They say your chances of winning the lottery are somewhere in the range of 1 in 10 million.
Well, today is my lucky day, because I just won – yeah baby! Okay….maybe I didn’t actually win.
We’re just going to pretend I did for the sake of this post. 🙂
I once had a client ask me, “Jeff, if you had a million dollars, how would you invest it?”
The reality is, there are a ton of different strategies I would personally use to invest $1 million dollars, and to help this seed money grow into even more cash over time.
If you have a million dollars to invest or anywhere close to that, the steps below can help you grow your money so it lasts a lifetime.
Steps to Invest a Million Dollars
- Start with liquid generated income.
- Pay off debt.
- Boost up your emergency fund.
- Give it away.
- Invest in real estate.
- Bonds, bonds, and more bonds.
- Consider an annuity.
- Look into actively managed portfolios.
- Track your retirement.
- Invest in stocks.
- Invest in crypto.
- Invest in alternative investments.
- Build or grow your own business.
As a kid, I loved to pretend I was He-Man and that the big cardboard box in our basement was Castle Grayskull. “I have the power!” <<<He-man quote. Fellas, don’t pretend like you don’t remember that! Haha…
But those days of “pretend” are long gone….at least until today. Today’s post is merely for the fun of it. I’m pretending that I hit the jackpot and walked away with a cool mil.
For this pretend exercise, we’ll say that I’m netting a million dollars, and I have all of it to invest.Just so we’re clear, this is not investment advice, so don’t take it as such. And just in case that isn’t clear enough, read here. Consider yourself warned.
How Would I Invest a Million Bucks?
First off, a million dollars is a lot of money, and investment decisions should only be made after taking a holistic look at your financial situation and goals. I also believe very strongly that a financial professional is worth the investment since they can help guide you on your path.
That said, it’s also important to note the many differences between being rich and being wealthy. For example, a lot of people earn a million dollars each year or every few years, but they spend it all trying to keep up with the Joneses.
As I move through this pretend exercise, keep in mind that I’m acting as if I have $1 million in cash sitting around to invest. I’ll also try to walk you through it as if you won the money, too. At least in the beginning. After the first couple of steps, then it’s all me. Let’s begin…
Hello Mr. Check!
The big day arrives, and you finally receive your check — a big, fat $1,000,000. You drool over the zeros and the commas. You’ve never seen a bigger check in your entire life.
You take a second to breathe it in. You want to whisper nice things to the check, like, “Oh, check, you’re so amazing”. Don’t worry, no one’s watching. I would probably do it, too. 🙂
Did you know you might be able to actually retire with $1 million? While it’s better if you have some time to invest the money instead of using it for retirement, retiring with this much is a reality for many people. Take a few minutes to read my case study right here:
[Case Study] Can You Retire Early with Only 1 Million Dollars?
Even after you read that though, you may wonder if $1 million dollars is really enough to retire on. After all, the people in that case study actually had other assets in their favor. You may be wondering if you can actually retire with $2 million dollars! Well, I wrote that case study too.
Check it out on Forbes: Can You Retire With $2 Million?
After reading through these case studies, you’ll understand why it’s so important to make sure you invest the money to keep up with inflation – especially if you’re a long way from retirement. You’ll also want to learn about some strategies to lower your risk . . . more on that in a little bit.
So, what’s the first step?
Investing with a Plan
According to a Global Wealth Report from Credit Suisse, around 8% of American adults had enough assets to be considered millionaires at last count. That’s around 20 million people who have at least $1 millions in assets invested, although we all know that many of them have a whole lot more.
Before you gear up to invest $1 million dollars, however, you should really have some sort of plan in place. Financial advisors I have spoken to on the topic agree, and here’s what a few had to say about the importance of investing with a plan or a goal in mind:
“It’s best to have at least a basic financial plan before you start investing outside a 401k/403b. What I’ve seen from do-it-yourselfers, especially over the past couple of years, is they often don’t have a clue and just throw money into the market. A lot of people confuse money they knew they needed in the next year or so with investing. And then they decide they don’t want to be investors. They didn’t have a plan. Very often, gamblers get burnt.” – Financial advisor Stephanie Genkin
“Investing without a clear written financial plan is like saying you want to go on vacation and your destination is a gas station. Investing should be a means of achieving a future goal—not the goal itself.” – Financial advisor Ron C. Bullis of Lifeworks Advisors
“Much like you wouldn’t set out on a trip without a map or build a house without a set of blueprints, you shouldn’t invest without first having a financial plan in place. That plan that accounts for all your hopes, dreams, and wishes should then dictate the investments you choose. Not the other way around.” – Financial Teresa Arrigo of GenWealth Financial Advisors
So, what steps should you take as part of your plan? Not only do you want to invest so your million bucks can grow into even more capital over time, but we want to keep up inflation along the way.
