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Do you feel that it is time to make some significant changes to your life? You could be thinking about leading a healthier life or investing more money to build wealth. Well, most people are skeptical of making investments and prefer to stick with their day to day jobs and live on the salaries they get. Don’t get me wrong; there is nothing wrong with that.
However, hitting new levels requires some alternative ways of making money aside from the monthly salaries. Investments are risky, but they yield significant returns that could help you clear off that mortgage or buy your dream car. Anyone can invest, and you should not leave it to the industry leaders you read about on the internet every day. Some people think that you need a tremendous amount of money to invest, but you can always start small and scale-up.
We have put up a comprehensive guide that will help you understand your options if you wish to invest $200,000. Note that the information below is not rigid to people who have $200,000, but it can be applied to anyone looking to invest. Read on;
Before You Invest
$200,000 is a considerable amount of money, and before you invest in anything, it is vital to conduct a personal assessment of your needs and expectations. Forms of investments are diverse, and these needs are what will define the best one for you.
When investing, you expect to get some profit over time, and it helps to ask yourself one question. Am I investing to generate income now, or do I need to find an investment that will get the best return on my capital? Do I expect the investment to generate some little amount regularly or want one that will get me a lump sum in the long run?
Investing for growth and income are different through you could do both. In most cases, investing for growth yields the highest return, but you can always do a combination of the two.
Seek Independent Financial Advice
If you are investing for the first time, it is advisable to seek investment advice and find a financial adviser for help. This piece might talk about the general investment options, but a financial advice expert will dwell on the details.
They understand the current market situation and can give you a more precise projection of what each of the available investment opportunities will yield within the specified time.
They will also analyze your personal and financial circumstances that have an impact on the investment and suggest the best one. You might not want to incur the cost of hiring one, but the fee you will pay is a small price to pay for ensuring that you invest your 200k prudently.
An expert will help you diversify your investment and have a substantial asset allocation between stocks, bonds, and cash. Stock represents growth, bonds keep your capital safe, and cash offers you liquidity.
How to Invest Your Money
Real estate is a profitable area to invest in. Many people think that you need millions to buy and build property, but this is not true. 200k is still an amount you can spend in and get a steady return over time.
While 200k might not be enough to buy a beautiful house on a sizable parcel of land in a prime area, you can stick to the less fancy areas. Here, people sell land and homes at a low price, and if you can offer the entire amount in cash, it becomes easy to bargain and get a potentially hot property at a bargain. It all goes down with your desired strategy and read on to find out a few ways you could go.
Buy and Fix A House
While houses are costly, people who have run down homes find it hard to sell and can let go for a bargain. You might get one or two in your local market, and with the amount at hand, you should comfortably afford one or two. This is a strategy that will get you a steady ROI over the short term investment since you have the money to spend.
However, not all the homes that are in poor condition are worth the effort, and you need to find out more about buying and renovating homes for sale. This includes calculating the costs required to restore it and using this as your bargaining power to make sure that you buy it at the right price.
At the end of it all, you should comfortably sell the home above its after repair value for you to make a profit. If this is your first move in the real estate investment field, do not expect to sell the home at a staggering profit but use the money you get to boost your capital.
Invest in a REIT
A REIT is a Real Estate Investment trust that makes investments on the real estate property. Investors buy shares in the REIT, and then it uses this money to make investments. The REIT then makes money from rent payments or by selling these properties before distributing them to the investors. REITs are run by strict regulations, and they should distribute no less than 90% of their taxable income every year to their shareholders by paying out dividends.
REITs are a suitable option for people who want to invest in real estate but do not want to get their hands dirty. You might have a job that keeps you busy and want to spend your $200,000 passively and safely.
In such a case, channeling the money to a REIT is the most suitable option. You will find several REITs today and do your due diligence when analyzing the options if you are to pick the most profitable one. REITs give you the stock market experience but safely. You can invest the money, sit back, and relax.
Buy and Hold Rental Properties
Another option you can take when investing in real estate is buying and holding property. This way takes advantage of two critical things in real estate; appreciation and cash flow. Buy purchasing a rental property, it will appreciate over time, and you will still get some money out of it every month.
