I realize that not everyone has $100,000 sitting around, but if you’re currently working on building wealth – and are committed to your goals – that 100k will show up in your financial portfolio quicker than you think it will. Investing that money properly has the potential to make it grow exponentially, thanks to the wonder of compound interest. Today I’ll share some ideas on how to invest $100k for those who are looking for ways to compound their wealth growth.
The wealthy have a different mindset about money. I’m not speaking here about the “I won the lotto” wealthy – I’m speaking of those who have amassed true wealth: those who’ve sacrificed and worked hard earning and managing their money in order to build wealth.
The truly wealthy are wealthy because they understand the value of a dollar. They aren’t as willing to spend their hard-earned cash on material items such as yachts and mansions, but they are willing to research and invest in investments that have the potential to grow their wealth, because the promise of continued financial security is more important to them than the temporary gratification that comes with the purchase of “stuff.”
Once you’ve reached that $100,000 mark, you need to know how you can invest your money in ways that will balance risk yet allow for more growth than you’d get hiding it under a mattress or putting it in a savings account. Here are some investing ideas that will help you to do just that. Before you read on, remember that all investing involves risk. If you’re not sure you have the level of investing expertise you’re comfortable with it might be a good idea to consult a financial advisor before making any decisions on how to invest your $100k. The investment avenues I share here have stood the test of time and involve a good balance between risk and reward.
Create A Plan for Investing Your Money
When you get to that point in your walk toward financial independence – the point where the promise of financial security is more important than the lure of stuff – and you’re working to research investment ideas that will help you grow your wealth, here are some investment options you might consider as you ponder how to invest that $100,000 you’ve worked so hard to acquire.
1. Real Estate
Nothing has staying power as far as investments go like investing in real estate does. Whether it’s raw land, rental properties or some other form of real estate, the real estate market has shown itself to be a rock solid investment time and time again. When considering using your $100k to invest in real estate, you’ve got many options.
Invest in a Rental Property
Depending on where you live, $100,000 could be a nice down payment on a single-family home, a duplex or a condo, or in some areas could be the full purchase price for those items. It could also be a nice down payment for a smaller apartment building in some areas. Although owning rental properties can take some work, the mostly-passive monthly income is a nice bonus, as is your growing wealth portfolio that comes with the appreciation of the property or properties you’ve purchased. If you’re not sure if rental property management is for you, you can always hire a property management company to help with that part of your investment.
If you live in an area where housing is super expensive, such as New York City or southern California, you might want to consider purchasing an out-state or out-of-state rental property in a lower cost area. Many investors who live in expensive housing areas go this route and it works well for them. You can research real estate investment options that are further away by traveling to those areas you’re interested in or by finding an investing partner that lives in a lower-cost housing area who is willing to do the work of researching and finding potential properties for you. Again, property management companies can help with maintenance of rental properties that are too far of a drive for you to manage on your own.
Invest in Raw Land
Another option if you’re interested in getting into the real estate rental market would be to consider investing your money in a raw land purchase. This could mean raw land that has the potential for later development or raw land containing a valuable resource such as trees. No matter what your real estate purchase, real estate in the long-term has a solid history of growing steadily in value and increasing wealth for those investing in it.
Invest in Real Estate Via Crowdfunding
If owning and managing rental properties isn’t your deal, you might want to consider investing in a crowdfunded real estate venture with a platform like Fundrise. Crowdfunding allows you to invest in real estate with others so that you don’t have to put up all the capital on your own. You and other investors each put up a portion of the capital, and professional real estate investors buy, manage and maintain the properties. In 2015, Fundrise had a return of 13% in 2015 and their minimum investment is only $1,000.
Crowdfunded real estate investing allows you to help seasoned investors realize their growing real estate ownership dreams while you reap the investment returns with minimal work.
2. Start or Invest in a Business
If you or someone you know has a banner business idea, this might be just the avenue for you to take your $100,000 and turn into a much bigger pile of cash. Investing in businesses requires due diligence on what the potential is for said business, however, so before laying down any cash be sure to educate yourself thoroughly on potential wins and losses the business could suffer, as well as researching if there is truly a need for the business idea. There are a lot of components to starting and running a successful business.
Take a cue from business investment experts and analyze any business investment opportunities with a critical eye, looking out for your own monetary best interests first as you consider investing in a business. The business with the most potential for success and profit is a business that has proven a need for their good or service and has created a solid business plan with hard-core facts to back it up.
