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.
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 as well.
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 2% – 5% in relatively low-risk ways. Therefore, $100,000 should be able to generate $2,000 – $5,000 a year.
Currently, I’ve got about $150,000 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.
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.
The S&P 500 – Up To $30,000
With the S&P 500 around 4,060 the market is looking fairly valued after rebounding from a low of 3,577 in October 2022.
The current S&P 500 10-year P/E Ratio is at about 17X, equal to the 10-year average trailing P/E ratio. As a result, the stock market is fairly valued if earnings estimates don’t get cut. The current fear is the Fed-induced recession will causes analysts to cut earnings, thereby putting pressure on the S&P 500 down to potentially 3,200.
As a result, I would invest $30,000 in the S&P 500 at 3,600 and below. I hope the S&P 500 doesn’t get to 3,200, however, I will buying in $3,000 – $5,000 tranches on the way down if it does.
We’ll be extremely lucky to get back to 4,200 in the S&P 500 by the end of 2022.
Bonds – Up To $30,000
With the 10-year bond yield jumping to ~4% and the Fed still raising rates, I invested in Treasury bonds again. You can earn a 4.3% – 4.8% guaranteed yield for a 1-3-year Treasury bond.
Since I don’t believe there will be that much equity upside and I believe inflation will decline over the next 12 months, 4%+ is relatively attractive.
As a person who wants to re-retire, I am happy that my current passive income streams will be going up.
Below is my latest estimated passive income investments. Bonds account for about $33,600 a year in annual interest income. However, that’s based on when the 10-year Treasury bond yield was at 2%. Therefore, I see at least $15,000 in further bond income upside as rates have risen.
Related: The Proper Asset Allocation Of stocks And Bonds By Age
Speculative Investments / Individual Stocks – Up To $20,000
With cryptocurrencies down over 80% from their highs, I’m a buyer of up to $10,000 worth of Bitcoin under $17,000. I don’t find Bitcoin to be a great way to conduct transactions, unless you are doing something illegal. I’m also a buyer of HUT, a ethereum mining company.
Why use your Bitcoin to buy something when it could be worth more in the future? Whether you think cryptocurrencies are bogus or not, cryptocurrencies are here to stay.
With tech down 30% – 80%, I’m also a buyer of up to $10,000 in various names like Tesla, Google, Twitter, and Amazon. These names have been hit by rising inflation expectations and rising labor costs. However, tech companies should be able to work through inflation issues better than most due to productivity gains.
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. 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.
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.
Debt Pay Down – $10,000
Whenever I’m not feeling a lot of conviction, I always turn to paying down mortgage debt. Even though interest rates are very low, it’s still 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. 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 4%, 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 at 2.625%.
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 $45,000
The one thing I’ve clearly noticed is the surge in hotel, Airbnb, and VRBO pricing this summer. 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.
Now let’s say the 10-year bond yield rises to 3% in five years (unlikely) and I could somehow get an A-rated municipal bond that paid me 4% for 25 years. I could then collect a healthy tax-free $2,061 a year in passive income for a very long time!
In my investment-focused mind, having perpetual income beats out one month of temporary pleasure 99 out of 100 times.
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 eREIT 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 $810,000 in private real estate funds since 2016. I wish I had invested more!
One Last Splurge That Doesn’t Build Passive Income
For the first time in 15 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?!
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?
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Listening to the audio book, and just ordered hard copy. Thanks for the insights. The post above was written last year I believe and looks to be update in August. The market has changed quite a bit since beginning of August. Any changes you would make to the above breakdown of investing $100K given the current macro and geo political environment? Thanks again.
I have a similar philosophy on emphasizing the yield component of every investment as I approach retirement. However, do you consider tax efficiency? How does that enter your decision process. Munis also have risks (I remember OC defaulting) and do not capture the credit or spread diversification you get from core bonds. Also wondering if any of the RE investments you cite appropriate for a taxable acct?
Was lucky enough that I just had $100k to spend or invest due to a real estate windfall after flipping a starter home. My husband and I are in our early thirties and only just worked our way up to well-paying jobs. It was my first time making investment decisions with real money.
Here’s how we used it:
$10k Fundrise
$10k Government I Bonds
$10k Index funds (taxable)
$15k Emergency fund (earning up to 3% in rewards checking at credit union)
$24k Max out IRAs for 2 years
$5k Jump-started three 529 plans (to save $40k per kid by 2034)
$5k Speculative investing in individual stocks and art via Masterworks
$13k Mountain bikes
$8k Used car
Yes, more on bikes than cars. We live in Colorado and biking is our main hobby / exercise.
