A lot of investors have questions as to what do with their money after reaping a huge financial windfall. They want to maximize their return on investment without losing the bulk of their cash. The best way to invest your money is through utilizing proper asset allocation and diversification. You can realistically take a $100,000 investment and grow it to a million or more over time. Let’s take a look at the best way to invest 100k?
Three Factors To Consider When Investing $100,000
Is this $100,000 your retirement money and the bulk of your net worth? Or is this $100,000 money that you have to spare? The answer to those two questions helps to shape your investment strategy.
Do market fluctuations cause you to panic and withdraw your money? Do you prefer the safety of a bank account or want to see your money double?
How long do you have before you need to access your 100k? Do you have a few years to watch it grow or need it in a few months?
5 Steps to take before investing $100k
- Have an emergency savings fund with a minimum of 3 months of living expenses. This will keep you from having to liquidate your portfolio if you have a financial crisis. The key to making large gains is to let your money compound and let the principle of compound interestwork for you.
- Max out your retirement plan contributions. Make your maximum contribution to your 401k of $18,000 if under 50 or $24,000 if over 50. If you do not have a company sponsored plan, then max out a Roth IRA. I prefer Roth IRA’s to Traditional IRA’s because of the tax free growth. The maximum contribution is $6,000 for age 50 and under and $7,000 for those over the age of 50.
- Eliminate all high interest debt.While investing is a great way to build wealth, you will not consistently generate returns that exceed high interest debt charging you 20 and 29 annual percentage rates. The best way to get a 24% percent return on your money is to pay off a credit card charging you 24% interest.
- Set up a 529 college savings plan for your children.This will save you and your children from having to take out student loans for their college education.
- Make sure you have sufficient liquid cash to meet everyday needs.
Once, you have taken those steps, now you are ready to pursue the best way to invest $100k!
What Is The Best Way To Invest 100k
I am going to explain how I would invest $100,000 in new capital right now. The best way to invest 100k varies based on the individual. This should not be taken as a recommendation for every person to do. You have to consider your individual risk tolerance, investment horizon, and investment strategy. As you know I believe that investing is the best way to multiply your money and help you in your quest to become a millionaire.
I am a risk taker so I have a pretty high risk tolerance. I am a long-term investor who can wait 5 years to see a lot of growth on my capital. My asset of choice are equities because I have continually found that stock investing has brought me long term gains.
Here is the investment portfolio I would build right now with 100k.
1. Start off your portfolio with high yielding dividend stocks.
The first rule of investing is preservation of capital therefore I would allocate the first capital dispersion to blue chip dividend stocks with growth potential.
Dividend stocks are companies who are currently yielding 3% or more. Mega cap and large cap companies with substantial cash flows are far more likely to be able to sustain their dividend payouts than smaller ones. I love dividend income because you are able to get a return on your investment while waiting for the long term growth. Dividend stocks pay dividends on a quarterly basis. You can either take the payout in cash or reinvest it automatically to buy additional shares.
The blue chip dividend stocks that I have selected are JPMorgan Chase (JPM), Kellogg Company (K), and Exxon Mobil (XOM). All three stocks have yields over 3 percent and cover different segments of the market. JPMorgan Chase provides exposure to the banking sector, Kellogg to consumer staples, and Exxon provides energy sector exposure.
|100 shares of JPMorgan Chase & Co.
|200 shares of Kellogg Company
|65 shares of Exxon
I allocated approximately 28 percent of the $100,000 to dividend paying stocks.
2. Add some fixed income securities to the portfolio.
Bonds have an inverse relationship to stocks. When stocks thrive, bonds suffer. When bonds are performing well, stocks struggle. Bonds provide current income and allow you to have an asset class outperforming the market when the S&P 500 and Dow Jones are down. Bonds can be bought individually in $1,000 blocks. It is simpler however to just buy a corporate bond fund. My selection is theiShares iBoxx $ Investment Grade Corporate Bond ETF (LQD).
