How to Invest $100k

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Andrew Hayward

If you are fortunate enough to be in the situation to invest $100,000 then careful consideration is required. After all, $100k is a significant amount of cash. If you plan your investments carefully and have a strategy, this money could be the seed that grows into a nice nest-egg that helps you in securing a comfortable future and possibly even an early retirement.

Also Consider: Best Trading Platforms

How to Invest $100,000

Every person’s road to financial security is unique—after all, no two individual experiences are the same. You may have been thinking about the safety that a cash savings account offers, where your money can earn interest and grow, free from any of the risks associated with investing.

However, this is not always a sure-shot, and with the current financial climate it’s even riskier than before as inflation rates race ahead and even the best interest rates lag way behind. This raises the very real possibility that your savings account could well turn into a “losing account”, leaving savers struggling to find inflation-beating returns, which are much more likely if you were to invest your cash.

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Interactive Brokers: Best for Roth IRA

Interactive Brokers offer their users one of the most comprehensive collections of shares to choose from, that lets you build your very own fully diversified portfolio. And thanks to its clear pricing model, which of course includes $0.00 fees for EFT trades on the LITE platform, Interactive Brokers is a great choice for those wanting a low cost and powerful trading tool.

How much interest does $100k earn?

Interest rates are currently at an all-time low. However, if you are wondering how much interest $100k could earn and what the best rates on offer are, I have done the legwork for you. Some of the best interest rates currently available are with BrioDirect, with a 1.80% savings APY with no minimum amount to open an account, and SoFi, a 1.50% savings APY with no minimum amount required to open an account. This would translate into an annual growth of $1,800 or $1,500. Not bad, but certainly not great. Especially when you consider that this is not a tax-free income.

As you can see, investing your money under these circumstances will give you returns and is the “safest” option. But with inflation rates currently rocketing to new highs, the safe option may not be so safe in the long run. So, what’s the best investment option for your money and where should you start?

Remember that before you even consider investing your money in the stock market, you will need to be happy to leave it for a minimum of five years. If you require access sooner than this, then investing isn’t the right course of action for you.

Identify your attitude to risk

All investing comes with a degree of risk; however, this can vary significantly depending on the investment portfolio. Generally speaking, the younger you are, the more risk you can take on as you have time to ride out any volatility in the market. Remember, the rule of thumb is that the less risk you assume, the less your returns are likely to be. For this reason, it is important that you define your risk attitude based on what your financial and investment goals are. If you are having issues identifying the risk tolerance that might be suitable for your circumstances, then this is an area a financial adviser will be able to help you with.

How to invest $100,000 for the best return

Getting the best possible return for your money, without assuming too much risk, is the aim for most investors. Careful use of tax breaks and government bonus schemes is likely to throw up the best immediate returns before you even start investing the cash.

An investor aged between 18 and 40?

If you are an investor between the ages of 18 and 40, then one of the best starting points for great long-term returns is by opening a Roth IRA.

The good news about Roth IRAs is that they offer tax-free growth and withdrawals. Any financial contributions you make into your Roth IRA is after-tax money, this means that you don’t get to avoid tax on your contributions, as you might with a traditional IRA. However, the payoff for this is that your earnings in the Roth IRA are tax-free and you’ll be able to withdraw them tax-free at retirement, defined as age 59 ½ or older. Another great perk that the Roth IRA has is that there are no minimum distributions, meaning you can compound the money tax-free as long as you like, even passing that money untouched to your heirs.

That said, for some investors the fact that your contributions are not tax exempt may be a disadvantage, especially for those looking to reduce their current tax burden. So, for those looking at the now as well as down the road, the Roth IRA may not be the best choice.

Some of the best performing Roth IRA accounts are run by Charles Schwab and Interactive Brokers, both of which are excellent choices for those wanting to open an IRA.

Municipal Bonds

A municipal bond is a debt obligation issued by a government entity. When you buy a municipal bond, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period. Once the bond reaches maturity you get your money back plus interest as per the bond’s terms. Whilst a municipal bond may not offer the most lucrative return on your investment, they do come with several perks that help sweeten the deal. First of all, as the government uses it to help provide services and develop the infrastructure, it is always working to make sure that they are appealing to investors, which is why it has such competitive rates. Another perk is that the interest paid on municipal issues is exempt from federal taxes and sometimes state and local taxes as well.

Tax-exempt Exchange-Traded Funds

A tax-exempt Exchange-Traded Fund is a fund that includes municipal bonds from issuers that are primarily state or local governments or agencies whose interest is exempt from U.S. federal income taxes and the federal alternative minimum tax. As such, these tax incentives are passed on to investors and, due to their very nature, such funds are considered as low to medium risk. With their focus on income rather than growth, they are a nice long-term bet for those who are starting their investment journey at a relatively early age.

A number of brokers offer such funds, but our pick of the bunch would be the Vanguard Tax Exempt Bond.

The Roth IRA, municipal bonds, tax-exempt Exchange-Traded Funds (ETFs), and even Health Savings Accounts (HSAs) among others. These options are just some of the tools you can use to wisely invest your money. Though I would like to repeat that the current inflationary pressures coupled with rising oil prices have made for extremely nervous markets and uncertain times.

In any case, it will be useful for you to invest as much of your money in a way that helps reduce the tax burden you face. As such, opening a Roth IRA, municipal bonds, tax exempt ETFs and even an HSA are my suggestions for your initial investment.

How to invest the remaining lump sum of money

Once you have utilized the above tax smart and government bonus schemes, you should still have a substantial sum of cash remaining. This can also be used to grow your wealth; however, this money will be subject to tax! It’s for this reason that we first made sure to invest as much as possible into tax smart schemes such as the Roth IRA.

Brokerage Account

The final lump sum would be best served in a brokerage account where you could either choose to pick your own investments or invest in a ready-made fund managed by experts. Our top pick for a trading platform is Fidelity Investments. Fidelity is consistently rated as one of the best brokerage account providers in the US thanks to its strong customer-focused approach and proven track record. This approach coupled with its low costs and wealth of educational tools help Fidelity stand out in a crowded field.

How to invest $100k for a novice investor

If you are a complete novice looking for the best way to invest $100k, then you might be feeling daunted by the stock market and all the options available. The good news is that it is entirely possible for you to successfully invest your cash whilst assuming an appropriate level of risk. For those starting out down this road, we would recommend you invest $100k using Merrill Edge as they provide fully managed portfolios as well as investment advice. If you register with Merrill Edge, as part of the process they will ask you a series of questions to help determine your investor profile and your attitude to risk. Merrill Edge are there to help you ensure you make all the right choices, and is a good choice if you’re looking for an established financial advisor to help you reach your financial goals.

Best way to invest $100k in Real Estate

Historically, property has been a popular investment, however we would caution against this in the current climate. The reason for this is that property investment is often aimed at commercial premises and the Covid lockdowns helped accelerate the decline of the high street, driving down rents for landlords and pushing down the value of high street properties.

Is it safe to invest $100k online?

Yes, online investment platforms are still authorized and regulated by the Securities and Exchange Commission and other relevant bodies, so this is a perfectly safe space from which to manage your investments.

Have you got any debt?

Remember before you embark on any of the above, experts will always recommend that you rid yourself of any expensive debt that could be costing you money in interest, and to get your finances in order before making the decision to start investing.

Remember to make full use of your IRA allowances each year by moving your money when the new financial year begins.

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