Connect with us

Business

How to Invest $3 Million

News Agencies

Published

on

How to Invest $3 Million
Rich man studies his investments

Rich man studies his investments

So you have $3 million to invest. Maybe you saved up meticulously and well. Maybe you sold your company or wrote a best-selling novel. Maybe you simply won the lottery (fun in theory, but not a financial plan we recommend). First thing’s first: congratulations! That’s quite an accomplishment. Now, what should you do with it? Leaving all of that money in a checking account isn’t a particularly good plan. Current interest rates pay so close to zero as to be nearly the same thing. Instead, consider a few of these strong investment options.

A financial advisor can help you allocate your assets in a way that fits your goals, timeline and risk profile.

Retire On Index Funds

Advertisement

Index funds are some of the most stable investments you can make over time, yet on an annual basis even these can be unpredictable. Over a three year period between 2017 and 2019, for example, the S&P 500 posted annual returns of 21.83%, -4.38% and 31.49% per year. This means that a $3 million investment in a successful S&P 500 index fund (one which posts its returns at or near that of the S&P 500 itself) would have returned $654,900 in 2017, lost $131,400 in 2018, and returned $944,700 in 2019.

This creates an opportunity … if you’re careful.

On average a mainstream index fund will issue strong returns for investors and will generally trend up. While recent years have seen particularly strong growth in stock market investments, with returns of over 30% in some years, over a period of decades the S&P 500 has returned about 10% on average. For someone with $3 million to invest this kind of return can generate retirement-level income. Even a 10% annual return will lead to $300,000 that you can skim off of your portfolio, leaving the principal untouched to continue generating money.

Advertisement

However, not every year is quite so generous. In 2013, a $3 million investment in the S&P 500 would have posted a 32.39% return, kicking you back over $1 million in personal income. In 2018, your investment portfolio would have actually lost money.

Here’s the upshot: An S&P 500 index fund is a relatively conservative investment, and with this kind of starting principal you have enough money to generate a very comfortable income from its returns. However, you must plan for annual fluctuations in the market. When your returns exceed 10% in a given year, put that excess aside to draw on in years when the market takes a dip. Do that and you can live indefinitely off the proceeds from this nest egg.

Advertisement

Fund a Business

Now that we’ve looked at one of your most conservative options, let’s go in the other direction.

One of the most potentially lucrative investments on the market is business investment. Helping someone to launch a successful product or business can increase your money by orders of magnitude … if you invest in the right company. Finance the next Google or Facebook, and you can add several zeroes to that $3 million seed money. Help someone launch a corner video rental store and you might not quite see the same returns.

Advertisement

Funding a business is as high-risk as it is high-reward. Depending on how you read the statistics, anywhere from many to most startups fail, taking their seed money with them. At the same time, this kind of investment often jumps off of personal relationships. You need to find the people with that next big idea in order to buy into them. By the time you could find someone like this online, it’s usually too late.

If taking that big swing sounds exciting, most major cities have innovation hubs and incubators that specifically foster startup communities. The same is true of major universities, which often have programs for students trying to launch their own businesses. As a potential angel investor, you will likely find yourself almost immediately welcome. Start attending events. Reach out to incubator organizers and university professors, and generally start getting to know the entrepreneurs who make up your local community.

Take this process slowly. Meet people, hear ideas and be ready to move once someone comes to you with the right pitch.

Advertisement

Invest in Real Estate

Toy houses on stacks of coins

Toy houses on stacks of coins

Real estate is one of the most popular high-end investments on the market. While it costs a lot of money to get into the real estate market, you can defer many up-front costs with debt. That is, if a property costs $1 million, you might only need to put up $200,000 of your own money and can finance the rest through a mortgage.

This is also a difficult asset class. In the right market, real estate can provide some of the strongest returns of any investment. Nationwide, between year 2010 and time of writing, home prices have more than doubled in value. These numbers are stronger in some areas, such as New York and San Francisco, and weaker in others, such as rural communities.

