Before you can get to $1 million, or invest $250,000, you must first get to $100,000. Even though $100,000 doesn't purchase the same amount of stuff as it did way back when, $100,000 is still a nice chunk of change. Let's go through how I'd invest $100,000 today.
For background, I've been investing since 1996, worked in investment banking at Goldman Sachs and Credit Suisse from 1999 – 2012, got my MBA from Berkeley, and have written over 2,500 personal finance articles on Financial Samurai since I started this site in 2009. Altogether, I've got over $15 million in investable assets to support our early retirement lifestyle with two kids.
With $100,000, you can pay for four years of tuition at public university. You could also buy one Patek Philippe complication watch or a BMW M4 and still have $20,000 leftover. Of course, you could wisely invest the money and retire early.
Ever since getting repeatedly kicked in the nuts working in finance, I've focused most of my effort on turning new capital into passive income. I wanted to have children one day. Most of us should be able to earn between 3% – 5% in relatively low-risk ways. Therefore, $100,000 should be able to generate $3,000 – $5,000 a year.
Current Cash Balance
Currently, I've got about $100,000 in cash, which is more than what I normally keep for random expenses. The cash has been piling up due to a surprise real estate crowdfunding distribution and stronger-than-expected rental income from my vacation property in Tahoe.
As a result, I've got to figure out how to invest the $100,000. Perhaps you too have a good amount of cash piling up and are looking for ideas on what to invest in as well. Let me share with you what I'm thinking.
Please note, this is not my investment advice to you. This is a deep-dive mental exercise on how to best allocate capital today for potentially greater returns and more joy. Always do your own due diligence before investing any capital.
How I'd Invest $100,000 Today
Before investing, it's a good idea to look at all your existing asset classes. Go through them one by one and analyze their investment cases. After all, for every dollar you invest in one asset class, it is one less dollar you have to invest in another asset class.
How much you diversify your investments is partly dependent on where you are on your financial journey. If you're in your 20s, perhaps a concentrated position in your favorite asset class is appropriate.
For me, I've spread my chips around because I can't stand losing a lot of money. Visible loss is also why I like to invest in alternative investments and private funds. The wealthier you get, the more you won't mind paying a fee to have active managers try and make money for you.
Here's how I'd invest $100,000 today.
The S&P 500 – Up To $30,000
With the S&P 500 around 5,020 after a 24% rise in 2023, the market is looking fairly valued. The market has rebounded from a low of 3,577 in October 2022. Equity market internals are unhealthy given extreme concentration in the magnificent seven tech stocks. Valuations are expensive, and there continues to be inflation and geopolitical risks.
The current S&P 500 10-year P/E Ratio is at about 19.5X, higher than the 10-year average trailing P/E ratio of about 16.5X. As a result, I don't think it's worth chasing stock market returns at current levels.
The current fear is the Fed-induced recession may causes analysts to cut earnings, thereby putting pressure on the S&P 500.
As a result, I would invest $30,000 in the S&P 500 at 4,800 and below. At current levels, I’m just nibbling by $1,000 – $3,000 with every 1% or greater pullback.
Bonds – Up To $30,000 Due To High Interest Rates
With the 10-year bond yield at around 4.1%, I invested in Treasury bonds again. You can earn a 5% – 5.2% guaranteed yield in 3-month to 2-year Treasury bonds.
Since I don't believe there will be that much equity upside and I believe inflation will decline over the next 12 months, 5%+ is relatively attractive. It's nice to earn risk-free returns after a nice stock market rally.
As a person who wants to take things easier, I am happy that my current passive income streams will be going up due to rising rates.
Below is my latest estimated passive income investments. Bonds account for about $13,200 a year in annual interest income, down from $33,600 a year in 2023 because I bought a new house. But if I didn't find my dream house, I would absolutely be investing in one-year Treasury bonds yielding 5% now. What a gift!
Speculative Investments / Individual Stocks – Up To $20,000
I'm a buyer of up to $10,000 in various names like Tesla, Google, Twitter, Nvidia, and Amazon. These names were hit by rising inflation expectations and rising labor costs. However, tech companies rebounded strongly in 2023, so I don't want to chase too much.
I'm always going to invest in tech because tech is where there is usually the most innovation. All of my big winners (and losers) have come from tech. I also love the Vision Pro by Apple. It’s amazing!
Part of the reason why I enjoy living in San Francisco is because I get to meet a lot of new people doing new things. The people I've met have also gotten me into various venture funds that have or are doing well.
Now there is an artificial intelligence boom, which means San Francisco real estate should once again do well. With so much capital and talent concentrated in the San Francisco Bay Area, I would never count the area out.
