So, you have $100,000 to invest? Lucky you!
But that’s a big chunk of change. And you want to make sure you’re investing it appropriately, so you don’t lose it all.
In this article, I’ll show you how to invest $100k the right way, so that you won’t just keep it, but grow it.
1. Try your hand in the stock market
The stock market is where I highly recommend you place the majority of your investment. I am going to go the deepest here in my explanation because I think it’s the best option for investing this amount of money.
Why invest in stocks?
Stocks offer some of the best diversification for your portfolio. Not only can you get exposure to nearly every industry in the world, but stocks have historically been proven to provide one of the best returns on investment.
The average annualized return on the S&P 500 since the early ’70s has been close to 12% per year. The market has had even better years since the economic downturn in 2008 as well. Here are the annual average returns on the S&P 500 over the last decade:
- 2011 – 2.10%
- 2012 – 15.89%
- 2013 – 32.15%
- 2014 – 13.52%
- 2015 – 1.38%
- 2016 – 11.77%
- 2017 – 21.64%
- 2018 – (-) 4.23%
- 2019 – 31.21%
- 2020 – 18.02%
- 2021 – 28.47%
You can find all of the annual returns since 1928 on this sheet that a student from NYU so graciously put together.
How to invest in stocks
The idea of investing in stocks can get really complex and we even wrote a complete guide on how to invest in the stock market, so I am going to give you three quick methods by which you can invest $100,000.
1. Buy individual stocks
This is the riskiest but can potentially provide the biggest reward. When you pick an individual stock, you really have to know what you’re doing. Unless you’re investing in thousands of individual stocks, which most people don’t, your level of diversification will be low.
For example, you might choose to invest in 10 different stocks — which can provide you with diversity, but not like an ETF or mutual fund would (more on that below.)
If you’re going to invest in individual stocks, I would start by reading our guide on value investing. It’s my favorite approach to picking individual stocks and can significantly reduce your risk while also providing you some recurring revenue (since you’re going after dividend-paying stocks.)
Finally, you’ll also want to spend some time understanding how to read a stock chart, so you can better analyze the performance of each stock.
2. Buy ETFs and mutual funds
Mutual funds and ETFs are basically baskets of stocks, pre-bundled for you, so you can make a single investment and get instant diversification. The difference is how they’re put together, managed, and sold.
- An exchange-traded fund or “ETF” acts exactly like a stock and is usually not actively managed. It typically follows an index, for example — the S&P 500. You can go as broadly or narrowly as you want with ETFs, and you can place a focus on things that are important to you. For instance, if you want to invest in socially responsible companies, you can buy an ETF that does that for you.
- Mutual funds, on the other hand, are actively managed by a person or group of people. There are some exceptions where they may not be (like with Vanguard, which has index funds), but in most cases, mutual funds have someone picking the stocks that are in the fund.
Mutual funds still act like an ETF in that you can get instant diversification, but it’s more meticulously monitored, and the strategy for picking stocks might be based on the fund manager’s personal investment preferences and biases. But the cost is also higher due to this. You’ll pay a premium for investing in a mutual fund — but the argument is that someone is managing the fund for you.
Historically, though, mutual funds don’t necessarily perform better than ETFs or index funds. You can choose a strategy with mutual funds, but your options might be more limited. Know that mutual funds aren’t a worse choice than ETFs and they definitely have their benefits, but they will cost more and I’d rather keep fees as low as possible when I’m investing $100,000.
3. Go with a robo-advisor
Speaking of low cost and ease, a third way you can invest in stocks with your $100k is through a robo-advisor. This is the method I would choose if I were a first-time investor (and actually, I’ve been investing for over a decade and still choose to use a robo-advisor).
A robo-advisor is a broker, like Betterment, that uses a computer algorithm to compose, monitor, and rebalance your stock portfolio. You merely invest the money and tell the algorithm what your goals and risk levels are, and they’ll do the rest.
Wealthfront is another great robo-advisor, offering a DIY approach or the ability to have them create a portfolio of ETFs for you (you can edit this portfolio at any time.) Wealthfront offers investments in specific categories like socially responsible investing (SRI), tech ETFs, healthcare ETFs, and many more.
4. Go the DIY investing route
If you’re interested in a more hands-on investing experience and want to trade on your own, J. P. Morgan Self-Directed Investing makes it straightforward and attractive — especially on the no-fee-front. There is no minimum required to start investing and you’ll get unlimited commission-free online stock, ETF and options trades — so this is a good pick if you want to be driving your investment strategy in building a diversified portfolio.
Get up to $625 when you open and fund with $250,000 or more. Offer expires 10/10/2022.Disclosure – INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Managing your stock investments
Regardless of which method you choose, investing in stocks can get complicated and confusing. If you are going to put $100,000 (or any part of it) into stocks, you need a tool that can help you analyze where your investments are at, and how you’re performing.
After you link your investment accounts, you can see exactly how much of your portfolio falls into a variety of categories and determine where you need to invest more or less, based on your investment patterns. You can also monitor your overall portfolio performance, as well as take advantage of plenty of other features.
