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If you have $100,000 to invest, you have a significant opportunity to use that lump sum to start or continue building long-term wealth. Whether that $100,000 is a windfall or you’ve steadily built such savings over the years, there are ways to make that money work for you.
For the purposes of this article, we’ll assume you’re already standing on solid financial ground: You have no high-interest debt, you’ve got an adequate cash cushion to cover an emergency and you’re able to easily cover your monthly expenses.
If you’ve got the above covered, here are some considerations for investing $100,000.
» Want personalized help investing $100K? See our list of the best financial advisors
1. Decide how you want your money managed
Deciding how to invest $100,000 can be equal parts exciting and overwhelming, but you don’t have to go it alone. However, finding the right help depends on the type of advice you want, how much guidance you want, and how hands-on or hands-off you want to be.
I’d like to manage the investment myself. It’s currently easier than ever to create, research and manage your own portfolio. To start, you’ll need a brokerage account (if you don’t already have one) in which to deposit your funds. From there, you can take your pick from a variety of assets, such as stocks, bonds, mutual funds, ETFs and index funds. Be sure you’re well versed in diversification and risk tolerance if you’re going the DIY route, though.
If this is for you, consult our picks of the best stock brokers.
I'd like to automate this process. Looking for a low-cost/low-hassle solution? Robo-advisors are a good option. These companies offer automated portfolio management for less than you’d pay a human to do the same thing. But many providers offer a human touch, where you'll have access to financial advisors who can answer investing questions or customize your portfolio. We've rounded up the best robo-advisors, depending on your needs.
I'm seeking full-service guidance. If you want someone to make investment recommendations, manage your money and address other financial planning tasks on your list, you might consider hiring the next step up from a robo-advisor, an online financial advisor. These are less expensive than traditional financial advisors, but offer a similar level of service. View our list of the best personal financial advisors.
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2. Pad your nest egg
Once you've determined how you want your money managed, time is of the essence to start putting that money to work in the market. A $100,000 lump sum offers a unique opportunity to pad your savings — and beyond, maxing out your retirement account (more on that later).
Perhaps you’re thinking, “With this kind of money we can pay cash for the kids’ educations so they can graduate without any student loan debt!” Instead, consider this: In Maslow's hierarchy of needs for finances, “pay yourself first” forms the foundation of the triangle. Therefore, your needs come before saving for your child’s college tuition. The kids can get scholarships or loans, or work their way through school; similar opportunities aren't available to retirees. (Learn more about how to prioritize your financial goals.)
Investing, say, $70,000 of that lump sum and earning a 6% average annual return will mean an extra $300,000 in 25 years — the kind of padding that makes it less likely you’ll run out of money and have to move in with the kids. Use a retirement calculator to see how extra dollars affect when you can retire and how much monthly income you’ll have in the future.
» Are you accredited? You might consider private equity
3. Max out retirement (and avoid the IRS, while you're at it)
Employer-sponsored retirement plans, such as a 401(k) or 403(b), and individual retirement accounts, such as Roth or traditional IRAs, can help shield tens of thousands of your dollars from taxes. (Learn more about the differences between IRAs and 401(k)s.)
With $100,000 at your disposal, you can afford to max out both a 401(k) and an IRA if you’re eligible. The 401(k) contribution limit is $22,500 in 2023 ($30,000 for those age 50 or older). Combine that with an IRA contribution limit of $6,500 in 2023 ($7,500 if age 50 and older) to invest as much as you can for your future.
4. Handle your taxes now
We've focused primarily on investing, but an equally important objective is to retain as much of that $100,000 lump sum as possible. A couple specific situations may require immediate action in order to avoid unwanted attention from the IRS. These scenarios include:
I liquidated a 401(k) when I left a job. You have just 60 days after an employer cuts you a check to get that money saved in a workplace retirement account into either a Roth IRA or a traditional IRA. Otherwise, you’ll trigger a pretty hefty tax bill consisting of income taxes (the IRS treats the money as earned income for the year) and a potential 10% early withdrawal penalty. Read more about how to roll over a 401(k) to an IRA.
I inherited an IRA: You may be on a tight deadline if you’ve inherited an IRA. The rules about what beneficiaries can and cannot do vary, as does the timeline for taking action without incurring penalties or triggering extra taxes. It all depends on your relationship to the deceased (surviving spouses have different options than other beneficiaries), whether or not the former owner had started taking distributions before they died, and the type of IRA (Roth or traditional).
5. Stay vigilant about fees
Just as you don't want the IRS to come knocking for your money, don't lose it all to fees. Not only is every dollar you hand over in fees money you’ll never recoup, but it’s also one less dollar you have to invest for your future. And a dollar that’s not invested has no chance to compound and grow.
Even a small extra fee can take a huge bite out of investment returns. We calculated that a millennial investor paying just 1% more in investment fees than her peer sacrifices nearly $600,000 in returns over time. The fix? Invest in low-cost mutual funds and exchange-traded funds as opposed to paying the higher price for actively managed funds.
» Learn more: Brokerage fees and commissions to watch for
6. Reallocate your portfolio
Don’t scrap your existing asset allocation plan (that carefully crafted pie chart indicating how much of your money is in cash, bonds, stocks, real estate, etc.) in order to accommodate new money. Unless you’re in the midst of a major life change, such as retirement or liquidating assets for an upcoming expense, changes to the current makeup of your portfolio and your risk tolerance profile are probably unnecessary.
But with this money in hand, now’s a good time to review where you are:
Take an asset allocation snapshot. Look at the overall mix of investments you have in all of your accounts, including current and old 401(k)s, IRAs, taxable brokerage accounts, bank accounts and so on.
Identify areas where your portfolio has become unbalanced. Position sizes morph over time as investments change. Rebalance your portfolio by using some of the money to restore the underrepresented assets. This will reduce your exposure to risk from lack of diversification.
Consider asset location, too. Asset location also offers tax diversification. With your 401(k) and in IRAs, you’ve got the tax-deferred angle covered. Because you’re not taxed on investment growth, it makes sense to hold investments that generate taxable income (such as corporate bond funds, high-growth stocks or mutual funds that buy and sell a lot) in these accounts. Even better if you can hold them in Roth versions of these accounts, where withdrawals in retirement are tax-free. In a taxable account, such as a regular brokerage account, growth and interest are subject to yearly income taxes, so slow and steady investments (large-cap stocks or index funds) belong here.