Sunday, October 17, 2021

How To Invest $100K: 4 Simple Options and Caveats To Investing

Let’s say you’ve come into some money, $100,000 to be exact, from your savings account or from someone leaving it to you, through inheritance. Whether you want to use it to become a millionaire or for something else, before you decide to spend it all, or invest only some of it, this article will show […]

Let’s say you’ve come into some money, $100,000 to be exact, from your savings account or from someone leaving it to you, through inheritance. Whether you want to use it to become a millionaire or for something else, before you decide to spend it all, or invest only some of it, this article will show you how you can have amazing investment options with your $100,000. 

How To Invest 100K: 4 Simple Options and Caveats To Investing 

2 Priorities To Consider Before Putting Money In Investments

But before we understand how to invest 100K, it’s a good option for adults to set aside money for two very important things: Paying your debt and creating an emergency fund.

Pay down your (high-interest) debt.

If you have any debt with a high interest rate, your best bet is to pay this down before putting anything in the investment market. So if you have any credit card debts or any loans, pay that off first. Why? The average credit card interest rate is 16%, which is significantly higher than the average annual stock market return. This means that paying off ANY high-interest debt is a priority before investing. 

Create an emergency fund.

If you already have an emergency fund for medical bills, going unemployed and living off on savings, unexpected events, or buying a house, etc, you can go ahead and invest your 100K in the market. 

However, if you don’t have an emergency fund yet, you need to put all your money here. With your efforts and cash going into an emergency fund you help yourself through unexpected challenges. An ideal emergency fund should cover at least 6 months living expenses, or even just as little as 3 months. Whatever route you choose, ensure that this emergency fund can be liquidated when needed. Take a look at your fund again, and where you put it, a matter of risk tolerance. The safe method is to stock up for a full six months and keep it in a deposit account where there’s no risk of losing principal (like a savings or money market account).  

Now that we’ve got these two priorities out of the way, you can actively pursue ways to maximize profits by investing in the market. Here’s a breakdown of your numerous how to invest 100K with four popular options. This is the best option, if you are smart and serious about investing. 

How To Invest 100K with 4 Options:

1. Index Funds, Mutual Funds and ETFs

Mutual Funds (MF) and Exchange-traded funds (ETFs) are two good routes to take when you want to create a diversified portfolio of investments. A diversified portfolio helps prevent you from putting all your eggs in one basket. When you fill up as many eggs (companies) in as many baskets (industries) as possible, if one “egg cracks” then the others are all safe and will help generate money elsewhere. 

Mutual Funds

Mutual funds are effective means of investments. MFs can be all stocks, all bonds, or a combination of the two. You can hire a Mutual Fund manager who chooses what to include within the fund and helps you when you don’t have the time or know-how to research every stock.

A mutual fund is in the same family of the ETF, but with a much higher price tag. An MF is looked after by a fund manager, who selects specific stocks to try to “beat the market.” Mutual funds have higher management fees than ETFs, and evidence shows they don’t beat the market.

Exchange-Traded Funds 

Exchange-traded funds (or ETFs) are stocks packages to copy the performance of a stock market index. This is a type of investment fund that lets you procure a large basket of individual stocks or bonds with just one purchase. 

When compared to a Mutual Fund, an ETF looks to copy the performance of a stock market index, which is part of a “passive investing” strategy. They are often cheaper than Mutual Funds. You can invest in just certain types of companies, specific sectors of the economy such as technology or healthcare or in other investments like bonds and real estate, or even ideas like supporting renewable energy.

Index Funds

Amongst the realm of investment through MF and ETFs, one popular option is index funds. Rather than having a manager who actively picks stocks and makes trades, index funds help to track the performance of a single market index, they also tend to outperform actively managed funds over the long term.

2. Real Estate

Considering to invest in real estate but don’t know where to start? Then A real estate investment trust (REIT) is a particularly popular option to  invest in real estate without buying any property yourself. There are also ETFs that include multiple ETFs, that let you to track the real estate market as a whole.

You can easily purchase property with $100,000 is enough, in many places, to make a sizable down payment. If you live in a very expensive area, then try buying  property outside of your city or even out of state (even if another state/states could complicate your taxes). If you want to buy property, speak with an expert, like a financial advisor, for advice on how to best set up, manage your finances and invest away! 

3. Safe Storing/Savings Options

The simplest way to save or store your money is in a savings account. Most big banks offer very low interest rates on their savings accounts, instead, look for a high-interest savings account. A money market account (MMA) is also good and interest rates for MMAs are typically higher than for savings accounts.

Or you can store your hard earned money in the form of a certificate of deposit (CD). A CD has a set term: a month to up to 10 years where you cannot touch your money until the term is over. The trade-off for this reduced liquidity is higher interest, and longer terms generally have higher rates (around 3%, as of early 2019). You might also get a higher rate with a jumbo CD, which are specifically for balances of $100,000 or more. CDs require you to give up access to your money for a while, but they offer a guaranteed payout. Choose a bank that is FDIC-insured to ensure that your money is safe.

4. Trading Individual Stocks

Last but not least, let’s clear up the common misconception about investing. Many people think of investing as picking that one stock that’s going to take off as the next Apple, Facebook, or Amazon. Such individual stock picking is plain time consuming, not to mention risky without a diverse portfolio. 

With individual stocks you need to do thorough research on companies, and ideally be really well-versed in methods of equity analysis like technical analysis and fundamental analysis. The bottom line is:  there is potential for big gains, there is also potential for big losses. There’s nothing wrong with using your money to invest in this way, but it does require a fair faith in your knowledge.

Consider Not Investing All Your 100K

When you cook food, you don’t add salt to only one portion on the pan, you spread it out. Similarly, consider spacing or spreading out your investments using a technique called dollar cost averaging. Here you invest a fixed amount of money at regular intervals. For example, $5,000 is the amount you allocated for investing in one ETF. With dollar-cost averaging, you might invest $1,000 a month over the course of 5 months instead of investing it all at once.

Without dollar cost averaging, if you luck runs out and you place your entire $100,000 in one asset, you lose it ALL. With dollar cost averaging, when prices in the market go up and down, even crashing, only a percentage of your investment will face risk. So you face less risks of spending all your 100k on one high priced asset, especially one that regularly fluctuates in price. DCA is not necessary if you’re putting your money in, say, a CD, where there’s little or no risk of loss.

In conclusion, if you are feeling overwhelmed or worried about making mistakes while investing your $100,000, get in touch with a financial advisor that can help build plans best suited for you. Get in touch with Wealthface to satisfy any further queries, and reduce the risk that comes with being a first timer. 

Wealthface - Your online investment solution

Wealthface is a one-stop online investment company that services all kinds of investors. It provides affordable high-quality investment products and services, tailored to each type of investor, and delivered at a low cost in a fully transparent manner. The company plays the role of a Fiduciary investment advisor, which means it always puts the client’s interest first.

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