What would you do if you got a financial windfall of $100,000? In the current economy, it’s tricky to figure out the best way to make the most out of a large sum of money, so I posed that question to six finance and investing professionals to find out what they would do in that situation.
Wendy Liebowitz, CFP, Education Consultant at Fidelity Investments
There are four areas I consider when it comes to any investment strategy: debt, emergency account, protection and growth.
First, pay off any high interest-bearing debt, such as a credit card with a high interest rate. Second, save at least three to six months’ worth of essential expenses, and keep those savings in a checking, savings or money market account so you can access them easily should you ever need to. Third, depending on your risk tolerance and time horizon, consider protecting your principal, or the amount you invest, through methods such as a fixed-rate investment, which tends to be less volatile.
If retired, you may also want to consider protecting the amount of income you’ll need in retirement through guaranteed sources of income, such as Social Security, pensions and/or income annuities.
Once these three areas are addressed, allocate the remainder of the $100,000 to growth in a well-diversified investment strategy of stocks, bonds and cash, which can be done through individual securities, mutual funds, ETFs or fee-based managed solutions, just to name a few options. Following these four steps should help you balance risk and reward and put you in a better place financially to achieve your long-term goals.
Amy Richardson, CFP, Director With Schwab Intelligent Portfolios Premium
When exploring ways to invest a financial windfall of this kind, the first step should be to zero in on your goals. If you’re investing for retirement, a good place to start could be maxing out your 401(k), IRA or other retirement savings vehicles. If you’re looking to invest for future education costs, you may consider opening a 529 college savings plan.
Lastly, if you have a wider range of financial goals in mind — anything from building wealth to maximizing savings to paying down debt — a brokerage account may be a good fit as it allows you to invest in a wide range of assets, from stocks and bonds to mutual funds, ETFs and more.
Which types of investments you choose will depend on your goals and how much time you have to reach them. If you have a longer time to invest and you’re looking to maximize the growth of your investment, you may want to invest more aggressively by holding more stocks.
More conservative investors typically put more of their portfolio into bonds. Whether you are a more conservative or more aggressive investor, it’s important not to put all of your eggs in one basket and instead focus on building a diversified portfolio. It’s also important to avoid trying to time the markets, which is nearly impossible. The most important thing is to maximize the time your money has in the market to grow.
Jilliene Helman, CEO of RealtyMogul
In this time of market volatility, multi-family real estate has all the characteristics of where an astute investor should put $100,000 right now. I’d invest in four private placement deals, putting $25,000 into each. I’d do two deals focused on appreciation in high-demand markets, like Austin (Texas) and Miami, where there is strong population growth, and another two focused on cash flow. Right now, most markets are incredibly volatile, and bond yields — though they’re rising — haven’t outpaced the rate of inflation, which makes real estate one of the safest asset classes, in my personal opinion.
Michelle Brownstein, CFP, Senior Vice President of the Private Client Group at Personal Capital
First, make sure you have an appropriate emergency fund set aside, which is typically three to six months of expenses that remain in cash. Then, the remainder should be invested in a diversified portfolio, likely using low-cost ETFs that align with your goals. For longer-term goals, being more stock-heavy is typically appropriate. For an intermediate-term goal, being more bond-heavy is typically appropriate.
David Greene, Co-Host of the ‘BiggerPockets’ Podcast, Real Estate Agent and Investor
Considering current monetary policy and the likelihood for big inflation in the future, I would buy real estate in markets where we are likely to see growing demand, population growth and wage increases. States with no or low state income tax and warm weather are very attractive for wealthy Californians and New Yorkers looking for a change of scenery and some tax relief, so I’d start with those areas.
Short-term rentals offer a great way for those who want to maximize their revenue while running a side business to get introduced to the fundamentals of real estate. If you live in one of those areas, strongly consider “house hacking” — buying a property with a low down payment as a primary residence, living in it and renting out units, bedrooms, in-law quarters or other pieces of the home to bring in extra revenue and lower your living expenses.
Winning in real estate is all about playing the long game. If you put your money into growing areas and hire a property manager to take care of the details, you can turn $100,000 to $1 million over time.
Barbara Friedberg, MBA, Investment Expert at BarbaraFriedbergPersonalFinance.com
Before I suggest how to invest $100,000, let’s assume that you are younger than age 55, have an emergency fund, no personal or credit card debt and are able to leave the money invested for more than five to seven years. Given those conditions, now is a good time to put a good chunk of that money in a diversified investment portfolio of ETFs.
The simplest route would be to invest 60% in SPDR S&P 500 ETF Trust (SPY) which is a low-fee index fund tracking the S&P 500, or Vanguard Total Stock Market Index Fund (ETF-VTI). Next, for global equity exposure, invest 20% in Vanguard FTSE All-World ex-US ETF (VEU), and the remainder could be invested in a medium- or short-term diversified fixed asset or bond fund, like Vanguard Intermediate-Term Bond ETF (BIV) or SPDR Portfolio Short Term Corp Bd ETF (SPSB).
Because we are in the midst of a stock market correction, now is an opportune time to put “long-term” money into the stock market. If you’re worried about further declines, invest $50,000 now and wait a couple of months to invest the other $50,000.
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