The same strategy can be applied to a land where you can buy and hold before selling it at a later date for a higher price. Note that for land, you won’t get any income out of it until you finally sell it for a profit.
Certificate of Deposit
If you are looking to invest passively and safely, CDs should be one of your top options. They make a lot of financial sense for people who want a low risk tolerance avenue to park money that they do not plan to use soon. If you do not need the money next month of within half a year, CDs will offer you a better rate than your average checking account. Two important things to look at when pondering whether a CD is ideal for you are;
- Time – You need to determine when you will need the money. Did you get the $200,00 from a windfall and will probably be fine without it in three, five, seven years? The longer you can invest in a CD, the better rates you will get.
- Interest Rates – It helps to try and anticipate the direction of interest rates, several months into the investment. This will guide you on how long you can tie up your CDs. If the rates probably increase, consider the short-term CDs, but if they fall, stick to the long-term ones.
Once you have decided that a CD is an ideal investment for the $200,000, you will need to do the following. First, establish the term you want to lock this money. This will depend on whether you need it or have other sources of income that can get you through the period.
Next, pick the type of CD that suits you. Some of the common types are;
- Liquid CDs are ones that allow you to pull out your funds without paying an early withdrawal penalty. Note that once you commit to a CD for a specified term, you cannot withdraw it without incurring this penalty. Liquid CDs pay lower interests since the bank is not sure that you will keep the money there for the entirety of that period.
- Bump-Up CDs offer the same benefits as liquid CDs. You are not confined to low-interest rates once you commit to one as you can switch to a better CD within the same bank. Note that banks offer limited bump-ups.
- Step-Up CDs come with scheduled interest rate increases, so you are not locked to the one that was in place when you bought the CD. The increase could occur every 6, 9, or 12 months.
- Jumbo CDs require a high minimum balance, mostly over $100,000. They offer a significantly higher interest rate.
Once you pick a suitable CD, compare the rates offered by various providers. You can find this information online and even compare your profit through online CD rate comparison tools. From here, select a particular one, buy it, and wait for the period to elapse.
CD laddering is a smart strategy you can use to make more money out of your $200,000 while still maintaining liquidity. It has been mentioned that investing in a high yield CD will force you to lock the money for a long time. CD ladders give you a way out of this.
Say you find a rate of 3.2% on a 60-month term CD but would want to have some money annually. You check the 12-month term and find that it earns 0.9%. You feel that you should get more but do not want to wait for a long time.
The best thing to do is to open a 60-month CD with $100,000 at a higher 3.25 rate. You take the remaining $100,000 and open five CDs for 6, 12, 24,36, and 48 months. The rates for these other CDs will be less than 3.2%. When the first CD comes, you get what it comes and invest it into another CD, say a 60 month one at the same rate.
After another 6 months, the second one matures, and you invest it into the 60-month one again. You keep on renewing them every year, depending on the rates. This way, you will have cash every 12 months and can reinvest it in the ladder or something else. This is what we call CD laddering.
Note that the ladder used for the illustration above is a generic one, and once you consult an expert, they should advise you on a suitable ladder that will get you the most returns depending on current and future rates.
If you do not want to get adventurous with your $200,000, you should keep the money in a regular savings account and get the interest. Savings accounts are free and straightforward, but you might need to know a couple of things if you are to get the most interest on the savings.
Most savings accounts will have meager rates, and the best way to make more out of your investment is to lock away the money for a long time. Compare and contrast what various savings accounts offer and calculate how much you will make, say annually, for each of the accounts.
Peer to Peer Lending
If the interest rates from the savings accounts are not attractive, you can turn to peer to peer lending as an alternative way of investing your money. Usually, when you deposit money in a savings account, the bank lends out this cash to people in loans and uses the profits they make to pay for the interest. However, you can cut the middleman and lend money to borrowers directly so that you can make more profit.
Here, you deposit the money with the peer to peer lender who will divide it into smaller loans to mitigate risks just the way banks do. You will make more profit with a P2P lender since they do not have branches and overhead costs to pay for; thus, they can give you a more significant amount from the profit made.
