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In a nutshell
Saving $100,000 is a goal for many people, and opens up many opportunities for investment. If you’ve reached this milestone, or have inherited a significant sum of money, there are many ways of investing it.
- The most conservative options are to pay off high-interest debt and keep liquid savings for emergencies and short-term goals.
- You can also choose self-directed investing, investing through a robo-advisor or turn the entire job over to a qualified financial advisor.
- You aren’t limited to a single investment strategy: You can hold some money in a self-directed brokerage account, with the rest managed by either a robo-advisor or a financial advisor.
1. Pay off debt
Often, the best use of liquid funds is to pay off high-interest debt. This isn’t to imply that you need to be completely debt-free before you begin investing. Certain types of debt, particularly home mortgages, may not need to be paid off because they’re long-term in nature and carry low-interest rates. But if you have high-interest credit card debt or a car loan with an uncomfortable monthly payment, either can be an excellent candidate to pay off immediately.
With the current average interest rate on credit cards sitting at a high 21.47%, these obligations should be your first targets for payoff. Simply put, there is no investment where you will consistently earn a comparable rate on your money. Paying off credit cards is the equivalent of getting a 20% return on the “investment” of paying it off.
Even though interest rates on car loans are still in single digits, many have uncomfortably high payments. With the average car loan payment now sitting at $734 per month, paying off the loan will immediately free up cash flow. You can redirect the funds you would have made on your car payment into investment accounts. Assuming your monthly payment sits at exactly the national average, paying off the loan will enable you to redirect $8,808 into investments each year.
If you’re struggling with high-interest credit card debt or a high monthly car payment, paying off either or both can be one of the most effective and efficient ways to “invest” at least some of a $100,000 nest egg.
2. Invest in a high-yield savings account
Everyone should have at least some money in savings, and that starts with an emergency fund. Most financial advisors recommend having between three and six months of living expenses parked in a highly liquid savings account. The idea is to have funds available for short-term emergency expenses, or even an income disruption, so you won’t have to rely on high-interest credit.
Once you have an emergency fund in place, you should also have savings available for intermediate-term needs. For example, if you plan to buy a new car within the next year or two, you may want to keep money in a savings account for that.
If you’re going to have money in an emergency fund, or for some other near-term financial need, you may as well earn as much interest as possible. Many well-known banks currently pay over 4% APY on savings and money market accounts. A few even pay over 5% APY.
For example, UFB Secure Savings is currently paying 5.25% APY on all account balances, with no minimum deposit required, and no maintenance or service fees. CIT Bank Platinum Savings is paying 5.05% APY on account balances greater than $5,000 (though balances below earn just 0.25%). The account requires a minimum of $100 to open, and there are no monthly maintenance fees.
Be careful about putting your entire nest egg in a savings account, however; even though many are currently paying high yields, the rates are variable. If interest rates begin to fall, the rate being paid on your high-yield savings account could go down with it.
If you believe rates are likely to drop, consider investing in certificates of deposit (CDs). You may be able to lock in higher rates for at least two or three years in exchange for locking your money away for that period. If you’re looking for a longer-term solution, U.S. Treasury securities are currently paying 4.15% APY on ten-year notes, and 4.36% APY on 30-year bonds.
3. Invest in stocks
If you’ve used some of your money to pay off high-interest debt and you have adequate funds in emergency savings, the next step will be to invest for the future. Historically, the best way for the average person to do this has been investing in stocks.
The average annual return for the S&P 500 from 2008 to 2019 was 9.09%. More recently, the SPDR® S&P 500® ETF Trust (SPY) has reported an average annual return of 11.90% for the ten years ended Dec. 31, 2023. That isn’t the return you can expect to earn consistently each year, but the average has been surprisingly consistent over the long run.
If you want to invest in individual stocks or funds, you can open a brokerage account. This can be either a taxable brokerage account or a tax-sheltered retirement account. Either a traditional or a Roth IRA are excellent choices because they provide tax deferral of investment gains, enabling your returns to compound even faster than they would in a taxable account.
