10 smart ways to invest $100K for retirement

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Are you wondering how to invest 100k? Perhaps you’ve just sold your home, inherited money or maybe you won the lottery. Either way, getting such a windfall happens to many, at least once in a millennials’ lifetime. And it’s natural to seek out the best ways how to start.

 

When I was about 26 years old, after investing in a home, renovating it and then selling it, I made my first $100k. I remember the day well because I hadn’t ever seen a check so big before! To be sure, renovating and selling it wasn’t my first thought. I expected to live in the home for a long time. Real estate prices went up significantly, and I decided to take some chips off the table.

 

Around the same time, I also had a friend who, through an insurance policy, got an $80k settlement. My friend spent her money in less than a year. In my case, it invested it in a new home.

 

For this article, I will assume that in your financial plan, you have done all the following:

When it’s time To Invest Your 100k

Assuming all the above is complete, then you can move forward. But, until that time, there’s no point thinking about where to invest that 100k. For example, if you don’t follow a budget or don’t have an emergency fund, or you’re carrying high-interest debt, you’ll need to tackle those issues first. Indeed, these are far more important.

 

The following is a list of investments that you can look at to best invest your money.

 

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1. Real estate investments

When thinking of investing, real estate is often the first thing that comes to mind. Growing up, I remember my parents saying, “If only I had 100k, I’d pay off the mortgage.” While paying off the mortgage might make you sleep better at night, it’s an ineffective way of investing in real estate.

 

Many experts agree that over time, real estate appreciates about the same as inflation. However, these experts are only referring to the property’s capital value (i.e., the selling price). In my experience, the best returns from real estate investing come from the rental market. Investing in rental properties has paid me years of dividends that I’m forever thankful for.

 

As I write this, in 2021, I see historically low mortgage rates. For example, real estate investors can get a 30-year mortgage for under 3%! That’s incredible. And once you add in the [expected] increasing inflation rates, rents will go up, but your mortgage won’t. As a result, I think the rental market is starting to become an ever more promising opportunity.

 

Another idea for investing in real estate is to consider apartment buildings and commercial real estate. However, mortgages on these properties get calculated differently, and it may take more than 100k to acquire one.

2. Invest in yourself

It might sound cliche, but I’ve found the investment that pays the best returns is an investment in yourself. When consumers invest in education, for example, they can get a higher paying job. Or, if someone seeks out training to start and run a business, they could create generational wealth to pass down to their children.

3. Education

Like any investment, it’s essential to start with a little due diligence when considering investing in education. For example, if you’re going to invest in a course, ask yourself, what will that get you in the end? Will you get a promotion? If you’ve got 100k to invest, why not consider putting it toward education?

 

For example, a teacher with 6-9 years of experience who has a bachelor’s degree may earn $45,390 a year. But, with a master’s degree, that magnifies to $52,750. Further, if the same teacher with a master’s degree teaches at a junior college, they might expect a salary that approaches $79,540.

 

Considering the cost of a master’s degree is around $40,000, the investment return could take as little as 1.5 years if you play your cards right.

4. Start a business

If you’re like me, you might find yourself thinking up any number of business ideas daily. Therefore, if you’ve got a business idea, you could make it a reality by using some of your 100k. To be sure, a business could begin from any number of side hustles.  But you’ll want to be smart about it! Indeed, data from the Bureau of Labor Statistics confirms that ~20% of new businesses fail by year 2, 45% by year 5, and 65% by year 10. And only 25% of companies make it to 15 years.

 

So, before you start investing in a new business, it’s essential to educate yourself on the business plan. Take the time to research your target client, a product you’ll sell to them, your operating costs, and potential profitability. These are things you can do to find out whether the business is worth investing in.

 

It’s also helpful to get advice from other (successful) business owners to confirm you’re on the right track. There’s no harm in asking for help. Successful businesses have a solid business plan, complete with facts to back it up.

5. Stock market

There are several advantages to investing in the stock market. For example, with $100k, you can get better diversification that would be otherwise different from any other investment class. Indeed, investing in stocks gives you a chance to buy in various industries. And the returns can be quite juicy as well. For example, since the early 1926s, the average annual return for the S&P 500 has been about 10%. And that’s before dividends! Indeed, a buy-and-hold strategy often makes the best sense!

 

If you’ve got $100,000 to invest in stocks, here are a few things to know:

6. Individual stocks

Buying blue chip stocks may be among the riskiest strategies, but it could provide you the biggest reward. For example, according to Marketwatch, the best performing stock in 2020 was Tesla, at a whopping 731%.

 

However, who do you know has all their eggs in one basket? Indeed, few people will have most of their money in a single stock, like Tesla. Their portfolio isn’t diversified. Having too much exposure to one single stock is called portfolio risk, and it’s something you want to avoid.