Overall, I like to allocate between 10% – 20% of my investable assets in speculative investments. This way, if they blow up, I'll still be alright. And if they become multi-baggers, then they'll make a difference. And perhaps most curiously, I won't suffer as much from investing FOMO.
Venture Capital Focus
One of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. The investment minimum is also only $10. Most venture capital funds have a $200,000+ minimum.
I don't want my kids asking my in the year 2043 why I didn't invest in AI or work in AI. Therefore, I plan to invest $500,000 in funds that invest in AI companies over the next three years.
Here's my hour-long conversation with Ben Miller, CEO of Fundrise about AI and his Innovation Fund.
Debt Pay Down – $10,000
Whenever I'm not feeling a lot of conviction, I always turn to paying down mortgage debt. And I've never regretted paying off a mortgage. The most surprising thing I experienced when I paid off my first mortgage was how much less motivation I had to hustle. When you free up more cash flow, you naturally don't need to work as hard.
I will be spending $10,000 immediately towards paying down my vacation property mortgage. The rate has been fixed at 4.25% and cannot be refinanced since it is a condotel mortgage. During the 2008 financial crisis, the 30-year fixed mortgage rate was actually at 5.875%. Thankfully, I got a free loan modification.
Once I pay it off it will free up $2,480 a month or almost $30,000 a year in cash flow. Paying off a mortgage early has a triple benefit! Then it's off to focusing on my other rental property mortgage at 2.625%. This mortgage used to be my primary residence until I rented it out in January 2020.
The reality is, with Treasury bond yields above 5%, it's a suboptimal move to pay down your mortgage, especially one with a negative real interest rate. It's better to invest in risk-free Treasuries and live for free instead!
Stay On Top Of Your Asset-To-Liability Ratio
Because I also bought a forever home in 2020, I levered up further. I was able to get a 2.125%, 7/1 ARM primary residence mortgage, partly thanks to relationship pricing.
Since real estate has done well since purchase, the returns over the cost of debt kind of feels like free money. Therefore, I have no problem using some extra cash to pay off my higher rental property debt.
As you consider taking on debt to buy a home or some other asset, please pay close attention to your asset-to-liability ratio. Leverage feels nice on the way up, but feels terrible on the way down. Right now, times are good. But it is during good times when you should be the most proactive.
Before you declare financial independence, I think you should shoot to have an asset-to-liability ratio of 10:1 or higher. This way, you will have full peace of mind your debt will never get you in trouble.
Below is my suggested net worth and asset-to-liability target ratio by age. Of course, if you can get to a $3 million net worth with an asset-to-liability ratio of 10:1 or greater at an earlier age, then even better. You will have even more time and flexibility to do whatever the heck you want.
Hospitality Real Estate – Up to $40,000
The one thing I've clearly noticed is the surge in hotel, Airbnb, and VRBO pricing post pandemic. My stronger-than-expected vacation rental income in Lake Tahoe is evidence that travel demand is back. People are booking months in advance.
Recently, I was looking to rent a very normal-looking 5-bedroom house in a middle-class neighborhood in Honolulu this summer. It would have cost me $32,000 for the month plus cleaning fees and other charges.
And you know what? I'm tempted to pay it because it is close to my parents' house. Further, we've made good investment returns since the pandemic began. Before the pandemic, I might have been willing to pay $10,000 for the month for this property.
The Opportunity Cost Of Not Investing
But instead of spending $32,000 + fees to rent this home that has three other properties on the lot and is not a “manor,” I'd rather invest the $32,000+ in a hospitality real estate deal instead!
This is the consistent and common “problem” we personal finance enthusiasts have. Opportunity cost. After one month of lounging around the pool, my $32,000+ would be gone forever.
What if I find a hospitality deal on CrowdStreet in a city that is about to see a massive influx of visitors for years to come? At a 10% Internal Rate Of Return (IRR) for 5 years, my $32,000 would turn into $51,536. It's worth signing up for free to take a look.
In my investment-focused mind, having perpetual income beats out one month of temporary pleasure 99 out of 100 times. I think it's worth actively looking at private real estate investment deals.
There is a window of opportunity to buy real estate at a discount before prices catch up to the stock market. Demand is weaker because mortgage rates are higher. But I think mortgage rates will come down in 2024 and beyond and bidding wars will return. There is a tremendous amount of pain of demand and the real estate market has like the stock market by 20 to 28%.
The Solution To Living It Up Responsibly
At some point, we have got to start spending our money for a better life, rather than always investing it. We must do our part to contribute to the YOLO Economy right? After all, many of us are wealthier now than before the pandemic began.
Here's the solution to living it up responsibly. Go to the maximum of what you can afford. Explore it. Pretend you actually do spend that kind of money. Then come to a compromise. Psychologically, it will make you feel like you're getting a good deal.