Here’s a rundown of how I would start the process of investing $1 million dollars.
Step 1: Start with Liquid Guaranteed Income
Okay, so here’s the first thing you do if you were to obtain $1,000,000 (or any large amount of money for that matter).
You sit on it.
You sit on it for at least three, preferably six months. This is the best advice I can give for any large lump of money, even if you ask what to do with 500,000 dollars! Sit on it and save that money while you figure out your next best steps.
People tend to make rash decisions when they’re hit with a windfall of unexpected money. As an example, we all know that most people’s tax refunds are spent before they get the check in the mail. We don’t want this to happen with the $1,000,000.
So, where should you park all that cash so you won’t do anything to it.
Certificates of Deposit (CDs)
The first place I would park some of the money is in a Certificate of Deposit (CDs). Choosing CDs helps put an additional barrier between you and a poor decision because you are penalized for any withdrawals from the CD before it matures.
A Certificate of Deposit (CD) is pretty much the safest and most guaranteed investment you can make. There will be plenty of time later for you to decide where to put your money, but in the meantime, you can earn interest while you decide where to invest long-term and count on your money sitting safe and sound.
Online Savings Accounts
Another safe place to put your million dollars is an online savings account. An online savings account gives you more flexibility than a CD, although it also positions you to withdraw the money so you can go on a spending spree.
You can get some fiercely competitive interest rates by opening your savings account or CD with an online bank like Capital One 360, CIT Bank or Save Better (currently paying 5.26%). (And since they are online, you should be able to bank with them no matter what state you live in. Or decide to buy your mansion in. Whichever.)
5.26%
Interest Rate
varies
Min. Initial Deposit
When I was a financial advisor, I was once referred to a couple who received a $1.5 million dollar settlement. I told them the exact advice above. Did they listen? No!
Within the first three months of getting the money, they bought a brand new home, 2 new cars, donated $50,000 to their church (I’m cool with this one and you’ll soon see below), and gifted several different relatives $10,000 each. Unfortunately, they also quit their jobs!
I was absolutely floored, and we are not going to do what this couple did. Investing in smaller amounts, even as small as investing with 1,000 dollars or what to do with $20,000, needs more thought put into it than this!
There’s nothing like the guaranteed security you get with a CD or an online savings account — even if you only keep some of your money parked in these accounts for a while.
Step 2. Pay off Debt
You have debt, and we’re going to pay it off. Are we going to pay off all the debt you have? Not necessarily.
You’ve been lucky to lock in a 30-year mortgage at less than 4% in the last couple of years, so there’s no sense in paying that off. That’s cheap money.
We could talk about making double payments at a later time, but I don’t think paying off the principal of your balance is necessary at all.
In terms of other debts you have, wouldn’t it be nice to not have those pesky $100 credit card bills rolling in each month? If you paid down your credit card debt, you could start investing with $100 dollars instead of putting it toward revolving debts that keep gaining interest month after month.
Other debts to pay off include department store credit card debt and any personal loan debt you have.
Student loan debt is a tough one, but I typically lean towards paying student debts off as quickly as possible, too. I’ll let you decide. That said, any other debt that has double-digit interest rates needs to disappear. Pay it off and be done with it.
Also keep in mind that you’ll want to stop using credit cards at this point. Just because you paid off the debt does not give you the right or permission to go out and charge more debt. You just won a million dollars for Pete’s sake — why would you need more credit cards?!
Need help with developing a debt payoff plan? One free product to look at from that list is Personal Capital. You really shouldn’t need a piece of software to help you pay off your debt when you’ve just been handed a check for $1,000,000… but just in case, it doesn’t hurt to take a look.
Personal Capital will help you put all your accounts (debts and assets) into one place. This way, you can make a real plan for all of your money.
Step 3: Boost Up Your Emergency Fund
As you have a large influx of cash, why not keep at least 18 to 24 months of monthly expenses in a high-yield Money Market account? Think of it as the Ultimate Emergency Fund.
What are the best places to hold that huge sum? Online banks like Capital One 360 and TIAA Bank are both solid choices. Or, you might throw it into a Certificate of Deposit with Discover Bank.
It’s probably more cash than you’ve had in your entire life sitting there doing nothing, but that’s okay. You’ve now turned a new leaf. It’s a new you, so enjoy it.