2. Capitalize on the hot real estate market
Investing in real estate is a very common option for those looking to plop down $100,000. But what you’ll find is that it doesn’t have to be as time-consuming or complicated as buying a rental property.
How to invest in real estate
There are three primary options when you invest in real estate: traditional real estate, REITs, and crowdfunding real estate investment.
Traditional real estate
The traditional way of investing in real estate is by purchasing some type of investment property and either renovating and selling it (“flipping”) or holding onto it and renting it out.
This type of real estate investment requires significant capital upfront, meaning that if you were going to invest $100,000 in traditional real estate, a good chunk of that would get eaten up just getting into a property.
If you’re planning to flip the property, you’ll need not only a down payment for the home but free cash to do the renovations. A better option might be to buy a property, make the minimum updates required, and rent it out.
When you rent a property out, you instantly become a landlord (unless of course, you hire someone to do this for you). Investing in real estate this way can be very lucrative, but you have to know the market you’re going into. I know several people personally who make a full-time income by owning and renting out real estate. The nice thing about this is that you begin to pay off the mortgage over time, and eventually you’ll own a property free and clear — so the profits are substantial when the property is rented out.
A quick note: with $100,000, the odds of getting into a significant commercial real estate deal are low. You might be able to partner with others on it, but I would focus on residential real estate if you’re going the traditional route with your $100k (more on this below.)
One option is browsing the properties for sale on Roofstock. You can filter properties by list price or down payment and find homes that fit your price range. Roofstock sells rental properties, with each listing vetted to ensure rent is currently being collected, and you can even use one of their property managers to avoid dealing with the headaches of being a landlord.
A real estate investment trust (REIT) is much like an ETF as I mentioned above, only the focus is on real estate investments.
You can buy into a REIT at a relatively low cost and get instant diversification in real estate in a variety of areas and with a variety of property types.
The downside here is that you have little control over where your money is going. You are at the mercy of whoever is managing the REIT to decide where the investments are placed. Now, you could always sell your stake in the REIT, but to me, that negates the idea of a buy-and-hold strategy, which is ideal for real estate.
If you’re ready to buy into a REIT, one issue is how and where to start. It’s now easier than ever, thanks to technology. Streitwise, for example, lets you invest in private real estate for as little as $5,075.
But the best thing about working with Streitwise is that they take care of tracking down the properties for you. On average, they’ve generated dividends between 8%-10% over the last few years; the platform is run by experienced investors. One thing that makes Streitwise unique is that you can fund your investments using Bitcoin or Ethereum. If you have cryptocurrency, this could be a great way to make the most of it.
Traditionally, though, you’d invest in REITs by opening a brokerage account. Through this method, you choose investments just as you would stocks.
Crowdfunding for real estate is a relatively new avenue for investing in both and commercial real estate projects. The concept is simple — a large-scale real estate project comes up for investment and multiple investors (the “crowd”) can pitch in money to fund the project.
Those investors then become stakeholders in the project and are rewarded based on a variety of factors — whether it be a set dollar amount they’re paid back as part of a loan or perhaps they’re given a cut of the project when it’s completed and successful. Regardless, this is an excellent way for anyone looking to invest in massive real estate deals to have the opportunity to do so.
One great example of a platform that allows people to invest in real estate at a fraction of the cost is DiversyFund. DiversyFund allows individuals to invest in multifamily commercial real estate, and investors can get started with as little as $500.
DiversyFund is designed to be accessible to investors of all income levels, not just the extremely wealthy. With no management fees and tons of educational resources, DiversyFund is also a great choice if you’re looking to dip your toes into the world of real estate investing and learn more about the process along the way.
Fundraise is another great option when it comes to crowdfunded real estate investing. They make real estate investing accessible and easy to understand, and they feature flexible minimum amounts ranging from $1,000 for their Basic plan to $5,000+ for their Core plan and $10,000+ for their Advanced plan. With historical annual returns of 8.7%-12.4%, Fundrise is a great way to invest some of that $100,000.
CrowdStreet is another option for investors looking to invest in REITs, a whole portfolio of different projects, or to individually invest in commercial real estate. Their REITs have relatively low minimum investment thresholds between $1,000 and $5,000. You can easily search through CrowdStreet’s marketplace to get a sense of all they offer.
Read more: Real estate crowdfunding: should you invest?
3. Store some money away in retirement accounts
One of the smartest things you can do with $100,000 is to invest it in retirement accounts. That’s because you need at least $2 million to retire these days.
It sounds absolutely insane, but it’s not. If you want to retire comfortably, considering today’s cost of living and estimating the future cost of living, you’ll need a significant chunk of change.
401(k) — my crazy method
The first retirement plan that I’d recommend is your company-sponsored 401(k) — if you have access to one. While your 401(k) deposits are pre-tax money, there’s a trick you can use to “deposit” money when you come into a lump sum. Now bear with me because this isn’t an exact science, but it works (both mathematically and psychologically).
