The Best Places to Invest $100,000 Right Now
If you have $100,000 to invest, you will be in a good position to become financially independent. How should you invest that money, though? Your financial portfolio should be resilient enough to weather unforeseen disasters (like the COVID-19 epidemic) and yet profit from the economy’s rising industries. With this much money on hand, it’s crucial to make investments that reduce costs and taxes.
The following advice is for investing $100,000.
Before you start investing
Even if you are ready to start making investments in the stock market or another asset, you need first achieve the following two financial goals:
1. Pay off high-interest debt. Paying off high-interest debt, such as credit card debt, should come first. Compound interest, which is the most expensive type of interest for borrowers, is how credit card interest is calculated. Mortgages and vehicle loans with low-interest rates don’t have to be paid off before you start investing.
2. Start an emergency fund. Create an emergency fund before making stock market investments. Calculate how much cash you’ll require to cover your basic costs for around six months, then put that sum into a savings account. Having cash on hand reduces the need to take money out of your portfolio to cover an unforeseen need.
Identifying the type of investor that you are
Prior to making any financial investments, it’s crucial to consider your objectives. Ask yourself the following questions:
What is my investment objective? You could be setting money aside for retirement or a significant purchase like a down payment on a home. A distinct account might be set up for each aim, such as one for retirement and another for a short-term savings target.
When do I need the money? How you should approach investing your money will depend on whether you will need it in five or thirty years.
What is my appetite or tolerance for risk? Because investing entails risk, you should think about how you will respond if an investment loses value or whether you are ready to put up with fluctuating account values.
Do I want to be actively involved with my investments? There are investment experts available that can assist if you don’t wish to select your own investment selections (more on that below). Robo advisers (automatic investment management services) have emerged as a low-cost online option for getting a diversified portfolio depending on your risk tolerance and objectives.
It’s critical to comprehend your demands and preferences when it comes to investing. For the majority of investors, buy-and-hold investing is the most straightforward strategy for navigating the stock market’s inescapable price volatility. However, this should significantly change the kinds of investments you choose if you anticipate requiring the money at a specific time or if you don’t feel comfortable with the risks associated with being an investor.
FIVE BEST WAYS to invest $100K:
1. Focus on growth industries and stocks.
The global economy is evolving quickly, with some industries growing and others shrinking. Healthcare, e-commerce, financial technology, and cloud computing are some of the industries with the quickest growth rates.
Particularly interesting as a growing area is the technology sector. Almost all other industries advance thanks to technological advancements, and the COVID-19 epidemic has only expedited this trend.
Your portfolio may beat the overall stock market with the aid of growth stock investments. Owning the stocks of agile firms can help your portfolio recover from recessions or other stock market shocks more quickly. Fast-growing companies not only expand more swiftly than other businesses do.
Regarding individual stock selections, Berkshire Hathaway (BRK.A -0.46%)(BRK.B -0.44%), Microsoft (MSFT -1.66%), Nike (NKE 1.05%), Visa (V 1.21%), and Nike have all shown consistent growth throughout the years. The big five in the technology sector include Google parent Alphabet (GOOGL -1.25%)(GOOG -1.38%), Apple (AAPL -0.59%), Amazon (AMZN -1.27%), Netflix (NFLX -2.99%), and Facebook (NASDAQ:FB).
These stocks might not be the “cheapest” ones out there, but they trade at a premium for a reason. Each of these businesses, which are essential to the modern economy, is steadily growing both its income and profitability.
You should only maintain a small percentage of your portfolio in growth stocks since investing in fast-growing companies can significantly increase the volatility of your portfolio. Your level of risk tolerance and time horizon for investing will determine the precise amount of money you decide to put into growth stocks.
2. Buy dividend stocks.
A wonderful approach to creating a reliable passive income stream that you can reinvest or utilize to augment your income is to invest in dividend-paying companies. A dividend is a percentage of earnings that a business chooses to provide its shareholders, often in the form of cash.
The corporations that consistently raise their dividend payments over time are the greatest at paying dividends. A thriving firm is often one that raises its dividend on a regular basis. Consider the company’s free cash flow when determining which firms are in the greatest position to increase their dividends.
Over a long period of time, a corporation with rising dividends and stock prices might produce large investment returns. The secret is to invest your dividends in additional stock.
Don’t only buy the stocks with the greatest dividend yields when choosing dividend stocks. An above-average dividend is frequently a sign that there is a problem with the business.
