit a million, you will be 65 then and probably in your retirement period. Irrespective of your goals, the sooner you start, the higher your chances of generating strong returns. This is why starting to invest as early as possible is crucial in achieving your financial goal of making 1 million $. 

Best way to invest 100k for income

You can invest your $100k in products that continue to generate steady income for you over the years. Start by investing in dividend-paying stocks and build a stable monthly or quarterly passive income source. If you do not need the money immediately, consider reinvesting the dividend and enjoy higher income when you retire. Let us take an example to understand how it works. 

If you had invested $100K in Coca-Cola in 2012, your investment would have grown manifold today. An investment of 100K would have gotten you 1,745 shares. The company paid three dividends in 2012 totaling $1.275 which means you would have earned $2,225 in dividends. 

Coca-Cola split the stock 2-for-1 in 2012, which means you would have received 2 more stocks of the company for each stock held by you. This would take your holding to 3,490 shares. Now, if you did not need the dividend income and considered reinvesting it, you would have 3,529 shares at the end of 2012. 

If you held the shares for 10 years, you would have 3,529 shares worth $971,304.50 in 2022 with a Dividend Reinvestment Plan or DRIP. 

Coca-Cola has consistently paid quarterly dividends and has generated massive wealth for investors. Hence, if you hold the stock for the long-term and have invested in the right dividend-paying companies, you can continue to enjoy capital appreciation. 

Thus, when steady and consistent income is your criteria and you want to enjoy a steady cash flow, investing in top dividend-paying stocks can be a great choice. 

Best way to invest 100k safely

Your investment journey will depend on how much risk you are willing to take with your 100K. If you have a high-risk desire, you can consider investing in stocks but if you do not want to take a lot of risk and fear losing your money, consider investing in bonds. However, they are illiquid, and you will have to wait until their maturity if you need your money back. 

You can invest in several bonds, but the safest ones are savings bonds, treasury bonds and the U.S. Treasury notes and bonds. Savings bonds are backed by the Government, which means you will never lose your investment and are tax-free. Treasury bonds are short-term in nature and have no risk. Their tenure can range from four weeks to 52 weeks. 

The U.S. Treasury notes and bonds are also entirely safe, but you must hold them until maturity. Given the economy's current situation, these bonds are considered the safest. Apart from bonds, high-interest savings accounts and certificates of deposits are also great places to park your money. They are low risk, and the FDIC insures them for up to $250,000. This means your money is safe even if the bank fails. These investment products might generate low returns, but your money will always remain safe. 

Conclusion: How to invest 100k

Now that you know all the different ways you can invest 100000 dollars, you only have to start. The sooner you begin, the better your chances of enjoying higher returns. Try to reduce the investment fees by choosing to invest with a Robo-advisor, opt for tax-deferred and tax-exempt accounts for your investments and build a diversified portfolio by investing in stocks, index funds, ETFs, and real estate or bonds. 

Lastly, remain patient and do not underestimate the power of compounding. Reinvestment of dividends can go a long way in generating solid income for you. Ignore the short-term market noise and stay invested for the long-term to make the most of your $100K.

It is natural for the market to have upswings and downswings but you must not make any investment decisions out of emotion or panic. Do not try to time the market or wait for a correction. It takes time for the money to grow but when you have invested in the right products, the investment will certainly pay off. 

This article is only for informational purposes and should not be considered a piece of financial advice. It is best to speak to a financial advisor in case of specific investment concerns.