How to Invest $500,000 Starting Today

How to Invest $500,000 Starting Today

Figuring out how to invest $500,000 can be exciting and stressful, mostly because this much cash can make a huge difference in your life. If you can invest half a million dollars and leave it alone for a few decades, you can easily grow your nest egg to be worth more than $1 million dollars.

Then again, how you invest $500,000 dramatically impacts your returns, and thus how much cash you end up with in the end. For example, leaving $500,000 to grow at 6% for 20 years leaves you with approximately $1.6 million, but finding a way to earn 10% on your money would lead to a nest egg of nearly $3.4 million. 

That’s a huge difference!

How to Invest $500,000 Starting Today

You’re probably racking your brain trying to figure out how to get the best possible return on your investment. My first thought is that you shouldn’t put all of your eggs in one basket. When you have $500,000 to invest, you’ll want to spread this much cash out across different sectors of the economy.

Although there’s no “right” or “wrong” way to invest $500,000, there are some strategies I can suggest for the best results. The suggestions below are just that — suggestions. However, it’s a good start to see how these options might work for you, based on your investing timeline and goals. 

1. Stock Market

  • Suggested Allocation: 40% to 50%
  • Risk Level: Varies
  • Investing Goal: Long-term growth

If you want to invest for the long-term, you’ll want to throw a good chunk of your $500,000 into the stock market. After all, this is where you most likely have your retirement funds invested, whether you have a 401(k) through work or a self-employed retirement plan, like a SEP-IRA or Solo 401(k). The good news is, you can open a separate brokerage account and invest in stocks, bonds, index funds, and other securities outside of a traditional retirement plan.

Although most retirement plans are tax-advantaged, meaning you can deduct contributions to reduce your taxable income, money invested into a brokerage fund doesn’t give you any tax advantages on the front end. 

Then again, you can sell stocks and other securities from your brokerage account at any time without a penalty, making this type of investment more liquid than money saved in most retirement plans. You just have to plan for capital gains taxes, and the fact that your investments could be worth less if you’re forced to sell when prices are down.

How to Get Started: Betterment is a robo-advisor that uses technology and advanced algorithms to invest your money in a smart and responsible way. It offers automatic investing options, low fees, and included benefits like tax loss harvesting and flexible portfolios. 

With Betterment, you can answer some basic questions about your investment timeline and risk tolerance, and it’ll do the heavy lifting for you. 

Who It’s Best For: Investing in the stock market makes sense for anyone who wants the potential for long-term growth. Meanwhile, Betterment is a good option for investors who want stock market exposure but also assistance with creating a balanced portfolio.  

Betterment Pros Betterment Cons
-Diversify your investment with professional help
-Potential for long-term growth
-Lower fees than a traditional financial advisor (.25% to .40%)
-Returns are not guaranteed
-Account management fee required

2. Real Estate

  • Suggested Allocation: 10% to 15%
  • Risk Level: Varies
  • Investing Goal: Income and Appreciation

Investing in real estate becomes a real possibility once you have $500,000 set aside, and that’s true whether you want to become a landlord or prefer to invest in Real Estate Investment Trusts (REITs). 

A nest egg of $500,000 is enough to put a hefty down payment on a few different properties, and it might be enough to purchase an investment property outright. Although managing your own investment property is a goal for some people, not everyone wants to deal with physical real estate or the grunt work involved in managing a property and finding tenants.

How to Get Started: For investors who aren’t interested in managing property, I suggest a platform called Fundrise. With Fundrise, you can begin investing in real estate with as little as $500, and your money is spread across various commercial and residential real estate properties. 

Since your money is invested in a fund along with capital from other investors, investing with Fundrise is a truly “hands-off” experience. Although returns are never guaranteed, Fundrise brought investors an average return of 9.47% in 2019.  My Fundrise review explains more about this company and how it works.

Who It’s Best For: Fundrise is a smart option for investors who want exposure to real estate without having to be a landlord. 

Fundrise Pros Fundrise Cons
-Get started with as little as $500
-Solid returns so far (average return of 9.47% in 2019)
-Exposure to commercial and residential real estate markets without all of the work
-Returns aren’t guaranteed
-Your investment isn’t liquid, and
-Fundrise could take months to release your money

3. Investing in Gold

  • Suggested Allocation: 10% to 15%
  • Risk Level: Medium
  • Investing Goal: Diversification

Investing in gold isn’t a new strategy, yet it’s easy to see why so many people turn to gold and other precious metals as a hedge against inflation. The reality is, gold prices tend to go up over time, and especially during times of economic uncertainty. Gold is also often seen as an excellent place to store value.

How to Get Started: Whether you want to buy physical gold or prefer to have your gold safely stored elsewhere, there are plenty of online platforms that make buying and selling gold easy. Some examples of where to invest in gold include Oxford Gold Group, Lear Capital, and Goldco. Companies like Orion Metal Exchange even let you invest in gold within an IRA if you prefer. 

Who It’s Best For: This investment option is ideal for investors who want to park some of their cash in gold as a diversification strategy.

