Many people want to invest for retirement but feel they need to have millions to start. The truth is, $250,000 is enough to begin your journey towards an early retirement. However, you might want to consider longer-term investment strategies for growth.
With such a big amount, you’ll be relatively comfortable during retirement and might not need to leave your money in ISAs or savings accounts. The question is, what investments should you make with your $250,000? Presently, savings interest rates are below two percent, bonds are bubbling, and the stock market is volatile.
While you may need the money for paying off your debts, helping your loved ones, or furthering your education, it’s best to invest it and watch it grow, making you millions.
Suppose you came into money through selling a business or inheritance you’ll need to come up with an investment plan.
When investing, the primary thing to consider is whether your investments will grow and continue to yield profits in the long term. The following investment ideas will keep increasing in value rather than fall.
- Property investment
- Investing in assets
- Investing in stock market
- Peer-to-peer investing
However, before starting, it’s best to do your due diligence while considering other relevant factors like risk capacity and tolerance. The following are ways to invest $250k, grow your funds, and enjoy financial freedom.
Investing in Real Estate Property
Property investment is a great way to make long term wealth once you pick an area of preference like residential or commercial real estate. While 250k might not get you a great property in megacities like New York City, consider buying in a small city or an area with a growing and thriving student population.
There are numerous properties to buy in these areas. You might decide to rent your properties out to young professionals in newly industrialized areas or students if you buy close to a school.
Suppose you invested in a flipping project, you’ll need to make some improvements which will take time before selling the house for cash.
So, does a new investor make wise investment property decisions? Firstly, note that investing in a property isn’t the fastest way to make money except through crowdfunding.
You’ve got to invest time, pay attention to your investment, and ensure you’re not buying a money pit. Secondly, consider researching the area you intend to buy in to avoid making mistakes.
Property prices tend to rise sometimes, but in some megacities, they increase faster. Look for “up and coming” cities, and you’re on your way to making money.
An investment property will your tenants to pay off your mortgage overtime before their monthly rent payments will serve as a source of passive income for you. There are also numerous platforms to invest in, or you might consider looking into Real Estate Investment Trusts (REITs).
One of the upsides of crowdfunding platforms is that they allow you to earn without being saddled with landlord responsibilities.
How to Get Started
A platform like Holdfolio makes investing easy without looking for new tenants or taking a mortgage. With Holdfolio, you’re eligible to invest with as little as $20,000. Your investments will be spread across many residential and commercial properties expertly chosen by the platform managers.
While there are varying profits, Holdfolio investors enjoy an average return of ten percent or more. Thus, investing $250,000 in real estate through a crowdfunding platform like Holdfolio will ensure you earn more income passively.
On the other hand, you might also want to look for an attractive 2 bathrooms, 2 bedroom rental property to buy. Rental properties were attractive investment options in 2021 due to low-interest rates, a trend we are hoping to continue seeing in 2022.
The rental income value has also gone up.
You might want to consider peer-to-peer lending as an investment option. This lending option cuts out the middleman (the bank), allowing individuals to lend or borrow money for many reasons.
Investors might want capital for a startup or investment purposes. Some lenders might want to support their vision. With peer-to-peer lending, you’ll keep the interest for yourself rather than allow banks to take it.
Interest rates are usually high with peer-to-peer lending, and presently, there’s a low basic interest rate, so you might want to consider this investment option.
The borrower’s reliability is likely to determine how much you’ll make in interest. You might earn more profit by lending to less reliable borrowers; however, you’re taking more risk. Some peer-to-peer lending groups rate their borrowers according to their reliability. That way, you know who you want to lend your money to before deciding to proceed.
Note that this isn’t the only risk with peer-to-peer lending. Ensure you research the group you’re using before making any real commitment or invest your money in safe options like real estate.
Invest Your Solo 401(k) Into Real Estate
If you have a kind of self-employment income or own your own business, consider stashing away a considerable chunk of your income for retirement in a Solo 401(k). This account enables investors to save more for retirement than the standard 401(k).
You’ll make your contributions on a tax-advantaged basis to enable you to become eligible for lowering your tax bill when you contribute. What’s more? It allows you to contribute close to the annual limit in Roth or traditional tax loans and savings.