Advertisement

Investors in real estate can seek their returns through capital gains or income investing.

Through capital gains you will buy property in hopes of appreciation. Some investors simply hold their property and allow the market to appreciate around it, while others make capital improvements to the property to increase its value. You then sell it for a profit. Income investment is when you buy real estate for its potential to generate revenue. Most often this means that you rent the property back out to either commercial or residential renters. When rented through a management company this is a common form of passive income. Someone else takes care of the business aspect, keeps a portion of the rent in exchange, and sends you the rest. Generating revenue is a slower way to capitalize on your investment, but in the long run can often be more lucrative.

That said, real estate can be a very high-risk investment. Like investing in a startup business, when real estate works it can be extremely profitable. However, when a real estate investment fails it can cost you a lot of money in losses.

Advertisement

Become an Accredited Investor

Finally, consider looking at the world of accredited investing.

Generally speaking there are two types of investment classes on the market: public and private. Public investments are assets which anyone can purchase, such as stocks on the New York Stock Exchange. To list an asset for public investment a firm has to go through the SEC’s rigorous approval process, which requires substantial disclosures and oversight both when the firm lists its asset and for the entire time that the firm keeps this asset listed. This is an expensive and difficult process, but in exchange the firm gets access to the full financial might of the entire U.S. market.

Advertisement

Private assets don’t have to meet the same requirements. The SEC has some guidelines in place to prevent fraud, but it’s far easier to list an asset privately than publicly. In exchange, however, a firm can only sell private assets to what are known as accredited investors. These are investors who meet the SEC’s rules for knowledge and liquidity.

While the SEC has defined this idea, it does not have a hard and fast rule for who qualifies as an accredited investor. In general it means someone who can understand the risks of their investments; someone who can afford to take a loss on their investments; or ideally both.

Private assets tend to be higher risk than publicly traded investments, but they can also offer much higher rewards. You can invest in various forms of debt, real estate transactions, business formation and other products. Investment firms exist to offer these investments as securities to accredited investors who would, for example, like to invest in startup businesses, but who don’t want to spend every weekend down at the local incubator.

Advertisement

With $3 million of capital you may well be able to get yourself qualified as an accredited investor, which would open up an entirely new category of securitized investments. Again, these tend to be more speculative products, but are well worth exploring.

The Bottom Line

Businesswoman at her office desk

Businesswoman at her office desk

Access to millions of dollars, unsurprisingly, opens up a wide variety of investment options. Even if you just want to imagine how you might invest that kind of cash, looking into options like real estate, business creation and accredited investments are worth exploring.

Advertisement

Tips on Investing

  • This is a fun thought exercise, but the best way to make a million dollars isn’t to plan for how you’ll spend it. It’s to plan for how you’ll get it. That’s where a financial advisor can be invaluable. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Use our no-cost asset allocation calculator to get a quick estimate of how your $3 million should be invested.

Photo credit: ©iStock.com/svetikd, ©iStock.com/Bet_Noire, ©iStock.com/Kirill Smyslov

The post How to Invest $3 Million: 4 Smart Investments appeared first on SmartAsset Blog.

Advertisement
Continue Reading
Advertisement

Advertisement

Breaking News

Editor Pick’s

Latest Entertainment

The final countdown: A 'robbed' fan favorite, a pandemic champio, and an 'icon' vie for one last spot on 'AGT All-Stars' The final countdown: A 'robbed' fan favorite, a pandemic champio, and an 'icon' vie for one last spot on 'AGT All-Stars'
Entertainment31 mins ago

The final countdown: A ‘robbed’ fan favorite, a pandemic champio, and an ‘icon’ vie for one last spot on ‘AGT All-Stars’

Comedian Josh Blue, poet Brandon Leake, and viral sensation Kodi Lee compete for the one remaining spot in the ‘America’s...

Chris Brown apologizes to Robert Glasper for social outburst after losing at the Grammys Chris Brown apologizes to Robert Glasper for social outburst after losing at the Grammys
Entertainment4 hours ago

Chris Brown apologizes to Robert Glasper for social outburst after losing at the Grammys

Chris Brown is sorry for being a sore loser at the Grammy Awards. The singer, 33, took to Instagram on...

