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Hedge fund managers in conferenceMoney makes money. It might not be fair, but it’s one of the oldest rules of investing. The more cash you have to put into your portfolio, the more choices and opportunities you have to grow those investments even further. Looking for ways to invest a large amount of money can be fairly tricky, although it’s certainly a good problem to have. Figuring out what to do with all your money is the sweet spot of personal finance. But it’s also complicated. Even six-figure financial planning can open up the kind of long-term planning unavailable to someone managing a smaller portfolio, along with assets and investment categories you might not otherwise have been able to afford. Of course, getting the input of a financial advisor in these situations is strongly recommended.

Whether you have the money right now or are just planning for the future, it never hurts to think about how you will manage growing wealth. While the following is only a representative list, here are a few of the options that a six-figure investment portfolio can open up for you. We’ll use the nice round figure of $500,000 as a jumping off point.

Hedge Funds

You’ve probably heard of hedge funds before, but if you’re like the average investor you may not necessarily know what this product actually is.

Hedge funds, like all fund-based assets, are what’s known as pooled investments. This means that the fund uses the combined money of all its investors to buy the assets in its portfolio, then distributes the proceeds from those investments on a pro-rata (typically per-share) basis.

Most investors buy into funds through either mutual funds or exchange-traded funds. Hedge funds generally take higher-risk positions than these otherwise comparable products and seek higher rates of return. They do so by taking more aggressive positions. Hedge funds will tend to invest in more exotic and risky assets than a mutual fund might, such as commodities, derivatives or (in the modern era) cryptocurrencies, or will take higher risk positions such as short sales.

While this can make hedge funds considerably more profitable than a mutual fund, they also come with greater risks. As a result they are regulated differently. These are private assets not available to the general public. The general public can’t buy into hedge funds. Only what’s known as an accredited investor can buy into a hedge fund. Accredited investors are sophisticated individuals or institutions, with knowledge of the market and a high net worth. This creates a high barrier to entry. In addition to this requirement hedge funds generally require a six-figure minimum buy-in, with many costing at least $500,000. In exchange they hold out the prospect of big returns.

Whether hedge funds actually provide returns to justify their big fees is another question. Many don’t, so research carefully before sinking your money into an expensive product that promises to beat the market.

Real Estate

A North Carolina farm

In many markets, real estate has provided investors with big capital appreciation. Farm land, for example, can grow in value significantly. Urban real estate is also a strong option. In Boston, real property values have doubled over a period of five years. In New York City, median sale prices have increased by $100,000. Even in Detroit, commercial property values grew by more than a third in one year alone. Does this mean that real estate is always a good idea? Not even remotely. But it does mean that in the right markets, real estate can provide some of the highest returns of any asset.

More than just about any other asset class, buying into real estate takes money. Paying for property with debt still has high up-front costs, and interest rates will eat away at any profit you make. Paying with cash means having the money on hand to buy into one of the most expensive asset classes on the market. A $500,000 nest egg gives you the chance to buy into this market, whether in the form of a farm or ranch, a residence or even a storefront.

Of course real estate isn’t without its downsides. This is arguably the most illiquid asset you can purchase, and even if you can sell the property easily it sometimes takes years for real estate to truly appreciate in value. What’s more, this is a highly speculative asset class. While a very strong investment category overall, there is a very real element of risk here. Buy into the wrong market or at the wrong time and you can lose a lot of money.

But money unlocks opportunities, and if you buy into the right market at the right time … well that’s a very different story.

Index Funds

Index funds are boring, predictable and safe — all excellent words when associated with your money. Even though $500,000 is a lot of capital, you don’t necessarily want to take that to the stock market casino. In fact, the opportunities for a significant return created by having a lot of cash on hand make riskier investments potentially unnecessary and unwise.

Instead, one option when investing a half million dollars is to play it cool and sink that money into market index funds. While the safety of this asset class generally come at the cost of lower returns, having a significant initial investment offsets that to a significant degree. Your money won’t grow as fast here as it might elsewhere, but it will still see meaningful gains.

This is a particularly wise move for retirement savings. In fact, for an investor in their 20’s or 30’s, this investment can set you up for a generous retirement all by itself. Given the S&P 500’s average 10% annual return, an up-front investment of $500,000 can turn into more than $8.7 million by the time you’re ready to retire. That’s even if you never put another penny into the account.

The Bottom Line

Electronics display of stock prices

The choices of what to do with $500,000 are legion. Among them are hedge funds, real estate and index funds. While index funds are often bought by people with a low net worth, they can also be attractive to the wealthy. That’s because some index funds track highly speculative indices that hold the potential for outsized gains. They can also be attractive to the wealthy by serving as the proverbial anchor to windward for a six-figure portfolio.

Tips for Investing

  • Make no mistake: Our articles here at SmartAsset may be some of the best financial content on the web, but they’re no substitute for a good financial advisor. Finding one doesn’t have to be hard. Whether you’re looking to invest $500,000 or $500, SmartAsset’s matching tool can help you find a financial professional in your area, in minutes, to set up a real plan that meets your goals. If you’re ready, get started now.
  • Since it’s not a good idea to put all your financial eggs in one basket, prudently allocating your assets, whether they amount to $500,000 or not, is important. An asset allocation calculator can be a useful guide for this.

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Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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