Best Ways to Invest $100K

Summary:

There are many smart ways to invest $100k, including spreading it out into different investment vehicles or putting the entire lump sum into one investment product, such as a business or real estate. Different asset classes — including equities, real estate, and treasury bonds — have different risk profiles, time horizons, and potential returns. Depending on your reasons for investing and your general financial goals, you probably want to consider a combination of these options when deciding what to do with $100k.

For most people, $100,000 is a considerable amount of money. In fact, the median savings amount (outside of retirement) in the U.S. is far less than $100k for any age group. That being said, if you work hard, save properly, or manage to acquire a considerable lump sum of money, you could find yourself with $100k to invest. Wisely investing $100k can help you reap the rewards for years to come.

First, you’ll want to determine what you currently hold in assets and liabilities and how this reflects your priorities going forward. For instance, it’s advisable to pay off high-interest debt, such as credit card debt, first. Then, consider an emergency fund as well as tax-advantaged retirement and education investment vehicles. Depending on your age, you might want to prioritize early retirement. Next, decide if you would like to invest the $100k in one lump sum or, like most people, diversify your investments. Let’s review some of your options.

Best ways to invest $100k

While not every option below will suit your investment strategy, reviewing and considering every option available is always a good idea. Here are some asset classes where you can put your $100k.

Real estate

Real estate has traditionally been a staple of a middle-class path to wealth in the U.S., as it offers both an investment opportunity and a place to live. The great part about real estate is that as long as you have a steady income and decent credit, it’s relatively easy to get a mortgage. Real estate also has tax advantages, like the ability to mitigate or defer capital gains tax through refinancing or a 1031 exchange.

Before you purchase a property or apply for a mortgage, make sure you understand why you’re investing in the property.

  • Buying with a mortgage or capital appreciation. Leverage is one of the quickest ways you can build wealth. Buying a house can help you build equity, which you can leverage later through a home equity loan or line of credit. If you apply to buy a primary residence, then your initial deposit can be as little as 5% in some markets, provided it’s a standard Fannie Mae or Freddy Mac mortgage.
  • Buying for cash flow. The great part of real estate is that it can produce a return through capital appreciation as well as cash flow through rental income. This can be done through long-term rentals with yearly tenants or short-term tenants, such as Airbnb. The rental vs. price calculation will help you determine the best return on your property for cash flow, otherwise known as your yield.

Pro Tip

If you want to get into the real estate market but don’t want to own the asset outright, consider a real estate investment trust or REIT. REITs are companies and trusts that own, operate, and finance real estate investments, among others. Real estate investment trusts can be sold on an exchange, similar to an ETF or stock. So they are more liquid than real estate and have less of a management hassle.

Passively managed index funds or exchange-traded funds (ETFs)

If you want to put together a retirement portfolio or already have one but need something both relatively liquid and long-term, then consider an index fund or ETF. Index funds track the index of a specific market, such as the S&P 500. An index fund or ETF behaves like mutual funds in that they are pooled investments. However, as most actively managed funds fail to beat the market, index-tracking funds can produce a great return for a fraction of the fees.

ETFs are pooled stock investments that work like a mutual fund or a traditional index fund but can be bought and sold on the market like a stock. ETFs have two large advantages: They’re generally liquid and generally cheap. Passively managed ETFs that track an index, such as Vanguard’s VOO or VTI, have some of the lowest fees in the business.

The great part about index funds and ETFs is that they can cover two time horizons. They can be quite liquid investments and a good place to park cash while you wait for a return in line with the trajectory of the market. They can also be part of a retirement plan and included in vehicles such as a Roth or traditional IRA and 401k.

Related reading: To learn more about investing in index funds or ETFs, take a look at some of our articles on these topics, including How to Invest in Index Funds and The Pros and Cons of ETFs.

Individual stocks

If you don’t want to diversify your investments in equities with aggregated funds such as ETFs, investing in individual stocks can be both lucrative and risky. With individual stocks you need to know your company extremely well.

Take Facebook (Meta), for example. If you were able to pick up stock on October 12, 2012, you would have paid $19.52 a share. Fast forward to September 3, 2021, and if you were to sell that stock, you could have sold it for $372. That’s nearly a 20-times return on the price in less than 10 years.

However, if you were to buy that stock in September 2021 for $372 and then try to sell the stock in October 2022, you would only receive around $100 for it. That’s nearly a 75% drop from its peak. When investing in individual stocks, understand that there is always a tradeoff between upside and downside.

But before you start investing in stocks (or index funds for that matter), you’ll first need a brokerage account. Take a look at some of the brokerages below to get started.

Blue chip bonds and safe-yield-producing securities

Like real estate, you can make money from bonds and income-producing securities in two ways: dividends and the appreciation of the bond or security. However, many more novice investors will opt for the income and security that comes with blue chip investment-grade bonds and securities, including government-backed bonds.

AAA-rated blue-chip bonds from A-list companies can provide cash flow as well as security. Different government-issued securities, such as U.S. Treasury bonds, can also provide some cash flow and are considered extremely low risk, as they are backed by the government rather than a lone company.

Alternative assets: cryptocurrency, collectibles

If you want to invest part of your $100,000 into something considered more high risk/high reward, you might consider alternatives such as cryptocurrency or collectibles. However, we would like to add a disclaimer here. These markets are extremely volatile and can be affected by more variables than traditional investment vehicles, such as stocks and bonds.

That said, you can make a lot of money from alternative investments. Everyone knows the story of bitcoin. If you invested $20,000 in 2014 when it was only $1 a bitcoin, you would now be sitting on a fortune of hundreds of millions or possibly billions. A similar price hike may also happen among some collectibles.

