How to Invest $100,000
So you’ve got $100,000, and you’re ready to invest it. Maybe a relative has passed away and left you money in a will. Maybe you’ve been building up savings in a retirement account and you’re finally ready to get serious about investing it. Regardless of where you got the money, $100,000 is enough that you have a lot of investing options.
ou could play things safe by putting it in a high-interest deposit account. You could try to maximize profits by investing in the market. And yet another option is to get into real estate by purchasing a rental property. Here’s a breakdown of your numerous options for investing your $100,000.
Before You Invest…
Before investing any of your money in the stock market, you should strongly consider taking care of two other financial priorities: Paying down debt and creating an emergency fund.
Pay down your (high-interest) debt.
If you have debt with a high interest rate, your best bet is to pay this down before putting anything in the market. That includes credit card debt and debt from other loans, such as payday loans. The average credit card interest rate is 16%, which is significantly higher than the average annual stock market return. This means that wiping out high-interest debt is a better use of your money than investing in the market… even a bull market.
If you have debt on multiple credit cards, consider a balance transfer credit card. This allows you to consolidate your debt and tackle it all at once. It might even have an introductory 0% APR, allowing you to put interest on pause while you pay it down (metatrader 4 brokers)
Create an emergency fund.
Another thing you should prioritize is an emergency fund. An emergency fund is simply money that you set aside for yourself to use when something comes up. As an example, what would you do if you unexpectedly lost your job? Would you have enough savings to bridge the gap until you found another job? What if your car suddenly needed a big repair or if you got sick and had to pay some medical bills?
With an emergency fund, you have money set aside to help you through these challenges. If you already have an emergency fund, great! Look it over again to make sure it’s still well funded. For most people, a strong emergency fund covers six months’ worth of living expenses.
How much you put in your emergency fund, and where you keep it, is a matter of risk tolerance. The safe route is to go the full six months and keep it in a deposit account where there’s no risk of losing principal (like a savings or money market account). Others might keep as little as three months’ worth of expenses. They might also choose to invest the money in their fund, willing to risk their principal a bit if it means seeing a higher return. However you approach it, though, make sure you have a liquid emergency fund that can last you at least a few months.
Decide What Kind of Investor You Are
There’s another thing you need to do before investing your money: Take a few minutes to think honestly about what kind of investor you are. This also dictates the kinds of investments you make and which services or companies you use.
If you’re interested in doing your own research, creating your own asset allocation and handling trades on your own, then you’re more of a do-it-yourself investor. You probably want to open a brokerage account that offers you access to a variety of financial products.
If you don’t have a lot of investing experience or just don’t particularly want to worry about the nitty-gritty of finding investments, you may want to use a robo-advisor. This is a service that builds and manages a preset investment plan, based on your situation and goals. Robo-advisors usually charge (relatively) low fees and cover the basics of investing. Here are our top 10 robo-advisors or you can also look for our forex broker.
If you want more in-depth financial guidance, consider working with a (human) financial advisor. An advisor can help you create a comprehensive financial plan and manage investments on your behalf. This option is the most expensive than robo-advisors, but it also provides the most personalized help. If you’re on the fence, check out this guide to whether or not you need a financial advisor.
The final piece of the puzzle in your investing style is your risk tolerance. If you have high risk tolerance, more of your portfolio will be invested in equities (stocks). You might also be more will to invest in smaller companies, which means both a greater opportunity for growth and a greater risk of loss.
A robo-advisor or financial advisor can both use questionnaires to gauge your risk tolerance. You can also use our asset allocation calculator to measure your risk tolerance and choose investments accordingly.
Top Priority: Invest for Retirement
Saving for retirement should be a major goal for everyone. If you haven’t saved much for retirement yet, putting $100,000 toward your retirement accounts can make a big difference. How exactly you save will depend on your individual situation.
If your employer offers access to a tax-deferred account, consider making a maximum contribution. Common examples are 401(k), 403(b) and 457(b) plans. The maximum for all of these is $18,500 for 2018 and $19,000 for 2019. At the very least, make sure you contribute enough to max out any matching that your employer offers.
These accounts are useful for retirement savings because you don’t have to pay taxes when you contribute, or as your accounts grow. You only pay tax when you withdraw the money in retirement. Contributing the maximum means smaller paychecks, but if you have $100,000 to spare, then you can likely afford the dent to your monthly income.
After you contribute to your employer’s retirement plan (or if your employer doesn’t offer one), consider maxing out an individual retirement account (IRA). A traditional IRA provides the same benefits as a 401(k). You pay tax on your funds when you withdraw them, but the money that goes in is pre-tax; since it’s not a paycheck deduction like a 401(k), this means you get to deduct the money you contribute on your taxes. Another options is a Roth IRA, which allows you to contribute after-tax money. There’s no deduction – this is money you’ve already paid income taxes on. The benefit is that your investments grow tax-free and you won’t pay any taxes when you withdraw the money continue trader forex .
A Roth IRA is probably preferable if you’re early in your career. Because you probably have a lower income than you will have later in your career, you can save money by paying the income taxes now instead of later. With IRAs, you have a combined limit of $6,000 in 2019 (up from $5,500 in 2018), so make sure to think about where you want to contribute to a traditional IRA or R0th IRA.