Basically, what I do is temporarily increase my contributions to the max, until I am able to deposit the full amount I’m intending, then I put my contributions back to normal. I then take the cash out of my lump sum investment pile, “subtract” the taxes I’d pay (and put this into a savings account), then deposit the rest into my checking, spread out over the time period I’m ramping up my contributions. Sound confusing? It isn’t — let me show you what I mean:
Let’s say you have $100,000 to invest.
The max you can contribute to a 401(k) this year is $20,500.
Let’s say you’re currently depositing $200 per paycheck into your 401(k) and you already have $1,500 in the account.
What I would do is go in and crank the contribution percentage up to 75% (the max) — which, depending on your salary, would significantly increase your contributions.
Say you make $60,000 per year — that’s over $1,700 per paycheck if you’re being paid bi-weekly.
Since you already have $1,500 in the account, you’ll need another $19,000 before you hit the max for the year. So basically you can max it out in almost 11 paychecks (11 x $1,700 = $18,700).
Now, take your $19,000 in cash (from your $100,000 lump that you have) and deduct any taxes you’d expect — this way you’re not over-inflating your “paycheck.” So let’s say I assume I will pay about 25% in taxes — I’d shave off $4,750 (.25 x $19,000 = 4,750).
That leaves me with $14,250 to deposit back into my checking account and make up for the loss in income I’d have by ramping up my 401(k) contributions. Spread this out over the weeks you’re bumping up your 401(k).
Now, take that other $4,750 and throw it into a savings account.
Once you’ve maxed out, reset your contributions (at this point, to 0 since you hit the limit) and enjoy the feeling of maxing out a 401(k).
After you’ve maxed out your 401(k), you should max out an IRA. Most people prefer a Roth IRA due to the retirement tax benefits (your withdrawals in retirement are tax-free, but you contribute taxed income now). I personally like a traditional IRA (you can get a tax credit on your contributions now, but you’ll be taxed in retirement.) I do this because I assume to be making much less in retirement than I am now. Regardless of what you choose, you should max out one of the two — and the current cap is $6,000 per year.
If you don’t already have an IRA, open one now. I have two suggestions on where to open your account, based primarily on your level of control needed. If you’re open to the robo-advisor route (like I mentioned above) then you should definitely go with Betterment.
I personally have my traditional IRA there and I love it. It’s completely hands-off and my returns have been great.
4. Reach out to the community with peer-to-peer (P2P) lending
Another great way to invest your $100,000 is with peer-to-peer lending. P2P lending is basically when you loan your own money to someone else who needs it, for any number of reasons.
Why invest in P2P lending?
There are a number of reasons you should consider P2P lending instead of something like stocks or real estate. These are some of them:
1. Strong returns
Depending on where you invest your money, you can consistently get returns of anywhere from 5%-10% with P2P lending. One guy even generates about 12% average return annually.
Remember that people need money to borrow and people have money to lend. This allows access to higher returns and lower risks since you’re lending money directly to another person who’s telling you how they’ll use the money (you also will have access to their basic risk portfolio before lending money).
2. Passive income
With most P2P lending platforms, you invest money by loaning it to someone else and you get monthly or quarterly deposits as they pay that money back. This creates a great stream of passive income, especially if you do it at scale.
If you choose to invest $100,000 in P2P lending, you can choose investments as low as, say, $1,000 and create a wide diversification of passive income streams.
3. Helps others
Aside from providing a good return and a passive income stream, P2P lending is a great way to lend money to others who need it for things like medical bills, paying off debt, or building their first business.
It might seem scary at first, but if you look at yourself the same way a bank would, you’re investing in someone else and taking on a certain level of risk in exchange for a projected return on your money.
How to invest in P2P lending
The absolute easiest way is to use an online P2P lending platform. There are two big players in this area: Prosper and Lending Club. Prosper came first, but I recommend LendingClub Bank, as it’s now a much bigger platform, having issued over $16 billion in online P2P loans.
You can read our full review on Lending Club for all the details, but just know that they offer several other key benefits that most P2P lending platforms don’t.
One unique benefit is the separate programs Lending Club offers for both medical and business loans. These are common reasons why people want to borrow money through P2P lending, so they’ve built out a separate program and risk strategy for these loans. You can even buy and sell existing P2P loans with other lenders on Lending Club — which reduces the barriers to entry and exit.
5. Get help with your investments
Look, I get it. Having $100,000 to invest is not pocket change. It’s a significant amount of money and you want to make sure you’re investing it correctly so you don’t lose your money. So whether it’s a lack of time, interest, or knowledge, you may find yourself wanting a professional to guide you and manage this bucket of money on your behalf.
If that’s the case, I would strongly recommend using Paladin Registry to find a great financial advisor. The Paladin Registry is SEC-registered and it reviews (with strict scrutiny) the credentials of investment advisors, allowing you to make a more knowledgeable choice of who to hand your money over to.
Understanding how you should invest $100,000 is not something to be taken lightly. It’s a lot of money, and you want to make sure you’re investing it properly.
The most important thing is to do your research to avoid any future financial woes.
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