The best ways to invest 100k
Having $100,000 (£65,000) to invest opens up a world of investment possibilities. The best choice for each individual depends on her own investment experience and financial goals. While some recommendations from investment professionals and the very rich can give you ideas for investing the money, it is important that you conduct your own research into any investment and understand the risks, as well as the possible rewards.
Index Mutual Funds
Daniel Solin, author of "The Smartest Investment Book You'll Ever Read" and "The Smartest Retirement Book You'll Ever Read" recommends a balanced portfolio of broad-based index mutual funds. An asset allocation should be determined between stocks and bonds. A common rule of thumb for the percentage into stocks is 100 minus your age. For example, if you are 35, the stocks should be 65 per cent of your investment portfolio. The bond portion of the portfolio can be in the Vanguard Total Bond Market Index Fund. The stock portion of the investment should be allocated 70/30 into the Vanguard Total Stock Market Index Fund and the Vanguard Total International Stock Index Fund. The portfolio should be rebalanced to its original percentages once a year.
Forbes magazine interviewed 18 billionaires and asked them how they would invest the 100K. Three of the billionaires recommended investing in real estate. If you live in an area where a rental home can be purchased for 100K or less, purchase the property with cash. You will receive income from the rent paid and capital growth as the home increases in value. Buying rental property requires research into the local real estate market and the current rates for rental properties. A professional property manager can assist with managing the property for a percentage of the rental income.
Treasury Inflation Protected Securities--TIPS--are bonds issued by the U.S. Treasury that index with the inflation rate. A TIPS bond is issued with a fixed rate of interest, and the bond face value increases with the consumer price index--CPI. For example, a 100K TIPS is purchased with a 2 per cent coupon rate. After one-year of inflation at 3 per cent, the value of the bond becomes 103K and the 2 per cent interest is paid on the new, higher value. TIPS can be purchased directly from the Treasury through the Treasury Direct website and are available in maturities of 5, 10 and 30 years.
A Balanced Portfolio
In the Forbes billionaire interview article, self-made billionaire, John Paul DeJoria, recommends a balanced portfolio of 25 per cent in alternative energy companies, 25 per cent in blue chip stocks, 25 per cent in precious metals, and 25 per cent in children's education accounts. This is a portfolio an individual investor could set up by opening an online brokerage account and purchasing exchange-traded funds--ETFs for the first three recommendations. For a children's education fund--if you have children--set up a Coverdell Education Savings Account. These accounts are tax deferred and can be started through a mutual fund company or investment adviser.