How to Invest $500,000 Without Blowing It

Joseph Meyer
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How to Invest $500K

Top Ways to Invest $500,000

Guaranteed Returns

You only have to look in the financial papers to see that investors are continuing to lose billions in the stock market. Even Warren Buffet has seen his portfolio drop dramatically in the last few years. So with the major investment players having such a hard time making safe gains, what’s a beginner to do?

If you’re looking for a great way to invest your money without making yourself crazy in the process, look no further than experts with trillions of dollars under management. They suggest investing in a variety of index funds over the long term. This strategy has been the backbone for building wealth for decades.

Become an expert on the companies that you invest in so that you’ll know if they need to take some action or face a stock offering.

DIY Stock Trading

“He who would presume to govern others must be the master of himself.” ~ Confucius

Stock market can be a risky business to get involved in and it is important to understand its nature if one is to do well in this game. To me, it’s like like betting on a game, at a casino. You can only win if you know how to play well.

Robo Advisors

Robo advisors are online investment platforms that allow you to manage your portfolio without any human interaction or traditional accounts. They use algorithms to build and manage your portfolio and do all the heavy lifting for you. You don’t need to have any investment knowledge and you don’t need to pay a lot of fees.

Some of the largest and oldest wealth management firms offer robo advisor services. Vanguard, Charles Schwab, and Betterment are currently the leaders in this space. Robo advisors don’t have minimum investment amounts and therefore, they can be used by anyone.

Robo advisors offer advice on things like savings goals, risk tolerance, and investment style, but that’s not where the real value lies. These platforms do all of the investing procedures for you.

It’s important to note that using robo advisors does take more time than using traditional wealth management services. They also may not be right for people who are looking for the emotional support of working with a human.

If you’re looking for an investment opportunity that’s low-cost, easy to set up, and requires no human interaction on a daily basis, a robo advisor is a great choice.

Certificate of Deposit

Investing a big chunk of cash can be overwhelming, especially if you do not have a strategy for making your money grow. Follow these rules and you could put yourself on the path to financial freedom.

Many Americans are sitting on life savings of several hundred thousand dollars. Upon retirement, many of these folks are likely to choose a low-risk investment vehicle to protect their hard-earned wealth while earning a reasonable return. Two of the most popular choices are a certificate of deposit and a money market.

Certificates of deposit are low-risk investments similar to checking accounts. Money market accounts are similar to checking and savings accounts except that you can write checks on them. Money market accounts pay a higher rate of interest than standard savings accounts, but they’re less secure. So, what’s the best strategy for choosing between the two?

Let’s start by comparing the principal. You invest your money, and your bank pays you back at a stated interest rate. Certificates of deposit must be invested for a specific length of time. If you withdraw funds before the CD’s maturity date, you will have to pay a penalty and will not receive the full amount of interest. Unfortunately, even the best CDs have low interest rates. So, it’s important to do plenty of research before choosing a CD.

ETFs

Exchange-traded funds (ETFs) are like mutual funds that trade like stocks on a stock exchange. ETFs track an underlying market index that often covers a large swath of the market. (For more, see: Investing 101: Exchange-Traded Funds (ETFs).)

Exchange-traded notes (ETNs) are securities issued by investment companies that have the same risk, return and other characteristics as collateralized debt obligations (CDOs). ETNs are similar to index funds and exchange-traded funds (ETFs) because they too track an underlying market index. They can be used to invest passively because the investor doesn’t have to worry about stocks being over- or underweighted. But they’re also different from index funds because they hold individual securities, rather than buying the index. But they’re also different from index funds because they hold individual securities, rather than buying the index.

Peer-to-Peer Lending

Investing for the Smartest Among Us

Peer-to-peer lending, also known as P2P lending, is simply investing your money with other people. It’s kind of like crowdfunding, but with a monetary investment and a higher rate of return. P2P lending became popular during the recession when many people had low savings rates and needed a new way to make money. Its popularity came from it being a sustainable form of investment that doesn’t require a large initial investment.

To become a peer-to-peer lender, you need to go online to websites such as Lending Club or Prosper. Both sites are free to use and provide borrowers and lenders with a platform for credit risk analysis, social interaction, and investment.

