Table of Contents
How to Invest $200,000
Invest in CDs and Money Market Accounts
It’s no secret that the Federal Reserve Banks have been decreasing interest rates the past few years. CDs and money market accounts have traditionally offered a higher rate than savings accounts, but in this current environment, banks are trying to entice more people to open up an account.
In light of this, many banks are now offering a 0.01% APY with CD’s and money markets. However, at the time of this posting, I found Ally Bank to still have a competitive rate for CD and money market accounts with an APY of 0.85%.
It’s important to note that these interest rates will change at any time. You may be able to secure a better interest rate from another bank.
Although we don’t know what the exact future holds for interest rates, it’s usually better to be safe than sorry, so it’s probably a good idea to consider keeping your money in investments like CDs or money market accounts, at least until we have a better idea of where interest rates are headed.
Invest with an Online Bank
When you open an investment account at an online bank, you get a FDIC-insured opportunity to build wealth and get solid investment return without paying a dime in fees.
I recommend Ally Bank, which can be opened online at:
Invest in Bonds and Other Fixed Income Investments
Invest in Stocks and Other Equity Investments
This is the easy way to make solid returns in the stock market with a low minimum investment. The key is to invest in companies that are reporting earnings growth. Those companies have a promising future and will be worth more to investors if the business does well.
Some good investments include:
The stocks of large, well-known companies that have been around for many years (think Amazon and AT&T, which have huge growth potential and have been around for a long time).
Smaller, more niche companies with a steady history of growth.
Emerging-market stocks, which can provide huge returns if things go well (just don’t invest more than 5% of your portfolio in these investments).
Just make sure you put it all into low-cost index funds that track the performance of the market.
Invest in Peer-to-Peer Lending
A P2P website allows you to earn while you sleep by investing your money in small business owners and their projects. This is done through an online platform that connects investors with small borrowers. As an investor, you can choose what type of projects you want to fund, and how much you’re willing to invest in each one. Once your loan is successfully funded, the platform will collect the payments from the borrower and relay your earnings back to you monthly.
Peer-to-peer lending platforms are revolutionizing the way people invest their money because it offers a better return than banks and a low-risk investment option. By lending money to entrepreneurs, you help them grow their business and fulfill their dreams.
Interest rates vary according to the type of lending platform. It ranges from 6% to 26% per year depending on the risk/reward ratio. But more importantly, they are usually higher than what you’ll receive from a traditional fixed deposit account, which is, on average, only a few percentage points higher than the inflation rate. This high and consistent return makes P2P lending a very attractive investment option.
The other benefit is that your money is never at risk because it’s tucked away in online escrow accounts until the loan is fully funded.
Try Real Estate Investing with Fundrise
Where to Invest Your Money
Investment is a term that describes a situation where you have excess capital at your disposal and you decide to put it into a project or a business venture with the hopes of earning a substantial return.
Investing is very much like gambling but with a very big difference which is that investing presents a much higher probability of earning a greater return. If you gamble on the slot machines, you may win or lose but with investing, chances are that your investment will return a significant profit.
In short, you invest money in a project with the expectation of earning a profit on your investment.
Investing also comes with the misconception that you always need to invest a substantial amount of money. But the fact is that investing also occurs when one decides to put in a little amount of money too. In this piece, we are going to talk about a very practical and low risk investing idea that will enable you to invest in a very small amount of money.
The strategy employed is called leveraging and very much every full scale corporation and organization make use of it to make money.
The tactic was first popularized by the founder of Berkshire Hathaway Inc., an investment company, Warren Buffet. His method of investing is based on the idea that one can invest in a business using little or no capital. It is a well known fact that Buffet does not invest in small firms.
Invest with a Discount Broker
There are dozens of discount online brokerage firms in the United States. Finding one that’s right for you can be overwhelming. The easiest way to start is to do an Internet search and look for a broker that’s well-known and offers a free trial period.
Enter your salary, investment amount, and expected return to see your estimated results. You’ll also receive a list of additional resources that can help you make an informed decision.
Invest with a Full-Service Broker
You might think you know how brokers work. You’ve probably used one before “ but you still may not get the best deal, especially when you're working with a larger amount of capital.
Investing with a full-service broker usually means giving him or her access to your account. They'll make transactions for you and trade on your behalf (at market prices, or the best prices available). Many online brokers offer tiers of managed accounts – from low-cost service to a full-service brokerage offering, which is only available through a live broker. Full-service brokers are in the middle, and they'll have a minimum balance before they'll take you on as a client.
If you give your broker that access, you’ll get pricing that is stronger than what's available with a discount broker or online broker. (Brokerage firms that make money by earning commissions on your trades are called full-service brokerages.) You might be able to get the same pricing as a full-service broker offers if your brokerage offers commission-free trades … but many don't allow you to set up accounts that way.
Invest with a Robo-Advisor
Other Investment Considerations
There are a few things to keep in mind if you have several hundred thousand dollars. While investing it all in one go will have the biggest potential impact, spreading it out over multiple investment vehicles will help you beat the vagaries of the market.
It can also help you control risk and can provide you with more liquidity to rebalance your portfolio later.
