Finally saved $1 million? Here’s how to invest it

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There are a lot of reasons why you might want to invest $1 million. Maybe you received a windfall, want to grow your nest egg or want to manage some of your wealth. There are also a lot of ways to invest that money. You can choose to invest the $1 million in the market at once (as a lump sum) or over time (which is called dollar-cost averaging).

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You will unlock plenty of investment opportunities with $1 million, from real estate to jumbo deposit accounts. Understanding your risk tolerance and investment goals is essential to determining the right strategy for you.

What to consider before investing $1 million

Different investors have different needs when it comes to investing. For example, if someone already has significant assets in addition to their $1 million investment, they might be able to pursue riskier strategies than someone who has to stretch that money over a few decades of retirement.

The first thing you should do is ensure that your basic financial setup is addressed. If you need to pay off any debts or put together an emergency fund, you should consider doing those things before deciding how to invest the rest of your money.

Age can be another factor. Younger investors can usually afford to be more aggressive with their investments than older investors can because they have a longer time horizon and are better able to withstand market volatility. Those approaching retirement are often advised to maintain a safer portfolio.

What are the best ways to invest $1 million?

There are a few different approaches to investing $1 million depending on your risk tolerance, financial goals and the amount of time for which you plan to invest it. Here are two of the best ways to do so.

1. Lump-sum investing

Some investors may choose to invest the entire $1 million immediately with a strategy called lump-sum investing. A 2012 study from the brokerage firm Vanguard found that lump-sum investing generally outperforms dollar-cost averaging over the long run in the U.S., U.K. and Australian stock and bond markets. Even though dollar-cost averaging mitigates the risk of a sudden downturn, Vanguard determined that lump sum investing nets higher returns two-thirds of the time.

Investing all of your money at once makes a lot of sense: The sooner that money’s invested, the sooner it can start growing in the stock market, the bond market or in a deposit account. For savings accounts and certificates of deposit (CDs), lump sums earn interest faster than periodic deposits.

Lump sum investments in the stock market don’t always outperform dollar-cost averaging. The biggest risk is a downturn in the market after you’ve invested, wiping out a significant portion of your investment’s value. For investors who intend on keeping their money in the market for several years or decades, this may not be a huge concern, but those downturns can definitely shake investor confidence.

2. Dollar-cost averaging

Investing $1 million in predetermined intervals instead of all at once is considered to be a safer, more conservative investment strategy, even if the returns are generally lower in the long run. That approach is similar to common investment techniques like payroll contributions to an employer-sponsored retirement plan: steady, consistent investments that are meant to grow with market trends.

Limiting exposure to volatility is a key reason why investors choose the dollar-cost averaging strategy. While all investments in the market carry inherent risk, investing money over time rather than all at once can help to minimize those risks. Choosing a dollar-cost averaging strategy also eliminates the guesswork involved with trying to buy into the market at the opportune time if you stick to the investment schedule.

CD ladder is a method of saving that could be considered a dollar-cost averaging strategy. It involves spreading your deposits over several fixed-term, fixed-interest deposit accounts that mature periodically. Unlike market investments, CDs are safe, stable and carry no potential downsides (except perhaps the opportunity cost of earning higher returns).

Where to invest $1 million

Investors have plenty of options when it comes to investing $1 million. With that much capital, many investors choose to diversify their assets. For example, most investors try to maintain an asset portfolio with fixed percentages of stocks and bonds, but investors with more capital can invest in other assets like real estate.

1. Stocks

The stock market is perhaps the most popular way to invest, and many people are already tied to the market with a 401(k) or other workplace retirement account. To invest in stocks outside of those accounts, you must open a brokerage account. Some brokers offer customers the ability to trade individual stocks, though to make money in the stock market, many experts recommend a diversified portfolio made up mostly of index funds. Reinvesting dividends — a shareholder’s portion of a company or fund’s profit — is another way to grow your investment over time.

The S&P 500 index is composed of 500 publicly traded companies that represent different sectors of the economy. It can work as a rough proxy for overall market performance, even though plenty of stocks aren’t included in the S&P, particularly for smaller companies. The S&P has performed well over the long run: The index has gained value in 15 of the last 20 years, and an investment made 20 years ago would be worth almost four times as much now.