 

Experts agree one way to avoid portfolio risk is to invest in at least 20 stocks of varying industries for diversification. For example, in the spring of 2020, the banking sector got decimated, while tech held up quite well. Furthermore, when buying stocks in an investment account, consider buying a little over a long period. Indeed, it’s known as dollar-cost averaging.

 

Read more: Leaps Options: A Genius Way to Profit in a Bullish Market

 

Here are some other ideas to mitigate portfolio risk:

7. ETFs & Mutual Funds

ETFs and mutual funds are baskets of stocks that are pre-bundled for you. Therefore, instead of buying multiple stocks, you can make a single investment and get instant diversification with ETF’s and mutual funds. However, there are some fundamental differences between the two.

 

ETFs, short for exchange-traded funds, are traded much like stocks and are often passively managed. ETFs are often index funds that try to match the return of an index such as gold or the S&P 500. For example, SPY is the most famous index fund that tracks the S&P500 Index. Vanguard also offers many low-cost index ETFs to choose from.

People who invest 100k in this ETF get instant diversification across 500 companies. Other ETFs can be actively managed and provide features that include leverage, return of capital, or focus on specific industries like the banking sector.

 

Related read: How to Sell Covered Calls for Monthly Income

 

Mutual Funds are usually actively managed by an individual fund manager or a group of portfolio managers. The portfolio managers pick the stocks that get included in the fund. As a result, it’s common for mutual funds to have better returns than Index ETFs.

 

Investors shouldn’t necessarily consider Index Mutual funds over ETFs. They are both funds but are different in that mutual funds are usually actively managed, and ETFs are passively managed. Regardless, when investing $100k, consider the fees. Fees will eat into your returns.

8. Robo-Advisors

If you are looking for an easy and low-cost way to invest your money, another option is with a Robo-advisor. Indeed, Robo-advisors are gaining in popularity as they are easy to understand, offer low fees, and give instant diversification.

A Robo-advisor is a feature within a brokerage account, which uses an algorithm to compose your portfolio. Then, throughout the year, your portfolio gets rebalanced automatically. Moreover, the minimums are very low. Some brokerages allow you to start investing with a Robo-advisor for about the cost of a cup of coffee.

 

Related read: How to Start Investing Online in 2022 – A Complete Guide

9. Crowdfunded Investments

Crowdfunding refers to many people who invest small amounts of money as the initial investments are low. Here are some crowdfunding investment opportunities you can start researching today:

Real Estate Crowdfunding

With real estate crowdfunding, investors buy units or notes in a given fund. And the fund holds real estate. Then, the fund generally pays the investor dividends or distributions monthly, quarterly, or yearly.

 

Some funds use crowdfunded investment dollars to buy industrial buildings or shopping malls. And others buy apartments and multi-family homes. The rental revenue, minus expenses, is then funneled down to the investor.

Investors who chose real estate crowdfunding may expect to earn upwards of 7-8% on their investment.

Equity Crowdfunding

With real estate crowdfunding, people invest in funds that hold real estate. With equity crowdfunding, people make little investments in startup companies. I would consider this to be on the riskier side of the investment spectrum. However, if you found a unicorn such as the next Facebook, Airbnb, or Uber, a small investment could make you rich. As with any investment, do your due diligence!

Peer-To-Peer Lending

Peer-to-peer lending is a crowdfunding investment option that is also gaining in popularity. People borrow money for various reasons, and peer lenders can get upwards of 30-35% on their money. To be sure, the higher the interest rate, the higher the risk.

 

Investors will research the available potential loans before deciding how to invest their 100k. For example, some platforms offer information such as debt-to-income ratio, reasons for borrowing, and the borrower’s credit history (and score).

There are many peer-to-peer lending companies online, such as Peerform and Lending Club. Investors choose from the different note credit ratings as they represent the various risk levels to an investor. The higher grades (A and B) will give you a lower rate of return and a lower charge-off rate.

 

On the other hand, the lower grade notes (D through G) will have a higher return rate and a higher charge-off rate. And that means there is a higher chance of you not getting paid back.

 

So, with 100k to invest, you can diversify the risk between lower grade and higher-grade notes. For example, on a lower grade note, you can earn as much as 35%.

Solid returns

Like anything, your returns get directly correlated to risk. If you invest your 100k in the highest risk category, you’ll have the highest potential rate of return. But you’ll also have the most significant risk of loss. With peer-to-peer lending, and for the least risk, I would recommend considering notes that offer a return of 5 – 10%.

10. Help Others

Peer to peer lending is also an excellent way to earn passive income. This method also gives you a chance to help others in need of money to consolidate debt, go on a vacation, or start a business.

 

I wouldn’t blame you if you felt scared investing in peer to peer lending the first time around. To be successful, you have to look at the loans the way a bank would.

