How to Invest 5 Million Dollars for Income

How to Invest 5 Million Dollars for Income

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

Knowing how to invest 5 million dollars so that working will no longer be necessary is part of that financial freedom dream. Yes, 5 million dollars can be more than enough to fund that dream. You should be fine unless you have an issue with your spending.

If you already have 5 million dollars in your bank account, you’re doing great. But that’s not the purpose; the end goal is to make that money last. That necessitates a particular form of investment strategy, one that entails assembling a portfolio of assets that will produce the maximum income for the lowest risk.

How to Invest 5 Million Dollars: Dividend Stocks

If you are a stockholder, a percentage of profits will be distributed to you by companies that offer dividend-paying stocks. The number of shares you own determines how much you will receive. The dividend amount could change depending on the company’s profitability and share price. You should pick a company with a secure dividend payout ratio, which indicates that only 40% to 50% of annual profit is distributed as dividends, with the remaining portion going back into the company. A dividend yield of 4% to 6% is typically regarded as good in our current market.

The company’s board must authorize all dividend payments. They also have the authority to revoke payouts. If you have enough money saved up from dividends or stock purchases, you can reinvest it by buying further shares of the same company or other businesses.

Dividend stocks can either be common stocks or preferred stocks. Prior to paying common stockholders, preferred stockholders must get dividend payouts when owning preferred equities. Dividends from preferred stock may have a fixed interest rate or be structured to reflect a specific benchmark, in which case there may be a quote in the issuing descriptions. Along with having an equity component, this kind of stock typically also features a debt feature that is capable of paying a fixed dividend amount.

How to Invest 5 Million Dollars: Certificates of Deposit and Money Market Accounts

Given that the Federal Deposit Insurance Corporation (FDIC) has insured both of these investments, you can still access your money in the event that your goes bust. A money market account and a certificate of deposit (CD) are FDIC-insured up to a combined total of $500,000 per joint account and a maximum of $250,000 per individual.

CDs and money market accounts have some drawbacks, though.  First off, minimum deposits are usually required. Additionally, you must wait until the CD has matured before you can withdraw your money without having to pay a penalty.

Money markets and CDs should not be your primary source of income because the interest rates they pay are lower than what you could anticipate to receive from stocks or income-producing mutual funds. However, they’re secure and will still bring in a respectable income for you. You can open a money market account online that recently paid 1.6%.

How to Invest 5 Million Dollars: Annuities

An annuity is a type of insurance that entails making a single payment—or a series of payments—in exchange for a guaranteed income for a fixed amount of time. The payments may start immediately or at a future date that has been set in advance.

There are various types of annuities you can choose from. You can get a lifetime annuity that will last until your death. Meanwhile, a look into a real estate investment trust (REIT) if you do not want to own or rent a property outright. REITs are businesses that either own the mortgages on rental properties with an income stream or own the properties themselves. REITs often concentrate on a single real estate sector, such commercial or residential real estate. Hybrid REITs, on the other hand, can contain both.

Shares in REITs can be purchased via a business or fund. Fixed annuity enables you to know the rate of return, the amount you receive, the length of time you will receive it for, and the timing of receipt. Annuities, which are typically low-risk and low-growth products, often come with high fees.

How to Invest 5 Million Dollars: Real Estate

You may purchase one or more properties to rent out. Your rental property might provide you with a reliable source of income, and over time, its value might rise as well, giving you the opportunity to build up more equity on top of your regular rental income. Lots of essentially passive income can be produced by real estate. If you work with a competent property manager, you could be able to generate a lot of cash with little effort. Additionally, having a physical asset might help shield you from high inflation since the value of your possessions will often rise with inflation.

But if you decide to invest in real estate, keep in mind that closing expenses and property taxes will eat up a significant portion of your earnings. The property has to be maintained as well. When determining how much income you want to earn, keep these expenses in mind.

Look into a real estate investment trust if you do not want to own or rent a property outright. REITs are businesses that either own the mortgages on rental properties with an income stream or own the properties themselves. REITs often concentrate on a single real estate sector, such as commercial or residential real estate. Hybrid REITs, on the other hand, can contain both. Shares in REITs can be purchased via a business or fund.

How to Invest 5 Million Dollars: Master Limited Partnerships

Beyond the usual stocks and bonds, master limited partnerships (or MLPs), are a method to invest for high returns. Like stocks, MLPs can be traded on an exchange.

MLPs have a large potential for return. The energy infrastructure MLPs offered an average yield of 12.73% year to date in June 2022, as measured by the Alerian MLP Index. That outperformed the S&P 500’s 1.40% average yield by a wide margin.

Bonds cannot compete with the rewards that MLPs may give investors as the former have a tendency to be more susceptible to changes in interest rates. Aside from offering higher yields, MLP returns may offer greater stability and consistency versus other investments.

How to Invest 5 Million Dollars: Bottom Line

With $5 million, you can invest in a variety of things. Investments like exchange-traded funds or index funds could be a good place to start if you are a beginner. Your risk tolerance and how each investment might fit with your long-term financial objectives should be taken into account before choosing one.

You can put some of your cash in an interest-yielding savings account while you are still mulling what to do with your 5 million dollars. It’s a good way to earn interest as you look for longer-term investment. And don’t worry, you can withdraw the money at any time.

Can you retire on 5 million dollars?

It is reasonable to retire on 5 million dollars. In fact, a portfolio worth 5 million dollars can last you a lifetime if you invest it wisely.

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.