Whether you have already reached $100k in your savings account or are going towards that goal, the most important question is: how to invest that money?
Investing is a contrast to unnecessary. In fact, it’s a crucial process to save money and continue to grow it.
Investing is as important as savings. If you accumulate money in the account and do nothing with it, it will go to waste, especially when inflation rates rise.
We are here to support you in investing because it’s not that complex, and with the correct information and research, everyone can do it.
We want our own money to make more money, and today, we are talking about:
- What you should do before investing $100k.
- Different ways to invest 100,000 dollars, including real estate, index funds, mutual funds, retirement accounts, etc.
- How to invest $100k in the best possible way through Whole Life Policy.
Before the $100k Investment
Before making this substantial step, you need to be fully aware of your current financial stage and assess whether is it the right time to invest.
Before investing, paying down your debts and creating an emergency fund are the priorities.
Pay Off Your Debt
This refers to any debt, especially high-interest ones, such as credit card debt, payday loans, etc.
Why? Because 16% is the ordinary credit card interest rate which is way higher than the average return from the stock market. Paying off debt will increase the use of money than investing in the market (even in a bull market).
A balance transfer credit card is an option to consider when someone has debt on multiple credit cards. This option allows people to consolidate debt and tackle it all at once. It has an introductory of 0% APR which enables people to put interest on pause while paying it down.
Create an Emergency Fund
Do you have a plan for what you would do if you unexpectedly lost your job? What if you end up in the hospital and need to pay medical bills? What if your car suddenly broke down and you need a new one or an extensive repair?
The answer is: I would use the money from my emergency fund. The most common way people eventually end up in so much debt is because they take a loan in an emergency because they don’t have an emergency fund.
If you already have an emergency fund, that is great! Make sure that it’s still well funded. Usually, people consider a proper emergency fund if it can cover six months’ worth of living expenses.
There are many ways someone can keep an emergency fund. How much money someone will put there and where they will keep it is linked to the risk tolerance someone has.
The safest option is probably to save six months of living expenses and keep it in a deposit account. Deposit accounts are a safe option because there’s no risk of losing principal, similar to a money or savings market account.
A bit riskier option is to keep three months’ worth of expenses and invest money in funds. It implies the risk of principal but in exchange for a higher return. Whatever you choose, the crucial thing is to have a liquid emergency fund that can last at least a few months.
Do Your Research
After paying off debts and creating an emergency fund, you are a step closer to start investing, but first, you’ll need research.
Every eventual investor has to decide what kind of investor they want to be.
The type of investor determines the kinds of investments and services or companies they would use. One of the key questions everyone have to ask themself is: how much risk I’m willing to take?
Your interests will affect your decision a lot. If you’re willing to do your own research, create your own asset allocation, and handle trades, you can be the do-it-yourself investor type. One of the options for this type is a taxable brokerage account which offers access to a diversity of financial products.
If you prefer just to invest money and don’t think a lot of it or do research, one of the options is to consult some financial advisors. Of course, you will have to set aside a certain amount of money for their fees. A cheaper option for consultations is a Robo-advisor service that helps people build and manage an investment strategy.
Different Ways to Invest $100,000
To find where it is best to invest your money, we will first go over the most common investment options and the most basic information you need to know about them.
Index Funds, Mutual Funds, and Exchange-traded Funds (ETFs)
Mutual funds and ETFs are a standard way of creating a diversified portfolio of investments, and they are also low-risk investments.
Mutual Fund
We consider a basket of investments with mutual funds – they can be all stocks, all bonds, or a combination thereof.
The manager plays a severe role in mutual funds. His job is to choose what to include within the fund. Usually, people who want to invest in individual funds but don’t have the time or know-how to research every stock prefer this type of investment vehicle.
It’s easier for them because they have to research a mutual fund or company, and the fund will make the specific investing decisions.
Even though it might sound incredible, there is a significant drawback. Due to management, some mutual funds have high costs, especially if they are actively-managed funds.
Exchange-Traded Funds (ETFs)
Similar to mutual funds but traded like individual stocks are ETFs. They usually have lower costs than mutual funds.
ETF investments involve various investments: someone can invest in large corporations, specific sectors of the economy, or bonds and real estate.
Some ETFs have a particular idea in their primary focus, such as supporting renewable energy.
Index Fund
Another standard option is index funds. Instead of having a manager with a job to actively choose stocks and make trades, index funds’ focus is on tracking the performance of a single market index.
An index fund might track the 500 largest publicly traded American companies. Due to this tracking method, investors can easily, invest in a wide range of companies. A significant advantage of index funds is this sort of protection in case of certain companies struggle (or sectors of the economy). Index funds are managing to outperform actively managed funds for a more extended period.