Step 4: Give It Away
You’ll notice that I didn’t refer to myself in any of the above. That’s because, other than a mortgage and a car note, we have no debt. If I had $1,000,000 to invest, I would not have any debt to worry about being paid off, plus our mortgage is a 15-year loan at 3.375% and we’re making extra payments. I’m not in a hurry to pay that off.
Our emergency fund currently sits between 12 and 18 months for household expenses. Once again, I’m okay there. So, what do you do? Now, this is more for me and my background, so don’t feel like you have to oblige.
At this point in the process, I would send 10% of the money to our church in what is known as a tithe.
Yes, I would write a check for $100,000 to our church straight off the top. You might not believe me on this one. You might even think I’m just saying that to sound like a good Christian. If I was writing this post a year ago, it would be hard for me to try to argue that. You can even watch this video, where a couple of years ago I thought a client of mine was nuts for wanting to keep tithing while trying to pay off debt.
In the past year, however, my wife and I have finally, and I mean finally, started tithing where we give 10% of our gross income to our church. It took us a while to finally grasp the concept, but we’ve finally got it.
Would it be difficult to write that check? Uhhhh, YES!!! But I believe that our church and God’s will can do much more with it than I could.
Step 5: Invest in Real Estate
Next up, I would almost certainly want to invest into real estate. I’m not necessarily talking about becoming a landlord. I am talking about investing in real estate a much more passive way — by investing into Real Estate Investment Trusts (REITs).
There are all kinds of popular REITs to invest in, and they all work similarly. Basically, a REIT lets you invest into real estate similarly to how you invest into index funds or mutual funds. Your investment lets you buy a portion of a real estate holding, and you can benefit from the growth of that investment and the income it generates over time.
What are some popular REITs? Some you might hear about include New Residential Investment Corp. (NRZ), Sun Communities Inc. (SUI), and American Tower Corp. (AMT). There are also real estate index funds and exchange-traded funds (ETFs) to choose from, such as Vanguard Real Estate Index Fund Admiral Shares (VGSLX) and Schwab U.S. REIT ETF (SCHH).
That said, I really like investing in real estate through a platform called Fundrise. This company lets you invest into eREITs, which work similarly. The minimum investment amount is also just $10, so it’s easy to get started in real estate regardless of how much capital you want to put in.
Crazy enough, Fundrise helped investors earn an average return of 7.31% in 2020, followed by a return of 22.99% in 2021. So far in 2022, investors have earned an average return of 5.52%.
If you like this idea and think you may want to invest into eREITs with Fundrise, make sure to read over my Fundrise review first.
Step 6: Bonds, Bonds, and More Bonds
To say that this interest rate environment has been an interesting one over the last couple of years is an understatement. Trying to get a high yield on a bond these days is about as realistic as trying to get an In-and-Out Burger in the Midwest. No matter how hungry you are, it’s not going to happen!
Instead of assuming interest rates are something to brag about, I thought I would tackle this area of investing as if interest rates were somewhat normal. If you’re curious, I define “normal” as you can go out and get a one-year CD paying you something north of 3%.
In that case, I definitely would have a larger percentage of municipal bonds, the tax-free kind, in my portfolio. In addition, I would also add some short to intermediate corporate bonds, some mortgage-backed securities, and perhaps some bank loans and convertible bonds as well.
Series I Savings Bonds (I Bonds) are also worth mentioning here, although you can only invest up to $10,000 per person in electronic I bonds in any given year. However, Series I Savings Bonds are currently paying 9.62%, so you would likely want to max this benefit out. Just remember that you cannot access your money within a year, and that you’ll pay a penalty of three months of interest if you cash them out within five years.
In the end, I would allocate about $250,000 to this piece of the pie.
What type of bonds would I personally buy? Frankly, I’m lazy, so I wouldn’t expend the time or energy required to choose individual bonds outside of making sure I bought the maximum amount of Series I Savings Bonds. It would be too much of a headache for me, and I lean more towards the mutual fund side of things as a result.
There are a lot of good mutual fund bond funds that have done really well over the last several years. Just to diversify, I would also consider buying some bond ETFs.
This piece of my portfolio is meant to be the boring part that makes me want to yawn when I think about it. Plus, this makes the wifey happy because she doesn’t have to worry about me making any stupid stock picks. Trust me, I have already been there and done that far too many times.
Step 7: Consider an Annuity
Another option that can fit here comes in the form of annuities, but it’s important to understand how they work before you invest in them. With an annuity, you could invest a lump sum of money upfront with the promise of receiving regular payments during retirement. Just note that some annuities are riskier than others, and that there are fixed-rate annuities, fixed-indexed annuities, variable annuities, and several other kinds.
