They say your chances of winning the lottery are somewhere in the range of 1 in 10 million.
Well, today is my lucky day, because I just won – yeah baby! Okay….maybe I didn’t actually win.
We’re just going to pretend I did for the sake of this post. ?
I once had a client ask me, “Jeff, if you had a million dollars, how would you invest it?”
The reality is, there are a ton of different strategies I would personally use to invest $1 million dollars, and to help this seed money grow into even more cash over time.
If you have a million dollars to invest or anywhere close to that, the steps below can help you grow your money so it lasts a lifetime.
Steps to Invest a Million Dollars
- Start with liquid generated income.
- Pay off debt.
- Boost up your emergency fund.
- Give it away.
- Invest in real estate.
- Bonds, bonds, and more bonds.
- Consider an annuity.
- Look into actively managed portfolios.
- Track your retirement.
- Invest in stocks.
- Invest in crypto.
- Invest in alternative investments.
- Build or grow your own business.
As a kid, I loved to pretend I was He-Man and that the big cardboard box in our basement was Castle Grayskull. “I have the power!” <<<He-man quote. Fellas, don’t pretend like you don’t remember that! Haha…
But those days of “pretend” are long gone….at least until today. Today’s post is merely for the fun of it. I’m pretending that I hit the jackpot and walked away with a cool mil.
For this pretend exercise, we’ll say that I’m netting a million dollars, and I have all of it to invest.Just so we’re clear, this is not investment advice, so don’t take it as such. And just in case that isn’t clear enough, read here. Consider yourself warned.
How Would I Invest a Million Bucks?
First off, a million dollars is a lot of money, and investment decisions should only be made after taking a holistic look at your financial situation and goals. I also believe very strongly that a financial professional is worth the investment since they can help guide you on your path.
That said, it’s also important to note the many differences between being rich and being wealthy. For example, a lot of people earn a million dollars each year or every few years, but they spend it all trying to keep up with the Joneses.
As I move through this pretend exercise, keep in mind that I’m acting as if I have $1 million in cash sitting around to invest. I’ll also try to walk you through it as if you won the money, too. At least in the beginning. After the first couple of steps, then it’s all me. Let’s begin…
Hello Mr. Check!
The big day arrives, and you finally receive your check — a big, fat $1,000,000. You drool over the zeros and the commas. You’ve never seen a bigger check in your entire life.
You take a second to breathe it in. You want to whisper nice things to the check, like, “Oh, check, you’re so amazing”. Don’t worry, no one’s watching. I would probably do it, too. ?
Did you know you might be able to actually retire with $1 million? While it’s better if you have some time to invest the money instead of using it for retirement, retiring with this much is a reality for many people. Take a few minutes to read my case study right here:
[Case Study] Can You Retire Early with Only 1 Million Dollars?
Even after you read that though, you may wonder if $1 million dollars is really enough to retire on. After all, the people in that case study actually had other assets in their favor. You may be wondering if you can actually retire with $2 million dollars! Well, I wrote that case study too.
Check it out on Forbes: Can You Retire With $2 Million?
After reading through these case studies, you’ll understand why it’s so important to make sure you invest the money to keep up with inflation – especially if you’re a long way from retirement. You’ll also want to learn about some strategies to lower your risk . . . more on that in a little bit.
So, what’s the first step?
Investing with a Plan
According to a Global Wealth Report from Credit Suisse, around 8% of American adults had enough assets to be considered millionaires at last count. That’s around 20 million people who have at least $1 millions in assets invested, although we all know that many of them have a whole lot more.
Before you gear up to invest $1 million dollars, however, you should really have some sort of plan in place. Financial advisors I have spoken to on the topic agree, and here’s what a few had to say about the importance of investing with a plan or a goal in mind:
“It’s best to have at least a basic financial plan before you start investing outside a 401k/403b. What I’ve seen from do-it-yourselfers, especially over the past couple of years, is they often don’t have a clue and just throw money into the market. A lot of people confuse money they knew they needed in the next year or so with investing. And then they decide they don’t want to be investors. They didn’t have a plan. Very often, gamblers get burnt.” – Financial advisor Stephanie Genkin
“Investing without a clear written financial plan is like saying you want to go on vacation and your destination is a gas station. Investing should be a means of achieving a future goal—not the goal itself.” – Financial advisor Ron C. Bullis of Lifeworks Advisors
“Much like you wouldn’t set out on a trip without a map or build a house without a set of blueprints, you shouldn’t invest without first having a financial plan in place. That plan that accounts for all your hopes, dreams, and wishes should then dictate the investments you choose. Not the other way around.” – Financial Teresa Arrigo of GenWealth Financial Advisors
So, what steps should you take as part of your plan? Not only do you want to invest so your million bucks can grow into even more capital over time, but we want to keep up inflation along the way.
