How to invest $1 Million in 10 conservative or riskier ways

Investing $1 million may seem like a pipe dream, but the fact is that it’s definitely doable. Even during the recession, the number of people with a nest egg of one million dollars or more in their retirement savings accounts is reaching all-time highs.

As the saying goes, it’s the first million that’s the hardest to make. After you make your first $1 million, your money begins doing the hard work so that you don’t have to.

In this article, we’ll take a look at some common ways to invest $1 million to make even more money, and also give you some insights on how others are achieving the seven-figure mark if you’re just beginning to save.

10 Ways to Invest $1 Million Dollars

When you have a lot of money to invest, you’ll find plenty of good options available for creating a diversified portfolio. Here are the widely-believed top 10 ways to invest $1 million dollars today (in no particular order):

1. Stock Market

Stocks can generate returns through dividends and growth in share prices. Stocks with the highest dividend yields, according to Kiplinger.com  as of October 2020, include Diamondback Energy, The Williams Companies, and ConocoPhillips with dividends of 4.9% or more. Keep in mind that some stocks that pay a high-yield may also be high-risk.

Investors who purchased shares of the S&P 500 four years ago have seen gains of over 80%, even without the help of a Betterment robo-advisor. Of course, the stock market can also be volatile. Shares of the S&P 500 purchased in 2016 and sold when the market bottomed out in March 2020 generated a total return of just 3% over the entire four-year period.

2. Bonds

Many advisers believe that a traditional balanced portfolio consists of 60% stocks and 40% bonds. While individual stocks such as Amazon can provide growth (more on that next), owning bonds is mainly about capital preservation, especially in today’s lower interest rate environment. Bonds are available in different types, including corporate bonds, municipal bonds, and treasury bonds. 

Bonds pay interest income and the full face value at maturity, but can also fluctuate in price based on interest rate changes. Although bonds are often thought of as safe and secure investments, you can lose money on a bond if you sell it for less than what you paid, or if the issuer defaults on the payments.

3. Rental Properties

If you’ve got $1 million to invest and are looking for diversification combined with healthy risk-adjusted returns, some investors believe that one of the best options is buying rental properties. Real estate lets you generate income and grow your investment capital in three different ways:

1. Passive income through recurring cash flow.
2. Equity appreciation when property values increase over the long term.
3. Tax benefits such as deducting operating and business expenses, and using depreciation expense to reduce your taxable net income.

You can diversify your investment among different asset classes such as residential, commercial, industrial, or land. Today’s technology also makes remote real estate investing easy and is a good option for investors who live in high-cost-of-living cities such as New York or San Francisco. 

When you invest in real estate remotely, you can find low-cost property in markets with higher yields, while having your local real estate team handle the day-to-day details of property management.

Because real estate can also be leveraged or financed, your one million dollar investment will also go farther and potentially generate higher returns while potentially spreading out risks. 

For example, instead of paying $1 million cash for a small apartment building in one market, you can purchase a much larger portfolio of single-family homes located in a variety of high-growth markets throughout the U.S.

4. ETFs

Firms such as Vanguard offer a variety of exchange-traded funds (ETFs). They’re a good investment strategy used to gain exposure to stocks and bonds without having to make specific bets. 

ETFs purchase portfolios of stocks, bonds, or can be index funds based on popular indexes like the S&P 500, Nasdaq 100, or the Russell 3000. You can also purchase shares of an ETF that invest in specific industry sectors such as technology, health care, precious metals, international companies, and real estate. 

Before you add an ETF to your investment portfolio, it’s important to understand that exchange-traded funds are designed to match the performance of the market segment they’re investing in rather than outperforming it.

5. Buy a Business

Buying shares of a stock or an ETF is one way of investing in a business. But many investors who have one million to work with simply skip the public exchange middleman and invest in a business directly. When done correctly, buying a business can be one of the most profitable ways to invest your money.

There are two main ways to invest in a business. You can buy or start one of your own, or you can invest as a partner in an existing business. Starting your own business can be riskier, but can also generate higher returns. Investing in an existing business is lower risk because the business already has an established track record, but you’ll need to have complete trust and confidence in your business partners.

Either way, buying and investing in the right business can generate returns on your one million dollar investment well above traditional investments like CDs, annuities, bonds, and stocks.