The Final Thoughts When Thinking about How to Invest 100k

Investment Do’s and Don’ts

Before investing your 100k, here is a short list of things you should and shouldn’t do to ensure that the money lasts as long as possible.

Do:

  • Prioritize your long term goals
  • Focus on low fee investments
  • Spread the risk to various type of investments
  • Stick to an investment plan

Don’t:

  • Forget to save
  • Tell anyone
  • Bet all the money on one thing
  • Take too much risk

As you can see, there are numerous ideas when considering how to invest 100k. Now, it’s up to you to choose the best method you want to use and invest your money in. But these methods are not without risk. Therefore, you have to do your due diligence and assess your risk tolerance when investing for you and your family. Also, it’s never a bad thing to seek out financial advice from a licensed financial adviser. The ball is in your hand.

 

Related:

This article originally appeared on The Financially Independent Millennial and was syndicated by MediaFeed.org.

More from MediaFeed:

The 7 biggest retirement fears in the US

 

Americans have always struggled to save. Many live paycheck to paycheck, on the very edge of financial security. Historically, that savings shortfall has been all the more dramatic when it comes to saving for retirement.

But with the coronavirus pandemic and the havoc it has wrought on the economy, that retirement savings gap may worsen. Beyond the health impact, COVID-19 has created enormous economic uncertainty across the country. Market volatility has cut into retirement nest eggs for many. In the first three months of 2020, the average 401(k) dropped 20%.  And a provision of the CARES Act that makes it easier to tap retirement accounts is likely to send those balances even lower in the months ahead.

Unemployment has skyrocketed to record highs, hitting 14.7% in April. That means that Social Security’s coffers (which are dependent on payroll taxes) are taking a hit. Moreover, the recent CARES Act allows companies to delay Social Security payouts for up to two years. And while this doesn’t affect current beneficiaries, it highlights the pandemic’s impact on the already increasing Social Security funding deficit. With all of this uncertainty, it’s not surprising that Americans are growing increasingly worried about their retirement prospects.

 

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According to the May 2020 Simplywise Retirement Confidence Index, 56% of Americans are more concerned about retirement today compared to how they were feeling about it a year ago.The survey also found that 69% of people in their 50s—who are nearest to retirement—are more concerned about retirement today.

The study, which was conducted as an online, random sample survey of 1,070 Americans ages 18+ between May 8-9, 2020, explored how people are looking at retirement, Social Security, and savings today, particularly in light of the current crisis. We break down our findings, from changing rates of postponing retirement to how people are drawing from retirement savings during the pandemic.

 

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The survey found that 56% of Americans more concerned about retirement today compared to a year ago. Main concerns include fear that the Social Security trust fund will dry up before or during retirement (which 56% believe) as well as outliving savings during retirement (which 49% believe is likely).

  • 40% of are now concerned they won’t be able to retire at all.
  • Over half of respondents believe their quality of life with suffer after claiming Social Security retirement benefits.
  • 67% of working people plan to continue working in retirement.
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  • One in three saved $0 for retirement in the last year. Women saved even less than men; 37% of women saved $0, and 50% saved under $500.
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  • One in five people believe it’s likely they will draw from 401(k) for cash right now, including 1 in 3 of those who have lost work.
  • Given the current economic climate, 26% of respondents said they would postpone retirement altogether.
  • Of respondents in their 50s and 60s, 33% are now planning to claim their Social Security retirement benefits early.

 

 

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Simplywise conducted its May 2020 Retirement Confidence Index online, as a random sample survey of 1,070 Americans aged 18 and above. The survey was fielded May 8-9, 2020. It was intended to explore how citizens are looking at retirement, Social Security, and savings today, particularly in light of the current crisis.

Here are the seven things Americans are most concerned about when it comes to retirement:

 

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Among respondents not yet collecting benefits, 56% are concerned that Social Security will dry up altogether by the time they retire.

The concern is legitimate. According to the Social Security Board of Trustees, the trust funds responsible for disbursing benefits will be depleted by 2035. That does not mean Social Security will be gone altogether. But it does mean that its cash reserves will be gone, and it will only be able to dole out what it collects in taxes each year. If that happens, according to the Trustees, the Administration will only be able to pay beneficiaries 79% of the money they are owed. Its reserves are running out due to demographic trends. Generation X (the generation behind Baby Boomers) is much smaller, so while the Boomers swell the ranks of retirement beneficiaries, there are less workers paying in taxes to fund those benefits. This means current tax revenues won’t cover benefits and Social Security will have to tap the surplus. Add to that the current soaring unemployment numbers and it becomes hard for many to imagine what the future of Social Security looks like today.

 

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Half of respondents are concerned they will outlive their savings in retirement.