Here’s a rundown of how I would start the process of investing $1 million dollars.
Step 1: Start with Liquid Guaranteed Income
Okay, so here’s the first thing you do if you were to obtain $1,000,000 (or any large amount of money for that matter).
You sit on it.
You sit on it for at least three, preferably six months. This is the best advice I can give for any large lump of money, even if you ask what to do with 500,000 dollars! Sit on it and save that money while you figure out your next best steps.
People tend to make rash decisions when they’re hit with a windfall of unexpected money. As an example, we all know that most people’s tax refunds are spent before they get the check in the mail. We don’t want this to happen with the $1,000,000.
So, where should you park all that cash so you won’t do anything to it.
Certificates of Deposit (CDs)
The first place I would park some of the money is in a Certificate of Deposit (CDs). Choosing CDs helps put an additional barrier between you and a poor decision because you are penalized for any withdrawals from the CD before it matures.
A Certificate of Deposit (CD) is pretty much the safest and most guaranteed investment you can make. There will be plenty of time later for you to decide where to put your money, but in the meantime, you can earn interest while you decide where to invest long-term and count on your money sitting safe and sound.
Online Savings Accounts
Another safe place to put your million dollars is an online savings account. An online savings account gives you more flexibility than a CD, although it also positions you to withdraw the money so you can go on a spending spree.
You can get some fiercely competitive interest rates by opening your savings account or CD with an online bank like Capital One 360 and CIT Bank. (And since they are online, you should be able to bank with them no matter what state you live in. Or decide to buy your mansion in. Whichever.)
When I was a financial advisor, I was once referred to a couple who received a $1.5 million dollar settlement. I told them the exact advice above. Did they listen? No!
Within the first three months of getting the money, they bought a brand new home, 2 new cars, donated $50,000 to their church (I’m cool with this one and you’ll soon see below), and gifted several different relatives $10,000 each. Unfortunately, they also quit their jobs!
I was absolutely floored, and we are not going to do what this couple did. Investing in smaller amounts, even as small as investing with 1,000 dollars or what to do with $20,000, needs more thought put into it than this!
There’s nothing like the guaranteed security you get with a CD or an online savings account — even if you only keep some of your money parked in these accounts for a while.
Step 2. Pay off Debt
You have debt, and we’re going to pay it off. Are we going to pay off all the debt you have? Not necessarily.
You’ve been lucky to lock in a 30-year mortgage at less than 4% in the last couple of years, so there’s no sense in paying that off. That’s cheap money.
We could talk about making double payments at a later time, but I don’t think paying off the principal of your balance is necessary at all.
In terms of other debts you have, wouldn’t it be nice to not have those pesky $100 credit card bills rolling in each month? If you paid down your credit card debt, you could start investing with $100 dollars instead of putting it toward revolving debts that keep gaining interest month after month.
Other debts to pay off include department store credit card debt and any personal loan debt you have.
Student loan debt is a tough one, but I typically lean towards paying student debts off as quickly as possible, too. I’ll let you decide. That said, any other debt that has double-digit interest rates needs to disappear. Pay it off and be done with it.
Also keep in mind that you’ll want to stop using credit cards at this point. Just because you paid off the debt does not give you the right or permission to go out and charge more debt. You just won a million dollars for Pete’s sake — why would you need more credit cards?!
Need help with developing a debt payoff plan? One free product to look at from that list is Personal Capital. You really shouldn’t need a piece of software to help you pay off your debt when you’ve just been handed a check for $1,000,000… but just in case, it doesn’t hurt to take a look.
Personal Capital will help you put all your accounts (debts and assets) into one place. This way, you can make a real plan for all of your money.
Step 3: Boost Up Your Emergency Fund
As you have a large influx of cash, why not keep at least 18 to 24 months of monthly expenses in a high-yield Money Market account? Think of it as the Ultimate Emergency Fund.
What are the best places to hold that huge sum? Online banks like Capital One 360 and TIAA Bank are both solid choices. Or, you might throw it into a Certificate of Deposit with Discover Bank.
It’s probably more cash than you’ve had in your entire life sitting there doing nothing, but that’s okay. You’ve now turned a new leaf. It’s a new you, so enjoy it.
Step 4: Give It Away
You’ll notice that I didn’t refer to myself in any of the above. That’s because, other than a mortgage and a car note, we have no debt. If I had $1,000,000 to invest, I would not have any debt to worry about being paid off, plus our mortgage is a 15-year loan at 3.375% and we’re making extra payments. I’m not in a hurry to pay that off.
Our emergency fund currently sits between 12 and 18 months for household expenses. Once again, I’m okay there. So, what do you do? Now, this is more for me and my background, so don’t feel like you have to oblige.
At this point in the process, I would send 10% of the money to our church in what is known as a tithe.