For example, you can take advantage of self-directed investing through a broker like Robinhood. It provides commission-free trading of stocks, exchange-traded funds (ETFs), options contracts for U.S. Exchange-Listed Stocks, and ETFs and American depositary receipts (ADRs, which are companies listed on foreign exchanges), for over 650 globally-listed companies. You can open either a taxable brokerage account or a traditional or Roth IRA.
4. Invest using a roboadvisor
If you would like to invest in the stock market, but lack either the time or the expertise to engage in self-directed investing, you can choose to invest through a robo-advisor. These are online, automated investment services that provide professional-level investment management at very low fees. A robo-advisor will construct a portfolio for you and manage it for you. This includes periodic rebalancing, reinvestment of dividends and investing future contributions according to predetermined asset allocations.
Your portfolio is constructed based on your answers to a questionnaire. Your answers will determine your risk tolerance, investment time horizon, and long-term goals. Funds will be invested in a mix of stocks and bonds, typically represented by low-cost, index-based ETFs.
ETFs enable the robo-advisor to invest your money across multiple asset classes involving thousands of individual securities. Your portfolio may be invested in U.S. and international stock and bond funds, as well as specific sector funds. You can also choose alternative asset classes, like real estate or natural resources. Best of all, you can achieve this level of diversification with as little as $100.
5. Alternative investments
Beyond stocks, bonds and funds, investors who have $100,000 or more to put to work can find value in alternative investments.
These investments are generally less liquid than stocks and bonds, but can be a hedge against volatility in those investments. Gold, real estate and artworks are the most popular alternative investments, and they are the easiest for investors to get exposure to through funds (if you don’t want to hold the actual physical assets). Masterworks.io, for example, is a fund that holds multimillion dollar works of art by artists like Basquiat, Picasso and Banksy.
6. Engage the services of a financial advisor
This strategy may not be suitable for everyone, if only because many financial advisors prefer to accept clients with substantially more than $100,000 to invest. However, you can get around that limitation by engaging the services of a fee-only financial advisor. A fee-only advisor will work based on a flat fee or an hourly fee.
The advantage of using a financial advisor is that you will have the benefit of investment management from a financial professional. In addition, many financial advisors handle more than just investments. The other areas they specialize in may include estate planning, retirement planning, or preparing for your children’s college educations.
Finding the right financial advisor can be confusing, if only because almost anyone can call themselves an advisor. To cut through the clutter, you can take advantage of financial advisor resources like as WiserAdvisor. It’s an online database of financial advisors from both Fortune 500 companies and small independent firms. Advisors who make their services available on the platform are required to meet a qualification process to be eligible for inclusion. It will also give you an opportunity to investigate several advisors at the same time so you can narrow your search to the best potential candidate.
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One of the advantages of having $100,000 or more is that you have sufficient capital to invest in multiple ways. For that reason, you should think of it as a multistep process. Start by paying off high-interest debt, then fund your emergency savings. Once those two steps have been taken, you can decide which way you want to invest.
If you feel comfortable with your own ability to invest, self-directed investing is a logical choice. You can choose and manage your own portfolio of individual stocks, ETFs, and mutual funds. But if you lack the time or expertise to do the job yourself, you can either take advantage of a low-cost robo-advisor, or engage the services of a qualified financial advisor.
Frequently asked questions (FAQs)
How much interest will $100,000 make in a year?
If you invest $100,000 in a savings account that pays 5.25% APY for an entire year, you can expect to earn $5,250 in interest by the end of that year. Just be aware that most savings accounts have variable interest rates, so your results are likely to be different. If you’d like more predictability, consider investing in either a certificate of deposit (CD) or a U.S. Treasury security, which have set interest rates.
What’s a good investment strategy for $100,000?
One of the advantages of having $100,000 is that you don’t need to limit yourself to one investment choice. For example, you can hold part of the money in a self-directed investment account, and allocate the rest to a robo-advisor. Alternatively, you can turn your entire portfolio over to a financial advisor for comprehensive financial management.
Start by evaluating your own expectations, as well as your investing knowledge and experience. If you have a high confidence level, self-directed investing can be the right choice. Otherwise, either a robo-advisor or a financial advisor will be a better solution.
AP Buyline’s content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about our policies and terms here.
