The Best Way to Invest One Million Dollars
While I’m aware that most Americans are living paycheck to paycheck and wishing they had just a couple of zeroes on the end of their bank balance, today we’re going to explore what could happen if you did suddenly come into money.
Whether it be an inheritance, lottery winnings, or a signing bonus for the big leagues, what if you had $1 million dollars tomorrow morning? What would you do?
Initially, the excitement & life-altering impact of this big windfall would be unavoidable. But hopefully, you’d come to your senses quickly and realize that you need to invest this money so it can continue to generate cash flow and growth long term.
Let’s explore together 5 ways you could try to grow that million over the next 5 years and see which is the most profitable.
I have to be upfront here that I’m not a financial advisor. Don’t take any of this hypothetical scenario as financial advice, please. Additionally, we’re going to keep these examples simple, so we won’t be accounting for taxes. In real life, I’d highly recommend you get professional financial and tax advice if you suddenly came into money.
What Would You Do With $1 Million?
A million bucks is a lot of cash, but instead of spending it, you’re playing your cards smart and you know right away that you are interested in ways that you can earn interest, cash flow, and/or grow the balance over time so you can retire early.
Smart move. Here are 5 ways that money can work for you over the next 5 years.
#1 - Savings Account
A basic savings account is the default got-to when people think of large sums of money.
Savings accounts are generally considered safe and they usually do earn interest. However, at the time of publish, savings accounts are earning a mere 2.5% interest. If you put all one million into a savings account and let it earn interest for 5 years, you’d wind up with about $1,133,001.
Savings accounts are “safe,” but as you can see, the returns are measly.
#2 - Certificate of Deposit
Since you are interested in earning more than an ‘ol savings account can yield, CD’s might be interesting. Certificates of Deposit offer a fixed interest rate in exchange for your investment over a set period of time. At the time of publish, a 5-year CD rate is 2.86%, which would result in your million becoming $1,151,417.
While this is better, it’s still not great. One million bucks has much more earning potential, thus, our journey continues.
#3 - Stocks
Alright, we’re getting more serious here. Higher interest rates come with higher risk, and everyone knows that playing with the stock market can be risky.
Historically, investments in the stock market return about 10% per year (average), which means about $100,000 for your million. We can estimate that investing your million in the stock market could yield about $1,500,000 after 5 years.
Now we’re talkin’!
But aren’t there other options outside the stock market? What about real estate?
#4 - Rental Properties
One million dollars could go really far in the rental property world. Consider this, you could buy real estate properties by putting 25% down. So you could snag a $200,000 single-family residence for $50,000, which means you could invest in 20 properties of that value!
If each home brought in $300 in cash flow per month (rent minus expenses), 20 properties would yield you $6,000 per month or $72,000 per year. At this rate in five years, you could have $1,360,000.
Take into consideration some improvements, rent increases, tax breaks and a few other perks, your total returns would be comparable to those of the stock market.
#5 - Real Estate Syndications
This last one you may not have heard about - investing passively in real estate syndications. Real estate syndications are group investments where, as a passive investor, you pool your money together with other investors and buy large commercial or residential property, like an apartment complex.
Investing passively relieves you of the landlord's responsibilities of managing rental properties and allows you to earn cash flow without having to find individual properties that match your price point.
The minimum investment on a syndication deal is typically $50,000, but you can invest more than that. For example, you can invest $100,000 into 10 different deals with an 8% average annual return and earn $80,000 per year in cash flow distributions altogether.
Just considering the annual return numbers, we’re coming in comparable to the other investment choices mentioned, but wait, there’s more!
Each of the 10 assets in which you invested will sell after improvements to the property are completed and the market timing is right, usually around the 5-year mark. Often, investors can expect to receive an additional 50-60% in returns at the sale of the real estate syndication deal.
With the cash flow distributions and the profits from the sale in consideration, you could potentially double your money from $1 million to $2 million in just 5 years. Now that’s amazing!
Now that you have thoroughly explored what you could do with $1 Million and how you can make your money earn more money, I bet you can’t wait to get your hands on a windfall. You never know, it could happen!
And when it does, you already know 5 different ways that money can make money - from savings accounts, CDs, stocks, rental properties, and real estate syndications. T
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