Gold Pros Gold Cons
-Gold prices provide a hedge against inflation
-Diversification outside of traditional stock market investments
-Physical gold can be lost or stolen
-Returns aren’t guaranteed

4. Cryptocurrency

  • Suggested Allocation: 5%
  • Risk Level: High
  • Investing Goal: Long-term growth

If you haven’t invested into cryptocurrency yet, it might be a good option to get in on impressive returns. The rise of Bitcoin, in particular, has been hard to ignore. Although a single coin is currently trading for more than $50,000, some industry experts believe a single Bitcoin will be worth $200,000 or more within just a few years

Of course, there are other cryptocurrencies to look into, some of which have the potential for even more growth. The key to investing into cryptocurrency is figuring out where to put your money, how long to hold your investment, and how to make sure you’re not stuck holding the short end of the stick. 

How to Get Started: Anyone can invest in Bitcoin and other cryptocurrencies, like Ethereum or LiteCoin, through a handful of mobile apps. I like Coinbase since there are so many cryptocurrencies to choose from, and you get free Bitcoin just for signing up. Coinbase also offers free educational materials that help you learn more about cryptocurrencies before you dive in. 

Once you buy your crypto, you can also head to BlockFi and earn interest on your crypto deposits. This platform lets you earn up to 8.6% APY on your crypto depending on the type of currency you invest in, and interest accrues on your balance daily. 

Who It’s Best For: Cryptocurrency is a smart investment option for anyone who wants the potential for explosive growth. However, investors should be prepared for volatility and even the potential loss of all of their funds.

Cryptocurrency Pros Cryptocurrency Cons
-Buy, sell, or trade crypto using the mobile app
-Potential to earn interest on your crypto deposits
-Potential for excellent long-term returns
-You could lose your entire investment
-Learning curve to get started
-Short history to investigate before you invest

5. Buy a Business

  • Suggested Allocation: Varies
  • Risk Level: High
  • Investing Goal: Income

A nest egg of $500,000 could help you get started with a ton of different business ideas. You can open a home-based business, buy a franchise, or invest in any number of online business opportunities. 

Keep in mind that owning a business won’t help you create passive income at first. However, you could potentially grow your business over time and hire people to run it for you. Many business owners also start out with the goal of building a business they can eventually sell. 

When that happens, business owners can run their business at a profit for years, then sell it for a lump sum that helps them fund their retirement plans.

How to Get Started: Although you can certainly invest in a franchise, doing so can be incredibly expensive. In fact, many franchises require an initial fee of $50,000 to $200,000 or more just to get started. 

Instead, I’d suggest investing in an online business. Doing so costs as little as a few hundred dollars, and you won’t have to deal with a physical storefront, either. 

To find an online business, check out Flippa. This website helps you find online businesses, domain names, and blogs to monetize, and there are plenty of cheap deals available. After buying a business, you can learn monetization basics to earn income through ads, affiliate marketing, product sales, and more. 

My guide on how to make money blogging explains all of the different ways you can make money with a website. Make sure to check it out. 

Who It’s Best For: Investing in an online business can make sense for people who want to invest time into something they can grow. 

Online Business Pros Online Business Cons
-Small financial investment required
-Plenty of ways to monetize
-Income potential is unlimited
-Learning curve to get started
-No guarantee you’ll succeed, and plenty of people who try online businesses fail

6. Open a Solo 401(k)

  • Suggested % Allocation: Varies
  • Risk Level: Varies
  • Investing Goal: Long-term growth

A Solo 401(k) is one of the best ways to invest for the long-term, yet not everyone can use this type of account. To be eligible for a Solo 401(k), you have to have some self-employment income. If you own your own business, you must also be the only employee with the exception of business partners or a spouse. 

Why is the Solo 401(k) so advantageous? This account lets self-employed workers defer up to 100% of their compensation up to a maximum of $19,500 in 2021 (or $26,000 if you’re 50 or older). On the employer end, you can also contribute up to 25% of compensation with a maximum total contribution cap of $58,000 for most people in 2021 (not counting catch-up contributions).

How to Get Started: Open a Solo 401(k) with any of the best online brokerage firms. Make sure to research which providers offer this type of plan. 

Who It’s Best For: Investing in a Solo 401(k) is smart for anyone who can qualify. 

Solo 401(k) Pros Solo 401(k) Cons
-Save money for retirement
-Choose your own investment options
-Reduce your tax bill in the year you contribute
-Solo 401(k) accounts can require additional IRS paperwork
-Cannot access funds before retirement age without a penalty (except in certain situations)

Your Investment Style

Any of the investment options I suggest here could be a good choice for part of your $500,000 fund, yet you have a lot of thinking to do before you move forward. In fact, I suggest asking yourself a lot of important questions before you invest a dime. For example:

  • What is your investment timeline?
  • How high is your tolerance for risk?
  • Will you need your money in the next two years? Five years? 10 years?
  • How comfortable are you with technology?
  • Do you want some help investing your money?

The right way to invest $500,000 depends a lot on your answers to these questions. For example, investors who want help figuring out how to build a portfolio might want to turn to a third party like Betterment for help. Meanwhile, do-it-yourself investors might be fine opening a brokerage account and picking their own investment options.

If you have a long investment horizon and you won’t need your money for a decade or longer, it might make sense to invest in the stock market, real estate, or even into cryptocurrency. These options, however, require you to have some tolerance for risk.

The Bottom Line

The best way to invest $500,000 depends on what you hope to accomplish and how soon you’ll need access to your money. The best way to decide on a strategy is answering the questions above and thinking about what you really want.

There’s never a “right” or “wrong” way to invest, but you can seriously regret it if you fail to do anything. Remember, the opposite of investing is losing your capital due to inflation every single year. 

The post How to Invest $500,000 Starting Today appeared first on Good Financial Cents®.

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