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Having half a million dollars to invest may seem like a massive advantage at first glance, and in some ways it is.
There's no question that someone with that level of money has many opportunities that other investors do not. That being said, smart investing is crucial to get a good return on investment and not lose it all.
This means looking at your options, following basic investment principles, and making sure to have some type of diversification in your portfolio.
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Investing $500,000: The Basics
Planning for the future it's always a smart idea. Those individuals who think about investing and growing their wealth before they get it are much more likely to be successful when the hard work pays off.
So what are the basics for investing $500,000?
Generally speaking, always be cautious around fast radical growth and make sure that fast radical growth assets are only one part of your portfolio and are balanced by safer Investments.
The next step is to make sure that your investments match your timeline to retirement. If you are nearing retirement age you want something relatively conservative that has little chance of losing value.
On the other hand, if you are young you can take more high-risk high-reward chances to encourage growth.
Take a cue, from the richest per capita country in the world, Norway, and diversify your investments. This not only means investing in different companies but in different fields. That way if one industry is replaced by technology, your entire portfolio is not busted.
This creates a better-balanced portfolio that can be tailored to your specific risk tolerance and risk capacity.
Don't overestimate how much risk you can tolerate, and likewise don't put too much of your retirement savings to risk especially if you will be drawing upon it soon.
Invest in a Gold IRA
Smart investors will tell you that the key to investing is to diversify your portfolio across asset classes. Most investors forget to do this and risk all over their wealth in stocks.
Investing 10 - 20% of your assets in gold, silver, and other precious metals is a time tested way to reduce the risk in your investment portfolio.
This is easy and tax efficient with a gold IRA.
Gold has been used as a form of currency, jewelry, and art for centuries. Today, it is also seen as a way to diversify your investment portfolio. Here's how to get started investing in gold.
There are many ways to invest in gold. You can buy gold coins, bars, or ETFs. You can also invest in gold mining companies.
The best way to invest in gold depends on your investment goals. If you're looking for a short-term investment, you may want to buy gold coins or bars. If you're looking for a long-term investment, you may want to invest in gold mining companies or ETFs.
There are a large number of reputable groups and online platforms that specialize in gold, making it easy to get started.
Long seen as a safe investment during tumultuous economic times, going with some gold is a great way to balance an aggressive economic portfolio.
Investing in the Stock Market
If you are in a position where you were investing your half a million dollars for the long-term, you'll want to put the majority of that into the stock market.
There is a reason why so many conventional retirement plans like IRAs, 401ks, and SEP-IRAs are all heavily invested in the stock market.
On a long enough timeline, the stock market always returns a very solid investment that continues to build year after year and continues to build the longer you're in the markets.
At $500,000 you may want to consider a brokerage account for investing. Although these accounts do not come with tax advantages, meaning you cannot write them off on your taxes, unlike some other investment accounts, on the plus side, you can also buy and sell stocks and other investments from this account without penalty.
In many situations, this can lead to a much bigger investment over time since you are not constantly being penalized for the growth of your stock assets. Just keep in mind, that profit removed from the account may be subject to capital gains taxes.
If in doubt, go long-term in index funds and/or dividend stocks with dividends set to automatically reinvest back into the stock instead of paying out.
These have a long track record of growth, and reinvesting dividends is a great way to grow your investment while also avoiding the dreaded capital gains taxes.
Invest in Real Estate
There are many options available for investing in real estate. You can buy a property outright, or you can invest in a real estate investment trust (REIT). You can also invest in real estate through crowdfunding platforms or online marketplaces.
REIT vs Rental Property
When you buy a rental property, you are responsible for the property and everything that goes along with it. This includes finding tenants, collecting rent, paying the mortgage and property taxes, and maintaining the property.
If you don't want to be a landlord, you can invest in a REIT.
A REIT is a popular investment option because it is a company that deals with real estate that it owns, operates, or finances in some way, shape, or form. REITs are traded on major exchanges, just like stocks.
When you invest in a REIT, you are buying shares of the company, which gives you an ownership stake.
There are many different types of REITs, but they all must meet certain criteria to be listed on a major exchange. For example, they must have a diversified portfolio of properties and distribute at least 90% of their taxable income to shareholders in the form of dividends.
You may also want to put part of your $500,000 to investing in platforms like Fundrise that take a crowdsourcing approach to REIT investment.
Cryptocurrency
Cryptocurrency is an extremely volatile market, but one that still has immense potential despite the recent volatility.
While many individuals made small fortunes trading the mini small cryptocurrencies out there, they are also the same individuals who lost a lot of money during the first market crash.
