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How to Invest $3 Million: 4 Smart 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

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.

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.

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.

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.

Invest in Real Estate

Toy houses on stacks of coinsReal 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.

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.

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.

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.

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 deskAccess 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.

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.

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