I Know What You Did Last Summer sequel with original stars in the works at Sony I Know What You Did Last Summer sequel with original stars in the works at Sony
Entertainment4 hours ago

I Know What You Did Last Summer sequel with original stars in the works at Sony

Another summer, another hook-wielding psycho killer — and maybe some familiar faces too. More than 25 years after I Know...

Could 'The Last of Us' finale beat the Oscars in the ratings? We break down the numbers Could 'The Last of Us' finale beat the Oscars in the ratings? We break down the numbers
Entertainment4 hours ago

Could ‘The Last of Us’ finale beat the Oscars in the ratings? We break down the numbers

The fungal zombies are coming for the Oscars. In a programming matchup that’s certain to create an agonizing Sophie’s choice...

Will Smith Was Going to Be a Surprise Grammys Performer — but Had to Drop Out for 'Bad Boys 4' Will Smith Was Going to Be a Surprise Grammys Performer — but Had to Drop Out for 'Bad Boys 4'
Entertainment6 hours ago

Will Smith Was Going to Be a Surprise Grammys Performer — but Had to Drop Out for ‘Bad Boys 4’

Will Smith and Martin Lawrence Confirm Bad Boys 4 Is in the Works: ‘It’s Official, Y’all!’ Will Smith/Instagram Will Smith...

Ben Affleck miserable at the Grammys? Jennifer Lopez says she had 'the best time' with him Ben Affleck miserable at the Grammys? Jennifer Lopez says she had 'the best time' with him
Entertainment6 hours ago

Ben Affleck miserable at the Grammys? Jennifer Lopez says she had ‘the best time’ with him

Jennifer Lopez and Ben Affleck at the 65th Grammy Awards at Crypto.com Arena on February 05, 2023 in Los Angeles,...

David Bowie Producer Tony Visconti Rejects Harry Styles Comparisons David Bowie Producer Tony Visconti Rejects Harry Styles Comparisons
Entertainment10 hours ago

David Bowie Producer Tony Visconti Rejects Harry Styles Comparisons

The post David Bowie Producer Tony Visconti Rejects Harry Styles Comparisons appeared first on Consequence. Harry Styles might be one...

Maria Shriver talks about feeling 'invisible' during Arnold Schwarzenegger marriage Maria Shriver talks about feeling 'invisible' during Arnold Schwarzenegger marriage
Entertainment10 hours ago

Maria Shriver talks about feeling ‘invisible’ during Arnold Schwarzenegger marriage

Maria Shriver talks about her ‘journey to re-evaluate everything in my life’ after her marriage toArnold Schwarzenegger ended. (Photo: Bonnie...

Advertisement

Latest Sports

Super Bowl injuries: Latest on Patrick Mahomes, other stars Super Bowl injuries: Latest on Patrick Mahomes, other stars
Sports39 mins ago

Super Bowl injuries: Latest on Patrick Mahomes, other stars

Patrick Mahomes has the most notable injury ahead of Super Bowl LVII. Here's the latest news for the Eagles and...

Patriots show willingness to spend out of coaching hole with Adrian Klemm hire Patriots show willingness to spend out of coaching hole with Adrian Klemm hire
Sports59 mins ago

Patriots show willingness to spend out of coaching hole with Adrian Klemm hire

The Patriots have, on a few occasions, spent big to fix glaring roster holes. This offseason is different, writes Phil...

Nick Sirianni on being fired by Andy Reid: You always have this little chip on your shoulder Nick Sirianni on being fired by Andy Reid: You always have this little chip on your shoulder
Sports1 hour ago

Nick Sirianni on being fired by Andy Reid: You always have this little chip on your shoulder

After the Chiefs beat the Bengals in the AFC Championship Game, it was hard to miss people talking about the...