There are downsides to stock investments though, particularly if the broader economy starts to struggle. In 2008, the start of the Great Recession, the value of the S&P 500 shrunk by 38%. Even as part of a well-balanced portfolio, stocks can carry risk.

2. Bonds

A popular alternative to stocks is bonds, which are financial instruments that are used by corporations or governments to raise money. Investors can purchase individual bonds with a predetermined term, interest rate and price through a brokerage account or buy a fund that tracks a variety of these assets. Bonds function as an I.O.U. between the issuer and the buyer.

Bonds typically offer less risk and lower returns than stocks, which is why many investors choose to complement their stock investments by holding onto some bonds, as well. Bonds aren’t entirely without risk, however. If the U.S. Treasury issues a bond, it’s a virtual guarantee that the government will be able to pay the value of the bond once it’s reached its maturity date. But if a corporation issues a bond, there’s a chance that it may not be able to fulfill its debt obligations, which is why these bonds tend to promise a higher rate of return than government-issued bonds.

3. Real estate

With a million-dollar budget, investors can choose to enter the real estate market. There are several ways to invest in real estate. For example, you could buy a home to be your primary residence and eventually sell it, you could rent out an investment property to gain some extra income or you could invest in commercial properties.

While $1 million might not be enough for some types of real estate purchases, a real estate investment trust (REIT) is a way for people to invest in a fractional share of a real estate holding. A REIT works much like a mutual fund; instead of investing a significant amount of money into one property, investors spread the risk over a broad range of properties with a small investment interest in each of them.

Real estate is a tempting investment opportunity, as prices generally tend to rise over the long run. Still, these investments carry some risk, as well as additional costs related to maintenance and taxes for the properties.

4. Deposit accounts

The safest kind of investments is deposit accounts through a financial institution that offers either FDIC or NCUA coverage. That insurance provides a government guarantee that any deposit up to $250,000 will be paid out, even if the financial institution fails.

Some popular deposit accounts designed to gain interest are savings accounts, money market accounts and CDs. Money market accounts work much like savings accounts do, though they’re held differently by the financial institutions.

CDs offer less liquidity than either money market or savings accounts, but they can offer higher interest rates. If you seek to withdraw funds from a CD before it reaches its maturation date, you incur a penalty that’s often calculated as a percentage of the account yield.

For investors who wish to keep their million as safe as possible, deposit accounts are a solid option, even if the interest rate environment provides little return on those balances. Jumbo accounts, which often require balances of six figures, provide higher interest rates than normal accounts.

Should you get help to invest $1 million?

There are entire industries dedicated to helping people determine how to invest their money with as much or as little oversight as they’d like.

Robo-advisors are often available through financial institutions or brokerages, and they can automatically manage your portfolio with algorithms determined by your goals, risk tolerance and other factors. Registered investment advisors (RIAs) are certified professionals who can help guide your investments. Different RIAs may specialize in different types of investments, serve different communities and have different theories as to the best way to invest.

Ultimately, you may decide that you can invest that $1 million yourself and you don’t need to work with a robo-advisor or RIA. Advice and guidance can be useful, but savvier investors often have a good idea of what their goals are and how the market works. However you decide to invest your money, be sure to orient your strategy around those goals.

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How to become a millionaire in 5, 10 or 15 years

How to become a millionaire in 5, 10 or 15 years

There are a lot of millionaires in the U.S. You could become a millionaire too because joining the millionaire club is just a math equation involving time, the amount of money you save and the rate of returns on your investments. The more money you save and the higher your rate of return, the quicker you’ll become a millionaire. Of course, your work ethic and commitment to your goal of having a million dollars in the bank plays into it all too.

To help you achieve your goals, here are some real-life strategies for how you can become a millionaire in five, 10 or 15 years.

Whether your goal is to become a millionaire in five, 10 or 15 years, there are some basics you need to get a handle on first. Reaching millionaire status requires a solid financial foundation. These 10 steps will move you in the right direction:

Related: 8 simple pieces of advice from Warren Buffett that any investor can use

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Financial freedom starts with financial planning. Your plan should include where you’re at today, what your goal is and how you’ll get there. Your financial plan should be written down with clear milestones of how much you want to have saved and by what date.