Most of the time, the people who borrow money are those with average or below average credit scores. As lenders, you will be responsible for deciding how much you’re willing to lend each borrower. Your loan is not an asset until it’s paid back in full. If the borrower is unable to pay it back, the credit goes to collections or the home goes into foreclosure. This doesn’t mean that you won’t get your money back, it just means that you will have to wait for the borrower to pay off the loan.

Guaranteed Investments

Investing is one of the hardest things you could ever do while making the most money in the least amount of time is just as difficult.

Most people stick with a savings account or cash just because they feel that it won’t make much of a difference and that it’ll last the longest. It’s true that saving is a great way to build financial stability but your focus should be on the long-term.

Purchase Individual Stocks

Robo-Investing

With so many micro-investing apps out, it’s tough to know which is the best. For most of them, you have to set up periodic transfers and begin the long process of slowly building wealth a bit at a time.

Acorns is different. Acorns bills itself as the micro-investing app for people who don’t have the time to monitor and manage their portfolios. Acorns automates and simplifies the process by rounding up all of your everyday purchases and investing the difference.

This means that you can come home with a flat screen television and Acorns will take the rest to invest it. Acorns even handles tax loss harvesting, so you never have to worry about where you want to invest your money.

Rather than building wealth through the stock market, Acorns uses ETFs and index funds to make the process as simple as possible. This means that it’s possible to quickly and easily open an Acorns account, set up automatic investing, and walk away. You never have to worry about holding any particular asset.

Certificates of Deposit

A certificate of deposit, or CD, is a savings product that is insured by the Federal Deposit Insurance Corporation. It works like a savings account in that you deposit money, and that money gets used to purchase investment assets. The difference is that the period of time that you keep your money in one place is defined at the outset.

CDs are generally issued in terms of 1 month, 3 months, 6, months, or 12 months. The longer you agree to leave your money in the account, the higher your rate of return will be.

Quick CD tip: If you have a small amount of money to invest, look at online banks or credit unions. Although they often do not pay as high of a return, they typically have lower minimum balance requirements.

Exchange Traded Funds

The easiest way to get started investing is to start with index funds or Exchange Traded Funds (ETFs). These all-in-one funds track broader market indexes like the S&P 500 or the NASDAQ and allow you to invest in a diverse group of stocks without having to actually understand exactly what stocks you’re buying.

Plus, because ETFs are traded on exchanges, they have taxes automatically calculated for you. The price you pay is equal to the cost of investment minus tax. You never have to worry about calculating capital gains tax or what the correct sale price is. The entire process is automatic and is the best way to get started.

You can get advice from a financial advisor but it’s recommended to do the initial research in the ETF page for your state on their website.

Peer to Peer Lending

Peer to peer is a great way to invest in real estate or individuals in which you have direct contact. These are excellent ways to build passive income because peer-to-peer collections are normally passive so you earn interest on your money without having to put in a lot of effort. The borrower makes payments over time until the loan is paid off.

Here are some great peer to peer sites to help you get started and put your money to work:

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Annuities

Morally, annuities are kind of a lazy man’s way of investing. Rather than actually investing your money, you are in effect loaning money to the sponsoring organization. They will pay you interest (sometimes a really good interest rate) for however long you want to let the money sit there. Then when you are ready for retirement, you can begin to withdraw your principle and interest.

There are a few different ways you can do an annuity. You can get a single large payment before retirement, or alternatively, a series of payments over time. You can even get an annuity that allows you to decide when you get payments (similar to a CD), but you will get the highest interest rate if you keep your money in for the longest time frame.

The only downside here is that if you should die before receiving your money, the rest of your money is distributed as inheritance. In most cases, you can not designate beneficiaries. So any money left over for your kids, will be left in a state-controlled trust.

Also, you can’t get rich on an annuity. The best interest rate you will probably get is 2% ” 3%. Still, if you are planning to retire soon, and want to get the highest interest rate possible, it is an okay place to invest your money.

529 Plan for College Savings

Most parents have 529 accounts that they use to save for their children’s college education. These accounts were designed to help parents save private school tuition money and to avoid federal tax penalties. Every state has a 529 account plan, and as the name suggests, they come in many different flavors.

