(This article was last updated on Jan. 30, 2023.)
You could be anxious if you’re worrying about how to invest 20 million dollars. Don’t be, just relax and take a breath.
Depending on your situation, there is no one ideal strategy on how to invest 20 million dollars. If you don’t enjoy taking chances, you should probably put your money in low-risk assets. However, a $20 million investment strategy might also involve higher-risk activities like stock investments or even a direct money infusion into a firm.
Investments carry risk; therefore, you should always seek expert advice from an investment adviser or financial planner before taking any action.
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How to Invest 20 Million Dollars: Tips Before Making a Commitment
What are the things you need to consider before you invest your money?
There are a few important things to bear in mind while deciding how to invest 20 million dollars if you have it and are wondering where to put it.
Each action you do must be carefully considered and completely investigated. Before taking any dramatic measures with your money, it’s crucial to have a thorough strategy set.
You should examine these three crucial variables to help you make smarter financial selections.
1. Your Financial Goals
Consider what you want to accomplish with your money now—or at least over the next several years—before investing any money in a commitment.
Before making any form of investment, you should take some time to think about your objectives and requirements for the foreseeable future because everyone has different financial goals.
Taking your time to properly analyze your investments in light of your goals is crucial.
Others want to make sure their retirement plan is in place while others just want to spend more time on vacation and exploring the world.
Even saving some of your money to support your children’s future education may be a good idea if you have kids.
It will be simpler to develop a strategy on how to invest 20 million dollars if you are able to think about what your financial goals are.
You might want to think about speaking with a financial adviser because this will be different for everyone.
2. Your Time Frame
If you don’t have a clear time frame, you can never come up with a comprehensive investment plan. If you don’t know how things will turn out, your financial objectives won’t be as effective.
Creating a time frame is deciding on an approximate date or year to reach a specific financial objective.
After that is taken care of, you may begin saving money and making the appropriate preparations.
Separate your long-term and short-term objectives based on the goals you maintain. Your aim would be long term if you had a retirement plan, or a short-term one may be saving money for your child’s education.
Your age alone will determine your objectives.
3. Your Receptivity to Risks
Almost all financial investments include some level of risk. Regardless of your level of experience, one bad investment can cause you to lose a lot of money.
Being irresponsible with 20 million dollars is the last thing you want to do. Your choice of investment vehicle should be in line with the level of risk you are ready to accept.
Including high-risk assets in your portfolio isn’t a bad idea if you’re comfortable with the concept of “high-risk, high-reward investments”.
To protect your mental health, however, if you’re a more cautious investor, you should only incorporate low-risk investment vehicles. Making high-risk investments might put a tremendous amount of stress on you in the future if you are prone to it.
That said, there are many different ways to approach an investing strategy. There are no strict guidelines for how to begin your investment because every person has a unique budget. Although there are undoubtedly popular and simple ways to invest your money and make money as well.
4. Your Choice of Investment
You should probably diversify your investments if you have this much money to invest.
Essentially, this is saying that you shouldn’t put all of your eggs in one basket. It would be disastrous if you invested 20 million dollars in one stock or fund and it crashed the next day.
Therefore, by distributing 20 million dollars over 5, 10, or even 20 different assets, you can reduce your risk of having one investment completely wipe away your net worth.
How to Invest 20 Million Dollars: What are your options?
1. Invest 20 Million Dollars in the S&P 500
Over the past 50 years, the average annual returns on an S&P 500 index fund have been roughly 10%. On the other hand, the performance of the S&P 500 index on an annualized basis reached 14.5% from the beginning of the previous decade up until March 31, 2022, according to Seeking Alpha.
The market has experienced considerable swings since these figures were released, with some years posting gains close to 30% and others seeing outright losses. But over time, the stock market expands.
Any index fund that properly monitors the market will reflect this trend, and it is not difficult for an experienced investor to recognize well-structured index funds.
This historical data suggests that index fund returns are comparable to, if not superior to, the typical returns provided by goods like hedge funds and private equity. Index funds, however, promise these returns without the substantial risk associated with individually authorized products.
For instance, several hedge funds are capable of generating returns higher than 12%. Contrary to the performance of a strong index fund, however, there is no surefire method to predict which hedge funds will thrive and which will fail.
Any other kind of higher-risk, higher-reward asset is equivalent in this regard.
Invested in an S&P 500 index fund, a 20 million dollar portfolio can increase to 62.1 million dollars in 10 years with an average rate of return between 10 and 14 percent.
2. Invest 20 Million Dollars in Arts and Antique Collections
Art and antiquities frequently attract rich investors, whether the subject is paintings, wine, antique comic books, or any other collectible. Nevertheless, the high-end market is frequently centered on antiques.