At each milestone, you’ll be able to assess your progress and make choices depending on whether you’re ahead of or behind the plan. You can adjust any of these factors:

  • The deadline to reach your goal
  • Your goal amount
  • How much you’re saving each month
  • The risk level of your investment portfolio

If you’re ahead of plan, you might scale back how much you save and enjoy life a little more today. If you’re behind, it could be time to buckle down to earn some extra cash and reduce expenses.

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It tends to be easier to increase your income than reduce your expenses. You can only cut your expenses so much without drastically adjusting your lifestyle. Yet, there are many opportunities to boost your income.

If you are employed, talk to your boss about a raise. Sometimes, it just requires a conversation about the value you bring to the organization. When you discuss your career with your boss, you’ll know where you stand and come away with a game plan to boost your paycheck. If there aren’t opportunities at your current job, start searching for a new one that offers a higher wage or the opportunity for promotions.

Your job isn’t the only way to increase your income. Side hustles are a great way to supplement your income in your spare time. Many side hustles, like driving for a rideshare company or making grocery deliveries, don’t require a huge time commitment. You can even learn how to make $1,000 a day if you strategically stack your side hustles.

Building passive income is the best way to boost your income in the long term. Passive income is money you earn that isn’t tied to the number of hours you work. Passive income strategies include:

  • Selling an eBook or a course on a topic that you are an expert in
  • Purchasing rental properties and hiring a property manager
  • Investing in stocks, bonds and mutual funds
  • Affiliate marketing through your website or social media

There are a lot of ways to earn passive income. Although some can take time to ramp up, once they’re in motion, you’ll make money even when you’re not working.

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Living below your means is when your take-home pay is higher than your monthly expenses and you have money left over. The more you live below your means, the more money you have to put toward your financial goals. Review where you’re spending your money each month right now, and decide whether those expenses are worth more to you than your goal of becoming a millionaire.

If your spending and financial goals aren’t in alignment, you can quickly cut expenses with these two strategies:

  • Lower your housing expenses. Get a roommate, move some place less expensive or return home to live with your parents.
  • Negotiate your bills. There are a lot of ways to lower your bills. Call your current providers and ask for discounts, shop around to find even lower prices or use a service like Truebill to get your bills lowered for you.

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Becoming a millionaire isn’t just about having a portfolio with $1 million in it. It is also about boosting your net worth. Net worth is the amount left over when you subtract what you owe from what you own.

Every dollar of debt that you pay off not only increases your net worth, but it also saves you from paying interest to a lender. That savings can then be invested towards your goal of becoming a millionaire. So work toward eliminating things like student loan and credit card debt.

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Albert Einstein once called compound interest the eighth wonder of the world. When interest is compounded, the amount of interest you earned during a given time period is added to your balance, and that new total (original balance + interest) becomes your new interest-earning balance.

For example, this is what it would look like if you started with $1,000 and earned 10% interest per year (which is the average stock market return for the past 90 years), compounded annually:

Balance Interest earned that year Total interest earned
Starting balance $1,000
After one year $1,100 $100 $100
After two years $1,210 $110 $210
After three years $1,331 $121 $331
After four years $1,464 $133 $464
After five years $1,611 $146 $611

At the end of five years, you’ll have earned $611 in interest. As you can see, the interest that you earn continues to grow because the interest you’ve earned in prior years is now also earning interest.

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The government encourages people to invest for their retirement by giving valuable tax breaks on retirement accounts. The best way to take advantage of these programs is by maxing them out each and every year. This ensures that as much of your money as possible is receiving these tax advantages.

Because the tax advantages are so powerful, there are limits to how much you can invest in your retirement accounts each year. In 2020, Traditional and Roth IRA limits are $6,000 per year ($7,000 if over the age of 50), and company retirement plans are $19,500 ($26,000 if over 50).

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After you’ve maxed out your retirement accounts, you’ll want to choose a brokerage account. This will allow you to continue investing your way to having $1 million by buying stocks, bonds, mutual funds and ETFs.

When selecting a brokerage account, look for one that offers reduced maintenance and trading fees. Many companies have eliminated fees for online trading. If you’re unsure of where to begin investing, consider starting with an online service. Companies like AcornsM1 Finance and Stash offer simple investing platforms that make it easy for beginners to get started in the stock market.

