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According to the 2021 Wealth Report by Day & Robertson, a real estate agency firm in New York, having $5 million makes you one of the richest people in the U.S. Further, the report categorizes the top 1% of wealthiest Americans as individuals with a net worth of $4.4 million.
This means, that if you are willing to invest $5 million, you are considered among the top 1% of richest people in America.
It is worth noting that such a capital outlay comes with its fair share of risks and investment opportunities.
With a $5 million fund, you can lead a comfortable and even luxurious lifestyle. You can also guarantee financial security for many generations to come and support countless life programs that matter most to you.
We have prepared this write-up to show you a few ways you can use to invest $5 million. However, when dealing with such a large pool of funds, it is best to invest in multiple, separate assets for risk management.
If you are looking for extra professional guidance, think about working with a qualified financial advisor to help you come up with the best financial plan and management strategy.
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Invest in Precious Metals
For centuries, the value of gold has been stable, making it a worthwhile investment capital destination for investors looking for long-term, stable opportunities with potential for price appreciation.
However, some investors prefer to look to profit from short-term price volatility and therefore prefer trading silver assets. More crucially, the two precious metals assets can be used by investors to hedge the economy and make profits.
On this basis, financial professionals advise investors to dedicate 10–20% of their investment portfolio to gold and silver. This is simply a recommendation, and the exact proportion depends on the investor’s aspirations.
Furthermore, the correct capital allocation can be tricky to achieve when you have to include other precious metals like platinum or palladium in the portfolio.
Regardless, many financial enthusiasts and journalists believe that precious metals investments should receive at least 5-10% of capital outlay.
Lastly, ensure you consider your financial position and personal goals when allocating investment funds to various assets. But like much expert advice, it is always a great idea to buy some gold and silver to secure your investments.
What is a Precious Metals IRA?
A precious metals IRA, more commonly known as a gold IRA refers to a type of self-directed retirement account for an individual.
Self-directed IRAs are significant because they allow investors to finance investments in a wide range of unconventional assets like precious metals, real property, and cryptocurrency.
With an ordinary IRA, it is virtually impossible to invest in these sectors even though the two IRA options share common features and other similarities, e.g., they have equal account contribution limits.
Because of the price stability of gold, silver, and palladium over a long time, precious metal IRAs have been preferred by a growing number of investors as a means to secure their retirement plans.
In addition, including gold and precious metals in your retirement portfolio helps safeguard your wealth in various ways, such as lowering risk in the case of economic volatility, hedging your wealth if the market collapses, and providing a tax-sheltered method of growing your wealth.
Why Put Gold in Your IRA?
Individual Retirement Accounts (IRA) protect your retirement as well as your family's financial security.
These special accounts allow you to set aside tax protected savings that you can use in the future.
With these long term accounts it's important to allocate a significant portion to assets that are solid and reliable, so you have a secure and worry-free retirement.
You can have cash in an IRA, but that is devaluing at a rapid pace and inflation is out of control.
You need an asset that's dependable, retains it's value, and even increases in value over time, and there is no better asset for this than gold.
With the world's economy struggling through lockdowns, shortages, wars, and inflation, uncertainty has never been higher and investors are protecting themselves by placing physical gold in IRA's.
A gold IRA investment prospers from these crisis that negatively affect most other assets.
Risk is knowing the economic dangers and doing nothing to protect yourself and your family.
Safety is knowing the economic dangers and taking action to protect your financial future, and this is easy to do with a gold IRA.
Retire All Your Debt
You must pay off all your outstanding debts, starting with the most expensive ones. There are questions about whether you should pay off your home, so it helps to think about it.
However, for a start, pay off all your debts with high-interest rates.
It is quite hard to find investment opportunities with a return of the 15%+ you may be paying on your personal and credit card debts.
To pool your investment funds together and get a good financial footing to begin investing, begin by getting rid of your expensive debts.
Set Aside a Reserve Emergency Fund
Next, it is time to set up a fully financed emergency fund to meet your expenses for a 6-month duration.
The emergency funds must be held in an FDIC-insured account where the money can be accessed easily and attracts a high annual growth rate. The best options are found online and include Fidelity, Vanguard, Ally Bank, and RBC.
These online options are popular because they pass their low overheads to customers in the form of a higher APY, which currently may be above the inflation rate.
Consider Investing in Private Lending
Lending money as a private entity is another way of investing one million dollars. It is possible that you could borrow the money and then look for bankable borrowers to lend the money to and make a tidy profit.
This is the business model of many banks. The banks borrow money from the federal reserve, add about 3% markup, and extend credit to individual borrowers like you and me.
Using actual numbers, if you took a loan of one million dollars to be repaid after five years at 7% interest, you could end up lending the money to creditworthy individuals at a rate of 10%.
This means you will earn about $30,000 every year or $150,000 over the 5-year loan duration on the primary debt. Often, private lending is the first idea that comes to mind for many investors looking for suitable ways of investing one million dollars.
Invest in Mutual Funds
Investment in mutual funds commands a rather large capital outlay, making them suitable investment hubs only for high-net-worth individuals. In addition, mutual funds usually charge lower fees.
Mutual funds provide investors with income from stock dividends and bond interest income, and the money is paid back to grow the investor's portfolio. Usually, mutual funds are reserved for investors who have attained the high minimum requirements.
One of the greatest benefits of mutual funds is that they are managed by a professional fund manager. The fund managers rely on market research and analysis to determine the most profitable investment destination for the funds.
The rich individuals who invest in mutual funds are happy to have the management work handled by an expert, which gives them peace of mind and time to focus on other matters.
Invest in a Hedge Fund
Having $10 million worth of capital gives you leeway to take on more risky ventures compared to the average investor. For this reason, hedge funds are classified in this category of investment opportunities.
