How To Invest $100,000: Your Guide to Success for 2022

If you have $100,000 in cash on hand, you should invest. Investments are the only way to build real wealth over time, through the power of higher returns and compound interest. The problem is that a good portion of Americans aren’t investing their money, let alone investing in a 401(k) or individual retirement account. But it’s never too late to start. With $100,000 available to invest, you can create a diversified portfolio to meet your investment needs, from generating current income to growing your money for retirement. Although the best way to invest $100,000 is different for everyone, here are some of the top options you may want to consider.

At a Glance: The Best Ways to Invest $100,000

In a nutshell, these are the best ways to take $100,000 in available funds and grow them:

investment option advantage Cons Better for
individual actions
  • High return potential
  • extremely liquid
  • High return variability
  • Investors who are committed and willing to do extensive research
Investment funds
  • Diversified
  • professionally managed
  • Management fees and other costs
  • It can only be bought or sold once per day.
  • Passive investors looking to hire professional management
index funds
  • Low cost
  • Track Index Returns
  • Generally passive and not actively managed
  • May be undiversified
  • Expert investors seeking exposure to specific market sectors or industries
exchange traded funds
  • Offer the liquidity of the stock market with the diversification benefits of mutual funds
  • Possible commission costs with each trade
  • Might not be diversified
  • May not have active management
  • Investors who might need to get out of an investment quickly
  • Investors who understand what market sector they want to invest in
Real estate
  • High long-term returns
  • Offers diversification from other asset classes
  • Real estate in depressed areas may recover slowly or not at all
  • Investors who understand real estate markets and prices

retirement savings

The two main types of retirement accounts they are 401(k)s and IRAs. If you work for a nonprofit organization, you may be offered a 403(b) instead of a 401(k).

401(k)

For 2022, you can contribute up to $20,500 to a safe harbor or traditional 401(k) or up to $27,000 if you are at least 50 years old. You can only contribute up to the amount of your earned income. Your employee’s combined contribution and employer matching contribution cannot exceed $58,000 or $64,500, including catch-up contributions for individuals age 50 and older. The money grows tax-deferred until it is withdrawn.

403(b)

rules for 403(b) Plans They are somewhat similar to 401(k) plans in that you can contribute up to $20,500 for 2022, with catch-up contributions of up to $6,500 allowed for those who are at least 50 years old. Some plans may also allow contributions of up to $3,000 for those who have been in the plan for 15 years. As with 401(k) plans, the money grows tax-deferred until withdrawn.

GONNA

Individual retirement accounts, or IRAs, are personal, non-employer sponsored plans. Contributions are limited to $6,000 by 2022, with an additional $1,000 in catch-up contributions for those 50 and older.

Index Funds, Mutual Funds, Individual Stocks, and ETFs

Each of these options is a way for investors to gain exposure to the stock and bond markets. Here’s a quick overview of why each of these investment types may be appropriate for someone looking to invest $100,000.

index funds

With $100,000 to invest, you can diversify your portfolio across a number of different index funds that match your investment objectives. For example, if you think the US large-cap market, foreign small-cap market, and emerging market bonds are the areas that will appreciate in the coming months, you can allocate your $100,000 to those areas. investment sectors using index funds. Even with $100,000, it’s hard to get this kind of exposure to the global stock market by buying individual stocks, so index funds can save you all the legwork.

Investment funds

One of the great advantages of using $100,000 to buy Investment funds it comes in terms of prices. For funds that charge a sales load, you can usually get a reduction in that fee if you buy in bulk. With a large sum like $100,000 to invest, you can also gain access to institutional-grade funds, though the minimum is usually $1 million or more. With an investment of that size, you can also spread your money over enough various mutual funds to build a long-term sustainable portfolio.

individual actions

Many investment advisors recommend that clients have at least $100,000 to invest before buying. individual actions. The reason is that individual stocks carry a relatively high amount of risk. But with $100,000 or more, you can buy a significant number of different stocks, reducing your risk and still capturing the upside potential.

Individual stocks can have very different returns. In 2021, for example, the best performing stock in the S&P 500 index, Devon Energy, returned 196.1%, while the worst performing stock, Penn National Gaming, lost nearly 43% of its value.

ETFs

exchange traded funds combine elements of mutual funds and individual stocks. Although they are traded on exchanges like stocks, they consist of entire portfolios, like mutual funds. Therefore, with an ETF you can have access to a complete portfolio and retain the ability to buy or sell your investment property at any time on the stock market. If you have some market experience, you can choose the sectors, industries, or markets that you feel have the best opportunity for appreciation rather than handing those decisions off to a mutual fund manager.

Real estate

Real estate is a less liquid form of investing than the stock and bond markets, but it can provide high returns. In fact, a Harvard study found that residential real estate returns only slightly more than stocks over time, but with considerably less risk. Here are three ways you can use $100,000 to invest in real estate.

investment property

The most traditional way to invest in real estate is to buy investment properties. With $100,000, you can buy a house outright in some markets; At a minimum, you can make a significant down payment, or you can diversify your holdings into several different investment properties. If you are knowledgeable in the area, $100,000 can also generate passive income, through a rental property or financing a house flip.

raw earth

Raw land can be a cheaper option than developed investment properties. But raw earth it is speculation. It can be a good option if you are an experienced real estate investor, but it can be difficult to generate a return. Unlike bonds and rental properties, which pay a regular stream of income, land pays nothing unless you sell it.

fundraising

Crowdfunding can reduce your risk in real estate investments because you are pooling your funds with other investors instead of taking on the risk of an entire project yourself. Also, some sites choose properties on your behalf and spread your investment across several different real estate projects, so you can automatically diversify your risk instead of having to spend $100,000 on a single property.

Diversify your funds

One of the real luxuries of having $100,000 to invest is that you can successfully diversify your portfolio across different asset classes, investment types, and different risk profiles. For example, while some of your money might be invested in more conservative bonds, which might pay you a rate of $3,000 to $4,000 on a $100,000 investment, some might be invested in the US stock market, which has a long-term average return closer to 10%. While it may be tempting to put all your money into investments with the highest potential return, the safest way to invest your entire $100,000 is to spread it across different asset classes so you can minimize risk that your entire portfolio will go down at the same time.

Information is accurate as of September 6, 2022.

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How to Invest $100,000: Your Guide to Success for 2022

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