Invest in a Range of Different Assets
You’ll be leaving yourself exposed by investing in one asset, no matter how promising it is. Investing in a range of different assets will help you to manage your risk, while also allowing a broad exposure to the market. You should have a decent portion of your portfolio in cash, bonds, stocks and properties.
Aim for Steady Returns
Even with a high-return asset, avoid getting carried away. It’s great that Bitcoin has the potential to increase its value by hundreds of percent over the next few years, but a lot can and does go wrong with cryptocurrencies. It’s possible to lose lots of money, so don’t get overly enthusiastic.
Consider Purchasing Annuities
I know that you have probably heard a lot of negative press about annuities, and you may be somewhat hesitant to make an investment in an annuity. But if you analyze your options carefully and choose the right type of annuity (i.e. fixed payout rather than insurance-type), annuities offer an ideal way to stretch your retirement dollars.
In my view, annuities are a much better bet than in stocks. You don’t have all the constant trading that goes on with stocks in addition to the brokerage fees that depress your returns slightly more than you might expect. Annuities also don’t have the type of inflation risk that you have with stocks.
When you combine the low cost of prescription drugs and prescription co-payments or premiums, the cost of long-term care insurance and spiraling health care costs, as well as the risks that come with owning homes in areas hit by hurricanes and facing rising home insurance rates, it becomes clear that many are very unprepared for retirement. Annuities are a simple way to close the funding gap.
Protect Yourself with Insurance
Insurance is one of the most important assets to have in your retirement portfolio. Without it, you’ll be left exposed with no emergency fund and no backup. In some cases, the damage incurred can be worse than the cost of the insurance policy.
That’s why buying a policy for your savings should be a non-negotiable item.
Whether you’re rich and already saving for retirement or you’re in the bottom of the economic pyramid (and you probably are if you’re reading this), the most important thing about retirement planning is to start early. You can always make up for the savings you didn’t make if you delay in starting.
What you need to do is to start with simple steps now.
You don’t need to make big moves. Start with your savings. When you’ve set up an emergency fund and have basic insurance, continue towards your goal.
Pay Off Debt
(or Invest the Extra Money in Online Business?)
Most people with a debt-free lifestyle are familiar with Dave Ramsey, Dave Ramseys, or the author of the bestselling book, “The Total Money Makeover.” He’s created a solid 9-step program that will help most people work their way out of debt and get their finances in order.
So you’ve worked hard to get out of debt. You’ve focused on your expenses and cut all of your discretionary spending. You’ve created a budget and stuck to it for several months. Now you’re wondering where to go from here. For some people, the next step in their debt-free journey is investing.
Now, we don’t want to sound condescending here, but there are several things you need to know about investing before you start. Otherwise, you’re going to experience that “doh!” feeling when you realize you just made some financial decisions that were less than ideal.
Save for Retirement
Since the goal of this chapter is to be very general when it comes to wealth-building strategies, I’m going to focus on the types of accounts you should have if you don’t want to write a book explaining how to manage each one. Obviously, that’s not realistic, but if you’re a complete newbie, it is a solid place to start.
For example, you should start saving money in a workplace retirement plan, which will typically be a 401(k). If you’re self-employed or you work for a company without a 401(k) plan, you’ll want to save money in an IRA. This is a tax-advantaged retirement fund that you have access to at any time. I’ll go into detail about these individually at the end of the chapter.
Securing an adequate retirement is very important for your financial future. Many people fail to do that, and it leads to their financial demise. While there are dozens of personal finance books you should read to tackle the topic of retirement planning, it can also be daunting.
Start Your Estate Planning
If you’re over the age of 55, it’s important to start your estate planning now … before you die. Why? Because, statistically, the older you get, the less likely you are to take care of such matters yourself (or with a spouse). You are, after all, less motivated because it’s less likely you’ll actually have to cope with what you’re setting up.
If you haven’t made a will, at least you should change the beneficiary on your life insurance policies. After all, a life insurance policy designed to pay off someone other than your spouse is worthless if there’s no will in place to direct that payout.
How can you do all of this? If possible, hire your estate planning attorney in advance to write your will. That secures the attorney to get your paperwork done, and eliminates the worry of having to sort everything out after your death. Many attorneys offer discounted initial consultations to get a sense of the scope of their clients’ planning needs.
If you want to use the money you make from investing to meet your needs in retirement, here are the three steps to investing for retirement.
Figure out what your lifestyle will be like in retirement.
Create an investment plan and portfolio that allow you to meet your needs.
Vigilantly monitor your investment plan and portfolio to make sure it still allows you to meet your needs throughout retirement.
About the Author
Dave Ramsey, born in 1960 in Maryland, is the American author and financial adviser. At the age of 21, he had purchased and made over six million dollars from emerging events of salvage. He releases his programs through his radio show, The Dave Ramsey Show, as well as his website, The Dave Ramsey Show.
His main motive is to help people get out of debt and ensure they are able to accumulate wealth. For the past 17 years, he has been co-hosting The Dave Ramsey Show, which is now the second top-rated talk radio show in the U.S. In addition, he has authored several books on his methods of financial help, New York Times best-sellers such as Financial Peace and More Than Enough.