While annuities can help you secure guaranteed income in retirement, there are downsides, too. For example, you’ll have to pay surrender charges if you choose to ditch your annuity early on, and there are penalties charged if you withdraw any money before age 59 ½.
With that in mind, you’ll only want to invest in annuities if you’re 100% certain you need one as part of your investment plan.
Step 8: Look into Actively Managed Portfolios
Let it be known that I’m not a passive investor. In other words, indexing is something I’m not a big fan of.
If you disagree with me on that, it’s totally cool. We can have a debate another time.
That being said, I would take around $100,000 of the original $1 million I received and allocate it to 10 to 12 different mutual funds. I anticipate that the allocation will be somewhere in the 60% to 70% stock range, with the rest being in bonds. Notice how heavy I am in terms of bonds? It’s pretty ironic for a guy in his 40’s to be so conversative, am I right?
Seeing previous younger clients receive big inheritances and how they are more interested in protecting vs. growing is one reason I lean this way. I’m almost positive I would be just the same with most of the funds.
If you think actively managed portfolios are something you might consider, you could check out services offered by robo-advisors like M1 Finance. Each of these companies works their own way, but they both help you grow wealth by investing your money in curated portfolios filled with investments like ETFs.
Both companies also offer services geared to millionaire clients, such as automated investing and account customization. They also have their own mobile apps, which make it easy to track your investments and progress on the go.
You can read my Betterment.com review and my M1 Finance review to learn more about how these robo-advisors work.
Step 9: Track Your Retirement
There are several tools you can use to track your retirement and your investments, but I recommend two in particular.
The first one is Personal Capital, which is absolutely free to use. When you open a free Personal Capital account, you can connect all your bank accounts, investment accounts, and credit card accounts in order to get a holistic view of your finances in one place. Personal Capital uses this information to provide an updated figure for your net worth, and they also offer free tools like a 401(k) fee analyzer and monthly expense tracking.
Read over my Personal Capital review if you want to learn more.
Another tool I can recommend is called New Retirement. This comprehensive retirement tracking and planning tool lets you oversee your investments and net worth in real-time while also managing and tracking your spending. New Retirement also offers a ton of helpful features, such as their “Retirement Score” and “What If” modeling that helps you anticipate how your investments might look 10 or 20 years down the line.
New Retirement also lets you create a free account, which comes with an overview of your finances, a retirement planning dashboard, and other perks. You also get free access to a digital financial planner, who can help you tweak your investments so they align with your long-term goals.
Step 10: Invest in Stocks
I would buy some individual stocks with part of the money, but I wouldn’t allow myself to get too crazy. This would be considered my “slush fund” where I wouldn’t be affected if I lost my butt on some horrible stock trades. Trust me….it would happen!
If you need a place to trade stocks, I would look at Ally Invest or E*TRADE. Both are solid, reputable firms that have good trading platforms.
If you want to invest in stocks that provide regular, passive income, you can also look into dividend stocks. When you invest in dividend stocks, you get the benefit of long-term growth plus regular payments of dividends you can reinvest or use to cover your living expenses.
If you’re wondering where to invest in dividend stocks (or any other stocks, really), you should check out Robinhood or M1 Finance. Both of these platforms let you buy and trade stocks without any commissions or fees.
Step 11: Invest in Crypto
While crypto investments have definitely taken a beating so far in 2022, now may actually be a good time to invest in cryptocurrencies that should have staying power. Specifically, I am talking about Bitcoin and Ethereum. You can invest in these types of crypto through any number of popular crypto exchanges, including options like Gemini and Coinbase.
Just keep in mind that some of the crypto platforms are going through major financial problems or restructuring right now, so you should research options before you invest.
You could also consider buying crypto and storing it in a hardware-based wallet that keeps it off the web-based exchanges. This means you will have the keys and full ownership of your crypto at all times, so your investment won’t be at risk if one of the platforms freezes trades or encounters financial issues in the coming years.
Step 12: Invest in Alternative Investments
I would also look into some of the popular alternative investments out there, which can help people diversify their portfolios even more. One example is YieldStreet, which lets investors put some of their money into private markets. The minimum investment amount for YieldStreet starts at just $500, and you can invest in short-term notes as well as funds like their Growth & Income REIT or their YieldStreet Prism Fund.
YieldStreet even lets you invest in funds that are backed by globally recognized artworks and other alternative asset classes.
Masterworks is another alternative investment I am interested in. This platform lets you invest into individual artworks or unique collections of art. Each investment buys a percentage of the piece or collection, and investors benefit from the increase in value that occurs over three to five years.
