10 Ways to Invest 100k for Retirement

This article originally appeared on The Financially Independent Millennial and was republished with permission.

Are you wondering how to invest 100k? Perhaps you’ve just sold your home, inherited money, or maybe you won the lottery. Either way, getting such a windfall happens to many. And, it’s natural to seek out the best ways to start.

When I was about 26 years old, after investing in a home, renovating it, and then selling it, I made my first 100k. I remember the day well because I hadn’t ever seen a check so big before! To be sure, renovating and selling it wasn’t my first thought. I expected to live in the home for a long time. Real estate prices went up significantly, and I decided to take some chips off the table.

Around the same time, I also had a friend who, through an insurance policy, got an $80k settlement. My friend spent her money in less than a year. In my case, I invested it in a new home.

For this article, I will assume that in your financial plan, you have done all the following:

• Make and follow a budget.
• Have a fully-funded emergency fund.
• Paid off all high-interest credit card debt. 

When It’s Time to Invest Your 100k

Assuming all the above is complete, then you can move forward. But until that time, there’s no point thinking about where to invest that 100k. For example, if you don’t follow a budget, don’t have an emergency fund, or you’re carrying high-interest debt, you’ll need to tackle those issues first. Indeed, these are far more important.

The following is a list of investments that you can look at to best invest your money.

Real Estate Investments

When thinking of investing, real estate is often the first thing that comes to mind. While paying off the mortgage might make you sleep better at night, it’s an ineffective way of investing in real estate. 

Many experts agree that over time, real estate appreciates about the same as inflation. However, these experts are only referring to the property’s capital value (i.e., the selling price). Often, the best returns from real estate investing come from the rental market.  Investing in rental properties has paid me years of dividends that I’m forever thankful for.

As I write this, in 2021, I see historically low mortgage rates. For example, real estate investors can get a 30-year mortgage for under 3%! That’s incredible. And once you add in the [expected] increasing inflation rates, rents will go up, but your mortgage won’t. As a result, the rental market is starting to become an ever more promising opportunity.

Another idea for investing in real estate is to consider apartment buildings and commercial real estate. However, mortgages on these properties get calculated differently, and it may take more than 100k to acquire one.

Invest in Yourself

It might sound cliché, but sometimes, the investment that pays the best returns is an investment in yourself. When consumers invest in education, for example, they can get a higher paying job. Or, if someone seeks out training to start and run a business, they could create generational wealth to pass down to their children. 

Education

Like any investment, it’s essential to start with a little due diligence when considering investing in education. For example, if you’re going to invest in a course, ask yourself, what will that get you in the end? Will you get a promotion? If you’ve got 100k to invest, why not consider putting it toward education?

For example, a teacher with six to nine years of experience who has a bachelor’s degree may earn on average $45,390 a year. But, with a master’s degree, that magnifies to $52,750. Further, if the same teacher with a master’s degree teaches at a junior college, they might expect a salary that approaches $79,540. [Source]

Considering the cost of a master’s degree is around $40,000, the investment return could take as little as one and a half years if you play your cards right.

Start a Business

If you’re like me, you might find yourself thinking up any number of business ideas daily. Therefore, if you’ve got a business idea, you could make it a reality by using some of your 100k. To be sure, a business could begin from any number of side hustles. But you need to be smart about it! Indeed, data from the Bureau of Labor Statistics confirms that about 20% of new businesses fail by year two, around 50% by year five, and more than 65% by year ten. And only around 25% of companies make it to 15 years.

So, before you start investing in a new business, it’s essential to educate yourself on the business plan. Take the time to research your target client, a product you’ll sell to them, your operating costs, and potential profitability. These are things you can do to find out whether the business is worth investing in.

It’s also helpful to get advice from other (successful) business owners to confirm you’re on the right track. There’s no harm in asking for help. Successful businesses have a solid business plan, complete with facts to back it up.

Stock Market

There are several advantages to investing in the stock market. For example, with 100k, you can get better diversification that would be otherwise different from any other investment class. Indeed, investing in stocks gives you a chance to buy in various industries. And, the returns can be quite juicy as well. For example, since the early 1920s, the average annual return for the S&P 500 has been about 10%. And that’s before dividends! Indeed, a buy-and-hold strategy often makes the best sense!

If you’ve got $100,000 to invest in stocks, here are a few things to know:

Individual Stocks

Buying blue chip stocks may be among the riskiest strategies, but it could provide you the biggest reward. For example, according to Marketwatch, the best performing stock in 2020 was Tesla, at a whopping 743%. 

However, who do you know has all their eggs in one basket? Indeed, few people will have most of their money in a single stock, like Tesla. Their portfolio isn’t diversified. Having too much exposure to one single stock is called portfolio risk, and it’s something you want to avoid.

Experts agree one way to avoid portfolio risk is to invest in at least twenty stocks, of varying industries, for diversification. For example, in the spring of 2020, the banking sector got decimated, while tech held up quite well. Furthermore, when buying stocks in an investment account, consider buying a little over a long period. Indeed, it’s known as dollar-cost averaging. 

