So assuming you have one million dollars lying in an account somewhere, or you're saving up towards $1 million or you just got an inheritance of $1 million. What do you do with that money? Do you enjoy it, save it or invest it?
Before we get down to the nitty gritty of investing your 1 million dollars, note that, working with a financial advisor is your best bet in your investment journey. Reach out to our experts for help.
Key Takeaways
- Making clear your financial goals and working with a professional such as a financial advisor should be your first steps in investing 1 million dollars
- Creating emergency funds, paying off debts, and planning for retirement are viable considerations when planning to invest a million dollars
- Annuities, bonds, stocks, rental properties, and exchange traded funds are top choices for investing 1 million dollars
- Peer to peer lending or starting a business are also viable ways of investing 1 million dollars for financial freedom
Disclaimer
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.
First Things First
If it's your own money, there are several ways you could invest a million dollars in today's global economy. But if you've got a million bucks, before investing, here are some things you should consider:
Be clear on your financial goals
It would be important to figure out what you want to do with your money. Would you want to lay back and enjoy it or would your priority be to grow and multiply it? Once you figure this out, you can then come up with a plan on how to execute your next move. There are numerous tools, apps and resources online that can help you achieve your financial goals.
Pay off your debt
If you want to enjoy high returns on your money, start off by paying your debts. High interest loans, credit cards, car loans, etc. can drain you over time as the interest rates are bound to compound.
To get maximum return on your investment, pay off your debts first. If you have high-interest loans like credit cards, start off by paying off those.
Build up your emergency fund
No matter the income level, every single person needs an emergency fund for those rainy days. Even with $1 million, you should make sure you have money that would cover your living expenses for 6 months, in case of an unexpected turn of events. It is highly recommended that when you're opening up an emergency fund, look for a high-yield savings account.
Review your retirement plan
It is very important to ensure that you're on track with your retirement plan before you invest. If you'll be funding your retirement fund directly, you can consider setting a base amount first and then come up with a plan of how you'll be paying monthly premiums.
Consider working with a professional
It would be wise to consult a financial professional who can guide you on the best ways to make use of and invest your money. A financial advisor would be top on the list. Alternatively, you can use an automated service if that's your preference. However, working with a professional is more advisable as they can also offer you investment advice, not only on your money but on overall financial management.
How Much Interest will I Make on $1 Million Dollars?
The amount of interest you will earn on $1 million dollars depends on various factors such as the type of investment, the interest rate, and the investment duration.
Assuming a conservative average interest rate of 1% per year, a $1 million dollar investment in a high-yield savings account or a Certificate of Deposit (CD) could potentially earn approximately $10,000 per year in interest income. However, it's important to note that interest rates can vary based on market conditions, and are subject to change over time.
Investing in other types of securities, such as stocks and bonds, can potentially provide higher returns, but also carry higher risk. The potential returns and risks associated with different types of investments vary widely, and it's important to work with a financial advisor who can help you create a comprehensive investment plan based on your financial goals, risk tolerance, and overall financial situation.
It's also important to consider taxes and fees associated with investments, as they can impact the net return on investment.
How Much Interest Does 1 Million Dollars Earn Per Year?
The amount of interest that 1 million dollars can earn per year depends on the interest rate, which can vary depending on the type of investment. Assuming a conservative average interest rate of 1%, a 1 million dollar investment could potentially earn approximately $10,000 per year in interest income.
However, it's important to note that interest rates can fluctuate based on market conditions and are subject to change over time. Moreover, the interest rates offered by various investment options can differ based on their terms and conditions. For example, a high-yield savings account or a Certificate of Deposit (CD) may offer a higher interest rate but may have restrictions on withdrawals.
It's also important to consider taxes and fees associated with investments, as they can impact the net return on investment. Working with a financial advisor can help you create a personalized investment plan based on your financial goals, risk tolerance, and overall financial situation.
How Much Can 1 Million Dollars Grow?
The growth potential of 1 million dollars depends on various factors, such as the type of investment, investment duration, and market conditions. Assuming a conservative average annual return of 4% to 6%, a 1 million dollar investment portfolio could potentially grow to $1.48 million to $1.79 million over a 10-year period, before taxes and fees.
However, it's important to note that investment returns are not guaranteed, and there is always a risk of losing some or all of the principal investment. Additionally, taxes and fees may also impact the net return on investment.
Therefore, it's crucial to work with a financial advisor who can help you create a personalized investment plan based on your financial goals, risk tolerance, and overall financial situation. Regular reviews and adjustments to the plan may also be necessary to ensure that it remains on track to meet your financial goals.
What is the Safest Investment for $1 Million Dollars?
There is no one-size-fits-all answer to the safest investment for $1 million dollars as the definition of "safe" can vary based on individual financial goals, risk tolerance, and investment time horizon. Generally, a "safe" investment is one that carries a lower risk of loss, but may also have a lower potential for return.
Some options for relatively safe investments include high-quality bonds, certificates of deposit (CDs), and money market accounts. These investments are generally less risky than stocks, but also have lower potential returns. Additionally, a well-diversified investment portfolio that includes a mix of stocks, bonds, and other assets can help manage risk while providing growth potential.
It's important to note that no investment is completely risk-free, and even the safest investments can carry some degree of risk. Therefore, it's crucial to work with a financial advisor who can help you create a comprehensive investment plan that takes into account your financial goals, risk tolerance, and overall financial situation.
Ways To Invest 1 Million Dollars.
1. Stock Market
Stocks are a good investment choice as they usually generate returns through dividends and growth in share prices. According to Kiplinger, some of the great stocks to invest in in 2022 with high dividend yields include: Alphabet Inc, Lowe's Cos. Inc, Microsoft Corp, among others.