Step 13: Build or Grow Your Own Business
Other than peer-to-peer lending, I don’t really entertain any non-traditional investments like private real estate partnerships or any of that type of private equity stuff. Living in the Midwest, I’m not as exposed to this as someone living in the big city, so that’s why you see a lot of more traditional investments in the portfolio.
The other non-traditional asset in which I would invest is my business. Whether that be new technologies to help me streamline my financial planning practice, or investing in ways to grow my online business. If my stock picks end up being dogs, I would definitely shift some of that money over here.
That’s How I Would Invest $1 Million — How About You?
As of right now, this page outlines how I would invest $1,000,000. However, I could easily have a different plan if you asked me this same question a few months or several years from now. After all, there are always new investment strategies popping up, and I wouldn’t want to miss out on something new or interesting based on an investment plan I made without that fresh knowledge.
What I want to know is this: How would you invest $1 million dollars if you had that kind of cash?
I would love to hear your thoughts and learn how you might do things differently and why. Feel free to sound off in the comments below, and don’t be afraid to tell me I’m wrong about everything.
There is no world where I would take financial advise from someone who thinks giving 10% of that money to a church is a smart financial decision. What an absolute joke lmao
Thanks for commenting! 😁
Why dont you mention putting it into first and 2nd mortgages and real off and easy 10 per cent on your money.
Hi Dean – That’s another idea, but it’s more specialized. Also, if rates are in the 10% range, they’re subprime loans, and those are a lot more risky. I wouldn’t recommend something that high risk.
Excellent post…I love your advice on tithing, very few people will suggest that.
A lot of people will not agree but let’s look at it in a different scenario. Someone wins $100 & gave the 10% or more to the church, people will be like that’s ok but obviously the more zeros added all the more our finite minds will tend to resist without realizing that the same percentage is given. This is called “Proportionate Giving”, hence Jesus said in Luke 21: 1-4
1 Jesus looked up and saw the rich putting their gifts into the offering box, 2 and he saw a poor widow put in two small copper coins. 3 And he said, “Truly, I tell you, this poor widow has put in more than all of them. 4 For they all contributed out of their abundance, but she out of her poverty put in all she had to live on.”
Grace to you all…
I would prefer to pay off all debts, including my house. If you have a $700 mortgage payment and it is gone, than that would reduce the emergency fund needs by $16,800 for a 24 month emergency fund. So I would pay it off. At least that is what I plan to do.
Thank you for the article,
DM
That’s a good strategy DM. In addition to the fact that paying off the mortgage will free up $700 per month for savings and investing. Not to mention the peace of mind that comes from living in a debt-free home.
The worse advise I’ve ever read! Let’s assume you earned $1million, and didn’t win the lotto: Consider the $1million your new base foundation /emergency fund and lock box it. Now keep working hard and wisely invest and cover expenses with 100% of the new money you earn for the rest of your life to include but not necessarily limited to the following : (1) Live the rest of your life DEBT FREE = pay off all debt 100% ( Financial Peace University) – including your low interest mortgage, and student loan debt (which doesn’t qualify for forgiveness), all credit cards are to be paid in full in advance monthly – forevermore. (2) buy stock in the greatest companies and hold according to the principles of Warren Buffet. (3) buy and flip SFR homes at foreclosure auctions (4) start a “hedge fund!” This way, you might turn $1million into $1Billion! How many billionaire’s can say they started with a million?
@ Dale Wait, my advice is the “worst advice you’ve ever read” and yet you think people should take the money and flip homes from foreclosure auctions and then start a hedge fund.
You’re just kidding, right?
Most if them actually started with nothing… lol
There’s a very, very good chance that the God you believe in (or any god) doesn’t exist. So it makes me very uncomfortable that you would advise tithing. Seems like a waste of money, to me. There are some very good charities that could do a lot more with that money.
Since you’re a Christian, anyway, doesn’t that mean that all you have to do to get into heaven is believe in Jesus? Why score extra brownie points?
@ Tommy It’s much more that just believing in Jesus. It’s about living out my life to be a disciple in His word.
It took me years to finally understand this and I’m still a work in progress. I’m thankful for His grace as I need it daily.
While I’m a Believer in Christ as my savior I also agree with Tommy, Paul makes it clear we must “believe” during the age of grace you speak of. Anything “including giving money” is an act of the flesh and will never please God, he only accepts you and is pleased with you as you are “IN CHRIST” not any works of the flesh. It took me years to get this doctrine sorted out and realize God doesn’t need our money, religion does and religion is always a negative in the bible. Give cheerfully, whether it be $1 or $100,000 would be the best advice. Good article though.
