How to Invest $100,000 for Maximum Returns and Minimum Risk (2024)

Once you’ve saved $100,000, you’re perfectly positioned to turn that money into long-term financial stability. That money could become your ticket to early retirement, the foundation of a real estate empire, or your children’s financial future.

The sooner you invest, the sooner you can begin earning interest and building wealth. But it’s critical to invest wisely. A smart investment choice makes all the difference between knowing how to become a millionaire or losing your hard-earned savings. To learn how to invest $100,000 and build your fortune, keep reading for the best strategies and tips on increasing your investment.

What to Know Before You Invest $100,000

“Before you invest in anything, you’ve got to know your investing goals and have clarity around the results you expect from making that investment.”

Savannah Arroyo

Before jumping into a significant investment, it’s critical to be fully informed. Make sure you have clearly outlined goals and a strong tax strategy.

There are two major steps involved in clarifying your goals:

1. Identify your reasons for investing: Think about why you want to invest. Are you saving for retirement? Raising capital to start a business? Write down each goal to find a number you hope to earn through investing.
2. Determine the time frame for your investments: Consider when you’ll need access to the money. Owner and CEO of MoorMoney Media Jessica Moorhouse says, “The reason why it’s so important to have definitive time frames for all your investment goals is it will actually help you determine what makes the most sense for you to invest in and also what kind of risk can you take on.”

Next, outline a tax strategy using the tips listed below:

• Hold investments long-term: If you sell an asset within one year of purchasing it, it will likely be subject to regular income taxes, which are typically much higher than capital gains taxes.
• Use deductions to lower taxable income: You can deduct investment losses and any expenses incurred to reduce your tax liability.
• Make investments with a low turnover: Taxes are paid after selling an investment, meaning investments with high turnover result in more tax liability.
• Be aware of your state’s tax laws: Every U.S. investor is subject to federal capital gains taxes, but most states also have a capital gains tax. This makes the tax burden add up, especially in states like California, Hawaii, and New Jersey, where the state capital gains taxes are above 10%. In a state with a high capital gains tax, it becomes more important to find the most tax-efficient investment strategies.
• Speak with a tax advisor: A tax advisor can help you choose the most tax-efficient investment strategies to maximize profit.

How to Invest $100,000: 4 Top Investment Strategies

1. Build a Portfolio of Diversified Individual Stocks

The stock market is one of the most reliable ways to turn your cash into a small fortune. Between 1957 and 2021, the S&P 500 had an average annualized return of 11.88%. At that growth rate, a $100,000 investment will more than triple in ten years. Over thirty years, the money will reach nearly $3 million. If you reinvest the interest you make each year, that $100,000 will begin approaching $3 million after just ten years.

To begin investing in the stock market, open an account with a brokerage. Here are the two most important things to consider when choosing your brokerage:

Cost

Commission and annual fees can add up and eat into your profits. Most brokerages have a zero-commission option, but there are still brokerages that charge for each trade. Account fees are annual charges investors pay to have an account open.

Portfolio Management Options

When investing amounts as large as $100,000, you should be making data-informed investment decisions. A financial advisor can help you by tracking the markets, running analysis, and trading stocks to maximize ROI. You can work with either a traditional financial advisor or a robo-advisor.

The median fee for a traditional advisor is 1%, while robo-advisor fees are typically half that. While traditional advisors cost more, you’ll be able to discuss your goals and questions with them. Investors with more complex investment objectives may want to opt for the traditional advisor, while those looking strictly for cost savings should choose a robo-advisor.

Some low-cost brokerages with robo-investing and traditional financial advising options include:

• Fidelity
• SoFi
• TD Ameritrade

Once you’ve picked your brokerage, begin building your portfolio. Founder of Legacy Investment Planning Sten Morgan recommends investing in dividend stocks while the market is in decline in 2022. He says, “If the market is flat or dropping, I want dividends. Because I want to be buying more shares, or I want at least some kind of income.”

However, Morgan also emphasizes the importance of evaluating the strength of a company.

“You can buy a dividend-paying stock that pays you a 4% dividend, but if it loses 20% [in value] then it’s irrelevant. Is it a good company that’s going to maintain its value and pays a dividend?” Morgan says.

2. Purchase Pooled Investment Funds

If you don’t enjoy checking the Nasdaq, Dow Jones, and S&P 500 daily, you may not want to do the research necessary to pick the right stocks. ETFs, index funds, and mutual funds pool investor money to purchase a variety of securities. This makes it easier for investors to decrease risk through diversification without having to do their own research.

Financial advisor and investment educator Humphrey Yang says, “The main commonality of all these funds is that by doing one transaction, you’re able to own a small percentage of all its underlying assets . . . Number one—that’s really convenient, but number two—it’s also offering you a lot of diversification.”

The best fund for you depends on your investment objectives. Here are some of the key differences between each of these funds:

ETFs (Exchange-Traded Funds)

• Bought and sold on a stock exchange: This allows trading throughout the day and makes it possible to implement stop orders, limit orders, and short sales.
• Passively managed: Portfolio managers aim to match average market returns rather than beat the market.
• Low fees: Investors typically pay below 0.5% annually to own an ETF.