If you are going to invest in crypto it should not be a huge part of your portfolio and you should focus on well-established currencies like Bitcoin or Ethereum.
Buying a Business
You may also want to consider just buying a business. If you have half a million dollars to spend, you have an amazing array of options when it comes to starting or buying a business.
This could include buying income-generating websites, establishing a franchise, or buying a partial stake in a business that someone else owns to generate passive income in the form of a revenue cut.
While there are many options, going with an online business has multiple advantages such as low relative overhead, high potential profit margins, and a wide array of options to create a passive income stream before selling for a large lump sum.
Look up passive income through niche websites or websites flipping on Google to get a look at just how big this market has become.
While buying a business can still be risky, the opportunities for short and long-term revenues are amazing.
Open a Solo 401(k)
A solo 401(k) is a retirement savings account aimed at business owners or individuals who are self-employed in some shape or form. The account is similar to a traditional 401(k), but there are some key differences.
For example, with a solo 401(k), you can contribute up to $19,500 per year (as of 2020), plus an additional $6,500 if you're over the age of 50. With a traditional 401(k), you can only contribute up to $19,500 per year (as of 2020).
Another key difference is that a solo 401(k) allows you to make catch-up contributions if you haven't been able to save as much for retirement.
This means more of your $500,000 can go into the stock market or other investments, tax-protected, as you push to take care of yourself.
Annuities
Annuities are an often-overlooked way to invest and set up a long-term safety net.
These are insurance contracts that allow you to gain a fixed amount of money for the rest of your life, guaranteeing that even if markets go badly you will have a steady income well above and beyond Social Security to live off.
Open a High-Yield Savings Account
There are high-yield savings accounts, often available to high-income individuals, which tend to pay many times more than your average regular savings account.
This can be 20-25x the average or more, though keep in mind this can mean only a couple of percent. However, it is a safe investment for older investors or young ones still eyeing an early retirement.
Max Out Your Existing Retirement Accounts
What should not be lost in all this investing advice is the importance of maxing out your existing retirement accounts.
Investing in mutual funds, index funds, IRA, and other existing investment funds will allow you to put away money for retirement without having to sweat the details.
Hedge Funds
Hedge funds are a potential investment vehicle that in theory should minimize risk and increase ROI by pulling together the resources of multiple investors.
The idea of hedge-fund investments issues special training techniques from experienced fund managers. This often involves going long or short on a particular investment.
While hedge funds have had moments of strong returns, it generally is not recommended as the overall track records for most hedge funds are far less than the general stock market returns.
However, winning hedge funds tend to give massive returns. So if you are willing to risk all of it, this is a potential option.
Just remember to be careful with hedge funds. They have a notorious reputation for very good reasons.
Pay Down Your Debts
This will reduce the amount of money you have to pay in interest and fees, and it will free up more money for you to invest.
When you pay off your debt, you are essentially investing in yourself. You are reducing your future payments and freeing up money that you can use to invest in other things, like a business or a home.
Paying off your debt is a smart investment because it's guaranteed to give you a return on your investment. It's also one of the smartest investments you can make because it will reduce your future payments and free up money that you can use to invest in other things.
If you're getting 5% returns but paying 20% on a loan, that's just not a winning combination. In addition, the relief that comes from having no debt can be life-changing and also allows you to take more risks than otherwise might not be available.
Having no debt also makes it much easier to save up for a business, a piece of property, or a new investment opportunity.
Determine Your Risk Tolerance
Your investment style is how you approach investing. Some people are more aggressive, while others are more conservative. Your risk tolerance is how much risk you're willing to take on.
If you're a more aggressive investor, you may want to invest in stocks or cryptocurrency. If you're a more conservative investor, you may want to invest in bonds or real estate.
Your investment style and risk tolerance will influence your decision on how to invest your money.
Ask Yourself:
- How long do I have before I need this money?
- How much can I afford to lose?
- Will I need any of this money short-term?
- Do I understand modern investment trends enough to invest in them or should I go traditional?
- What's more important: long-term safety or long-term gain?
These questions all help determine what your actual real level of risk tolerance is and how you should invest your expectations accordingly.
Conclusion
$500,000 is a lot to invest and whether it comes from hard work or windfall, you want to make sure you take advantage of it to set the stage for the best long-term benefits possible for you and those you care about.
These investment choices vary greatly in how good a fit they will be for you based on your risk tolerance, experience investing, and what you are aiming for in returns.
Follow the advice here, always do your homework, and you will find there are plenty of options for making that half a million grow.
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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.
