10 Tips on How to Invest a Million Dollars and Grow Your Wealth

10 Tips on How to Invest a Million Dollars and Grow Your Wealth

If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).

Introduction

We’ll look into several common ways on how to invest a million dollars to increase your wealth, as well as provide you with some tips on how others have reached the seven-figure threshold if you’re just starting to save.

It is said that the first million dollars are the toughest to earn, but once you hit the mark, your money will do your work for you so long as you make the appropriate investment decisions.

There are a ton of excellent options for building a diverse portfolio when you have a lot of money to invest. Below are the top 10 methods to invest a million dollars today, according to popular opinion:

How to Invest a Million Dollars: Stock Market

Dividends and an increase in share prices are two ways that stocks might produce returns. Remember that some investments with high yields may also carry considerable risk.

Even without the aid of a robo-advisor, investors who bought shares in the S&P 500 four years ago have experienced gains of over more than 80%. The stock market can, of course, be erratic. Shares of the S&P 500 bought in 2016 and sold in March 2020 as the market slumped, had a four-year total return of just 3%.

How to Invest a Million Dollars: Bonds

Many financial advisers think that a classic balanced portfolio should have 60% stocks and 40% bonds. Owning bonds is mostly about capital preservation, especially in the current context of low interest rates, even while individual stocks like Amazon can offer growth.  Bonds come in a variety of forms, such as corporate, municipal, and treasury bonds.

Bonds pay interest income and the full face value at maturity, but their price is subject to change depending on fluctuations in interest rates. Bonds are frequently perceived as safe and secure investments, but you could lose money if you sell one for less than you bought it for or if the issuer stops making payments.

In a recent article, Bloomberg spoke with Stephanie Larosiliere, a senior client portfolio manager from investment management firm Invesco (among other investors). Larosiliere said the municipal bond market continues to see more upgrades than downgrades and that the asset class is good for investment since there is less competition than there was last year, when record inflows occurred.

 How to Invest a Million Dollars: Rental Properties

Purchasing rental properties for some investors is one of the greatest solutions if you have a million dollars to invest and are seeking diversification as well as solid risk-adjusted returns. Real estate offers three various ways for you to earn money and increase your investment capital:

•             passive income via recurring cash flow;

•             increase of equity when property values rise in the long term; as well as

•             tax benefits like subtracting operating and business costs, and using depreciation expense to trim your taxable net income.

You can spread your investment over a variety of asset classes, including commercial, residential, industrial, or land. The ease with which remote real estate investing is now possible thanks to modern technology makes it a fantastic choice for investors who reside in expensive areas like New York or San Francisco.

You can get cheap real estate in markets with higher yields when you remotely invest in properties, while your local real estate team can take care of the day-to-day administration of the property.

Due to the fact that real estate may be leveraged or financed, your investment of a million dollars will possibly yield larger profits and could also spread out risks.

For instance, you might invest far more money in a lot larger portfolio of single-family houses spread throughout numerous high-growth markets in the US rather than spending a million dollars in cash for a tiny apartment building in a single market.

How to Invest a Million Dollars: Exchange-Traded Funds (ETFs)

Many firms provide a selection of ETFs, which are a terrific way to invest in stocks and bonds without having to place particular bets since they provide you exposure to both.

ETFs can be index funds based on prominent indices like the S&P 500, Nasdaq 100, or Russell 3000, or they can purchase portfolios of stocks, bonds, or both. You can also buy shares of an ETF that invests in certain industries, such as technology, healthcare, precious metals, global corporations, and real estate.

Prior to adding an ETF in your investment basket, it’s critical to realize that ETFs aren’t intended to outperform the market sector they invest in. Instead, ETFs are supposed to match the performance of the segment they’re investing in.

How to Invest a Million Dollars: Acquire a Business

One method of investing in a company is by purchasing shares of a stock or an ETF. However, a lot of investors who have a million dollars to work with just invest in a company directly instead of going through the public exchange broker. When done properly, purchasing a business can be among the most lucrative ways to put your money to work.

There are basically two ways to invest in a company. You can either purchase or build your own firm, or you can become a partner in an existing one. Even though commencing your own business can be riskier, it can also have bigger financial benefits. On the other hand, investing in an existing company could trim your risk exposure when you consider their proven track record. You need full confidence in your business partners though to make it work.

Purchasing and investing in the proper firm can yield returns on your one million dollar investment that far exceed those of conventional investments like certificates of deposit, annuities, bonds, and stocks.

How to Invest a Million Dollars: Certificates of deposit (CDs) and Money Market Accounts

The two safest ways to generate a return while having quick access to your money are CDs and money market accounts.

The annual percentage yields on money market accounts and CDs are about at the rate of inflation, so it’s unlikely that your savings will generate any net income. On the bright side, they are an excellent way to preserve your capital while keeping your money fairly liquid. Such products are comparable to having a savings account.

How to Invest a Million Dollars: Fixed-Rate Annuities

Insurance companies that offer fixed-rate annuities make the commitment to pay a guaranteed interest rate on the account contributions made by the policyholder.

They are not based on the success of other investments and are intended to offer a fixed-income stream that is predictable once the payments start. Yields are higher than what you’d get from a CD or US Treasury bond.

But here’s the caveat: although fixed annuities may be a crucial allocation component of your retirement portfolio that your financial planner suggests, you’ll wind up paying an insurance company more for the lower risk. Besides, yields on A-rated or higher fixed annuities are about the same as the rate of inflation, so you’ll basically break-even by investing in a fixed-rate annuity.