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In addition to retirement and brokerage accounts, it helps to have an emergency fund in a savings account. High-yield savings accounts offer better interest rates than a traditional bank while offering quick access in case you need the money to cover an unexpected bill.

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Once your accounts are established, automate your saving and investing. This way you never forget to put that money aside and you can focus your mental energy on finding more ways to save and make money instead.

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Motivational speaker Jim Rohn says we are the average of the five people we spend the most time with. We’re not saying you need to ditch your current friends, but you do need to spend time with successful people.

One good way to connect with wealthy people is to join the board of a charitable organization. Charities always need volunteers, and while you’re there, you may also pick up some new skills. By donating your time, you could meet current and retired executives who are also on the board. Or you might get a chance to rub elbows with wealthy donors who would love to share stories of their success.

If you’re having trouble networking with millionaires, the next best thing is to read about them. Buying a book or borrowing one from the library is the least expensive way to gain the best information a millionaire has to share.

Whether it’s networking with successful people or reading about them in a book, the important thing is to continue to invest in yourself by upgrading your knowledge and learning from those you admire.

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Becoming a millionaire in five years is an extremely aggressive goal, but it could happen. Although hitting a home run with an investment is what dreams are made of, the most realistic path is to put aside big chunks of money every year. The historical average return for the S&P 500 index is 8%. With that return, you’d have to invest $157,830 each year for five years in order to reach $1 million.

Account balance Cumulative amount invested Earnings per year Total earnings
Starting balance

$157,830

After one year

$170,456

$157,830

$12,626

$12,626

After two years

$354,549

$315,660

$26,263

$38,889

After three years

$553,370

$473,490

$40,991

$79,880

After four years

$768,096

$631,320

$56,896

$136,776

After five years

$1,000,000

$789,150

$74,074

$210,850

Obviously investing almost $160,000 each year is not much of an option for the average American household, which makes $78,500 before taxes and living expenses. High-income earners are the most likely people to be able to invest this much on a regular basis. Their professions might include doctors, business owners and corporate executives.

Just because you may not have a job making this much money doesn’t mean you can’t achieve the goal of having $1 million in five years. There are other ways to make a lot of money:

  • Become a real estate investor. Start with wholesale real estate to make quick money, then start buying your own properties to either rent or flip.
  • Start your own business. Business ownership can be risky, but the rewards can also be massive. There are a lot of small businesses you can start for $1,000 or less.
  • Work for a startup. Companies that are just starting out often give shares of stock to early employees instead of large salaries. If that company goes public or gets bought, your shares could be worth a lot of money.

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Becoming a millionaire in 10 years is much easier than doing it in five, but it still takes sacrifice and dedication to make it happen. With an 8% average annual return, you’d need to invest $63,916 each year for 10 years to reach your millionaire goal:

Account balance Cumulative amount invested Earnings per year Total earnings
Starting balance

$63,916

After one year

$69,029

$63,916

$5,113

$5,113

After two years

$143,581

$127,832

$10,636

$15,749

After three years

$224,097

$191,749

$16,600

$32,349

After four years

$311,055

$255,665

$23,041

$55,390

After five years

$404,968

$319,581

$29,998

$85,387

After six years

$506,395

$383,497

$37,511

$122,898

After seven years

$615,937

$447,413

$45,625

$168,523

After eight years

$734,241

$511,330

$54,388

$222,911

After nine years

$862,010

$575,246

$63,853

$286,764

After ten years

$1,000,000

$639,162

$74,074

$360,838

It would be hard for most households to put aside approximately $64,000 each year. The majority of people would need to supplement their income with a side hustle to contribute that much to their investments.

People in the FIRE movement (financial independence, retire early) set lofty savings goals in their pursuit of financial freedom. Some families choose to save one spouse’s entire income and live off the other paycheck, and others focus on saving 50% of their household income.

Assume you’re an average family making a combined $78,500. If you’re able to save half of that income, you’re putting away a little over $39,000 each year. To reach the target of roughly $64,000 per year, you’d need to earn an additional $25,000 after taxes. For a monthly goal, that’s about $2,000 each month.