This bond exchange traded fund invests in high quality investment grade bonds with ninety-nine percent of the bonds being rated from AAA to BBB. The fund is up 12% year to date and yielding 3.8%. The best way to invest 100k for conservative investors is to allocate a larger percentage of their portfolio to bonds.
|100 shares of iShares iBoxx $ Investment Grade Corporate Bond ETF
Since I am a risk taker with a long investment horizon, I only allocated approximately 12 percent of the portfolio to bonds.
3. Add some value stocks to your portfolio.
Value stocks are stocks selling at a discount to their intrinsic value. Value stocks are the beaten down stocks of the market, which are disliked by analysts, hedge funds, and market commentators. Value investing is like shopping at the discount store. It’s like buying half price soup because the can is dented. The inside contents are just fine; it’s only the outside that appears damaged. Value investing is buying stocks on sale. Warren Buffett has made a fortune by being a value investor. He has made investors a fortune with his value investing philosophy. A $1,000 investment in Buffett’s Berkshire Hathaway stock is worth over $13 million today.
Abbvie (ABBV)is a large biopharmaceutical company with tremendous growth potential and a pipeline of new drugs coming to market. The stock has been hammered and all of the negative sentiment appears to be priced in. It’s a stock worth betting on especially with a current dividend yield over 6 percent.
Kraft Heinz (KHC)is an example of a value stock with the ketchup maker’s shares trading near its 52 week low. The company is in the midst of a turnaround effort seeking to move from its prepackage foods lineup. If they company can execute it and resurface $3 billion of debt due next year, the stock can be a winner
While Abbvie and Heinz both pay a dividend, the investment thesis is not based on that as turnaround plays often have to reduce dividends temporarily to conserve cash.
|150 shares of Abbvie
|330 shares of Heinz
20% of the portfolio is in value stocks.
4. Inject more risk in your portfolio by purchasing companies with the potential to become multibaggers.
A multibagger is a stock who gives you a return greater than 100 percent. This is the part where you invest in the next big thing. You are searching fro the next Facebook, next Amazon, next Apple stock. Those are found in the forms of small Caps, mid caps, and international stock sector. The best way to invest 100k for the risky investor is allocating a large percentage of the portfolio to this category.
iQIYI (IQ)is a Chinese streaming company with over 100 million subscribers. The company is still in its infancy stages and looks intriguing beneath $20 per share.
JD.com (JD) is the biggest rival to Alibaba in China. JD.com has positioned itself for success by building it ecommerce presence online and its physical distribution chain. With proper execution by management, both stocks could easily reach multibagger status.
|790 shares of iQIYI
|468 shares of JD.com
30% of the portfolio is in the small and mid cap international stocks.
5. Take a risk on a speculative investment that you really want to own.
Investing should be fun so I treat 10% of my portfolio like mad money. I view speculative investments the same as gambling in a casino. I can buy any asset that I want regardless of the fundamentals or price. I can buy this just because I want to. I can buy Krispy Kreme because I like the doughnuts or take a shot on a tiny biopharmaceutical company whose one drug will make them go boom or bust. I can either lose a substantial portion of this 10 percent or find a winner.
Square (SQ) because the digital payment processing industry is intriguing with Cash App and the Square reader.
Canopy Growth (CGC) because the medicinal marijuana industry is still in the early growth phases
Under Armour (UA) is my choice because I am taking a shot that they will be able to survive and compete with Nike.
|42 shares of Square
|95 shares of Canopy Growth Corporation
|120 shares of Under Armour
10% allocated to speculative investments.
Complete $100k Portfolio Investments
|Number of Shares
|JPMorgan Chase (JPM)
|Kellogg Company (K)
|iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
|Kraft Heinz (KHC)
|Canopy Growth Corporation (CGC)
This portfolio is diversified amongst sectors, has upside potential, provides a degree of safety, and generates dividend income of $2,629.52 annually. The dividend income will increase as dividends are reinvested.
Well that’s my take on the best way to invest 100k? What do you think is the best way to invest 100k?