This way, you get to invest money directly into real estate funds or properties of your choosing. You can also use leverage when you have up to a quarter of a million dollars.
Consider moving part of your funds into your portfolio. It helps if you invest in rental vacation homes, apartments, raw land, multiple investment properties, multifamily homes, or commercial properties.
Finally, consider mixing promissory notes and hard money loans to other investors in your retirement account.
Investing in the Stock Market
$250,000 is a large sum and will afford you the opportunity to spread your investments across many portfolios, which is best if you intend to invest in stocks and bonds. You don’t want to invest your money in a single business or sector and risk losing it when there’s an economic meltdown, do you?
Don’t forget to do your homework. While a business might appear exciting now, you need to check if it has the potential to succeed in the long term? Check the sector and its growth, management, and the founder’s ambition. Are their ambitions realistic?
It’s best to conduct this check for every business you intend to buy shares in and ensure you monitor the stock market closely. If you use a broker, make sure to read their reviews.
In the past, many investors preferred buying stocks to save for retirement through tax-advantaged retirement plans, like SEP IRA, Solo 401(k), or 401(k). More so, you might want to invest in bonds, index funds, growth stocks, and other securities using a brokerage account.
Although you don’t have any upfront tax advantages with brokerage accounts, you’ll get the opportunity to invest in many ETFs, stocks, and others. More so, the account is more liquid than a tax-advantaged retirement plan.
Contrary to the practice of retirement accounts charging penalties when an investor makes a withdrawal before their retirement age, it’s easier to sell securities like stocks and bonds and to access funds without any penalty whenever you want. However, you’ll need to pay capital gain taxes when you sell your securities.
Buy a Business
While buying a business is a good investment option, it isn’t for everyone and requires a hands-on approach compared to other options already mentioned. However, owning a business allows you to build something that could offer you long-term income for years to come.
Suppose you buy a business, consider building it big that others can run it. You’ll be responsible for overseeing the big picture planning while enjoying a passive income stream.
How to Get Started
While you might want to buy a local business or franchise, it’s best to do your due diligence. Consider buying an online business with a fully-developed website, affiliate marketing, ads, product sales, etcetera.
Another option is to start your own business. However, it requires extensive research to run an online or offline business and monetize over time.
Who It’s Best For
Owning an online business is a wise investment option for investors who don’t mind putting in extensive effort to scale it. Thus, it’s perfect for people who intend to build something and sell it later or earn passive income.
Investing In Assets
Suppose all the options discussed above don’t interest you; you might want to consider investing your money in assets. However, you’ve got to be sure you’re buying what will increase in value over time.
Some material assets to invest in which will continue to increase in value include the following:
- Precious metals like diamonds or gold
- Rare musical instruments
- Collectible items like rare vinyl
Before embarking on any investment journey, consider talking to a financial advisor. Don’t forget that no investment is entirely secure, and you might lose or make no profit.
Given the USD volatility resulting in a depreciating or weak dollar sometimes, you might want to look offshore for stable but high-yielding assets to buy. Also, decide on the municipal bond ETFs for example: SMB, PVI, HYMB, CMF, PWA, NYF, CXA, INY, SFI, PWZ, and SHM.
Invest in Cryptocurrency
Last but not least is investing in cryptocurrency. Although people thought crypto would not gain mainstream acceptance, that hasn’t been the case. Presently, cryptocurrencies like Bitcoin are being adopted as a payment option, and Bitcoin ATMs have sprung up in some countries.
Due to the large-scale adoption of crypto, investors are beginning to see it as a great way to grow their funds. Thus, cryptos like Bitcoin will soon hit $200,000 per coin.
Suppose you’d like to invest in cryptocurrencies, you might want to start with Bitcoin. However, other coins like LiteCoin and Ethereum are cheaper but great too. You’ll need a crypto app to safely store your coins until you want to conduct a transaction.
Note that cryptocurrencies are volatile and fluctuate. An investor can gain today and lose everything tomorrow, unlike investing in real estate that will only continue to increase in value.
Investing In Real Estate for Extra Passive Income
With $250,000, you’re eligible to invest in real estate. Experts believe that real estate prices and rents will continue to increase in 2022, and the housing market will continue to grow stronger. Thus, now is the best time to enter the industry.
