If you’re wondering how to invest $100k, you probably want to keep things simple. Does simple mean less of a return on your investment? NO! Simple is best, no matter the dollar figure. Warren Buffett and Jack Bogle (two of the biggest names in investing) recommend going the route which I will outline in this post. The following investment strategy is for those under age 50. If you’re older, this post is still useful. But instead of investing 100% in equities, invest your age in bonds. IE: If you’re 50, invest 50% in equities and 50% in bonds. If you’re 70, invest 30% in equities and 70% in bonds. This will protect you from a stock market crash. If you’re younger than 50, statistically speaking, a stock market crash will not affect your nest egg come retirement. You’ll be fine.
The Perks of Investing $100k This Way
- It’s VERY passive. Investing $100k can be done in just a few hours and that money requires virtually no upkeep. You literally sit back and watch your money grow. Or don’t watch it. I haven’t checked on my investments in probably 3 weeks.
- It’s simple. There are no silly tricks with this form of investing. It’s proven. It’s effective. There’s really no discussion about any other form of investing being greater.
- It’s safe. This is the safest form of truly investing $100k. Sure it would be ‘safer’ to put your money in a bank account and never look at it again – but that’s not investing. That’s being scared. The following is the safest way to make a high return on your money. It’s how most rich people in America got that way.
Step 1: Pick a Brokerage Firm and Open 2 Accounts
Find a brokerage firm you feel comfortable using. I strongly prefer Vanguard but Fidelity and a few others are good. Once there, open a Roth IRA account and a taxable investment account. The fun thing about these brokerages is they want your money so they provide excellent customer support.
Step 2: Set Your Funding Options
This is as easy as linking a bank account to your brokerage account. Where is the $100k located? Link out to that account. You’ll need the routing number and account number. Find the routing number by simply Googling, ‘Bank name + routing number). The account number is found on a statement and often on your account’s online dashboard.
Step 3: Choose Your Investments
This part is intimidating for most people. Although this is the hardest and most important step – it’s far from painful. Myself personally, I have a lazy investment portfolio. This consists of 100% index mutual funds with Vanguard. When choosing, I paid attention to fees (you want as low as possible – watch this surprisingly entertaining PBS documentary to see why), past performance and if the fund is domestic or international. Get an even balance between the two.
Stay away from actively managed funds! No one can predict the future and nearly NONE of them do as well as index funds. Index funds buy small purchases of many, many large, stable companies. This basically means, if the economy is doing well, you’re doing well. Historically, the economy has done very well. Managed funds are garbage because those fund managers can’t predict the future (who knew?). Yet they will still happily take your money in a down market. Index mutual funds also do the trick. But I like mutual funds mainly because I can buy partial shares. Learning how to invest a lot of money is easy once you learn to stay aware from those Fund Manager Parana’s.
Step 4: Fund the Roth IRA First
Fund your Roth IRA first. It’s a tax-advantaged account. This means you pay less taxes with this account. A Roth IRA is appealing to the under-50 crowd because you pay taxes going in but not going out. So you pay taxes on the amount you invest. After it grows, you pull it out tax-free. I’ve been doing this for a few years and I will become a multi-millionaire just by funding my Roth IRA. I put 100% domestic funds into my Roth IRA and put all international funds in my taxable. Reason being, a taxable account can sometimes take advantage of foreign tax credits. Don’t worry about these, they take care of themselves. No need to pay attention.
You can invest $5,500 each year into your Roth IRA. If this is your first year with this account, you can play catch up by investing an additional $5,500 for last year.
Step 5: Fund the Taxable Investment Account
Fund the taxable with similar investments. Keep your 50/50 portfolio split between the Roth IRA and the taxable account. Investing into the taxable works just like investing in the Roth IRA.
Step 6: Set Dividends to Reinvest
Dividends should always be set to reinvest. There are 3 very good reasons to doing so: it’s easy, you avoid purchase fees and you avoid opportunity cost. It’s easy because the money just keeps rolling back into your accounts. You avoid purchase fees because you’re not withdrawing the money and then putting it back again later for a higher cost. You avoid opportunity cost because the money never leaves your investment account. If you take the dividend but then reinvest it later, that money is out of the market. Historically, the market always goes up so this is a gamble you don’t want to take. And if you’re under 50, taking dividends as income really doesn’t make much sense. Warren Buffett dislikes dividends and I’m with him. I’d rather the money be reinvested in the company so the stock price goes up.
How to Invest $100k: Done
See. Investing $100k is actually pretty simple. The above step-by-step guide shows exactly what it takes to begin investing $100k or even millions of dollars. Technology is making the process easier and the research easier as well.