6. CDs and Money Market Accounts

Certificates of deposit (CDs) and money market accounts are two of the most secure ways of earning a rate of return while having easy access to your cash. 

Annual percentage yields (APY) on CDs and money market accounts are roughly at the rate of inflation, meaning you probably won’t make any net income on your savings. 

On the plus side, they’re similar to having a savings account and a good way to protect your capital while keeping your money relatively liquid.

7. Fixed Rate Annuities

Fixed-rate annuities are offered by insurance providers and are a type of insurance contract that promises to pay a guaranteed interest rate on the contributions made to the account. 

They’re designed to provide a predictable fixed-income stream when the payments begin and are not linked to the performance of other investments. 

Your financial planner may recommend fixed annuities as a key allocation component of your retirement portfolio, but you’ll end up paying an insurance company extra for the reduced risk. Yields are more than what you’ll receive from a US Treasury bond or CD. 

However, yields on A-rated or higher fixed annuities are about the same as the rate of inflation, which means that you’re basically breaking even by investing in a fixed rate annuity.

8. Private Lending

Private or peer-to-peer (P2P) lending is also relatively easy to do with online platforms, although the risk can be much greater than traditional real estate investments. But depending on your specific risk profile, the potential returns from private lending could offset the risk, provided you invest smaller amounts and don’t allocate too large a percentage of your personal capital to private and P2P lending.

Private short-term loans can be made to consumers for debt consolidation or home improvement, or to small businesses looking for more working capital to expand their business, buy equipment, or purchase real estate. 

Yields can be much higher than traditional stocks and bonds and can be a good alternative to these traditional investments. On the other hand, private loans are less liquid because your money is normally tied up for several years. 

You also run the risk of losing your money if the borrower defaults unless the loan is secured with an asset such as real estate. That’s why it’s a good idea to speak with your CFP or financial advisor about the amount of money you plan on allocating for personal lending.

9. Crowdfunding

Crowdfunding occurs when large groups of investors contribute their capital to finance a new business venture such as video game creation, electric vehicles, television series, and real estate projects. One of the biggest advantages to crowdfunding is that you can allocate small portions of your one million dollars to different business sectors and asset classes. 

For example, real estate crowdfunding platforms allow you to invest in high-quality assets such as apartment buildings, new residential subdivisions, and debt investments through loans made to developers. 

Oftentimes, the most potentially lucrative crowdfunding investments are limited to accredited investors. The good news is that if you have $1 million to invest, you’ll likely be able to qualify as a high net worth accredited investor, giving you access to crowdfund investments that other people don’t have. 

However, remember that many crowdfunding deals offer a potentially high return in exchange for a high level of risk. There’s no guarantee when or even if a new development project will break ground. Investments in a crowdfund also may be illiquid, meaning that you can’t buy and sell the same way you would stocks, bonds, or even traditional real estate. 

Also, crowdfunding companies also reserve the right to limit or freeze withdrawals during periods of economic uncertainty, so you may not be able to get back your cash when you need it most.

10. REIT

Real estate investment trusts (REITs) offer a more safe and secure way to invest in real estate than crowdfunds do. 

REITs are publicly traded on the major stock exchanges and are set up as funds that own and operate income-producing real estate such as office buildings, retail shopping centers, apartment buildings, and single-family homes. Some REITs also allow you to focus on niche asset classes such as cell phone tower sites, data centers, and self-storage facilities. 

Owning shares of a REIT could be the next best thing to owning real estate directly because 75% of a REIT’s capital needs to be invested in real estate and 90% of the net income must be distributed to shareholders as dividends. 

However, REITs do not offer the same benefits as directly owning real estate, such as using investment business expenses to reduce taxable net income. Also, because real estate investment trusts are stocks, there may be more of a correlation to the overall stock market volatility than direct property ownership might have. That means that if the stock market moves down, REIT share prices could decline as well.

Is it Really Possible to Save One Million Dollars?

According to Fidelity Investments, the answer is absolutely, positively “YES!”.  For example, the number of 401(k), IRA, and Thrift Savings Plan (TSP) millionaires is setting all-time records. So, if other people can save one million dollars or more, it’s possible for you too.

