What is the best way to invest $100,000 in cash?

Here lies a problem that most people would be happy to solve: You have an extra $100,000 in cash on hand and you’re not sure what to do with it. The operative word here is discretion. We will assume that your additional $100,000 is actually there Extra and that you have no outstanding debt, especially high-interest credit card debt.

If you have outstanding debt, most financial experts would say that your priority for that change is to pay off your debt.

Once that’s done, and you already have other assets in place – such as a viable retirement plan, an adequate emergency fund, and other well-placed capital – you’re already ahead of the competition. If so, you probably already know some of your options. However, if you are new to investing, you may want to start with some research.

There is no optimal way to use this money as there are many options. Your goal is to choose the investment instrument – ​​or combination of investment instruments – that is right for you. Below are some of the best options for making money.

Property

While this may not be the most exciting prospect, you should think about paying off your mortgage if you have one. If you don’t own a home or other investment property, consider investing in real estate. Real estate can be a solid investment. However, it carries risks and requires you to do your due diligence.

Traditional real estate investments

When most people think about investing in real estate, they think about buying and selling properties or buying and renting them to generate income. Several factors contribute to whether profits are realized quickly, over a long period of time, or at all.

First: location, location, location! The location of a property is one of the most important determinants of its value. To get the most bang for your buck, choosing the right location is just as important as choosing the right property.

Market conditions are perhaps the best indicator of whether traditional real estate investing is a good idea. When prices are volatile, it might be a good time to sit back and wait for them to stabilize.

Real estate purchases require a significant capital outlay. An investor should consider the return on investment (ROI), the profitability of the property and the associated costs before investing. Consider how much of your $100,000 will go toward purchasing, repairs, renovations, and marketing the property.

When it comes to flips, selling costs should be taken into account. When renting, maintenance costs must be taken into account.

Real estate is one of the few assets that tends to increase in value over time. Therefore, some investors hold on to their properties until the appreciation in value is large enough to generate the desired profit.

Real Estate Investment Fund (REIT)

If you want to invest in real estate without the complexities of buying property outright, a real estate investment trust (REIT) could be a good option. Investing is easy and doesn’t necessarily require a lot of money. Some investment platforms allow investments starting from $100.

Unlike traditional real estate investments that are flipped and resold, REITs have properties in their portfolios that generate income. This includes retail spaces, medical facilities, residential properties and commercial properties such as office buildings.

You can purchase REIT shares through a broker or directly from the REIT company. REITs pay dividends to their shareholders, which are taxed as ordinary income; However, gains are taxed as capital gains.

Taxable Investments

You can invest your extra money in taxable investments. This means your income or capital gains are considered taxable income.

Some of the more common taxable investments include stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Some of these instruments, such as dividend stocks, could generate regular income.

This approach is made more attractive by tax policies that generally treat capital gains more favorably compared to earned income and ordinary interest income.

Low risk investments

If you are hesitant about investing in the market and want to keep your money safe, you can invest in high-yield certificates of deposit (CDs) or a high-yield savings account. Your client is even insured by the federal government if they are an FDIC member (which is the case with almost all banks).

Don’t just stop by your local bank branch. You should shop around for the best bank interest rates. The best interest rates for high-yield savings accounts may be offered by the online platforms of several financial services companies whose names you may already know – such as Goldman Sachs, American Express and Barclays Bank. You can also find out-of-state banks online with competitive offers.

Retirement accounts

If your retirement plan is an individual retirement account (IRA) or a 401(k) account, both of which are tax-deductible but not tax-free, you might consider opening a Roth IRA account.

With a Roth account, you pay the income tax due in the year you contribute the money, but owe no additional tax on the capital or investment gains when you withdraw the money.

Not only can Roth earnings grow tax-free, but the account is not subject to IRS required minimum distributions, allowing funds to accumulate beyond retirement. Unlike traditional IRAs, there is no maximum age limit for participation.

Unless you roll over from an eligible retirement account, it wouldn’t be possible to invest the entire $100,000 because the IRS limits how much you can contribute to a Roth annually. For 2023, the maximum contribution is $6,500 or $7,500 for those age 50 or older, increasing to $7,000 in 2024 ($8,000 for those age 50 or older).

Additionally, the taxpayer’s adjusted gross income (AGI) cannot exceed the limit for Roth eligibility. Married couples filing jointly and widowed individuals cannot contribute if their income is $228,000 or more, rising to $240,000 in 2024.

Diversify, diversify, diversify

Your $100,000 is a respectable amount to be able to apply the Investing 101 mantra of diversification. In other words, it would be wise to split the $100,000, putting some of it into vehicles you already own, such as: B. your IRA, and use the rest to try out some new investment vehicles.

Deciding how to allocate this type of additional capital requires you to carefully weigh your options, consider your short- and long-term financial goals, and be realistic about your risk tolerance.

As always, it’s a good idea to seek advice from a financial professional before investing.

Additional tips

There are many ways to invest your $100,000, including building and managing an investment portfolio. If you’re a savvy investor, you may be able to go it alone and pick your stocks, bonds, and other securities.

If you are a novice investor, it makes sense to seek the services of a licensed financial advisor. These professionals develop investment solutions to help you achieve your financial goals. Not only do they provide recommendations, but they can also manage how and where you invest your money.

To protect your money and determine where you should invest it, it is crucial to understand how your money is taxed because different investments lead to different tax situations. If your $100,000 is tax-free, consider tax-efficient investments. If the source of your $100,000 is a qualified retirement account, consider rollover or transfer options that defer taxation and provide features that meet your financial goals.

The conclusion

You have $100,000 and need to know where to invest it. The recommended first step is to consider your options to make an informed decision. Use due diligence to ensure your funds end up where you want them. There are numerous options available, from real estate to managed portfolios. The journey to making the right investment can be just as rewarding as the money invested.