What to consider before investing $200,000
Before jumping into placing trades, there are several factors to consider when making your investment game plan.
How soon do you need the $200,000 you want to invest? Short-term investing strategies are often very different from long-term investments since they try to reduce risk. Start by outlining what you're investing for (retirement, a down payment, etc.) so you can pick strategies that match your timeframe.
Understanding your risk tolerance is important when investing any amount of money. For some investors, volatility isn't an issue. But for others, safer, fixed-income investments make more sense versus individual stock investing.
This also ties into the importance of understanding your investment timeframe. If you're investing for the short-term, it's generally best to stay on the safer side so you can protect your capital for when you need it.
Thanks to technology, there are plenty of ways to passively invest if you don't want to research stocks or closely manage your portfolio. However, some investors prefer taking a hands-on approach. Decide if you want to actively or passively invest so you pick strategies that cater to either style.
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Best ways to invest $200,000
It's important to note that you don't have to put your entire $200,000 portfolio into one single asset class or idea. Rather, you can diversify with several ideas to build a well-rounded portfolio that serves you for years to come.
1. Work with a financial advisor
Figuring out how to invest a large amount of money is tricky. This is especially true if you're new to investing and are still learning some fundamentals. So, one option for investing $200,000 is to work with a financial advisor to build a portfolio that matches your goals and risk tolerance.
You have a few options to find a financial advisor that's the right fit. For starters, you can look for wealth management firms in your city and call to explore your options. Websites like Paladin Registry also match you with financial advisors in your area.
Alternatively, you can work with online-based financial advisors, and this can help you save on fees versus the more traditional route. Companies like Empower offer wealth management services starting at $100,000. You can also look into Vanguard's Personal Advisor service which has a $50,000 investment minimum.
Vanguard Disclosure - Vanguard Personal Advisor Services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited purpose trust company.The services provided to clients who elect to receive ongoing advice will vary based upon the amount of assets in a portfolio. Please review the Form CRS and Vanguard Personal Advisor Services Brochure for important details about the service, including its asset based service levels and fee breakpoints.VAI is a subsidiary of VGI and an affiliate of VMC. Neither VAI nor its affiliates guarantee profits or protection from losses.
2. Use a robo-advisor
Like working with an advisor, you can also invest $200,000 by using a robo-advisor if you need a helping hand. Robo-advisors use technology and algorithms to build portfolios based on your investing goals and risk tolerance, much like a human advisor. However, portfolios are usually made-up of low-fee ETFs consisting of stocks and bonds.
The result is that the best robo-advisors have incredibly low fees; think 0.25% to 0.40% per year. For a $200,000 portfolio, this is only $500 to $800 per year for managing your entire portfolio.
|Minimum to Open Account||$10||$500||$0|
|Advice Options||Automated, Human Assisted||Automated||Automated|
|Socially Responsible Investing||Yes||Yes||Yes|
Options like Betterment and Wealthfront are extremely popular, and both companies have low fees and minimum investment requirements. The main difference is that with Betterment, you get access to human advisors with a portfolio of at least $100,000, although you pay a 0.40% annual fee.
M1 is also an excellent choice if you want a hybrid stock broker and robo-advisor where you have more control over your portfolio. M1 doesn't offer tax-loss harvesting like Betterment and Wealthfront, but its lack of fees and customization potential are selling points.
3. Stocks and ETFs
If you work with a financial advisor or a robo-advisor, you're almost certainly investing in some type of ETF or basket of stocks. But nothing stops you from going the DIY route and doing this yourself.
The leading online stock brokers are all commission-free these days. This means you can build your own portfolio of various stocks, ETFs, and even other securities like mutual funds. You don't need to pay the type of fees you would if you're working with an advisor either. Plus, the top brokers have a wealth of educational resources to help you learn how to use their platforms and begin investing.
|Highlights||E*TRADE||Ally Invest||TD Ameritrade|
The challenge with DIY investing is that you don't have the guidance of a financial advisor or robo-advisor. This is why learning how to research stocks is important. You also need to think of your overall investing strategy and the type of portfolio you want to build.
Are dividend stocks what's appealing to you? Or do you prefer growth-focused stocks and ETFs that you'll hold until retirement? These are the sorts of surface level questions DIY investors need to answer before diving into individual investments.
There's plenty of resources on Investor Junkie about how to invest in stocks, ETFs, and other asset classes. You can also consider stock recommendation services like The Motley Fool if you want high-quality research and stock picks every month.
4. Fixed-income investments
A $200,000 portfolio opens up many opportunities to generate meaningful fixed-income. If you're looking to supplement your annual income and use your portfolio to cover part of your living expenses, this could be the perfect strategy.
Examples of common fixed-income investments include:
- Bonds (corporate, government, and U.S. savings and treasury bonds are popular)
- Certificates of deposits (CDs)
- High-yield savings accounts
- Preferred stocks
Typically, investors looking for growth shy away from fixed-income strategies since returns are generally lower than the market. But if you want lower risk or don't need to focus on growth over income, this strategy makes more sense.