Here are some other ideas to mitigate portfolio risk:

ETFs and Mutual Funds

ETFs and mutual funds are baskets of stocks that are pre-bundled for you. Therefore, instead of buying multiple stocks, you can make a single investment and get instant diversification with ETF’s and mutual funds. However, there are some fundamental differences between the two. 

ETF – short for exchange-traded funds, these ETFs traded much like stocks and are often passively managed. ETFs are often index-funds that try to match the return of an index such as gold or the S&P 500. For example, SPY is the most famous index fund that tracks the S&P500 Index. Vanguard also offers many low-cost index ETFs to choose from. 

People who invest 100k in this ETF get instant diversification across 500 companies. Other ETFs can be actively managed and provide features that include leverage, return of capital, or focus on specific industries like the banking sector.

Mutual Funds – these are usually actively managed by an individual fund manager or a group of portfolio managers. The portfolio managers pick the stocks that get included in the fund. As a result, it’s common for mutual funds to have better returns than Index ETF’s. 

Investors shouldn’t necessarily consider Index Mutual funds over ETFs. They are both funds but are different in that mutual funds are usually actively managed, and ETFs are passively managed. Regardless, when investing 100k, consider the fees. Fees will eat into your returns.

Robo-Advisors

If you are looking for an easy and low-cost way to invest your money, another option is with a Robo-advisor. Indeed, Robo-advisors are gaining in popularity as they are easy to understand, offer low fees, and give instant diversification.

A Robo-advisor is a feature within a brokerage account, which uses an algorithm to compose your portfolio. Then, throughout the year, your portfolio gets rebalanced automatically. Moreover, the minimums are very low. Some brokerages allow you to start investing with a Robo-advisor for about the cost of a cup of coffee.

Crowdfunded Investments

Crowdfunding refers to many people who invest small amounts of money as the initial investments are low. Here are some crowdfunding investment opportunities you can start researching today:

Real Estate Crowdfunding

With real estate crowdfunding, investors buy units or notes in a given fund. And the fund holds real estate. Then, the fund generally pays the investor dividends or distributions monthly, quarterly, or yearly. 

Some funds use crowdfunded investment dollars to buy industrial buildings or shopping malls. And others buy apartments and multi-family homes. The rental revenue, minus expenses, then funnels down to the investor.

Investors who chose real estate crowdfunding may expect to earn upwards of 7-8% on their investment.

Equity Crowdfunding

With real estate crowdfunding, people invest in funds that hold real estate. With equity crowdfunding, people make little investments in startup companies. I would consider this to be on the riskier side of the investment spectrum. However, if you found a unicorn such as the next Facebook, Airbnb, or Uber, a small investment could make you rich. As with any investment, do your due diligence!

Peer-to-Peer Lending

Peer-to-peer lending is a crowdfunding investment option that is also gaining in popularity. People borrow money for various reasons, and peer lenders can get upwards of 30-35% on their money. To be sure, the higher the interest rate, the higher the risk.

Investors will research the available potential loans before deciding how to invest their 100k. For example, some platforms offer information such as debt-to-income ratio, reasons for borrowing, and the borrower’s credit history (and score).

There are many peer-to-peer lending companies online, such as Peerform and Lending Club. Investors choose from the different note credit ratings as they represent the various risk levels to an investor. The higher grades (A and B) will give you a lower rate of return and a lower charge-off rate.

On the other hand, the lower grade notes (D through G) will have a higher return rate and a higher charge-off rate. And that means there is a higher chance of you not getting paid back.

So, with 100k to invest, you can diversify the risk between lower grade and higher grade notes. For example, on a lower grade note, you can earn as much as 35%.

Solid returns

Like anything, your returns get directly correlated to risk. If you invest your 100k in the highest risk category, you’ll have the highest potential rate of return. But, you’ll also have the most significant risk of loss. With peer to peer lending, and for the least risk, I would recommend considering notes that offer a return of 5 – 10%.

Help Others

Peer to peer lending is also an excellent way to earn passive income. This method also gives you a chance to help others in need of money to consolidate debt, go on a vacation, or start a business.

I wouldn’t blame you if you felt scared investing in peer to peer lending the first time around. To be successful, you have to look at the loans the way a bank would.

The Final Thoughts When Thinking about How to Invest 100k

Investment Do’s and Don’ts

Before investing your 100k, here is a short list of things you should and shouldn’t do to ensure that the money lasts as long as possible.

Do:

• Prioritize your long term goals
• Focus on low fee investments
• Spread the risk to various type of investments
• Stick to an investment plan

Don’t

• Forget to save
• Tell anyone
• Bet all the money on one thing
• Take too much risk

As you can see, there are numerous ideas when considering how to invest 100k. Now, it’s up to you to choose the best method you want to use and invest your money in. But, these methods are not without risk. Therefore, you have to do your due diligence and assess your risk tolerance when investing for you and your family. Also, it’s never a bad thing to seek out financial advice from a licensed financial adviser. The ball is in your hand. How would you invest 100k?

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