For example, let's say your family could afford to pay $32,000 for a monthly vacation rental. But if you spent that much money, you would feel like a donkey. Instead, do what Economy Plus does for people who feel bad about paying for First Class, even if they can afford to. Come to a reasonable compromise.
Why not try and find a decent $12,000 a month vacation rental and invest the other $20,000 instead? This way, you can still make great memories while also investing for your future. A double win!
It's worth searching for hospitality deals in good locations today. We know that hospitality got crushed during the pandemic. But for those who are still standing and who are seeking capital as business revs up, I think there's an opportunity. Hotel and vacation rental prices are up between 2X – 4X their pandemic lows.
Investing In A Real Estate Fund
Another great way to invest $45,000 is to invest in a private real estate fund from Fundrise, my favorite real estate investing platform. For most investors, investing in a diversified real estate fund is the way to go. You don't have to worry about each individual property. Further, you're gaining broader exposure to ride the real estate appreciation wave.
Fundrise has performed very well during times of volatility. When stocks go down, Fundrise portfolios have outperformed because they invest in single-family and multi-family properties in the Sunbelt. Sunbelt properties are showing tremendous rent growth, especially with housing affordability down. Valuations are also cheaper.
It all depends on your risk-tolerance and current asset allocation. Personally, I enjoy investing in funds so I don't have to think about the investments. I've currently got $954,000 in private real estate funds since 2016. I wish I had invested more because Sunbelt residential real estate boomed!
One Last Splurge That Doesn't Build Passive Income
For the first time in 23 months, I went to the shopping district in downtown San Francisco. I had a doctor's appointment, so I figured why not visit some stores now that I'm fully vaccinated. One store I visited was Shreve & Co, my favorite watch store.
I hadn't realized this, but it now costs $1,100 if you want to clean and change some springs in an automatic luxury watch! Back in 2008, the cost was “only” about $500. Rolex, for example, recommends its $1,100 cleaning every 5-8 years. You drop off your watch at a dealer who then sends it to Rolex HQ in Geneva, Switzerland.
Inflation truly creeps up on us. We often anchor prices at a certain point in time. The mind doesn't naturally do compound interest calculations. Therefore, please find ways to own assets that tend to appreciate in value.
With the remaining $25,000 in funds earmarked for better entry points in the stock and bond market, I'm thinking it might be time to get a watch. Like cars, I used to buy and sell luxury watches all the time for profit and for personal enjoyment. Maybe it's time to buy a forever watch at my age.
One timepiece which I find interesting is the 42 mm Panerai Submersible with a black ceramic bezel. Perfect for wearing in the hot tub while voice dictating a post! The cost? $9,800 pre-tax. Check it out.
But do I really want to spend $9,800 pre-tax on a timepiece? I could buy a $130 Casio G-SHOCK that works great the next time I go scuba diving 200 meters below sea level. Then I could invest the remaining $9,670 in a speculative investment that might one day turn into $100,000!
Then I'd be right back to where I started, writing this post again. Where's the joy already?!
Related: How I'd Invest $1 Million Today
Letting Existing Investments Do The Work For You
Unless the stock market falls by greater than 30% and the real estate market declines by greater than 15%, my family should have enough passive income to last indefinitely.
Given I believe the housing market will continue to stay strong for years to come, I expect rental income to increase. Further, I also expect dividend payouts from blue-chip companies to increase as well. Therefore, it may not be necessary to continue investing as aggressively anymore. Your current investments may just naturally continue to grow on their own.
If you're thinking about retiring or taking things easier, now might be one of the best times ever as the U.S. opens up. If you have enough money to be happy, you just need to fight greed.
Undoubtedly, if the bull market continues, many more people are going to get much richer than you if you take things easier. You just have to be OK with that as you spend more time on more important things.
Readers, how would you invest $100,000 right now? What are the most attractive investment opportunities? Or, would you rather spend the $100,000 on luxury goods and experiences? How would you invest $100,000 for more joy?
Invest In Real Estate Strategically
Look to diversify your real estate investments across the country where valuations are lower, net rental yields are higher, and growth rates may be higher. The global pandemic has accelerated demographic shifts towards lower cost areas of the country due to the work from home trend.
Check out Fundrise my favorite private real estate platform with over $3.5 billion in assets under management and 400,000+ investors. Fundrise focuses on residential real estate in the Sunbelt where valuations are cheaper and yields are higher.
Private funds give investors a way to diversify their real estate exposure with lower volatility compared to stocks. Income is completely passive and there is much less concentration risk.
Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside. Crowdstreet is a solution where you can build your own select real estate portfolio. I've met the people at Crowdstreet on two separate occasions and came away impressed with their product offerings.
I've personally invested $954,000 in real estate crowdfunding across 18 properties to earn income 100% passively.