And even with high inflation, you can find some gems in the fixed-income world. I Bonds are a perfect example that help you shelter some of your cash from the impact of inflation. And companies like Worthy Bonds currently pay 5% interest on their bonds, which isn't too shabby.
5. Real estate
Another classic way to invest $200k is to invest in real estate. And since this is a large amount of capital, you have a lot more options at your disposal depending on how active or passive you want to be.
Popular ways to invest in real estate include:
- DIY investing in real estate ETFs or companies
- Investing in REITs
- Purchasing a rental property
- Using real estate crowdfunding sites
|Account Fees||1%/year||None||0.50% or $500|
Fundrise is one of the most popular crowdfunding companies out there. It lets you invest in various funds of income-generating real estate, and the company typically focuses on commercial holdings. It's completely passive and low-fee as well. CrowdStreet is similar but has a wider range of individual deals instead of funds, although most deals are only open to accredited investors.
As for Roofstock, it lets you invest in single-family rentals so you can earn rental income as a landlord. The platform also has a management option where a property manager handles tenants and the property, keeping it passive.
Ultimately, there are numerous ways to add real estate into your portfolio mix. And you don't have to use your entire $200,000 nest egg to diversify.
This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Investor Junkie. All opinions are our own.
6. Become debt-free
While it doesn't sound like an investment, using some of your $200,000 portfolio to pay off any outstanding debt can be one of the best investments you ever make. And if you're currently tackling high-interest debt like credit card debt or a personal loan, the returns you get from becoming debt free can be massive.
Some investors also consider paying off their mortgage instead of investing in the market. Ultimately, deciding what's best depends on your current interest rates, what you think you can achieve with other investments, and your timeframe.
Returns aside, there's also an argument for the health benefits of becoming debt free. In fact, a 2019 study found that debt relief can lead to improvements in cognitive functioning and less anxiety. If you feel like you've had debt looming over your head for a while, it could be time to get rid of it once and for all.
7. Alternative asset classes
When inflation is on the rise, many investors turn to alternative asset classes to help hedge against inflation. This is largely because many alternative assets don't correlate strongly, or at all, with markets. Plus, mixing in some alternatives into your portfolio can help with overall diversification.
Cryptocurrency investing has been the alternative asset class of choice for the last few years. But Bitcoin and crypto in general correlates a bit more with the general market than previously thought. And crypto is far from your only option when it comes to alternative assets.
Other asset classes you can consider for a portion of your $200,000 investment include:
- Artwork: You can invest in fractional shares of artwork with companies like Masterworks.
- Collectibles: For some investors, collectibles like sports cards, antiques, and even Pokemon cards have been the alternative assets of choice.
- Farmland: Crowdfunding companies like AcreTrader and FarmTogether let you buy shares of income-generating farmland. You can also explore various farmland ETFs to get exposure.
- Fine Wine: For even more diversification, you can invest in fine wine through companies like Vint and Vinovest.
- Precious Metals: Commodities like gold and silver are another common way investors try to hedge against inflation and diversify.
You can invest in a variety of asset classes on your own or by using some of the companies listed above. Platforms like Yieldstreet also specialize in high-yield alternative assets and streamline the investment process.
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8. Private equity
Like other alternative assets, an option for investing $200,000 is the world of private equity. Usually, angel investors with large amounts of capital look to invest in startups that are promising and have the potential for large returns. This has traditionally required a lot of capital and connections, but the barriers to entry are lowering thanks to crowdfunding.
For example, platforms like OurCrowd and SeedInvest let you invest in vetted, promising startups across a variety of industries. These are equity-based investments, so you're actually buying ownership in a company at the same terms as other investor groups or angels.
The upside of equity investments is that the potential for returns is massive if you get in early and the company grows. However, the risk of startup failure is significant. And you have to consider the risk of being diluted down or how long your money might be locked up in shares.
If you're investing $200,000 to start your nest egg from zero, private equity is probably too risky. But it's an option to consider if you already have a solid foundation for your portfolio and want to explore other avenues.
9. Index funds
One last idea to invest $200,000 is to invest in index funds. These are either mutual funds or ETFs that build portfolios to match certain market indexes, like the S&P 500 or Dow Jones Industrial Average.
The main advantages of index funds is that you get diversification. Funds typically have low-fees as well since they're not very actively managed. If you're looking for a simple way to dollar-cost average yourself into the market, index funds are a popular choice.
The downside of index funds is that they're less flexible than many other funds or individual investments since they have to track certain indexes. But they're still an excellent, passive investment option many investors rely on.
The bottom line
There's no cookie-cutter solution for investing $200k. In fact, many investors will probably find themselves picking bits and pieces from several strategies to build their portfolios.
The most important thing is to be an informed investor. It doesn't matter if you're using a robo-advisor, picking your own stocks, or are going with crowdfunding; make sure you understand the assets you're investing in and do your due diligence!
As long as you stick to a game plan and do your research, there's no reason why your portfolio can't grow with time and the power of compound interest.
Moneywise receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. Moneywise is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.
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