While one investor might want to get personal loans to buy property, make a down payment, rent the property out and earn monthly income and regular cash flow, another may prefer a hands-off option like crowdfunding. If you want to earn passive income through real estate crowdfunding platforms, these are the top three to explore.
As an expert in equity investment in multifamily value-added deals, Holdfolio sources all its deals personally. Fortunately, there are no extra fees like other platforms sourcing third-party deals charge.
Investors enjoy direct access to talk with the sponsor, which is also the platform, unlike some platforms serving as middlemen between sponsors and investors. Previously specializing in single-family residential rentals, Holdfolio currently focuses on multifamily value-added deals. However, each transaction comes as a single property, meaning there aren’t multi-property funds.
Holdfolio invests its own money alongside investors’ funds and offers complete bankruptcy protection with projected returns varying from 15 to 19 percent IRR.
This crowdfunding platform offers a way for both non-accredited and accredited investors to invest in real estate properties through private funds. Since its establishment in 2012, Fundraise has consistently generated regular returns, regardless of the state of the stock market at any given period.
CrowdStreet offers accredited investors the opportunity to invest in private real estate opportunities in 18-hour cities (secondary towns with higher rent yields, lower valuations, and higher growth potential due to demographic trends and job growth).
The three platforms are free to sign up to and deliver passive income.
Step-by-Step Guide to Turning 250k to $2 Million in No Time
Achieving a seven-figure investment portfolio is often a long-term game unless you win the lottery. Thus, you’ll need a roadmap to help you achieve your goal.
Consider starting with the following steps:
Assess Your Starting Point
Before starting your journey towards growing your $250,000 into $2 million, ensure you take stock of your finances. While you’re already doing well with your savings, you’ll need to consider things like the amount of debt you have, your earning and income potential, and overall financial goals.
Also, consider your investing time horizon. An investor with 30 years until retirement and another with ten years won’t have the same success rate. Suppose you have only $250,000; it’s best to make provisions for emergencies before plunging the rest into investments.
Gauge Your Risk Tolerance
Risk capacity and tolerance are two significant factors to consider while determining your approach to investing. Normally, taking more risks brings the potential for earning higher returns. However, you might experience a higher potential for losses.
Risk tolerance is the amount of risk you’re comfortable with as an investor. On the other hand, risk capacity is the quantity of risk you need to meet your goals. To determine the investments you’ll need to turn your $250,000 into $2 million, you’ve got to learn how to balance your risk capacity and tolerance.
Certificates of deposit, bonds, and cash are examples of safe investments with a low potential to lose money. However, you aren’t going to witness spectacular growth from these investments.
On the other hand, stocks have the potential to deliver better returns, mainly if your investment is in small-cap companies with tremendous growth potential. Nevertheless, you’ll need to accept the volatility the stock market offers. Determine the risk you’ll take to hit the two-million-dollar mark and see if you’ve got the stomach for that kind of risk.
Run the Numbers
After gauging your tolerance level, your next step will be to do some math while considering certain factors. Notably, there are three things you’ll need to keep in mind, including your investment’s rate of return, how long the investment will last, and the amount you intend to add every month.
Assuming you’re 35 years old and planning to retire at 65, and thanks to your diligent savings or inheritance windfall, you have $250,000 to invest, the fastest way to grow your capital to $2 million is to increase the amount you invest every month. The other option is to exceed the seven percent annual investment return.
However, the second option is harder to achieve. The market could make you lose if you aren’t as proficient in picking great investments as you thought. Note that the sooner you want to retire, the more you will need to invest each month. For instance, if you’re over 45 years old and will be retiring in 20 years or less, you’ll have to boost your monthly investment amount to achieve your goal.
Allocate Your Assets Wisely
Regardless of your investment window, it’d be best to consider asset allocation while growing your $250k to $2 million. Allocating an asset entails determining the balance you have in your portfolio and the corresponding return and risks.
The way you allocate assets might largely depend on whether you want a passive or active investment strategy. If you prefer being more hands-on or involved in your investments, consider going for mutual funds, trading individual stocks and bonds, or exchange traded funds for the best returns.