Yes, I would write a check for $100,000 to our church straight off the top. You might not believe me on this one. You might even think I’m just saying that to sound like a good Christian. If I was writing this post a year ago, it would be hard for me to try to argue that. You can even watch this video, where a couple of years ago I thought a client of mine was nuts for wanting to keep tithing while trying to pay off debt.
In the past year, however, my wife and I have finally, and I mean finally, started tithing where we give 10% of our gross income to our church. It took us a while to finally grasp the concept, but we’ve finally got it.
Would it be difficult to write that check? Uhhhh, YES!!! But I believe that our church and God’s will can do much more with it than I could.
Step 5: Invest in Real Estate
Next up, I would almost certainly want to invest into real estate. I’m not necessarily talking about becoming a landlord. I am talking about investing in real estate a much more passive way — by investing into Real Estate Investment Trusts (REITs).
There are all kinds of popular REITs to invest in, and they all work similarly. Basically, a REIT lets you invest into real estate similarly to how you invest into index funds or mutual funds. Your investment lets you buy a portion of a real estate holding, and you can benefit from the growth of that investment and the income it generates over time.
What are some popular REITs? Some you might hear about include New Residential Investment Corp. (NRZ), Sun Communities Inc. (SUI), and American Tower Corp. (AMT). There are also real estate index funds and exchange-traded funds (ETFs) to choose from, such as Vanguard Real Estate Index Fund Admiral Shares (VGSLX) and Schwab U.S. REIT ETF (SCHH).
That said, I really like investing in real estate through a platform called Fundrise. This company lets you invest into eREITs, which work similarly. The minimum investment amount is also just $10, so it’s easy to get started in real estate regardless of how much capital you want to put in.
Crazy enough, Fundrise helped investors earn an average return of 7.31% in 2020, followed by a return of 22.99% in 2021. So far in 2022, investors have earned an average return of 5.52%.
If you like this idea and think you may want to invest into eREITs with Fundrise, make sure to read over my Fundrise review first.
Step 6: Bonds, Bonds, and More Bonds
To say that this interest rate environment has been an interesting one over the last couple of years is an understatement. Trying to get a high yield on a bond these days is about as realistic as trying to get an In-and-Out Burger in the Midwest. No matter how hungry you are, it’s not going to happen!
Instead of assuming interest rates are something to brag about, I thought I would tackle this area of investing as if interest rates were somewhat normal. If you’re curious, I define “normal” as you can go out and get a one-year CD paying you something north of 3%.
In that case, I definitely would have a larger percentage of municipal bonds, the tax-free kind, in my portfolio. In addition, I would also add some short to intermediate corporate bonds, some mortgage-backed securities, and perhaps some bank loans and convertible bonds as well.
Series I Savings Bonds (I Bonds) are also worth mentioning here, although you can only invest up to $10,000 per person in electronic I bonds in any given year. However, Series I Savings Bonds are currently paying 9.62%, so you would likely want to max this benefit out. Just remember that you cannot access your money within a year, and that you’ll pay a penalty of three months of interest if you cash them out within five years.
In the end, I would allocate about $250,000 to this piece of the pie.
What type of bonds would I personally buy? Frankly, I’m lazy, so I wouldn’t expend the time or energy required to choose individual bonds outside of making sure I bought the maximum amount of Series I Savings Bonds. It would be too much of a headache for me, and I lean more towards the mutual fund side of things as a result.
There are a lot of good mutual fund bond funds that have done really well over the last several years. Just to diversify, I would also consider buying some bond ETFs.
This piece of my portfolio is meant to be the boring part that makes me want to yawn when I think about it. Plus, this makes the wifey happy because she doesn’t have to worry about me making any stupid stock picks. Trust me, I have already been there and done that far too many times.
Step 7: Consider an Annuity
Another option that can fit here comes in the form of annuities, but it’s important to understand how they work before you invest in them. With an annuity, you could invest a lump sum of money upfront with the promise of receiving regular payments during retirement. Just note that some annuities are riskier than others, and that there are fixed-rate annuities, fixed-indexed annuities, variable annuities, and several other kinds.
While annuities can help you secure guaranteed income in retirement, there are downsides, too. For example, you’ll have to pay surrender charges if you choose to ditch your annuity early on, and there are penalties charged if you withdraw any money before age 59 ½.
With that in mind, you’ll only want to invest in annuities if you’re 100% certain you need one as part of your investment plan.
Step 8: Look into Actively Managed Portfolios
Let it be known that I’m not a passive investor. In other words, indexing is something I’m not a big fan of.
If you disagree with me on that, it’s totally cool. We can have a debate another time.
That being said, I would take around $100,000 of the original $1 million I received and allocate it to 10 to 12 different mutual funds. I anticipate that the allocation will be somewhere in the 60% to 70% stock range, with the rest being in bonds. Notice how heavy I am in terms of bonds? It’s pretty ironic for a guy in his 40’s to be so conversative, am I right?