Rish of investing in index funds is minimal. Thus, there is no surprise why this is a common way to invest. The secret is to diversify stocks by buying the most prominent companies through an index fund.
According to Bankrate, these are the best index funds to own this year:
- Vanguard S&P 500 ETF (VOO)
- iShares Core S&P 500 ETF (IVV)
- Fidelity ZERO Large Cap Index (FNILX)
- SPDR S&P 500 ETF Trust (SPY)
- Schwab S&P 500 Index Fund (SWPPX)
You can take advantage of diversification and low risk simultaneously by investing $5,000 in stocks of the S&P 500 at a low cost.
Individual Company Stocks
Since stocks are extremely popular, people usually have an illusion that they would buy one stock, and it’s going to take off as the next Amazon or Apple.
In contrast, trading individual stocks is both time-consuming and risky. Investors need to do thorough research on companies and ideally have knowledge of methods of equity analysis (technical analysis and fundamental analysis).
Yes, money invested in individual stocks can make big gains, but there is also potential for significant losses.
Individual stock investments are more suitable for people with experience, knowledge, and free time.
Real Estate
Real Estate Investment Fund (REIT)
Investment funds are a popular solution when people want to invest in real estate. Real estate investment trusts (REITs) allow an individual to invest in real estate without purchasing a property, which is why it’s so popular.
Investing is straightforward and usually doesn’t require a lot of money. Some real estate investment trust platforms allow investments from even $100.
The difference between traditional real estate investments and REITs is that REIT properties generate income in their portfolio. REIT includes medical facilities, residential properties, retail spaces, and office buildings.
CrowdStreet is one of the popular options for investors looking to invest in REITs. You can browse through a whole investment portfolio of different projects, or individually invest in commercial real estate.
Usually, REITs are organized around real estate themes, like shopping malls or data centers. REITs must disburse at least 90% of their taxable income to shareholders. Moreover, REITs often pay higher dividends than most stocks.
REIT shares are available through a broker or directly from the REIT company. If you decide to invest in this type of investment vehicle, REITs will pay you dividends taxed as regular income. Still, earnings are taxed as capital gains.
Another option is ETFs that include multiple REITs. This type of investment strategy allows people to track the real estate market.
Traditional Real Estate Investing
When they hear real estate, most people think of buying and flipping properties or purchasing and renting out for income. Real estate investments can generate gains quickly, but only if several factors meet.
The property’s location is the number one priority you need to look up if you want to start investing in real estate. The location is as crucial as the property itself.
If you have a dilemma about whether you should invest or not, our advice is first to explore the stock market condition. The stock market is the best indicator of whether it is a good idea now or not.
Real estate investing requires more outlay of money than alternative investments. Because a lot of money is in-game, you need to make an investment plan carefully.
The crucial step is predicting the return of investment (ROI), the property’s profitability, and associated costs. Whatever amount of money you want to invest, you have to consider how much will be spent on purchases and repairs, renovations, and marketing. There are also selling costs for flips and maintenance prices for a rental property.
Experienced real estate investors usually hold their properties until the ideal situation arises because real estate is one of the few assets that become more valuable over time. A perfect situation is when the appreciation is excellent enough to generate the desired profit. When that profit is realized, it is taxed as capital gains.
$100,000 worth of property investment is enough for most places to make a sizable down payment. It might not be enough for expensive areas like New York or Los Angeles, but you can always go outside of the city.
Owning property in a different state where you’re living isn’t the most convenient, but it’s not impossible either. Paying taxes usually makes problems for people, but contacting a financial advisor should be enough for setting everything up.
One of the most common reasons people choose to invest in real estate is possibly acquiring more property than they can afford by leveraging finances. If they invest $100k and use it as a down payment for a loan to purchase a property, that is worth one million. Over time, they would make mortgage payments on the investment property and build up the equity.
Thus, during the life of the loan, they are enjoying the benefits of one million worth of an asset rather than just $100k. Gaining tax advantages is tempting for any investor.
Savings Accounts, MMAs, and CDs
Savings Account & MMAs
Savings accounts are the simplest and safest way to keep money in a safe space, whether you already have investments or didn’t decide how to invest your money.
However, this is not the way to build wealth.
Even if you choose an account with higher interest rates, it’s still limited. Usually, big banks offer savings accounts with 0.05% of interest rates or less. It’s basically useless.
Other options are a money market account (MMA) or a different high-interest savings account. Their interest rates are typically higher but still not great.
CDs
If you like the idea of parking your money, another safe option is a certificate of deposit (CD). With CD, everyone has to set a term from one month to 10 years.
Keep in mind that you will lose part of the earned interest with early withdrawal when setting a term.