Conversely, if you intend to be hands-off and inactive, it’s best to invest in passive mutual funds like index funds. The key to succeeding with either option is wisely allocating your liquid assets, meaning you need to rebalance periodically to ensure your asset allocation meets your investment goals while reserving a specified amount in your emergency fund.
For instance, suppose you’re aiming for a 70 percent to 30 percent split of bonds to stocks, consider checking your portfolio a minimum of once a year. That way, you’re sure not to drift away too much from those numbers.
If you’re utilizing a Robo-advisor platform for your investments, you might want to consider and take advantage of automatic rebalancing. Robo-advisors help you determine the perfect asset allocation depending on your goals, time horizon, and tolerance level. After that, it automatically adjusts your budget to enable you to stay on course and make more money.
Minimize Taxes and Fees
When investing $250,000 to get $2 million, don’t focus entirely on growth and forget taxes and fees. You’ll need to keep your investment tax liability and costs low to enable you to hang on to your investment returns.
When it comes to the fees, you might want to understand some concepts like:
- Trading fees for people buying and selling stocks
- Expense ratios for exchange-traded funds and mutual funds
- Asset management fees to the management company in charge of handling them
For taxes, your tax liability will be determined by the amount of time you hold the investments and whether you intend to invest in tax-advantaged retirement accounts or taxable brokerage accounts.
In an IRA, 401(k), or other tax-advantaged accounts, you defer taxes on investment growth till you’re ready to make withdrawals when you retire. However, a Roth IRA allows for a tax-free distribution when you retire.
With taxable accounts, you’ll need to pay long-term or short-term capital gains tax on your investment gains. However, it depends on the period you hold the investment. The rate for long-term capital gains tax applies to ventures held longer than a year. The best part is, it’s more favorable to investors.
However, you can manage taxation by using tax-loss harvesting (underselling stocks to offset reported gains). Ensure you don’t buy similar investments within 60 days after selling to avoid triggering the wash-sale rule and wiping out tax benefits.
Investing Tips to Note
Although any of the investment options mentioned above will be an excellent choice for your $250,000, you’ll need to think about your investment purpose. Are you considering a long term investment without having to change your strategy?
Do you want a quick profit? Don’t forget to think about how soon you might need to access your initial investment amount or decide whether you plan to allow your $250,000 investment fund to stay for ten to 20 years.
Suppose you intend on making a long term investment, consider a brokerage account or Solo 401(k). Other options include cryptocurrency, buying your own business, or investing in properties.
Suppose you’re a new investor, consider consulting a financial adviser for financial advice on how to turn your $250,000 into $2 million. Ensure you find a qualified financial expert by doing your due diligence.
Calculators are also ideal in estimating the amount you’ll need to invest before reaching $2 million. However, ensure you get the best calculator to get a correct estimate.
The Bottom Line
There’s no secret formula or magic wand to wave to turn your $250,000 into $2 million. Everything boils down to strategy and how involved you want to be in the investment. The further you’re from retiring, the better. However, even if you have less than 20 years before you stop working, it’s possible to reach $2 million.
Having $250k to invest will ensure you enjoy a financially successful future. However, your work isn’t entirely done. Investing your $200,000 in a viable and strategic way will help you build your finances and attain financial freedom in the years or decades to come.
Now you don’t have to wait till you have millions before starting your investment journey. Don’t allow your money to languish in a savings account where it won’t grow due to inflation. Investing in any options mentioned above, especially real estate, is a surefire way to turn your $250,000 into $2 million.
However, consider your life goals, ability to take risks, and age to find an investment option tailored specifically for your needs. When you finally decide to invest your money, ensure you make the best choice. You might decide to invest all your money into one of the options we discussed earlier or split it into two, with one half for stocks and bonds and the other half for buying property.
However, investing in property through real estate crowdfunding platforms like Holdfolio is one fast way to grow your $250,000 and earn passive income.
Do you want to start your real estate investment journey but don’t want to be actively involved? Holdfolio is a real estate crowdfunding platform that enables you to put your money to work while earning a passive return. With zero active participation and as little as 20k, you can earn steady income from properties you wouldn’t be able afford as an individual investor.