Steph Curry injury boils down to high-ankle sprain variant, doctor clarifies Steph Curry injury boils down to high-ankle sprain variant, doctor clarifies
Sports2 hours ago

Steph Curry injury boils down to high-ankle sprain variant, doctor clarifies

What exactly did that Steph Curry injury update mean? Dr. Seth Sherman of Stanford Medicine clarified any lingering questions.

What Chris Partridge's return to Michigan means for future staff What Chris Partridge's return to Michigan means for future staff
Sports2 hours ago

What Chris Partridge’s return to Michigan means for future staff

What we know is Chris Partridge is returning to Ann Arbor to coach with the Michigan Wolverines. First, it's important...

It's official: We know how long the 13th hole will play at this year's Masters It's official: We know how long the 13th hole will play at this year's Masters
Sports3 hours ago

It’s official: We know how long the 13th hole will play at this year’s Masters

The Masters Tournament released its annual media guide on Monday, and inside that are the listed yardages for this year’s...

Follow live: Super Bowl Opening Night Follow live: Super Bowl Opening Night
Sports3 hours ago

Follow live: Super Bowl Opening Night

Yahoo Sports is on the scene in Arizona, so come hang out with us as fans and media get to...

NASCAR driver Kyle Busch arrested in Mexico in January for handgun possession NASCAR driver Kyle Busch arrested in Mexico in January for handgun possession
Sports4 hours ago

NASCAR driver Kyle Busch arrested in Mexico in January for handgun possession

Busch, 37, was arrested on Jan. 27. He finished third in Sunday's exhibition opener for the 2023 NASCAR Cup Series...

Technology Hot News

Led by "Amazon" and "Microsoft" . Led by "Amazon" and "Microsoft" .
Technology3 weeks ago

Led by "Amazon" and "Microsoft" .. the technology giants are planning to lay off 64,000 employees

After 10 years of driving the stock market bull run, big tech companies are racing to downsize staff to adapt...

Apple introduces MacBooks with new M2 processors Apple introduces MacBooks with new M2 processors
Technology3 weeks ago

Apple introduces MacBooks with new M2 processors

Yesterday, Tuesday, Apple unveiled MacBooks powered by the new, faster “M2 Pro” and “M2 Max” processor chips, in a surprise...

All you need to know about the upcoming Galaxy S23 phones from Samsung All you need to know about the upcoming Galaxy S23 phones from Samsung
Technology3 weeks ago

All you need to know about the upcoming Galaxy S23 phones from Samsung

Samsung has officially announced that the (Galaxy Unpacked 2023) event will be held this year on Wednesday, February 1, which...

FTX Exchange Announces Hacking and Stolen $415 Million in Cryptocurrency FTX Exchange Announces Hacking and Stolen $415 Million in Cryptocurrency
Technology3 weeks ago

FTX Exchange Announces Hacking and Stolen $415 Million in Cryptocurrency

Bankrupt American cryptocurrency firm FTX announced today, Wednesday, that $415 million in cryptocurrency has been hacked and stolen from the...

Because of a "fraudulent tweet".. Because of a "fraudulent tweet"..
Technology3 weeks ago

Because of a "fraudulent tweet"… Elon Musk's trial begins

Elon Musk's trial began Tuesday in San Francisco with the selection of jury members who will have to decide whether...

An electric spoon replaces salt and spices, but with conditions An electric spoon replaces salt and spices, but with conditions
Technology3 weeks ago

An electric spoon replaces salt and spices, but with conditions

Experts have developed an electric spoon that is able to replace spices and flavors and affect the taste buds in...

The biggest dangers of using tracking devices. The biggest dangers of using tracking devices.
Technology3 weeks ago

The biggest dangers of using tracking devices.. so you can escape?

If you spot an unknown Bluetooth tagging device, there are ways to disable the device so it can't track your...

New Twitter. New Twitter.
Technology3 weeks ago

New Twitter.. For You tab to web version

The Twitter platform announced that it will bring the new tab (For You), which launched last Tuesday for iPhones and...

Advertisement