Even though they might be challenging investments, works of art and antiquities can be quite profitable. Sometimes you may make large profits if you purchase the perfect artwork and display it on the wall for a few years.
The value of certain masterpieces will undoubtedly hold or perhaps rise. Picasso may not have large profit margins, but you can be very sure you won’t lose that money either.
This area of the market is, nevertheless, also quite volatile. High-end items tend to be reasonably dependable, while the values of most collectibles are erratic and variable. With a lot of uncertainty thrown in, they are high-risk, high-reward investments.
3. Invest 20 Million Dollars in Real Estate
By acquiring shares in various projects, investors can gain access to the real estate market through real estate instruments like real estate investment trusts (REITs). The portfolio will hold numerous underlying properties, which often produce money through rent and other economic endeavors, and the returns of the portfolio represent those profits.
As a result, people may invest in real estate without having to put down a deposit, but they also have to split the profits. You can approach the source directly if you have a lot of liquidity on your side.
Large investors have the ability to directly purchase real estate, including residences, rental properties, workplaces, and more. Because you may anticipate banks to give incredibly advantageous terms on the underlying mortgages, your investments will be far less expensive than they would be for other investors.
If you have more cash than the amount of your loan, banks will often give the best conditions if there are no credit problems. This will enable you to directly purchase and manage real estate assets while keeping all of the earnings.
4. Invest 20 Million Dollars in a Business
You want to get in on the ground floor of a potentially excellent venture when you invest in business formation. The ideal situation is to run into a young Steve Jobs who is eager to teach you everything about the computer he is creating.
You make a financial investment in their business in return for a stake in it or a cut of any future earnings. If the business succeeds, you get your money back. If it doesn’t, you also don’t.
When it comes to financial outcomes, startup investing might be the industry’s greatest lottery ticket. There are few, if any, more rewarding possibilities if you invest in the correct firm.
In addition to reaping the financial benefits of a wise investment, starting a new business is thrilling. Simply that may make the cost worthwhile.
Just keep in mind that you run the risk of losing all of your money if you choose the wrong firm.
5. Invest 20 Million Dollars in a Diversified Portfolio
You almost likely fulfill the SEC’s criteria for an accredited investor if you have 20 million dollars on hand. This gives you access to totally new asset classes. They often have large investment minimums, with many needing at least 500,000 dollars to begin, but in exchange they frequently produce substantial returns.
High-net-worth investors have access to the three most popular of such assets like venture capital, private equity, and hedge funds. Let’s look at how the three are divided below.
Private Equity Funds
Private equity (PE) funds make investments in firms that are not always publicly listed. This is an equity investment, which means that the fund buys stock in the firm and then sells it for a profit. These funds often invest in privately owned firms, looking for opportunities that the general market does not have.
JPMorgan Asset Management projected a return of 8.1% for private equity funds on a cap-weighted composite basis, according to Forbes, which can jump to 9.9% in 2023.
Hedge funds, like mutual funds, are organized finances. They invest in a portfolio of assets that attempt to beat the market, and each investor receives a return equal to the number of shares they own. The distinction is that hedge funds may invest in nearly any asset, allowing them to seek outsized profits across virtually any property.
BarclayHedge said the typical hedge fund has garnered 7.2% of net annualized returns over the course of five years through 2021, as per Forbes. On the other hand, the annualized returns derived by the top 50 hedge funds collectively stood at 15.5%, which is more than double the average return on investment for the sector.
However, a recent Reuters article said hedge funds experienced a decline of 4.25% in 2022, citing the HFRI 500 Fund Weighted Composite Index. The HFRI monitors many of the most significant global hedge fund performances.
Venture Capital Funds
Venture capital firms also make investments in privately held enterprises. Unlike private equity funds, venture capital firms, on the other hand, tend to invest primarily in startup companies or corporations aiming to begin something new. Because venture capital funds are focused on moonshots, they do not provide consistent average returns.
Most funds aim for returns of at least three times their initial investment, but they also expect many of their investments to fail. This is a high-risk but potentially tremendously lucrative alternative.
Your 20 million dollars portfolio may increase depending on the average rate of returns of the hedge funds, private equity funds, and variable investments in venture capital that you commit to. Take note that such funds can also plunge, which also means a potential loss for your portfolio.
How to Invest 20 Million Dollars: Final Thoughts
Keeping 20 million dollars in your pocket is not the greatest choice.
You may put your 20 million dollars to work for you and have it generating you money around the clock by using the investment instruments listed above.
Make sure to thoroughly examine each option and compare its complexities to your objectives and needs. Even if you have the least uncertainty, consider the prospective earnings and whether you will receive a reasonable return.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 588.1 million answers views on Quora.com and a widely sold book on Amazon and a contributor on Forbes.