Usually, the group of investors in a hedge fund pursue high-risk investment strategies, while anticipating equally high returns at the end of the investment duration.
Hedge funds can be invested in stocks, options, bonds, commodities, currencies, real estate, and options. Hedge funds may use debt to finance part of their investments to significantly increase the rate of return on investments. The funds are flexible because they are not governed by the SEC rules that bind other financial securities.
Invest in Real Estate
Overall, investment in real estate is capital intensive. To diversify, it is advisable to invest in various types of real estates, such as commercial property, condominiums, or bungalows.
However, many people are turned away from real estate investment by the landlord and property management duties associated with this type of investment.
One way to avoid this hassle is to contract a property management firm to maintain the property and keep it in marketable condition all the time.
In addition, consider investing in real estate through pooled financial resources, which also enables the investor to circumvent the burden of managing the property.
The property investor thereafter expects to earn back their money from the rental income generated by the property.
Exchange-Traded Notes (ETNs) and Exchange-Traded Funds (ETFs)
ETNs can offer an effective way of earning tidy profits, provided the borrower is reliable and the market responds in the right way. By definition, an ETN is a bond issued by a financial organization instead of an independent pool of assets.
An investment in an exchange-traded fund (ETF) is guided by a specific index, sector, commodity, or other product asset and is traded on a stock exchange just like an ordinary stock.
The financial returns of ETFs and ETNs closely resemble the returns of a certain index and can be expressed in the form of predictable cash flows.
Another benefit is that the ETN investor is not charged short-term capital gains taxes that come with such financial instruments.
Invest in Municipal Bond Funds
Municipal securities offer an enticing way for investors to earn income that is free of state and federal income taxes. However, it is advisable to invest in a diversified mix of municipal securities for risk management.
Municipal bond funds operate like mutual funds, where the investment capital is directed towards debt securities issued by states, cities, municipalities, and other government institutions.
The funds are used to finance infrastructural construction, improvement, or repair projects.
Municipal bond funds are popular because they provide the investor with a stream of tax-free income. For instance, the income is not subject to federal taxes and state taxes for investors in the bond-issuing state.
However, just like mutual funds, municipal bond funds come with a certain amount of risk.
Buy a Business
Starting a business or purchasing an existing one is one of the most profitable ways to invest your $5 million. In addition, this method provides an opportunity to grow and sharpen your entrepreneurial skills.
You do not have to run the business directly, as you can own part of the business as a silent partner, while the general partner handles all the day-to-day operations.
Furthermore, you do not have to start your own business and grow it from the ground up; instead, you can purchase an existing business.
If you are buying an operating business, you may have to pay considerably more, but it offers less risk as the business is already established.
More importantly, ensure you know the type of business you want to enter for it to be a success. Statistics show many businesses fail even before fully taking off.
You can avoid the stress associated with starting a new business from the ground up by joining an existing business as a silent partner. You will need to evaluate the right kind of business to invest in to ensure you receive a reasonable return on your investment.
By buying part of the business, you become a partner and are entitled to receive a share of the business's future income.
Consider Creating a Family Trust
A family trust provides an extra buffer to safeguard your wealth and keep it safe from being eroded by negative global economic forces. The beneficiary of the trust is the family trust and the holding company.
The passive income generated by the entity is channeled into the trust to ensure the income continues to grow as the money is invested in different opportunities.
Members of the trust can also benefit from a lifetime exemption from the capital gains tax, which safeguards the value of the business sold under the umbrella of the trust.
For instance, if you run a small farm business and you are depositing dollars into the family trust and holding company, it sets up the farm business to be sold as a dividend in the future.
This setup allows income to be channeled into that family trust, while the lifetime exemption from capital gains tax ensures the dollar portfolio grows at a higher rate.
Without the tax benefits, your business will have to pay taxes amounting to almost half of its income. The exemption ensures that only half of the capital gains are taxed and the other half is made part of your deduction limit.
It can be a little tricky to understand. However, the idea is that your family earns higher income levels thanks to the tax benefits of the trust. The impact of this tax-saving is greater in the long run because of the compounding effect of the investment.
Where Should You Not Invest Your Money?
It is not advisable to invest in hedge funds – the historical performance of this industry is simply poor.
We only listed it as an option above because the market demand to be an investor in a hedge is massive. Many investors get into hedge funds as a sign of social status, but there is no financial benefit for the investor.
Sad but true. Their entire 2 and 20 fee model is ridiculous. The hedge fund manager benefits more by earning a great return, while the investor earns an extremely low return.
There is no free money in the world of investment. Usually, high-yield stocks fail the market. It is important to earn a good yield on the stock you buy. However, yield should not be the only factor to consider when investing in stocks.
Rather, it is best to focus on the overall return of the investment. Look for an index that reflects the total return of the US equity market.
Preferred stocks are a form of high-yield stock. Avoid buying preferred stocks because of their 5% to 6% dividend yields.
If a high return on a stock sounds too good to be true, it is.
Conclusion
When looking for ways to invest $5 million dollars, there are a few different factors to think about. You may invest in bonds for their price and income stability or real estate for stable rental income.
Other investment opportunities include government bonds, health insurance, and others.
Simultaneously, you must consider the risks involved in the investment you choose. The best way to prepare is to conduct sufficient due diligence to prevent losing your money in bad investment deals.
More importantly, how you choose to invest $5 million is determined by your financial objectives and appetite for risk.
I started BMOGAM Viewpoints as a way to compile all my views on investing in one place. I own my home, have some real estate, and own a few stocks like most people, but what really drives my interest in investing is I have a strong love of precious metals, especially gold.