Hi Jeff – I don’t disagree with what you’re saying. I’m just saying what I would do with $1 million, and that would include giving 10% to my church. Paul instructs us in that direction with “Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.’ – 1 Cor 9:7. I would go with 10%, but you’re free to give as you feel led, whether it’s more or less.
We believe we are saved by Grace through Faith Jeff H. but according to James 2:14-26 “Faith without works is Dead”. Christians are not saved by good works but it should manifest automatically out of us since we are in Christ & the Holy Spirit is working in us. The church is the only agency on earth which God uses for the advancement of His kingdom and to call out the lost sheep.
Tommy you’re religiously challenged…. You have no idea what you’re talking about
Hello Jeff,
Why Tithe? Because I can’t afford not too!
They say there is very good chance God is not real. There is that same very, very, good chance that he is!!!
FOOD FOR THOUGHT
If you try Him and hes not real then what have you lost?
If you don’t try Him and he is real (I can attest to it that he most certainly is) what then have you lost?
@Jeff as you know it is not you who they hate but he who is in you. He that is in you is greater than he who is in the world!
Thank you for the financial advise!
-3nMe
Most churches do help fund other organizations and out reaches which is why I give (when I can) . Most if not all the money allocated is used to fund which ever foundation they put it towards unlike a lot of other “non profit ” organizations where maybe .10c from every $1 might actually make it to where it is ment to be.
Giving to a church doesn’t make the church rich or line the pastors pockets (if they are actively living out the works of God).
It is also a tax relief at the end of the year.
Good points Paul. I’d also like to add that if we assume that any charity or church we give to is corrupt, it justifies not ever giving. That’s going too far in the other direction. We should give in good faith, and leave it between God and the recipient as to where it goes from there.
How do you feel about real estate? My grandfather made his money on real estate; a motel, vacation rentals, knowing when to sell his properties etc. When he retired he had a nice chunk and he and my grandmother lived on amazing 6% all their cd’s made at the time. After my grandmother died my grandfather had to deal with the sudden drop in cd rates and ended up eventually having to live off of his principal, which really took a huge chunk out of his funds in a short amount of time. Now that he has passed and I’ve inherited what was left I’ve decided to follow in his foot steps and dip into real estate. Started small by purchasing and renovating a short term rental vacation home in the poconos. Also plan to renovate my grandfathers house (on a NC beach) and rent that. In my opinion the ONLY way to ensure your money grows is real estate, IF you invest in the right locations. I just started renting my property 3 months ago and have already covered my taxes and HOA’s. I got a great deal on the property and in a few years it will be all profit. My grandfathers house is mortgage free so once I cover the renovations it’s 100%profit – taxes.
The only thing that is (usually) guaranteed to go up is real estate. My daughters college fund is a beautiful ski house in the poconos lol. And my sons will be the next property I buy.
Do you recommend real estate investing to your clients?
Hi Kristen – I agree with your take on real estate. It’s an excellent investment IF you buy below market (which takes some skill), and can make a profit on the cash flow from the rents. Buying real estate based solely on the idea that the value will go up isn’t enough by itself. If you’re losing on the cash flow, you may be broke long before the value rises enough to be sold at a solid profit. And not all property in all markets rises, at least not quickly.
That said, owning real estate outright if for people who have the time, knowledge and desire to actively manage it. For all others, real estate investment trusts (REITs) are the better way to go. And let me add that if you are investing in real estate, you still need to diversify. Put some money into stocks, bonds, and safe assets like CDs. You want to cover yourself in case real estate hits the skids!
Hi Jeff,
My family from the other country want to wire the money in my bank account to invest $1,500,000 here in the U.S. to buy a big house to live, 2 new cars and 2 more houses for rent and a vacant land.
Questions:
1. When my money is in my chase bank is it safe for like 3-6 months before I can acquire the property?
2. Is it a wise decisions to invesy money in realty?
Sounds decent but why not invest in a solid stock or even a portfolio of dividend stocks that could pay you income for years to come.You could also invest in real estate properties that could generate monthly income as well.
Russ Thompson; that sounds stressful – yes I too, am 43 and think about all of those things.. thank you I do not have kids and no future tuition; however, I truly believe when we are at the age to retire it will cost $100,0000 per year just to live a mediocre life. Sadly the years of the 6% cds are gone and when you reach a certain age risk tolerance is low.. I really like this post and am going to examine it more in depth. Thank you..
Jeff,
A few thoughts.
1. A million dollars at 6% spins off $60,000 a year. Try getting 6% safely these days compared to the 80’s when I would use the same example. Basically it is impossible, a quick search finds 5 year rates at 2%.