Here is a basic explanation of a 529 plan:

First, start by choosing the state where your grandchild lives. Then choose the type of 529 plan you want (growth in value or a stable value fund). Finally, choose the investment mix based on how much risk you’re willing to take.

You can use your tax savings as a credit against any state’s income tax payments or any federal taxes you owe.

With a 529 Plan, the state or government agency that sponsors the plan guarantees that the money you put in will grow and be there for college. Your contributions are tax-free as long as the money is held for a qualified beneficiary.

Define the beneficiary and contribute as much as you can each year. At the time of distribution, your distributions will not be taxed if they’re used for qualified higher education expenses. The money in the 529 Plan also won’t count against financial aid. Thus, as the stock and bond markets fluctuate, your investment in the 529 Plan continues to grow tax-deferred.

What Process Would I Take if I were investing $500k

I’ll assume most people will want safety, which gives you two choices, high quality bonds or cost and tax efficient mutual funds (not including a 401k/403b).

If you don’t already have a 401k/403b with a financial advisor, I’d choose to invest in one with a financial advisor and invest 50% in a total stock market index fund and the other 50% in a total bond market index fund. That will give you broad exposure to the market without having to worry about losing a lot while still offering you the opportunity to make a reasonable return.

For the 20% that you “leak out,” I would add to that and divide it evenly between a real estate investment trust (REIT) fund, a small cap index fund, and an international index fund. You will get more initial exposure to some classes of stocks that have a better chance of going up and a little more diversification in your portfolio.

Don’t Tell Anyone You Have It – And Don’t Brag About It!

My buddy, a successful businessman, calls this the “Good Neighbor” strategy. When you get to this level, you need to keep your mouth shut. No one needs to know you have money, and you need to be careful how you spend it.

At this level of wealth, you basically need to think of yourself as a Good Neighbor. You should go about your life as a normal person. You can’t change your behavior just because you have more money. In fact, you’re probably going to be a better neighbor if you act the same as you always have.

Remember: You don’t need to show off how much money you have. You’re not in a race; it’s not about being early to the party. You’re just going about your life and doing things that we all do.

Don’t be afraid to spend money for your family, but always do things for the reason of love. If you love your kids or your wife, or your dog, or your car, or your house, buy it! It’s one of the greatest things to give.

Pay off Any “Bad” Debt You Have

Paying off credit cards in a hurry is a bad idea. The biggest reason, as we’ve discussed, is that while some debt is bad debt, there’s also good debt.

Good debt is any debt that funds an investment, or debt that funds a business, mutual fund, or passive income stream. The idea is that it’s repaid with the income generated by those investments. Bad debt is any debt that doesn’t generate income.

Obviously, if your debt is, say, the kind you’re taking on to pay for tuition, or a mortgage for a rental property, that debt is good debt. Even student loan debt is investments in your future if you use it to attend a reputable, accredited college and attend an accredited four year program.

So do your best to pay off bad debt before tackling your good loans.

Make a One-Time, Big-Time Charitable Contribution

No matter how much money you have, there are some investments you don’t make with your hard-earned capital. You can’t, for example, think about buying a private island, buying a sports team or establishing a legacy by making an extravagant donation to your grandchild’s college fund.

These are all ideas that make for great movies, but they’re all bad investments when it comes to money. Although you may get satisfaction from giving millions of dollars to your grandchild, you’ll take a loss on that money. A charitable contribution is a much better option and likely the wisest investment you can make with your money, unless it’s under five figures.

One way you can become a philanthropist is by donating to your favorite cause. If you’re on the lookout for a charity that needs funding, here are some ways to find them.

Decide What Kind of Life You Want to Create

Don’t sneak up on your financial independence.

You might ask, how am I supposed to know what kind of life I want to create? I don’t have enough time to think about that. I don’t even have enough time to recover from the life I already want to live.

It’s true that you don’t have time to do everything you want. But the only way you’re going to start anywhere you want is by deciding where you want to start.

If you’re not going to think about what you’re going to do, you’re going to keep coasting on the same path you’ve always been on. Maybe that path leads where you want to go. But why take that chance? Just for the sake of avoiding a decision?

If you’re not comfortable that this decision is one you can live with for a very long time, don’t worry about it. Once you know exactly what you want, you can change your mind.