As you're choosing where to invest, it is important to note that some stocks that yield high returns may also be high-risk.
2. Bonds
When it comes to investing, a lot of advisers hold the belief that a traditional balanced investment portfolio consists of 60% stocks and 40% bonds. Generally, bonds are a safer way of investing money because they are backed by the government.
There are different types of bonds such as corporate bonds, municipal bonds, and treasury bonds that you can invest in. Being that they are a safer way to invest, the interest rates are not usually that high. They usually yield just about 3% interest. However, bonds are good for capital preservation in today’s lower interest rate environment and for a diversified portfolio.
Although bonds are often thought of as safe and secure investments, you can still lose money if you sell them cheaper than what you paid as your initial investment or in the case of default payments on the issuer's side.
3. Rental Properties
Another great investment avenue is in real estate. If you decide to buy/build rental property, it is possible for your investment(s) to yield up to 9% annually from monthly rental income. Real estate offers diversification of your investment portfolio while generating income.
Real estate allows your investment to grow through passive income from the recurring cash flow that is paid in form of rent, equity appreciation when the value of your property goes up long term and tax benefits, e.g. deduction of operating and business expenses and using depreciation expense to reduce your taxable net income.
Owning real estate is a good way to achieve financial freedom.
4. ETFs (Exchange-Traded Funds)
An ETF is a type of combined investments like stocks and bonds but operates very much like a mutual fund. ETFs will allow you to invest in multiple securities all at the same time, can be traded easily and have lower fees than other types of funds.
Usually, ETFs track a specific commodity, index or other assets and they can be bought or sold on a stock exchange, similar to how normal stocks are bought and sold.
ETFs are a good addition to your investment portfolio, as long as you understand the fact that they are designed to match the performance of the market segment they’re investing in rather than outperforming it.
5. Start or buy into a business
Another profitable way to invest your money is either by starting your own business or investing in an already existing business.
Starting your business is a high risk venture but in the long run, can generate very high returns. Investing in an already existing business poses a lower risk to the investor because there's already a proof of concept and a solid track record.
6. Peer-to-Peer Lending
You can also choose to use your $1 million dollars to fund loans to others. This way, you're able to get a stable income from the interest generated by loans that people have borrowed. In order to be able to participate in peer-to-peer (P2P) lending, you need to join a P2P platform that connects you to borrowers.
The P2P platforms may require you to pay some fees when joining their network as they act as the connect between you and the borrower. They issue out loans to borrowers after the investor funds them. They also assist in payment collection and taking legal action where need be, in the case of default borrowers. To diversify your investment portfolio, you can choose to invest in more than one P2P platform at a time.
P2P lending can be a high risk investment due to defaulters. However, the potential returns may help mitigate the risk that comes with this type of investment. It is however advisable that you invest a small percentage of your personal capital to P2P lending in order to manage the risks involved.
7. CDs and Money Market Accounts
A CD (certificate of deposit) is a product that is offered by banks and credit unions whereby the client agrees to deposit a lump-sum of money for a predetermined period and they get a premium interest rate.
Generally, CDs and money market accounts are considered among the safest ways of investing your money while it accumulates interest. With these types of investments, you have easy access to your money. Although, a lot of institutions do have a penalty fee that you pay for frequent withdrawals.
Annual percentage yields on CDs and money market accounts are usually almost the same as the inflation rate.
These types of investment accounts are good if you're looking for a way to save and protect your capital, while still having relatively easy access to it.
8. Fixed Rate Annuities
Fixed-rate annuities are a type of contract offered by insurance providers that guarantees to pay a buyer a fixed interest rate on their contributions for a specific period of time.
This type of investment is good for a retirement fund as the risk is much lower and you might end up receiving more than what you'd have received while investing in a US Treasury bond or CD.
It is important to note that returns on A-rated or higher fixed annuities are approximately the same as the inflation rate. This means that if you're investing in fixed-rate annuities, you're more or less just breaking even.
9. Crowdfunding
Crowdfunding is a type of investment where various investors contribute their capital to finance a new business project. The projects are usually in various sectors such as TV series, real estate, video game creation among others. The good thing with this type of investment is that you can allocate a small portion of your money to the different business ventures. This will also help you mitigate the risks.
More often than not, crowdfunding investment opportunities with potential of high returns are usually limited to verified investors. However, with your 1 million dollars, you would be able to qualify as a certified investor.
It is important to note that with the potential of high returns on crowdfunding investment opportunities, comes an equally high level of risk. Also in the case of economic uncertainty, crowdfunding companies may not be able to give you back your money immediately as they have the right to limit or freeze withdrawals during such periods.
10. REIT
A REIT is a company that enables collective investment in real estate, with an aim of generating income from these properties. The investors who pump in their resources become beneficiaries of the trust.
REITs are usually traded publicly on the major stock exchanges. Because of this there is some risk associated with this type of investment because the volatility of the stock market directly affects the share prices of REITs either upwards or downwards.
A million dollars of real estate investment properties is a good baby step into the industry. As compared to crowdfunding, REITs offer a safer way into real estate investing.
Unlock Your Financial Freedom
Investing 1 million dollars is a significant financial decision, and it's important to make informed choices to achieve your financial goals. With the right investment strategy, you can grow your wealth, generate income, and achieve financial freedom.
So, take the first step towards building your investment portfolio by working with a trusted financial advisor who can help you create a personalized investment plan based on your goals, risk tolerance, and overall financial situation. Start your journey towards financial success today!
Bay Street Capital Holdings
Bay Street Capital Holdings is an independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They manage portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility. Although many advisors may focus on maximizing returns, they place a higher priority on managing total risk and volatility.
Our founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2021. In California, only two black-owned firms out of nineteen firms received this recognition.
In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs. In 2021, Bay Street was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).
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