2. COLLEGE: My personal situation; 3 kids, wife insisted on private grade school $3 k yr., and high school 8k yr., do the math. That was the college fund.
COLLEGE!
My oldest is in at roughly $40,000 a year my cost that deducts the $12,000 she got as an academic scholarship. Second kid, a senior in high school may go to the state college $24,000 (2015 tuition + room, board etc.) or Vanderbilt $60,000 K year! Vanderbilt would be over a quarter of a million dollars. I’ve still got a third kid behind them. College is a bubble with a diminishing ROI, which will POP. You heard it from me first. But know college makes a million dollars drain like a sieve. By the way I went to that state school in the 80’s tuition was around $9,000 a year.
3. What will my and my wife’s health care cost when I am 78? I’m in my early 50’s. What if it costs $24,000 a year?
A million dollars may seem like a lot of money, but when the government is taking taxes at 45% combined state and federal; taxing dividends and capital gains higher, (your only easy passive income source to build) it eats away.
I have worked since my 20’s to invest in stocks and save, live within my means, keep cars forever, etc. You have to stay in stocks, equities, in order to make a million dollars grow enough just in order to “keep” a million dollars so it will be there when you retire.
Seem more the question i ask myself the answer are right there. Right now i face debt and i would like more answers to budget and make my millions to invest.
Great article. I would include a 15% allocation to TIPS.
Good advice until the active management part. You prefer underperforming the market(s&p 500 vanguard etf, VOO) 95% of the time while paying 10x in fees? Makes a ton of sense.
@ Mike Have you done research yourself on the 95% underperforming the market or are you just basing that off something your read online?
While I agree there is a lot of crap out there, I’ld rather do the research and find the 10-20% that out perform the market by a considerable margin.
It’s more like some outperform for some of the time. Over the long run, according to what I’ve read and people I know, what Mike said is perfectly correct, even if the 10x cost isn’t always exaggerated. Furthermore, that 10-20% is manipulated more often than not and is not as much as you think even for some of the time. Just a fair warning…of course, you don’t have to believe me.
I mostly agree with Jeff; however, I would heavily invest in K-20 education, both private, and public, because while it is not first necessary to be educated, in order to possess significant wealth, the un-educated fool, is usually the first, to lose his/her shirt, right? (with a few exceptions). Finally, the only reason why I would wait to spend the money, is if I did not already have a written plan of action, for how to invest the proceeds (and most of us were not planning to win the lottery, or become trillionaires, to begin with, right?) LOL (:
Jeff! I love this idea for a podcast. However I think you really blew it in two ways (1) I am stunned that you – as a dad of 3 – didn’t mention setting a good chunk of the $1 million aside to pay for college!!
(2) parking the funds is a great idea, but unless you spread that money over the FDIC limits you could potentially lose everything over $250,000 (the current limit) if the bank goes under.
Hmm…a million dollars! I would diversify it all in dividend growth stockes called Dividend Aristocrats, stocks that have been able to increase dividends for over 25+ years.
I would then use the dividend income to help pay off any debt or help build an emergency fund. I’d never have to sell any of my shares to receive the income. And the income would increase every year to keep pace with inflation.
Interesting article. My biggest question is about how according to the comment date almost all of the comments could have been written almost two years before the post???
I have to say that my list would be a bit different than yours, but not necessarily better. Perhaps not at all better, and possibly not nearly as good. But it would be safe and productive for me. As I think you would agree, one of the basic things to do is always understand what you are doing yourself. The next Bernie Madoff could be just around the corner.
Your giving decision is makes sense to me. And I think it makes cents as well, even though it cannot be our purpose. Indirectly, when we help others our attitude leads to our own prosperity. Perhaps we cannot prove it objectively, but I believe it.
Good success!
Jeff, Please tell me that you would just “blow” a little on something really unnecessary and frivolous?
@ John Okay, fine….you got me! I would definitely treat my wife and I to a secluded beach vacation because she totally deserves it with our 3 crazy boys.
Just wondering what you might do if you were single and subject to only the $100,000 FDIC insurance limit – perhaps use CDARs or have 10 accounts at 10 different banks?
Common mistake about FDIC insurance: It’s $100,000 per account type, so you have many account in a bank that are insured up to $100,000 (individual checking, savings, joint checking, trust accounts, etc.). In fact, I think you can have up to $1,400,000 in multiple accounts at one institution and it would all be FDIC insured. Talk to you bank manager for more info.
Good advice, especially the ‘parking’ part. If there was a way to keep that windfall out of the papers, I’d do it. Otherwise, every Tom, Dick, and Harry would be at your doorstep.