Note that with P2P lending, you can get higher interest, but the risks are also high. Do not be quickly carried away by the potential of making a lot of money as there is a risk that you can lose the principal. The interest rates range from 6.95% APR to a high of 35.89% APR and are determined by the credit grade of the borrower.
$200,000 is a fairly huge amount to invest in stocks as people have set up successful portfolios with much less. However, you should consider it as a great option to invest your money, and before you dive in, do the due diligence.
A share of stock, at times called equity, is legal ownership in a business. Companies give stock to raise money, and they come in two options, common and preferred. Common stock provides the holder with a proportionate share of the profits and losses while the preferred ones come with a predetermined dividend payment.
If you wish to invest $200k in stocks, it is good to establish the type of investor you are. You can approach this investment in a couple of ways and always pick the option that suits you. Are you the DIY investor who wants to choose stocks and funds on their own?
Do you want to be a passive investor and let someone manage the process while you provide the funds? Before you can become an excellent DIY investor, you will have to learn a lot of things about markets, and this can be hard if you have other commitments. In such an instance, you should find a reliable Robo-advisor who can offer you support and manage your investment process.
You will need an investment account, and if you are going DIY, this means opening a brokerage account. For passive investors, open the account with the help of a Robo-advisor. For DIY investments, an online brokerage account offers you a fast and cheap way of buying stocks.
You can open an individual retirement account (IRA) of a taxable brokerage account if you have enough retirement savings elsewhere. You will need to evaluate brokers based on costs, the commission charged, and reviews, among others.
Robo-advisors offer full investment management, and they will ask about your goals during the onboarding process before building a custom portfolio to suit these needs. They will charge between 0.25% and 0.50% of the assets under management, and you can still get an IRA under them.
Stocks can yield high returns but are also risky. You can quickly lose all your capital if you invest blindly. This way, try and diversify your portfolio. 200k is a significant amount in stocks, and you can safely invest in a range of assets to reduce the risk of one investment, hurting your overall portfolio.
Bonds are related to stocks, and investment managers will always leave some amount to be channeled into bonds as part of your portfolio. If you give a manager $200,000 and they channel 80% into stocks, leave 10% as an emergency fund, they will allocate the other 10% to bonds. Some of the bonds available out there include;
- US Treasury Bond Fund
- Treasury Inflation-Protected Securities
- Municipal bonds
- Corporate bonds
- Bond Fund
Cryptocurrencies are relatively new investment options that could potentially yield high returns but is very risky. Cryptocurrencies are digital currencies that have no government backing and run on blockchain technology.
You will find several types such as Bitcoin, Ethereum, and Dash, among others. These currencies hold a particular value against the government-backed currencies, and you can buy and sell them on online crypto exchanges. Note that they often have wild fluctuations, and it takes a lot of time and expertise before you can make accurate predictions on whether they will appreciate or depreciate.
Mutual and Exchange Traded Funds
A mutual fund is a pool where investors deposit their money to be invested in a wide variety of ventures. They can be managed actively or passively. An active fund has a manager that identifies opportunities to put the money into.
They are very prudent when making this decision and only choose investments that increase in value. Mutual funds are different, and some invest in stocks, bonds, or a blend of the two. It is necessary to analyze the profile of a mutual fund before depositing $200,000. Note that the risks are lesser compared to a situation where you had invested in the ventures on your own.
Exchange-Traded Funds are similar to mutual funds, with the difference being that they are purchased through a fund company and are sold on stock markets. Their prices fluctuate every day as opposed to mutual funds, where the value is just the total value of your investments. These funds are the preferred option for new investors since they are diverse, and the risks are greatly minimized. They will offer you a less risky way of getting a healthy return from your $200,000.
Get Your Life in Order
Investing in a better life is the best decision you can make. If you have $200,000, you can invest in things that will make your future better. Most of the investments discussed above are about gaining profit on the capital, but you might be required to engage in other things that will improve your finances in the future and help you to lead a better life. Here are some of them;
Pay off your debts
If you have some debts, be it with a bank, individual, or lending agency, ensure that you clear them before anything else. Debts accrue interest, and the longer you have them, the more you will end up paying. Once you get a boom, clear off the debt and do not let anyone come for your property or investments due to unpaid dues.