Higher interest is a compromise to reduced liquidity, especially for longer terms. If you want just this option, you can get a jumbo CD for $100,000 or more balances.
We always suggest investing money with the best possible return and keep reading this article to see that it’s possible for an investment to be safe and with high capital gains!
Cryptocurrency
Diversification is the key to success in investing. In the last few years, investing in cryptocurrency expanded.
Since Bitcoins’ value has dropped down by half after hitting a record high, some experts advise that now is the perfect time to start investing using cryptocurrency apps. It’s important to choose the verified app. Coinbase is an accepted app in the United States, but in the whole world too.
Peer to Peer Lending
There are some platforms like LendingClub or Prosper where anyone can make an account and start giving loans to peers registered. In this way, the lives of other people are directly affected!
It’s possible to buy into thousands of different loans, spread out risks, and earn a profit from the interests.
Peer-to-peer lending has become a very attractive way to invest $100k, especially among people who want short-term investment and not much activity around that.
Often money lenders lend their money to real estate investors. The borrowers will complete real estate investing while the private money lender will earn interest (about 12.0%).
It’s a relatively passive method because investors only have to check borrowers to whom you will be lending money.
Gold
Usual advice from experts to hedge against inflation is to invest in gold. 10% or 15% of your portfolio is enough to invest in gold. Instead of gold, it can be invested in other precious metals.
The suggestion for beating inflation is mainly based on the fact that the price of gold tends to rise along with the cost of living.
Analyze every strategy before investing because there are plenty:
- With Orion Metal Exchange is possible to invest in gold within an IRA.
- There is an option to buy physical gold with a vendor like Oxford Gold Group, Lear Capital, or Goldco.
- Another option is investing in gold via ETFs or cryptocurrency.
Investing in gold is preferred in the situation of hedging against inflation. It’s also used when someone wants to increase their portfolio with assets that operate independently of the stock market.
Start a Business
Probably every one of us at least once had an idea for a business but didn’t do anything because it required a lot of money. Well, if you have 100k to invest, maybe it’s time to explore your business venture!
Make sure to contact financial advisors and research prospects if the business is a high risk. Development of the business plan is the key to success.
Of course, different types of business require an additional amount of money. $100,000 is a considerable amount, and you probably won’t need all of it. In case you don’t need the total amount, you can put the rest of the money into other investments.
Don’t forget that we live in a world of opportunities, especially in the online world. You will need less (and in some cases no) money to start your business than in traditional ways.
How to Invest $100k in Retirement Accounts
For many people, retirement savings are in the top 3 priorities for their financial goals. It’s never too early to start saving for retirement. So, if you haven’t started saving, consider investing in your future. It will undoubtedly make a big difference.
Everyones’ situation is different, but the usual formula is first to check if your employer offers access to a tax-deferred account. If they do, making a maximum contribution is usually the first step.
401 (k), 403 (b), and 457 (b) are standard plans for employers. In 2022 the maximum annual contribution is $20,500 if you are younger than 50 or $27,000 if you are over 50 years old. You pay taxes when withdrawing money in the retirement for these retirement accounts and not when you contribute.
After contributing employer’s retirement plan (or if it’s not offered), people often max out an individual retirement account (IRA).
An IRA is a savings plan with tax advantages that people can open to invest for retirement.
A traditional IRA is similar to a 401 (k) – it requests paying taxes on the funds when people withdraw, but the money that goes in is pre-tax.
People get to deduct the funds to contribute to their taxes because a traditional IRA isn’t a paycheck deduction like 401 (k).
Converting to a Roth IRA is a taxable event, with the amount of the conversion reported as regular taxable income.
With Roth IRA, people can contribute after-tax money. And also, there is no tax deduction because the income taxes are already paid.
This option is way more beneficial because investments grow tax-free, and there is no anxiety about withdrawing money in retirement.
A Roth IRA is more suitable for people when the monthly income is usually lower at the beginning of their career. In that way, people can save money by paying income taxes in the present, not in the future, when money grows.
Due to IRS limits, investing $100k in a retirement account wouldn’t be possible. It’s possible only if you are rolling over from an eligible retirement account.
Roth contributions annually are limited to $6,000 for people less than 50 years ($7,000 for 50 or older). AGI (adjusted gross income) of taxpayers cannot exceed the limit to their tax filing status to be eligible.
For married couples filing jointly, the contribution limit is $214,000 or more. Married couples filing separately are not qualified if their income is $10 000 or more. The contribution limit is if their income is $144,000 or more for all others.
Additional Tips
Diversify as much as you can!