Seeing previous younger clients receive big inheritances and how they are more interested in protecting vs. growing is one reason I lean this way. I’m almost positive I would be just the same with most of the funds.
If you think actively managed portfolios are something you might consider, you could check out services offered by robo-advisors like Betterment and M1 Finance. Each of these companies works their own way, but they both help you grow wealth by investing your money in curated portfolios filled with investments like ETFs.
Both companies also offer services geared to millionaire clients, such as automated investing and account customization. They also have their own mobile apps, which make it easy to track your investments and progress on the go.
You can read my Betterment.com review and my M1 Finance review to learn more about how these robo-advisors work.
Step 9: Track Your Retirement
There are several tools you can use to track your retirement and your investments, but I recommend two in particular.
The first one is Personal Capital, which is absolutely free to use. When you open a free Personal Capital account, you can connect all your bank accounts, investment accounts, and credit card accounts in order to get a holistic view of your finances in one place. Personal Capital uses this information to provide an updated figure for your net worth, and they also offer free tools like a 401(k) fee analyzer and monthly expense tracking.
Read over my Personal Capital review if you want to learn more.
Another tool I can recommend is called New Retirement. This comprehensive retirement tracking and planning tool lets you oversee your investments and net worth in real-time while also managing and tracking your spending. New Retirement also offers a ton of helpful features, such as their “Retirement Score” and “What If” modeling that helps you anticipate how your investments might look 10 or 20 years down the line.
New Retirement also lets you create a free account, which comes with an overview of your finances, a retirement planning dashboard, and other perks. You also get free access to a digital financial planner, who can help you tweak your investments so they align with your long-term goals.
Step 10: Invest in Stocks
I would buy some individual stocks with part of the money, but I wouldn’t allow myself to get too crazy. This would be considered my “slush fund” where I wouldn’t be affected if I lost my butt on some horrible stock trades. Trust me….it would happen!
If you need a place to trade stocks, I would look at Ally Invest or E*TRADE. Both are solid, reputable firms that have good trading platforms.
If you want to invest in stocks that provide regular, passive income, you can also look into dividend stocks. When you invest in dividend stocks, you get the benefit of long-term growth plus regular payments of dividends you can reinvest or use to cover your living expenses.
If you’re wondering where to invest in dividend stocks (or any other stocks, really), you should check out Robinhood or M1 Finance. Both of these platforms let you buy and trade stocks without any commissions or fees.
Step 11: Invest in Crypto
While crypto investments have definitely taken a beating so far in 2022, now may actually be a good time to invest in cryptocurrencies that should have staying power. Specifically, I am talking about Bitcoin and Ethereum. You can invest in these types of crypto through any number of popular crypto exchanges, including options like Gemini and Coinbase.
Just keep in mind that some of the crypto platforms are going through major financial problems or restructuring right now, so you should research options before you invest.
You could also consider buying crypto and storing it in a hardware-based wallet that keeps it off the web-based exchanges. This means you will have the keys and full ownership of your crypto at all times, so your investment won’t be at risk if one of the platforms freezes trades or encounters financial issues in the coming years.
Step 12: Invest in Alternative Investments
I would also look into some of the popular alternative investments out there, which can help people diversify their portfolios even more. One example is YieldStreet, which lets investors put some of their money into private markets. The minimum investment amount for YieldStreet starts at just $500, and you can invest in short-term notes as well as funds like their Growth & Income REIT or their YieldStreet Prism Fund.
YieldStreet even lets you invest in funds that are backed by globally recognized artworks and other alternative asset classes.
Masterworks is another alternative investment I am interested in. This platform lets you invest into individual artworks or unique collections of art. Each investment buys a percentage of the piece or collection, and investors benefit from the increase in value that occurs over three to five years.
Step 13: Build or Grow Your Own Business
Other than peer-to-peer lending, I don’t really entertain any non-traditional investments like private real estate partnerships or any of that type of private equity stuff. Living in the Midwest, I’m not as exposed to this as someone living in the big city, so that’s why you see a lot of more traditional investments in the portfolio.
The other non-traditional asset in which I would invest is my business. Whether that be new technologies to help me streamline my financial planning practice, or investing in ways to grow my online business. If my stock picks end up being dogs, I would definitely shift some of that money over here.
That’s How I Would Invest $1 Million — How About You?
As of right now, this page outlines how I would invest $1,000,000. However, I could easily have a different plan if you asked me this same question a few months or several years from now. After all, there are always new investment strategies popping up, and I wouldn’t want to miss out on something new or interesting based on an investment plan I made without that fresh knowledge.
What I want to know is this: How would you invest $1 million dollars if you had that kind of cash?
I would love to hear your thoughts and learn how you might do things differently and why. Feel free to sound off in the comments below, and don’t be afraid to tell me I’m wrong about everything.