Here are 8 totally realistic ways to save one million dollars much faster than you might imagine, even if you don’t know a lot about personal finance:

Careers with the highest median salaries include being a pharmacist, actuary, economist, information security analyst, and petroleum engineer. When you work in an industry that values what you do, your chances of being unemployed are also significantly reduced.

If your employer offers a retirement plan, maximize your contributions to take advantage of pretax investments that can boost your annual return. If you’re self-employed, you can do the same thing by setting up a SEP IRA.

Your credit score doesn’t have to be perfect, but remember that the better your score is, the greater the odds are that you’ll qualify for low-interest rates. Lenders consider a FICO Score of 740 or more to be very good, while 21% of Americans have an exceptional credit score of 800 or above.

There are two types of debt – good debt, and bad debt. Bad debt includes paying interest on credit card balances or borrowing money to go on vacation. Debt can be a good thing if it allows you to invest, for example by taking a  low-interest student loan (assuming you choose the right degree) or wisely leveraging it to finance income-producing real estate to invest in multiple properties instead of just one. 

Another potential good use of debt is buying a home to live in instead of renting from someone else. Owning your own home can grow your equity so that you have access to future investable cash with a cash-out refinance. According to the Federal Reserve, median sales prices of homes sold in the U.S. have increased by almost 200% over the past 20 years. 

Investors who buy and hold for the long term take advantage of normal down market cycles to buy assets when they’re relatively inexpensive. 

Real estate investors who bought houses during the Global Financial Crisis of 2008 have seen their home values grow by more than 50%, while buyers of the S&P 500 who added to their portfolios during the recent dip have seen share prices rise by nearly 60%.

There’s no rule that says you can only have one source of income. The good news is that there are plenty of ways to make more money without having to hold down two full-time jobs. 

Owning dividend-paying shares of a publicly-traded REIT or real estate mutual fund, starting a part-time business by working a side gig that you love, or renting out extra space in your house are three easy ways to generate streams of income that put you on the path to making your first $1 million.

Extremely wealthy people such as John D. Rockefeller and Robert Kiyosaki say the #1 way to make money and build generational wealth is by investing in real estate. Real estate investments can provide reliable passive income, appreciation over the long term, and IRS-approved tax benefits that other assets simply don’t offer.

Before You Invest a Million Dollars

Before you think about investing $1 million – or even $10,000 or $100,000 – there are several things you’ll want to do first:

Having a clear goal in mind makes it much easier to reach your financial goals. For example, you may want to retire by a certain age, generate a specific amount of monthly cash flow so that you can cut back on your working hours, or double your money over the next five years.

Once you know where you want to be, the next step is to create small, reachable steps that will move you along your path toward financial success. Having a timeline helps you choose the best short- and long-term investment options, your income needs, and how much risk you’re willing to take.

Risk tolerance is your willingness to accept an investment loss in exchange for a higher potential gain. Generally speaking, younger investors are willing to take more risk because they have more time to pursue potential gains. 

However, financial advice that’s right for someone else isn’t necessarily right for you. Understanding your personal tolerance for risk and reward will help you choose the investments that are right for you. You should consult your own advisor for help in this area.

No matter how hard you try, life will always throw you a curve. It may seem silly to worry about setting up an emergency fund if you already have one million dollars. But smart investors understand that an emergency fund acts as a barrier between their everyday expenses and their longer-term investments, providing access to cash when and if it’s needed.

Your 401(k), IRA, or SEP-IRA retirement accounts should be fully funded before you begin making alternative investments. Maxing out your retirement plan contributions each year will give you peace of mind that money is there when you need it, and also provide additional tax-free funds for investing in real estate by using a self-directed IRA.

If you already have $1 million sitting in the bank ready to invest, there’s no good reason to be making monthly payments on bad debt like credit cards, car loans, or even student loans. But remember, not all debt is bad. Wisely using good debt and conservative leverage can help you grow your investments, especially if you’re investing in income-producing real estate.

Bottom Line

Having $1 million to invest gives you a wide variety of investment options. The trick is to choose investments that provide you with a return of your investment capital along with a return on your money invested. 

The good news is that it’s very possible to do both, and for many people, investing part of their $1 million in real estate is the option that offers the best blend of risk and reward.