However, both of these asset classes have the chance of completely falling off a cliff. These are high-risk/high-reward investments that might be enticing for some, but we don’t recommend putting your entire $100k lump sum into them. Some financial experts recommend investing only a small percentage of your portfolio, such as 1%, in cryptocurrency or other high-risk alternative investments.

How to divide your $100k

So you have $100k. The best thing to do with your money is to divvy it up among different investments. Below is an example of a $100k portfolio.

We’re assuming this person has already taken care of their debts, emergency fund, and retirement accounts and is now willing to take some risks.

InvestmentAmount
ETFs$20,000
Real estate$20,000
Individual stocks$10,000
Bonds/treasuries$10,000
Alternatives$40,000

This portfolio includes $40k in real estate and ETFs/index funds and $40k in alternative investments such as crypto. This means that the owner is balancing out traditionally stable investments with riskier alternatives featuring higher upside-downside ratios.

Get help with your investments

Different investors will have different priorities and risk profiles when looking to invest their money. An investment advisor can help you define your priorities and risk level and put together a portfolio that matches your goals.

Saving $100k puts you ahead of the curve

If you look at the 2019 statistics provided by the United States Federal Reserve, having $100k in savings is not typical. In fact, breaking down the average and median savings outside of retirement funding paints a clearer picture for each demographic.

AgeAverageMedian
Under 35$11,200$3,240
35-44$27,900$4,710
45-54$48,200$5,620
55-64$57,800$6,400

For every age group in the U.S., both the average and median savings amount outside of retirement fall well below the $100k threshold. This means if you are lucky enough to have $100,000, it’s absolutely crucial to invest it in a clever, well-researched manner.

3 tasks to complete before investing $100k

Before you start planning how to invest your $100k, make sure you meet your basic financial needs first. This includes paying down any large or high-interest debts, creating an emergency fund, and setting up a retirement fund.

1. Pay off any outstanding problematic debt

Debt can be considered healthy or unhealthy, depending on the type. Mortgage debt or normal business debt related to inventory, are perfectly healthy types of debt to have. However, high-interest debt, such as consumer loan debt or credit card debt, can have negative consequences if you don’t pay them off in a timely manner. Make sure to address these debts first.

2. Check your emergency fund

Everyone needs an emergency fund to cover any sudden out-of-pocket expenses that come up. Most financial advisors will insist that you have a healthy emergency fund in liquid cash you can easily access.

If you already have one, you can invest the $100k elsewhere. If you don’t, you might want to consider allocating some of the money to a savings account or money market account, like those below. This way, you have a bit of a “life buffer” in case of unexpected expenses.

3. Check your retirement and education situation

For those that already have a retirement fund set up, you’re ahead of the curve. The same goes for having 529 plans or various similar education plans for your kids. If you don’t have either of these set up, then you might want to consider opening them right away.

The U.S. government gives tax advantages to people who save and invest their money for retirement as well as their children’s education. As long as the money you put into these plans is legitimately for education and retirement, you can grow some of your $100k tax-free.

FAQs

How much interest will $100,000 earn in a year?

This all depends on how you invest the money. If you invest in a savings account, you will earn the basic savings account rate, which is often less than 1%. However, you might earn 3% with a high-yield savings account or a CD. If you invest in an individual stock, you could earn much more but also be susceptible to losing more.

What should I do if I have $100k?

If you have $100k, you should first perform three checks to make sure your debts, emergency fund, and retirement and education expenses are funded. Then do some research so that you can map out your time frame, investment objectives, and risk profile. Divide your money into different investments (stocks, bonds, real estate, alternatives, etc.) accordingly.

Is $100k a lot of money saved?

Yes, it is a lot more than most Americans have saved, aside from retirement accounts.

How can I invest $100k to make passive income?

Real estate investments that earn rental income or blue-chip bonds that pay a dividend are examples of where you could put $100k to make passive income.

How much money do you need to make to live off the interest?

It really depends on the lifestyle you want to have. Once you figure this out, as well as calculated variables such as inflation, you can then look at how much money you’ll need each year. Unfortunately, $100k probably won’t cut it. Even if it earned 8%, you would only have $8,000 a year. Bump it up to $1 million and you would have $80,000.

Key Takeaways

  • While there are many ways to invest $100k, your best option is spreading your money out into different investment vehicles.
  • Most Americans can’t save $100,000. So if you can, be sure to take advantage of the opportunity and invest it wisely.
  • Before you invest your $100k, you should perform three checks: Secure your emergency fund, pay off bad debt, and invest in your retirement and education needs.
  • Most people aren’t going to put the whole $100k into one investment. Instead, they’ll diversify based on their risk tolerance and financial goals.
View Article Sources
  1. Investment-Grade Bonds — Corporate Finance Institute
  2. Survey of Consumer Finances (SCF) — Federal Reserve
  3. National Rates and Rate Caps — FDIC
  4. CDs vs. High-Yield Savings: Which One Is a Better Option? — SuperMoney
  5. Cryptocurrency Guide — SuperMoney
  6. ETFs vs. Stocks: Which is Better for You? — SuperMoney
  7. How to Use Leverage to Build Wealth — SuperMoney
  8. How to Consolidate Credit Card Debt — SuperMoney
  9. Best Places to Keep Your Emergency Fund — SuperMoney
  10. Investing in Real Estate: Pros and Cons — SuperMoney
  11. How Much Money Do You Need To Live Off Interest? — SuperMoney