Earning $2,000 a month from side hustles is something a lot of people could do. Potential side hustles that could earn you that extra money include:

  • Driving for Uber Eats or Lyft
  • Making deliveries for Postmates or GrubHub
  • Freelance writing
  • Private tutoring
  • Teaching community college classes
  • Handyman work
  • Selling on Etsy or eBay
  • Wholesaling real estate

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To become a millionaire in 15 years, you’ll need to put aside $34,101 per year for 15 years while earning an average return of 8%. That means reaching millionaire status in 15 years is something most of us could do through maxing out our retirement savings by hitting the annual 401(k) contribution limits and IRA contribution limits.

A single person under 50 years old can contribute a combined $25,500 per year by putting $19,500 into a 401(k) and $6,000 into a Roth IRA. If you’re 50 or older, catch-up contributions can add another $6,000 and $1,000, respectively, for a total retirement contribution of $32,500 per year.

Under 50

50 and over

401(k)

$19,500

$19,500

401(k) Catch-up

$0

$6,000

IRA

$6,000

$6,000

IRA Catch-up

$0

$1,000

Maximum Yearly Retirement Contributions

$25,500

$32,500

Couples can contribute double these amounts because each person can contribute these maximums to their own personal accounts. For spouses who don’t work or have very little income, they can contribute the full amount to an IRA through what is known as a Spousal IRA.

If your company offers a matching contribution to your 401(k), you could be saving even more. If you made a salary of $60,000 per year and your employer offers a match of 3%, that’s another $1,800 per year toward your investment goals that you could take advantage of.

But let’s assume you’re single, under the age of 50, and your company does not offer a matching contribution. You can invest a total of $25,500 per year into your retirement account. In this scenario, you’ll need to invest another $8,600 per year into a taxable brokerage account to reach your million-dollar goals.

Account balance Cumulative amount invested Earnings per year Total earnings
Starting balance

$34,101

After one year

$36,830

$34,101

$2,728

$2,728

After two years

$76,605

$68,203

$5,674

$8,403

After three years

$119,563

$102,304

$8,857

$17,259

After four years

$165,958

$136,406

$12,293

$29,552

After five years

$216,064

$170,507

$16,005

$45,557

After six years

$270,179

$204,609

$20,013

$65,570

After seven years

$328,623

$238,710

$24,342

$89,913

After eight years

$391,742

$272,811

$29,018

$118,931

After nine years

$459,911

$306,913

$34,067

$152,998

After 10 years

$533,534

$341,014

$39,521

$192,519

After 11 years

$613,046

$375,116

$45,411

$237,930

After 12 years

$698,919

$409,217

$51,772

$289,702

After 13 years

$791,662

$443,319

$58,642

$348,343

After 14 years

$891,824

$477,420

$66,061

$414,404

After 15 years

$1,000,000

$511,521

$74,074

$488,479

If your income doesn’t allow you to max out your retirement plans, look for promotion opportunities within your company, consider switching jobs or start a side hustle. Also, take a deep look at where you’re spending your money. You might be able to reduce your expenses to find extra cash to invest in your future. With a time frame of 15 years, anyone can reach the millionaire goal with a little focus and effort.

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If you need help building your plan or making decisions along the way, seek out professional guidance from a financial advisor. Financial advisors can act as a sounding board for your investment strategies, as well as offer advice on the pros and cons of various investment choices.

Continue to build your team of advisors with a certified public accountant who will help you navigate tax questions. As your wealth builds, it is possible that tax planning becomes more complicated. Not only can your CPA complete your tax forms, but they can also provide advice on ways to minimize taxes, which leaves more money for you to invest in your goal of becoming a millionaire.

With a growing net worth, you’ll also want to protect your assets with estate planning. An estate planning attorney will help you plan what to do with your money after you die. Proper planning can reduce estate taxes and leave more money for your heirs. If you don’t have heirs (or don’t wish to leave your wealth to them), an estate planning attorney can also help you donate your money to charities that support causes you believe in.

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As you plan your path to achieving millionaire status, remember there are always risks when you invest. With calculated choices and consistent savings, it is possible to realize your goals — even when you’re talking about achieving the goal of becoming a millionaire in 15 years or less. When you visualize your future self as a millionaire, it is possible to achieve your dreams.

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The stock market is inherently risky and there is always a chance your investments could decrease in value. There are no guaranteed investment returns and past results do not indicate future performance. We are not professional investment advisors and this article does not contain investing advice.

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

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