Personally, we would continue to tithe to our church and other ministries, although with that amount, we’d need to be selective where to give. We would up our six month reserve to a year-reserve.
Then, we have two rental houses, so I would pay those off and probably purchase four more – giving us six, with passive income which is taxed at a lower rate.
Other than our rental houses, we have no debt. I hear what you’re saying about not wanting to pay off a house with that low of interest rate. But, we prefer no debt. Having the rental houses with passive income makese sense to us.
I’d probably invest some in storage units or in some other income-producing business.
The rest of the initial cash we’d probably put in a trust to be used to fund Christian ministries.
Ah, the dreams about what I would do with $1 million. All of your advice is good, but the best is to just wait before spending any money. I would guess the majority of people who receive a windfall don’t do this and then regret it later.
Great advice here. I have had a few financial windfalls, and though I blew through $100,000 before I even turned 21, I did end up doing some more productive things with my next income. I have written 10% checks to church on those windfalls as well, and it was one of the best things I have ever done. So I think it’s great that you have made the decision to give in that manner.
Totally agree. One other thing to consider that I’ve discovered by donating a lot of money to religious/charitable causes. God controls every atom of course and donating doesn’t guarantee what I’m going to say I’ve experienced, but it’s more than just placebo or correlation: Things start going really well for you after you start being generous. This rarely takes the form of money just coming from nowhere, more often, from expenses just not happening.
This is grace, the favor of the Lord, given be design to a faithful giver (sometimes, that is; understand you do not control Him).
Sure, there’s a psychological component. Once you have the guts to give it away, you’re grasping so much less, you spend less, and realize the rewards of spending (STUFF!) aren’t cracked up to be. No surprise because God intended our minds to be the way they are and molded them that way throughout the universe’s creation.
I would also say to Jeff, you have a lot of credibility in my book, having obviously figured out that one most important thing, before health, spouse, money and children. Blessings and peace.
I like your step #1. Wait. I’d also add pray and seek council for tax advice. Not sure if I’d personally go deep with P2P lending as I can’t stomach the idea of charging such high interest rates to others. Overall good advice.
For Step 8 (invest in stocks): sure, you’ll have some bad trades, but it’s important to remember that is factored into a diversified portfolio of excellent stocks. If you hold 30 positions of value stocks showing strong fundamentals you’re likely to beat the market overall. If you want long-term growth with part of your million dollars, it’s hard to beat the stock market.
“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” – Peter Lynch
Thanks for the Peter Lynch quote. First time I have seen it.
Great post! I liked the He-Man reference especially. I am of the same mind when it comes to what-if scenarios, but it is nice to dream sometimes.
Hey Jeff,
My one question for you is about the debt. Why wouldn’t you pay ALL of your debt off. What are the benefits of still paying your mortgage payment and your student loan payment? Thanks.
@ Matt I could see student loans, but I don’t the point in paying off a mortgage when you have a rate in the low 3’s. Especially if I could invest into something and net more even after taxes. But that’s just me…..
Great post, Jeff. The reality is that most of us are going to win a million or two in the lottery: it’s our career earnings paid out over the next 20 years. And while it’s not as much fun as one check with a lot of zeroes, the same techniques you advise here will work for one paycheck at a time over 20 years.
I have a question about P2P lending that might be a separate blog post: How do you scale it up to $250K? It seems like a huge analysis workload– even if you just push the “I believe” button on their spreadsheets. Splitting between LC & Prosper is smart, but that forces you into twice as many loans. Even so you still end up buying a big chunk of the loans you choose– $125-$250 per loan instead of “$25”. And then they’re relatively short-term loans, so every quarter you end up having to reinvest 8-10% of that $250K in new loans. More work. Lots of risk that’s not readily apparent to the retail investor.
It’s difficult to assess whether the P2P work & risk are worth the extra yield. Hard choice. 9.6% for extra work and sector risk, or 5-7% in a small-cap stock index ETF… or in a large-cap dividend stock ETF. I don’t have a pat answer.
@ Nords That would be pretty difficult to scale up with P2P with that amount. I do know that Lending Club does offer separate portfolios starting off at $100,000 to get in, so I imagine that’s where I would start.
I wasn’t completely sold on P2P lending 3 + years ago when I first opened my Lending Club account. I’ve been amazed on how my return as been over the last couple years and it’s really super easy to manage. It’s obviously not right for everyone, but I do suggest it to clients even now for those that are comfortable with an online investment.
Thanks– I’ll take a look at LC’s separate portfolios. I’ve been wondering how people handle the workload.
I am curious to know how your P2P lending accounts are going since your post two years ago. This sounds interesting on many levels, but concerned a bit about the risks.