Index Funds

• Bought and sold at the close of the market: Index funds are only traded once per day, meaning every investor gets the same price each day, and day trading is not a possibility.
• Passively managed: Portfolio managers aim to match average market returns rather than beat the market.
• Low fees: Investors typically pay between 0.5% and 0.75% to own an index fund.

Mutual Funds

• Bought and sold at the close of the market: Index funds are only traded once per day, meaning every investor gets the same price each day, and day trading is not a possibility.
• Actively managed: Portfolio managers aim to beat average market returns by investing in stocks they believe will outperform others. However, according to a 2022 report from S&P Dow Jones Indices, only about 21%of fund managers beat the S&P 500 in 2021, which was the twelfth year in a row the majority of mutual fund managers failed to outperform the market.
• High fees: Investors typically pay between 1% and 2% to own a mutual fund.

3. Invest in Real Estate

Many of the world’s most successful investors built their wealth through real estate investing. A $100,000 down payment is enough to purchase an investment property and begin earning rental income and value through appreciation.

Real estate investor Kris Kohn explains why he believes it’s smart to invest in real estate: “Financially, most things you invest in—you put your money in, and you’re speculating that over time you’re going to get your money back. But in real estate . . . the benefit we get is it gives us something along the way. It’s real property that can be rented and that produces income.”

Real estate investors benefit from low volatility in the market, tax savings, and the ability to leverage assets for future investments. If you’re researching what to do with $100,000, here are the four best real estate investments for you:

Long-Term Rentals

This strategy involves buying a residential home, maintaining the property, and finding long-term tenants to pay monthly rent. Investors benefit from cash flow from rental income as well as the appreciation of the home over time. At 10.3%, residential real estate has strong average returns.

Short-Term Rentals

Short-term rental investors purchase residential properties to rent by the night or the month. The frequent guest turnover makes this investment strategy more labor-intensive than long-term rental ownership, but cash flow is often higher.

Commercial Property

Commercial real estate includes retail and office space, industrial buildings, and any other property used for business purposes. At 10.3%, the 25-year average commercial real estate return hovers right around the average residential real estate return.

REITs

Investors who want to get involved in real estate but don’t have time to manage a property can invest in REITs. REITs, or real estate investment trusts, function like mutual funds, but the assets they hold are primarily in the real estate industry. According to the National Association of Real Estate Investment Trusts, the FTSE Nareit All Equity REITs Index fund had a 20-year return rate of 11.21%, outperforming the S&P 500 but not the Nasdaq Composite.

4. Max Out Retirement Savings Funds

Planning for retirement is a critical part of any personal finance plan. $100,000 can go a long way in helping you reach your retirement goals. You can add up to $20,500 per year to a 401(k) and $6,000 per year to an IRA. While the contribution limits make it impossible to add $100,000 to a retirement account in one year, you can increase your contributions over a three- to four-year period.

CFP and host of The Money Guy Show Brian Preston explains why retirement savings funds should be a part of every investment strategy: “You get tax-free growth. If it’s an IRA, you have access to the base pretty easily. You don’t have the required minimum contributions. With the rising potential for taxes in the coming years, I don’t think you can neglect it.”

The traditional 401(k) lowers your current tax bill. The money you contribute comes out of your paycheck before taxes, meaning if you max out this account, your taxable income will be $20,500 lower.

The Purpose of a Roth 401(k)

The Roth 401(k) has the same contribution limit as a traditional 401(k), but it doesn’t lower your current tax bill. Instead, if you invest in a Roth 401(k), the money you pull out of your account in retirement will be tax-free. It’s best to choose a Roth 401(k) if you believe you will be in a higher tax bracket at the age of retirement.

After reaching the contribution limit on your 401(k), it’s a good idea to max out an IRA as well. While the contribution limit for an IRA is significantly lower than a 401(k), IRAs provide similar tax-free growth.

Because of the ability to withdraw contributions at any time, some investors keep their emergency savings in a Roth IRA rather than a low-interest savings account. During times of high inflation, your money loses value every day it’s in a traditional savings account. Roth IRAs allow you to feel comfortable knowing you can access cash if needed, but your cash doesn’t have to rapidly lose value.

Diversification Is the Key to a Strong Investment Portfolio

“A few holdings with radically different types of market behavior will do more to smooth out the pattern of portfolio returns than 50 or 100 holdings that move up or down together.”

Peter Bernstein

Investing one lump sum into one industry is a high-risk strategy. While deciding how to invest $100,000, it’s best to choose multiple investment strategies. Start investing wisely by splitting funds between uncorrelated assets to protect yourself from market downturns.

Here’s what you need to do to build a diversified portfolio:

1. Buy a mix of individual stocks and pooled investment funds.
2. Include income-producing assets as well as growth-focused investments in your portfolio.
3. Invest in both high-growth companies and slow-growth companies, but make sure they are reliable.
4. Balance any high-risk you take on with low-risk investments.
5. Be sure to build enough liquidity in your portfolio to be able to exit bad investments if needed.

Now that you know what to do with $100,000, don’t stop learning—check out these articles to get more investment tips:

Is Real Estate a Good Investment in 2022?

How to Become Financially Independent