100k is a considerable amount of money, and with that sum, you would be able to apply the Investing 101 mantra – diversification. In other words, $100,000 can be divided into a bucket for vehicles you already own (like IRA) and trying some new investment tools with the balance.
This is an influential decision, so it’s crucial to consider your short and long-term financial goals and be realistic about your risk tolerance. Don’t be shy to seek investment advice.
Even if you are (semi) professional, the opinion of another investment advisor can open your eyes.
Specific attentions
There are many ways to invest $100,000, including building and managing an investment portfolio. If you decide to be a savvy investor, you might go at it along with stocks, diversified fixed assets or a bond fund, and other securities.
On the other hand, beginners and average investors often use the services of a licensed financial advisor. These experts create solutions for controlling your personal finances, but they are also costly.
The most crucial step in protecting and deciding where to put your money is understanding how the money will be taxed—different investments design different tax situations. So, if the $100,000 is tax-free, the general suggestion is to go with tax-efficient investments. If the $100,000 is from a qualified retirement account, maybe it is best to roll over to transfer options that defer taxation.
Remember always to track your investments! After you choose where to invest, you have to track them. There are available apps for that, like Personal Capital or Robo-advisor, but traditional financial advisors also help you with tracking.
A Robo-advisor can be helpful, and when choosing, make sure to look for ones that had tax-loss harvesting to help with capital gains taxes.
How to Invest $100,000 in the Best Possible Way?
We saved the best way to invest $100k for last. It’s not to keep yours in suspense but to see why it is the best investment compared to other approaches.
Whole Life Insurance Policy
A whole life insurance policy is a versatile financial instrument with two integral parts: protection for families and businesses from uncertainty and supporting them in building and enhancing wealth.
Unlike term life insurance which covers only a specific number of years, permanent life insurance protection lasts the entire life. Many permanent insurance kinds exist, but the whole life is the simplest.
Every person can have an exceptional whole life contract because the contract depends on mortality risk, desired coverage level, and some optional features. If you plan to apply for a whole life policy, be ready to go through medical exams. Based on your medical health and life expectancy, four guaranteed values will be set:
- A level premium – this will never change. The policy will stay in effect as long as the policyholder keeps paying premiums.
- A death benefit – the amount paid to beneficiaries is guaranteed to never lower.
- A cash value is guaranteed to grow at a set rate each year until it equals the face amount of the policy at a specific age.
- An endowment – the death benefit is guaranteed to be paid if the policyholder still lives at the age specified in the contract.
A whole life policy investment is simultaneously a long-term investment with numerous benefits you can use during your lifetime. After it grows into a proper amount, you can borrow money against your policy’s cash value.
You can pay premiums, invest in other assets, or surrender it for cash in retirement with that money. This process is called the Infinite Banking Concept, or Cash-value life insurance, but we will come back later.
Benefits of Whole Life insurance
The benefits of Whole Life Insurance are numerous:
- Tax-free death benefit: the death benefit is not subject to federal income taxes.
- Tax-deferred growth: the growth of cash value inside your whole life insurance is tax-deferred while the funds stay in the policy
- A permanent estate: whole life policy provides a guaranteed death benefit for the policyholder’s entire life.
- Tax-favorable access to cash through withdrawals: withdrawals are considered a tax-free return of cost basis.
- Tax-favorable access to loans: You can take loans against your policy during your life, and it won’t be considered a taxable event.
- Self-funding: the policy can pay for itself over time by applying dividends to pay premiums.
- Liability protection: the benefits are protected from the claims of creditors
- Disability protection: this policy can continue to be funded even if the policyholder is disabled.
The Infinite Banking Concept
While these benefits are enough to decide to invest your money in Whole Life Policy, we also present you the key reason why this is the best option – the Infinite banking concept or an Over-funded life insurance policy.
The Over-funded life insurance policy revolves around a whole life insurance policy.
A certain amount of each premium payment is filtered into the cash value savings section. This is an extraordinary feature because it allows you to borrow against this growth, and use the tax-deferred cash value section to fund life expenses like paying off your student loan debt, retirement savings, or buying a house. That’s how the cash value of your life insurance policy empowers you to become your own banker.
In contrast to other investments, investing in Whole life insurance has zero risk tolerance.
You wouldn’t even have to call legal counsel or financial advisor prior to implementation because the process is so straightforward!
With an Over-funded life insurance policy, you will achieve your financial goals while being financially independent.
To make this dream come true, you just need your Whole Life insurance policy.
Final Thoughts
We hope that this article gave you an overview of all investment opportunities and helped you see why investing in Whole life insurance is the best way to invest 100k.
You can take control of your personal finances today and start achieving all of your financial goals. Sign up for Wealth Nation, and we will be more than happy to support your journey towards financial freedom!