Because businesses have a high failure rate, it’s important to know the ins and outs of running a business before you start one or invest in one. This post on things you should consider before you start a business will help you know the first questions to ask before you delve into starting your own business. This post on starting a business will share give you additional thoughts for consideration. The more education you have on business ownership in general and on the specific type of business you’re considering, the higher your chances of success.
3. Invest in Index Funds
I love index funds. They allow for the growth history that the stock market has shown to be true, while still providing the safety net of diversity and generally low fees to boot. Investor Place tells us in its review of Vanguard index funds, for instance, that many Vanguard funds have a 10-year performance rate of 9-11% and higher.
Because index funds generally contain stocks from a wide variety of proven performance industries and companies, they have a terrific success rate and have shown to be a solid choice for investors worldwide. Index funds are often the closest thing you’ll get to a sure bet in the investment world. They’re a “slow and steady wins the race” type of investment for investors who have a lower risk tolerance.
Index fund investing has a solid history of returns to back it up, but not all index funds are the same. It’s important to do your research on the specific index funds you’re considering before investing your money.
4. Invest in Blue Chip Stocks
Blue chip stocks are individual stocks that have a long-held history of solid performance. Think 3M, Coca-Cola, McDonalds and Disney. Blue chips stocks are the only area where I’d suggest investing in individual stocks because you’re investing in companies that have a fifty, seventy-five or even 100+ year history behind them. They’re the products you and billions of other people use every day and will likely continue to use for a long time to come.
As an example of the potential success of blue chip stock investing, consider this guy’s story. Janitor and part-time gas station attendant Ronald Read didn’t appear wealthy on the outside. However, by the time he reached age 90, he’d accumulated over $8 million in cash, mostly by living frugally and investing in blue chip stocks.
When it comes to investing in blue chips stocks in the stock market, you need to have a brokerage account. If you’re concerned about the fees involved in stock market investing, don’t be. Investment companies today are realizing the benefits of lowering fees in order to attract more clients. If you don’t already have an investment account, check out Tradeking as they are only $4.95 per trade.
Investing in blue chip stocks can be a great way to help your $100k multiply steadily with a calculated amount of risk.
5. Invest in Peer-to-Peer Lending
Like other crowdfunding avenues, peer-to-peer lending companies help people realize dreams with the assistance of investors. People might borrow money from a peer-to-peer lending company to pay off debt or to consolidate other loans. Investors research the available potential loans and decide how much money they want to invest in a potential loan based off of the information given, such as the borrower’s credit history, debt-to-income ratio and the reason for borrowing.
Peer-to-peer lending companies such as Lending Club have small minimum investment thresholds per note (Lending Club’s is $25) which allow for maximum diversification to minimize risk. Investors choose from different grades of notes, A through G, that represent different risk levels to the investor. Higher grade notes like those graded A and B have a lower rate of return but also a lower charge-off rate. Lower grade notes like those that are graded D through G have a historically higher rate of return, but they also have a higher charge-off rate (i.e. the chance of not being paid back).
Investors can diversify the money they invest in peer-to-peer lending between higher grade and lower grade notes as they choose.
6. Diversify your money
Speaking of diversification, another great option for investing $100,000 might be to break it up and diversify it into several different investment choices. For instance, you might want to put $25k into real estate investing as a down payment on a smaller house or condo if market prices on homes in your area or a nearby area are lower. From there you could take another $25,000 and invest it in index funds.
Consider taking another share and put it into large cap stock fund, some into an international stock fund, etc. Then take another portion of your $100k and put it into peer-to-peer lending, and another portion into a crowdfunded business venture. By diversifying how you invest your $100,000, you run even less risk of losing the money and gain more experience in investing as you learn which types of investments suit your personal investment style and risk tolerance level – and which don’t.
History – along with millionaires and billionaires worldwide – has proven that investing your money is the surest road to building wealth for the long-term. Properly invested, even the smallest investment will pave the way to greater wealth over time. For that reason, it would be a smart idea to work to educate yourself now on the various types of investments that are available, what their risks and rewards are, and whether or not each type of investment is right for you.
From there you can pick the types of investments that best suit your individual investing style and have the greatest potential of producing the wealth that you want in order to reach your financial goals.
If you had $100,000 to invest, how would you choose to allocate your investment options?