 

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Paying everyday bills, particularly medical bills, is a great anxiety. Over 50% of people in their 50s reported being concerned about their ability to pay for medical and daily living expenses in retirement. Repaying lenders is another concern, with 28% concerned about having too much debit in retirement.

 

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For those not yet claiming Social Security benefits, financial concerns are the greatest anxiety as they think about retirement.

An incredible 40% of respondents to the Simplywise survey reported that they do not believe they will be able to retire at all.

 

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Over half of all respondents believe their quality of life will suffer after they begin collecting Social Security. For those not currently collecting retirement benefits, 58% believe those benefits won’t allow them to maintain the same quality of life they enjoy today.

Looking at the average Social Security benefit—$1,503 per month in January of this year—it comes as no surprise. Especially given that, according to the U.S. Bureau of Labor Statistics, the average American spends $5,102 per month.

Women were less confident than men that their savings and benefits would get them through retirement. Just 41% of women, compared to 55% of men, believed their retirement income would let them maintain their same lifestyle.

 

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Of course, even beyond financial concerns, there are other realities to face in entering the next phase of one’s life. Twenty five percent of respondents are worried about feeling bored or lonely once they retire.

In fact, according to the U.S. Census Bureau, about one in five adults 65 to 74 years old lives alone. That figure doubles to around four in ten for those 85 and older. And while living alone does not necessarily result in social isolation, the reality is that with age, social contact does typically increase. This can be due to factors like decreased health or mobility; family living far away; the death of friends or family members.

And loneliness and isolation can actually have a deep impact on health and even finances for those in retirement. A study from AARP estimated that social isolation costs $6.7 billion to Medicare every year. The study found loneliness to be a risk factor in health conditions including arthritis, high blood pressure, heart disease, and diabetes.

 

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The reality is that the economy today is hurting Americans across the country, regardless of where one is from or how much one makes.  For starters, job security is of course a grave challenge for Americans today, which may likely continue. This reality is even more stark for pre-retirees and seniors. In fact, 30% of workers over the age of 62 have recently been laid off or furloughed due to coronavirus. And 38% of workers over 65 have recently been laid off or furloughed.

Of those still working, thirty percent believe it is likely they will be laid off or have their income reduced within the next six months. Half of those currently furloughed believe they will lose their jobs or have their income cut by the Fall.

Given the current economic climate, one in ten respondents are planning to dip into their emergency savings. And one in five Americans believe they will have to draw from their 401(k). For those recently furloughed, 20% believe they will have to tap their retirement savings now. And half of those who recently lost their jobs are now planning to withdraw from their 401(k). If many withdraw, that alone could have a dramatic impact on the stock market.

Social Security beneficiaries, many of whom are dependent on their fixed income and retirement portfolios, are also feeling squeezed. Of beneficiaries today, 11% are now considering selling their home to cover their expenses. Another 10% of beneficiaries are considering refinancing their home to cover expenses today.

Of course, some Americans see an opportunity in the down economy. While over 41% are now planning to save more in their bank accounts, 21% of respondents are planning to invest more money in the stock market today.

Women remain more fiscally conservative, however. Of female respondents, 45% plan to save more today, versus 37% of males. Additionally, just 17% of women plan to buy stock today, compared to 27% of males.

But the truth is that a majority of Americans are struggling. Four in ten respondents answered they would not have the means to come up with $500 in cash today. They reported that they would either have to sell something or go to family and friends for a loan to get that kind of cash right now.

 

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So much has changed in the last two months about the way we live our lives, and indeed, what life even looks like in this new reality. The human toll from the coronavirus continues to climb. Some states are reopening, while others remain closed for what seems an indefinite amount of time. Policy changes meant to ease the burden on strained businesses and struggling American citizens can feel confusing to navigate. Uncertainty seems to be the only certainty.

So it is natural that many Americans are feeling at best concerned and at worst overwhelmed in thinking about and planning for their futures today. Yet that is why it is more important than ever to educate oneself on the options for retirement

Americans who are not yet retired but whose finances have been impacted by the pandemic can use this time to review their expenses. Determine how much cash will be needed in retirement, and make any necessary adjustments to savings and portfolio asset allocations. “For those who are eligible but not yet on Social Security, while we don’t necessarily recommend taking benefits earlier, this is a good time to consider how to maximize your benefits,” says Simplywise CEO Sam Abbas. “That means understanding and calculating your options for earned benefits, spousal benefits and survivor benefits.” The best way to understand what you’re owed is to use a comprehensive Social Security calculator and checklist.

Things are changing rapidly – but staying informed, aware, and empathetic with yourself and those around you will ensure that your life today and future planning remain on track.

This article originally appeared on SimplyWise.com and was syndicated by MediaFeed.org.

 

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