Do Some Deep Soul-Searching About Your Risk Tolerance

Most investors know that a truly profound investing question is, “What am I willing to lose for gains that are as great or greater?” Although this reflects your ability to deal with risk, it’s more than just a question of tolerating risk. It’s about your attitude towards life.

How strongly do you believe that there is a pot of gold at the end of the tunnel? For some, the future holds the promise of economic abundance. They believe that what’s taken place in the past will happen in the future and that the laws of economics will apply. They are optimistic people driven to succeed, and they are willing to sacrifice a significant portion of their present for the hope of a better future … or at least a better ending.

Emphasize Safety of Principal

The most fundamental form of risk is volatility. If you think of your investment portfolio in terms of its value over time in graph form, investing in large-cap stocks is like riding a roller coaster, where sharp ups and downs are the norm. Small caps, as well as bonds, are more like roller coasters where the ups and downs are less frequent.

Investing on riskier stocks can be a very rewarding proposition. The most successful long-term investors—top money managers—would dominate the short-term volatility due to their superb stock-picking skills and, as a result, would generate a significant return over time.

That’s why you should first focus on aiming for the highest quality stocks you can find.

Don’t be misled by the popular saying that “good investors is to pick stocks, and great investors is to avoid situations.” It is still possible to consistently earn above-average returns while still staying in blue-chip/high quality stocks.

In the long run, productive companies will tend to produce growing dividends and earnings and at attractive valuations. By paying keen attention to the businesses and industries you’re investing in through company and sector research, you will be able to identify the top stocks and stay there.

Invest in Yourself

I coded a little experiment with the intention to try and brute-force the selection of Toronto condos for sale that were available to purchase in Toronto Real Estate Board’s 1 bedroom under 500k category.

Add Risk Investments in Measured Steps

Although you may be concerned about investing in the stock market, you shouldn’t be hesitant to do so because of your age. You certainly have a lot more time to recover from a downturn than a 40-year-old investor with a family to support. You need to find a balance between your risk tolerance and your time horizon. If you’re a retiring baby boomer, chances are you have twenty or more years before you’ll need your money.

Given your time horizon, you can afford to make an aggressive allocation to risky assets such as stocks, emerging market equities, and real estate investment trusts. You can invest a portion of your money gradually in these asset classes to build up your portfolio and, at the same time, increase your tax diversification and reduce your overall risk.

As you get older and your stock allocation increases, your risk tolerance should increase as well. Should the stock market suffer another downturn, you can comfortably fall back on your fixed income allocation (bonds) and your conservative allocation (cash and stable value) to help you get through it.

Spend a Little on a Few Things that You REALLY Want

About the Author

Matt Badiali is a research analyst with expertise in technology, sector trends and financial concepts. He claims his work’s combination of rigorous research and creative industry commentary has the power to provoke thinking and make it matter.

Matt Badiali is a 26-year-old independent research analyst. He has a BS in Economics from The Wharton School at the University of Pennsylvania … currently pursuing an MBA in Finance at the same university.

He is also a member of The Investor’s Business Daily Shadow Stock, Fort Lauderdale Value Investing Group, and Alpha Research Analysts. He has held senior positions with companies such as the Ford Motor Company, Ford Asset Management Group and General Motors.

Matt writes for several financial publications and investment newsletters, including The Contrarian Report, The Oil & Energy Investor, The Coffee Investor, Key Stock Market Cycle, and Agora Financial… a cyber-publisher of financial letters.

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3 Things I Did to Diminish My Debt Within Months

By now, you’re saying to yourself, that’s a lot of money. Don’t splurge! Well, I thought so too, but not anymore. Here’re some tips to invest that money wisely.

Invest in index funds.

You will never be able to outperform this market by attempting to pick stocks. Its easier to stick with the index funds to get the 20% return.

Invest in real estate.

When it comes to investing in real estate, picking an area and using cash to purchase a whole building and/or a partial one for the right price can be a great idea.

Take care of your investments.

If you have an investment in the stock market, you have to keep an eye on it every day. My suggestion is to pay an expert to look after it.

Diversify into bonds.

A lot of people value their money by knowing how much their stock or real estate has earned them. Knowing the interest rate is also crucial. To be safe, you should diversify into bonds.