3. InvestING in ETFs.
Investors who don’t want to pick individual equities have a lot of options, including purchasing shares in exchange-traded funds (ETFs). These cost-efficient, passively managed funds can give investors exposure to several asset classes and track the performance of specific indices. Due to how seldom their holdings change, ETFs, which instantly diversify a portfolio, are also ideal for taxable investing accounts.
The iShares Core S&P 500 ETF (IVV -0.36%), for example, is an ETF that is indexed to the S&P 500 (SNPINDEX: GSPC). Some have a correlation with the overall performance of bonds issued by American firms, as the Vanguard Total Bond Index (BND -0.22%).
The Vanguard Information Technology ETF (VGT -0.86%), which invests in technology and software equities, is one of several ETFs with a concentration on particular industries. Funds with a more focused investment strategy that concentrates on sectors with long-term growth prospects are more likely to beat the overall stock market, but their prices will also be more volatile than those of ETFs that track broad market indices.
4. Buy bonds and bond ETFs.
Bonds are another investment option you have. Bond prices often vary less than stock prices do, which makes them a good choice for short-term investing and for investors who seek predictability in their investment return rates.
A loan to a company or organization is known as a bond. Bondholders are entitled to interest payments for the duration of the bond’s term and a lump-sum payment of the bond’s face value at its conclusion. Bonds tend to carry smaller risks than stocks do, but they also provide lower long-term returns. Junk bonds are bonds with the highest yields and are issued by businesses that are less financially solid than their competitors.
Bond interest payments may be taxed as income if you are using a taxable brokerage account, so keep that in mind while investing in bonds. The majority of municipal bonds, which are bonds issued by local governments, are an exception.
It might be challenging to diversify your bond holdings because the majority of bonds can only be bought in $1,000 or $5,000 increments. Because they are more economical and already diversified, many investors instead choose to invest in bond ETFs.
5. Invest in REITs.
Owning property is expensive, even though purchasing real estate is another fantastic method to diversify your investment portfolio. A portfolio that is not diversified would not even arise from owning a few homes. Real estate investment trusts (REITs) may be the preferred option for many investors as a result.
REITs are property holdings that are well-managed. The majority of REITs are structured around a specific real estate theme, such as data centers or retail malls. REITs frequently pay bigger dividends than typical equities because they must distribute to shareholders at least 90% of their taxable revenue, which is made up of rent and interest payments. As the cost of real estate increases, so may the worth of their share prices.
Like shares of any other publicly traded corporation, REIT shares are traded on stock markets. Although REIT dividends are normally taxed as regular income in taxable brokerage accounts, REITs might be particularly alluring to income-focused investors.
diversify your portfolio
Whatever you decide to do with your $100,000 in investments, building a varied portfolio is essential to reaching your financial objectives. No one business or investment should occupy a disproportionate amount of your portfolio. By diversifying, you reduce the chance that the value of your portfolio will change significantly if one firm suffers a setback. Additionally, a diversified portfolio has a higher chance of producing returns that are fairly stable from year to year.
The number of stocks you should own should be between 15 and 20. You can continue to increase your holdings and make investments in additional asset classes including bonds, REITs, and ETFs. The secret is to make sure you understand what you are purchasing and why by doing the necessary research before making any transaction.
Invest to reduce taxes and fees
When investing your $100,000, be careful to pay as little in taxes and fees as possible. Expenses on your investments can drastically lower your profits over a lengthy period of time since every dollar taken out of your portfolio is a dollar that is no longer collecting compound interest.
Use a tax-advantaged retirement account, if possible. Tax benefits are provided through individual retirement accounts (IRAs), including Roth IRAs and standard IRAs. Traditional IRA contributions are frequently tax deductible, and withdrawals made in retirement — when your tax rate may be lower — are subject to regular income tax. After-tax monies are used to fund Roth IRA contributions, and withdrawals received in retirement are tax-free.
Other tax-advantaged choices include health savings accounts (HSAs) and 401(k) plans if your employer has one. There are limits on each tax-advantaged retirement plan, but you are not restricted to investing in just one kind of account.
The profits that grow in retirement accounts are tax-deferred, regardless of the kind. Additionally, you are not required to pay taxes on gains in a taxable investment account until you sell the asset (with the exception of dividends, which are typically taxed as regular income). If you own the stock for more than a year, you pay the long-term capital gains tax rate, which greatly reduces your tax burden.
All investments have some kind of cost. Especially if you invest in annuities provided by insurance firms or mutual funds, be on the lookout for any hidden costs. Fees might be charged annually or for each individual trade, and they accumulate over time. Consider the investment with lesser costs if you are given two very comparable investment alternatives.