There’s not one best way to invest $100,000 in cash. You have many options depending on your goals and needs. You can choose the investment vehicle or a combination of vehicles that’s right for you after determining that investing is something you should do with your money right now.
Finding an extra $100,000 in discretionary cash on hand is a problem that most people would be happy to have. The key word here is discretionary. Your $100,000 in extra cash really is extra and you don’t have any outstanding debt, especially high-interest credit card debt. Most finance professionals would otherwise say that your priority for that chunk of change should be to pay down your debts.
You’re already ahead of the game when that’s been accomplished and if you already have some other assets in place such as a viable retirement plan, an adequate emergency fund, and some other well-placed capital.
Key Takeaways
- Take care of the basics first if you find yourself with discretionary cash: pay off debt, set up or continue funding a retirement plan, and set aside an emergency fund.
- Explore tax-free rollovers into other qualified accounts if the source of your money is from a retirement account such as an IRA.
- Investments such as stocks, bonds, mutual funds, and CDs are a good way to use cash.
- Real estate can be a rewarding option with the potential for generous profits.
- CDs and high-yielding savings accounts are viable options for the risk-averse.
Real Estate
It may not be the most exciting prospect but consider paying off your mortgage if you have one. Consider investing in real estate if you don’t already own your home or purchase an investment property. Real estate can be a solid investment but it has risks and requires that you do your due diligence.
Traditional Real Estate Investing
Most people think of purchasing and flipping properties or purchasing and renting out for income when they consider investing in real estate. Several factors contribute to whether gains would be realized quickly, over a long period, or even at all.
First: location, location, location! A property’s location is one of the most important determinants of its value. Choosing the right location is just as important as choosing the right property to get the biggest bang for your buck.
The condition of the market is perhaps the best indicator of whether traditional real estate investing is a good idea. It might be a good time to sit back and wait for prices to settle if they’re volatile.
Real estate purchases command a significant outlay of capital. An investor should consider their return on investment (ROI), the property’s profitability, and the associated costs before investing in it. Consider how much of your $100,000 will be used toward the purchase, repairs, renovations, and marketing of the property.
Note
Selling costs should be factored in for flips. Maintenance costs must be considered for rentals.
Real estate is one of the few assets that tends to appreciate over time. Some investors hold their properties until such appreciation is large enough to generate the desired profit.
Real Estate Investment Trust (REIT)
A real estate investment trust (REIT) could be a great option if you want to invest in real estate without the complexities associated with directly purchasing property. Investing is simple and doesn’t necessarily require a lot of money. Some investment platforms allow investments as low as $100.
REITs have properties in their portfolios that generate income, unlike traditional real estate investments that are flipped and resold. They include retail spaces, medical facilities, residential properties, and commercial properties such as office buildings.
You can purchase REIT shares through a broker or directly from a REIT company. REITs pay their shareholders dividends that are taxed as regular income but gains are taxed as capital gains.
Taxable Investments
Your earnings or capital gains will be considered taxable income if you put your extra cash into taxable investments. Stocks, bonds, mutual funds, and exchange-traded funds (ETFs) are among the most common. Some of these instruments such as dividend-paying stocks could generate periodic income.
Low-Risk Investments
You can invest in high-yielding certificates of deposit (CDs) or a high-interest savings account if you’re squeamish about investing in the market and want your money to be safe. Your principal is even insured by the federal government if the bank is an FDIC member and almost all banks are.
Important
CDs are paying better interest rates due to inflation. Rates above 4% can be found for short-term CDs as of late 2024. Compare offers for the best rates.
Don’t just drop by your local bank branch. Shop around for the best bank rates. Those for high-yield savings accounts may be offered by the online platforms of various financial services firms whose names you might already know such as Goldman Sachs, American Express, and Barclays Bank. You can also find out-of-state banks with competitive offers online.
Retirement Accounts
You could look into opening a Roth IRA account if your retirement plan is an individual retirement account (IRA) or a 401(k). Contributions to traditional IRAs and 401(k)s are tax-deductible but not tax-free. You pay the income tax due in the year you deposit the money to a Roth account but you’ll owe no further tax on the principal or investment gains when you withdraw the money.
Note
Converting to a Roth IRA from a traditional account is a taxable event. The amount of the conversion is reported as ordinary taxable income.
Not only can Roth earnings grow tax-free but these accounts aren’t subject to the IRS minimum distribution rules. They allow funds to accumulate past retirement. There’s no maximum age limit to participate unlike with traditional IRAs.
Investing the entire $100,000 wouldn’t be possible, however, unless you’re rolling over from an eligible retirement account. The IRS limits how much you can contribute to a Roth annually. The maximum contribution is $7,000 or $8.000 for individuals age 50 or older in 2024.
A taxpayer’s adjusted gross income (AGI) can’t exceed the limit for Roth eligibility. Married couples filing jointly can’t contribute if their incomes are $240,000 or more in 2024.
Diversify, Diversify, Diversify
Your $100,000 is a respectable sum that allows you to apply the investing 101 mantra of diversification. Consider dividing up the $100,000. Put a portion of it into vehicles that you already own like your IRA and try some new investment tools with the balance.
Deciding how to allocate this kind of extra capital involves weighing your options carefully, considering your short- and long-term financial goals, and being realistic about your risk tolerance. It’s always a good idea to seek the advice of a financial professional before investing.
Additional Tips
You have plenty of options for investing your $100,000 including building and managing a portfolio of investments. You might be able to go at it alone, picking your stocks, bonds, and other securities if you’re a savvy investor. Enlisting the services of a licensed financial advisor makes sense if you’re a novice. These professionals create investment solutions that help you achieve your financial goals. They can also manage how and where to invest your money in addition to making recommendations.
Understanding how your money will be taxed is crucial for protecting it and determining where you should put it because investments can produce different tax situations. You’ll want to consider tax-efficient investments if your $100,000 came to you tax-free. Consider rollover or transfer options that defer taxation and offer features that match your financial goals if the source of your $100,000 is a qualified retirement account.
How Can I Invest $100k to Make Passive Income?
You could invest your $100,000 in real estate, real estate investment trusts (REITs), stocks, or other securities. Thoroughly research your options and speak with a professional such as a broker or investment advisor to help you choose the investment that will generate the income you desire.
How Can I Invest $100k to Make $1 Million?
It’s possible to make $1 million from a $100,000 investment but this likely requires long-term investing. Some investments can generate monstrous returns quickly but they’re extremely risky. Financial advisors can help you choose what best suits your needs and aligns with your goals.
What Real Estate Options Are a Good Place to Invest $100k?
Real estate flipping is one common real estate investment option. It involves purchasing, renovating, and later selling a property for profit. Real estate investors can also rent out their properties to generate monthly income while the property’s value appreciates. Purchasing real estate requires a large amount of cash, however.
Another option is to invest in a real estate investment trust (REIT) that invests in income-producing real estate and requires less capital.
The Bottom Line
You have $100,000 and want to know where to invest it. The recommended first step is to research your options to make an informed decision. Exercise due diligence so your funds land where you want. Plenty of options are available from real estate to managed portfolios. The journey to find the right investment can be rewarding.
Read the original article on Investopedia.