How to Invest a Million Dollars: Private Lending

Although the risk can be substantially higher than with typical real estate investments, private or peer-to-peer (P2P) financing is also rather simple to undertake through online platforms. However, depending on your risk profile, the potential gains from private lending may outweigh the risks if you spend less and don’t allot a huge proportion of your personal resources to these types of lending.

Private short-term loans can be given to individuals for debt relief or home improvements, as well as to small businesses in need of additional operating capital for business expansion, equipment purchases, and real estate acquisitions.

Yields have the potential to be substantially greater in comparison to typical investments like stocks and bonds. Private loans are less liquid because your money is typically committed for a longer period of time.

Nevertheless, you could face the danger of losing your money if the borrower defaults on repayment unless the loan is secured by a valuable item like real estate.

How to Invest a Million Dollars: Crowdfunding

Crowdfunding refers to several investors pooling their resources to support a new business venture, such as the development of video games, electric vehicles, television shows, and real estate endeavors. One of the main benefits of crowdfunding is that you can divide your one million dollars into smaller sums to invest in various industries and asset classes.

For instance, crowdfunding platforms for real estate enable you to invest in premium assets like apartment complexes, brand-new residential developments, and debt investments through loans provided to developers.

The most profitable investments available through crowdfunding are frequently only available to accredited investors. The good news is that if you have a million dollars to invest, you can probably become a high net worth accredited investor and gain access to crowdfund investments that others don’t qualify for.

But keep in mind that many crowdfunding ventures provide a high level of risk for a potential large return. There is no assurance that a new development project will even start construction. Crowdfund investments may also be illiquid, which means you won’t be able to buy and sell them the same way you would stocks, bonds, or even conventional real estate.

Additionally, crowdfunding businesses reserve the right to restrict or halt withdrawals during times of economic turmoil so you might not be able to retrieve your money when you need it most.

How to Invest a Million Dollars: Real estate investment trusts (REITs)

REITs provide a safer and more secure way to invest in real estate than crowdfunds do.

REITs are publicly traded on the main stock exchanges and are structured as funds that own and manage income-producing real estate, such as office buildings, retail shopping complexes, apartment buildings, and single-family homes. Some REITs also enable you to concentrate on specialized asset classes, such as cell phone tower sites, data centers, and self-storage facilities.

Buying shares of a REIT may be the best alternative to directly owning real estate since a REIT must invest 75% of its capital in real estate and distribute 90% of its net income as dividends to shareholders.

REITs do not, however, provide the same advantages as directly owning real estate, such as the ability to trim taxable net income through investment business expenses. Additionally, real estate investment trusts may be more correlated with overall stock market volatility than direct property ownership. This implies that REIT share values may decrease if the stock market drops.

What You Can Do to Save a Million Dollars

Here are seven practical ways to save a million dollars in a shorter period of time, even if you don’t have a lot of knowledge on personal finance:

1. Pick the right college degree

Pharmacist, actuary, economist, information security specialist, and petroleum engineer are among the professions with the highest median pay. Your odds of being unemployed are greatly decreased when you work in an industry that values what you do.

2. Begin saving and investing early

Do not wait for the “right age.” Save as much as you can and as soon as you can. Also, if your employer provides a retirement plan, boost your contributions to take advantage of pretax investments that can raise your annual return.

3. Maintain a good credit score

Although it’s not necessary for your credit score to be flawless, keep in mind that the higher your score, the more likely it is that you will be approved for low-interest rates.

4. Use debt to your benefit

Avoid bad debt, that is, paying interest on credit card balances or borrowing money to go on vacation. Debt can be advantageous if it enables you to invest, as in the case of low-interest student loans or when it is properly used to fund income-producing real estate so you can own numerous properties rather than just one.

5. Invest in assets when they are cheap

Long-term investors who buy and hold take advantage of normal downturns in the market to purchase assets at a discount.

Investors in real estate who purchased homes during the 2008 Global Financial Crisis have experienced a more than 50% increase in the value of their properties.

6. Create several income sources

There is no restriction on how many sources of income you can have. The good news is that it’s possible to increase your income without taking on two full-time jobs.

Three simple strategies to create income streams that put you on the road to making your first million dollars include owning dividend-paying shares of a publicly traded REIT or real estate mutual fund, launching a side business by working a job you enjoy, and renting out extra space in your home.

7. Invest in real estate

Real estate investing is the best strategy to generate income and pass on wealth to future generations, according to tremendously wealthy people like John D. Rockefeller and Robert Kiyosaki. Investments in real estate can give steady passive income, long-term growth, and Internal Revenue Service-approved tax benefits that other assets simply cannot.

Before Investing a Million Dollars

But wait! Before you think about how to invest a million dollars, be sure to:

1. Set your financial goals

Have a clear target in mind to make it much easier to reach your financial goals.

2. Establish a timeline

Once you have a clear idea of where you want to go, devise manageable, little measures to hit the mark you set. A timeline aids in determining your income demands, risk tolerance, and the best short- and long-term investment possibilities.

3. Determine your risk tolerance

Risk tolerance is your willingness to accept an investment loss in exchange for a higher possible return. Understand your personal tolerance for risk and reward to help you better choose investments that suit you.

4. Establish an emergency fund

While it may seem ridiculous to set up an emergency fund if you have a million dollars, smart investors recognize that an emergency fund serves as a barrier between their daily expenses and their longer-term investments, giving them access to cash when needed.

5. Maximize your retirement plan contributions

Fill up your retirement accounts before commencing alternative investments.

6. Pay off ‘bad’ debt

There is no use in making monthly payments on bad debt like credit cards, vehicle loans, or even education loans if you already have a million dollars in the bank and are prepared to invest.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.