If you invested money into the S&P 500 in 2009 and reinvested dividends, you would have enjoyed a hefty 191.835% return as of early 2019. That’s an 11.305% annualized return after adjusting for inflation, which is pretty darn sweet.
Had you invested your money in the year 2000, however, the results aren’t quite as rosy. Your investment would yield only 35.395% total, for an annualized return of 1.608%.
This just goes to show how volatile investing in stocks can be. Your return depends a lot on where you invest your money, but the results can be skewed drastically by when you invest, too.
With that in mind, not everyone wants to drop a ton of additional cash into stocks — especially not when they’re close to retirement age.
Where to Invest $1 Million Dollars
Recently, a reader contacted me for this exact reason — he had $1 million dollars to invest but didn’t want to invest all of it into the stock market. He wanted to know where else he could invest his money where he had the potential for a great return without as much volatility and risk.
While it’s not easy to score market returns without any risk, there are plenty of tools and platforms you can use that could lead to serious returns — or perhaps more peace of mind.
Online Savings Accounts, Money Market Accounts, and CDs
One of the most secure options available comes in the form of online savings accounts and certificates of deposit (CDs). While a savings account may make it easier to access your money, CDs tend to offer a slightly higher rate of return in exchange for locking your money away for several months or years. With a 12-month CD from Marcus by Goldman Sachs, you can qualify for 2.75% APY right now. A minimum balance of $2,500 is required.
Financial advisor Mitchell Bloom of Bloom Financial, LLC says he advises clients to explore online savings accounts or money market accounts with competitive rates. On a personal level, he keeps his emergency savings in a Capital One 360 Money Market account with no fees of any kind. The current rate on his account is 2.0% APY for balances over $10,000.
“This money market is totally liquid and has no constraints,” he says.
You can also consider a high-interest savings account from an online bank that offers exceptional returns. With the CIT Bank Savings Builder Account, for example, you can get 2.45% APY on your money with a minimum account balance of $25,000 or a minimum monthly deposit requirement of just $100.
TIPS or Short-Term Bond ETFs
Another option is investing all or part of your nest egg in TIPS or Short-term bond ETFs. TIPS stands for Treasury Inflation-Protected Security, which makes it obvious TIPS are meant to protect against inflation. TIPS pay interest twice per year based on a fixed rate, and they are offered in terms of five, ten, and thirty years. You can buy TIPS from TreasuryDirect.gov or from a licensed broker.
A short-term bond ETF is an ETF (exchange-traded fund) made up of short-term bonds with maturities lasting less than three years. These portfolios are geared to more conservative investors who prefer less volatility over the long run.
Super Saver Accounts
Whether you use a traditional financial advisor, save with a robo-advisor, or manage your own investments, you can also explore Super Saver accounts offered by major online financial services companies.
Betterment, for example, offers a “Smart Saver” account that moves your excess cash into a low-risk bond portfolio for higher returns than you would get with an average savings account. At the moment, the robo-advisor says their accounts are earning 2.23% APY.
Wealthfront is also reportedly rolling out a high-yield cash management account that works similarly to a savings account with an annual return of 2.24% APY.
Annuities
Annuities could provide another way to earn a reasonable return outside the stock market, but they tend to be difficult to understand. It doesn’t help that there are several types of annuities, including variable annuities — a type of annuity you should never buy.
The important thing to remember with annuities is that you’re making a contract with an insurance company. In exchange for a lump sum of cash, they usually promise you a payment every month.
With a fixed-rate annuity, you’re promised a payment in a specific amount each month. A variable annuity, on the other hand, promises a payment that depends on how an underlying investment performs. A fixed-indexed annuity works as a hybrid of the two, offering greater potential for returns with less risk overall.
While I am adamant about the fact that whole life insurance is an awful deal for the average American family (and maybe even a financial rip-off), I’ll admit there are situations where whole life makes sense. For example, a high net worth individual could use a whole life insurance policy to protect some of their assets and provide their family with a tax-free lump sum when they pass away. To reiterate my position though, this strategy only makes sense in certain situations — usually when a lot of money is involved.
But, what about indexed universal life insurance? Typically, these are policies that won't make you a lot of money over the long-term. However, they're marketed similarly to fixed-index annuities in that you get unlimited upside potential with none of the downside risk.
While there are plenty of pitfalls to be aware of, a properly structured indexed universal life insurance policy could provide a decent return with little risk. The key phrase here is “properly structured” because not all policies fit the bill.
Here’s an example of how this might work in real life:
I once had a client who was looking for principal protection and more interest than he could get with a high interest savings account. At the same time, he wanted an investment with some liquidity. Normally, this type of high-rate, liquid investment doesn’t exist. However, I was able to work with an insurance carrier to structure a policy that met his needs.
The indexed universal life insurance policy he wound up with paid a dividend of just over 3% before fees were factored in. The policy also had an index option that was tied to the S&P 500, and there were no surrender charges as long as the policy was held for three years.
There were a couple of other details to take into consideration, but this option still helped us accomplish the goal at hand.
If this is an investment you are considering, just make sure you have an advisor that is a fiduciary and working on your behalf. If you approach a life insurance salesman who isn’t a fiduciary, it’s pretty likely they’ll try to score a huge commission instead of helping you choose a plan that suits your needs.
Private Business
Bloom says that, if you’re an accredited investor who doesn’t mind some risk, you can consider investing in private business as an angel investor.
Angel investors are high net worth individuals that are interested in funding early-stage startup companies and may invest anywhere from $10,000-$100,000 per project they take on. While throwing money into the next Google or Uber sounds like a smart idea, the downside is that, if the business fails, you could lose every dollar you invest. Ask angel investors who bet on Theranos how that worked out.
If this is something you’re considering, it’s important to have several million set aside before even looking at investing in startups. “The failure rate is very high,” said Bloom.
Bloom also suggests taking the time to conduct due diligence instead of investing in a frenzy out of excitement or FOMO. You can also search for a consultant you can trust.
“There are Angel investor groups all over the country and the largest is called the Keiretsu Forum, based out of California,” he says. “If approved for membership, you can gain access to a wide array of opportunities.”
Projects on this platform have been strictly vetted through a committee and formal due diligence process.
Real Estate
Another popular investing option for high net worth individuals is real estate. Fortunately, new technology and startups have made it possible for more and more investors to get into the real estate game without dealing with the headaches of being a landlord.
One real estate investment that is entirely hands-off is the REIT, or real estate investment trust. This type of investment, which you can buy through any major online brokerage account, lets you invest your money into a company that owns and operates income-producing real estate. There are also real estate ETFs (exchange-traded funds), which invest in underlying REITs.
Some online real estate platforms also make it easy to crowdfund real estate with the potential for high returns (and no landlord hassle). Fundrise is an especially popular option for investors since it has boasted returns between 9.11% and 12.42% since 2014. You can invest into a Starter Portfolio for just $500, although the platform also offers portfolios for long-term growth, supplemental income, and balanced investing.
Peer-to-Peer Lending
Finally, don’t forget about the prospect of peer-to-peer lending with platforms like LendingClub and Prosper. Both let you loan money to individuals as if you were a bank, helping you score higher returns than you may get with other investments.
With LendingClub, you can invest a lump sum of money over hundreds or even thousands of $25 notes. The platform reports a historical return of 3% to 8% per year, although your returns will depend on the risk involved in the underlying investments you choose.
Fortunately, the level of risk you take on is mostly in your hands. LendingClub lets you earn higher rates on high-risk consumers with shaky credit, but you can also choose safer notes with less potential for volatility.