One of the benefits of insurance is that it protects your assets. In case you are involved in any type of disaster or accident, insurance will protect you from creditors and litigation. If you decide to invest in real estate market or open a business, you will need these covers to protect the investment against different types of risks. It is also good to buy life and health insurance so that your next of kin can lead a comfortable life even if something terrible happens to you.
Save for Retirement
You should invest in your retirement by taking advantage of some of the government-sponsored schemes. They offer you a place to keep your money away tax-free as it accrues interest over time. If you are employed, fund your employer-sponsored retirement scheme fully or open an IRA to facilitate the same. These plans are an excellent way to save tax-free, especially if you have a portfolio that generates a lot of income.
Frequently Asked Questions?
You can buy a house for resale, buy a certificate of deposit, and even open a small store. This way, it all depends on the kinds of investments you want to venture in and the projected return. A financial advisor will guide you on the best way to diversify the investments so that you do not spend up a lot of money running these ventures and end up losing a significant percentage of the capital.
Investing does not mean that you should quit your daily job. This job can help you bootstrap the investment if anything goes wrong along the way. Absentee businesses are an excellent way of investing since you hire managers and people that oversee the day to day operations.
The advantage of investing this way is that you can own several franchises and build your portfolio since you are not necessarily pinned down by any of them. Investments all come with their degree of risk, and while you might read several success stories of how people quit their jobs, try and stick to yours until you are sure that your venture can offer you the money you need to survive.
Well, you can start your investment portfolio and succeed. However, the chances are high that you are new in that field and might not have the expertise needed to steer the investment to greater heights.
You can quickly go back and study that specific type of investment so that you do not hire an expert but this will take a lot of time. Furthermore, the experience is always the best teacher and some of the insight an expert will give cannot be learned in school.
Financial experts make your work easier and guide you on the best way to go and this is why it is good to consult them, especially when you want to make investments worth 200k. the cost of their services is a small price to pay for the benefits you will get.
The best way of minimizing risks when investing is by diversifying your portfolio. However, there is a fine line between diversification and splitting the capital into tiny proportions.
It all depends on the money you have and 200k is a lot to facilitate a diversified investment portfolio. You can buy a house for resale, buy a certificate of deposit and even open a small store. This way, it all depends on the kinds of investments you want to venture in and the projected return.
A financial advisor will guide you on the best way to diversify the investments so that you do not spend up a lot of money running these ventures and end up losing a significant percentage of the capital.
Tips for Investing 200k Successfully
You will find volumes written about how to become a successful investor, but most of that is complicated. Here we have compiled simple tips for investing $200,000 that will improve your success. Read on;
- Start investing as soon as possible. Do not wait to attain a certain age or threshold before you invest. Some ventures grow with time, and the earlier you begin, the better.
- Once you have invested a specific amount and see it paying dividends, do not shy away from adding to your investment stash. You can begin with 200k, but with time, add the capital and grow your portfolio. Within a couple of years, you will be surprised to see yourself in the million-dollar category.
- Do not expect any miracles with investments and be realistic. Some of the success stories you will read on the internet are misleading and forge your own destiny. Be patient, follow the process, work hard, and your investments will bear fruits. You might get hits from time to time, but this is all part of the process. Recover from them and use the experience as a lesson to improve your decisions in the future.
- Do not live in isolation as an investor and always interact with like-minded people. Some of these people have gone through bad experiences that you can borrow from and learn. Seek professional help whenever you need, and your investments will benefit.
- Pick an investment strategy with the help of an expert and stick by it. Do not operate without one since you won’t have a clear direction when making decisions. Your strategy and investment goals should guide all your actions and avoid being a market timer by maneuvering through different approaches.
$200,000 is a significant amount of money in the investment world, and you can venture into several things. However, this money can quickly go down the drain if you act without thinking and be smart. Do your due diligence and engage the right experts before settling on what you think might be an ideal investment. With a proper plan and the right investments, you will make a lot of profit from this capital and grow your portfolio within a couple of years.
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