We still have debt; $55k in student loans and car loans, and a mortgage as well. I didn’t want to just pay down the debt, which is at 0-3% interest or less until the student loans start charging interest again.
How did I do?
Just curious as to why you’d choose to invest any money in bonds, which pay 2% or less, when you could otherwise use that money to pay down mortgage debt at 3-4%? Yes, you may be able to write-off some of the mortgage debt, but given the spread between the two, why not pay down the mortgage as part of the “conservative/low-risk” allocation of the $100,000?
Hi,
I am a recent residency graduate (MD), wife, mother of 4 and I’ve worked really hard to pay off all of my school debt and build up about 50K for investing. I’d like to invest in real estate. Would you say there is a difference between investing in an eREIT like Fundrise or go with a private syndicate like Tom Burns’ Presario Ventures? Would you suggest one over the other?
Thank you for all, I’ve been following your blog for a while and very much appreciate all of your transparency, work and information.
F
Probably the minimums. Fundrise only has a $10 minimum to invest now, which helps for first-time investors. Always start small and work your way up as you understand and familiarize yourself with an investment.
You need to understand the track records of each real estate sponsor. I don’t know Tom Burn’s.
Related: Fundrise 3Q2021 Performance Review
Thanks!
Build an ADU in our backyard and rent it out. With the prefab boom, constructing such efficiency units is cheaper than ever, and recent California laws cannot be more friendly to expedite local government approval / permitting. Absolute best return if you already have California residential real estate and you meet the statewide criteria to build a qualifying ADU.
How much did the ADU cost to build and how long did it take?
I’d invest 100K in Japanese whiskies – Yamazaki, Chichibu, Mars, Karuizawa, Hakushu. This may not be the safest choice but I’m doing it more as a hobby.
In general, I highly recommend the paper “Neville et.al. (2021). The Best Strategies for Inflationary Times. http://dx.doi.org/10.2139/ssrn.3813202 ” for a in-depth analysis of various investment strategies and asset classes returns in historic environments of high and rising inflation.
Keep up the good work, Sam! Thank you!
Surprising that Options rarely, if ever, takes the stage in your articles or the comments sections. I mean it would be relatively easy to run a CSP/Wheel strategy with a 100k and generate the aforementioned 2-5% annual return in potentially a month’s (or less) time with weeklies/bi-weeklies. 2-3x annually with relatively stable priced companies doesn’t take too much effort.
A strong argument could be made for utilizing this strategy, rather than actively buying into most growth companies at current prices.
Happy to have a guest post on options if you’re interested! I don’t invest in options, which is why I don’t write about options. But I do invested in structured products, which uses options.
Well the absence of discussing them makes much more sense. I assumed you might be holding out! That possibly you did not want to delve into something that might be considered too much for the average person accustomed to index investing.
That was an interesting read. I have never looked into those products before. In one of the cases, S&P one I believe, it seemed very similar to a covered collar with LEAPs. I assume there is some fee/commission involved on the front end of the purchase in the case of the structured products (I think you referenced 1-3%)?
Okay Dogen, here’s what we would do with your 100 K headstart. Of course a lot of this has to do with stage of life.
We’d split it into our 2 granddaughters custodial accounts. Then equal parts to each of TSLA, (Musk is 500 years ahead of any other human being he is talking to), a FAANG etf which also has MSFT, a pre ipo tranche of Commonwealth Fusion Systens (not possible because of higher buy in limits, we know), FAN etf, TAN etf, and an etf which centers on the CRISPR based gene editing technologies. There a number of them.
After that our crystal ball gets a little hazy. When the kids hit age 18, the age of majority in their state, they’ll spend it on a car and clothes anyway, but by the rules of this exercise that’s not our concern. Maybe parenthetically that behavior would fit in t b e “and some fun” portion. :)
Wow! 50/50 in Tesla! As a shareholder of Tesla since 2018, I can’t complain! I’ve got a ~$200,000 position in Tesla now. Hmmm, maybe I should buy more. I’ve got to do more research.
I have $100k-$150k to invest due to a recent windfall. I want to invest in real estate. I live in the Bay Area. Undecided between buying an investment property or investing in a diversified real estate fund focused on the Sunbelt (ie. Fundrise)? I’ve also considered buying a rental in Atlanta where I have family and visit frequently. I already have a lot in stocks in my 401K ($2.25mm) and would prefer to diversify and generate passive income through real estate. I also could pay off a $70k loan at 3% to a family member but feel like I should be able to generate more than 3% return investing in real estate. The loan helped me fund a renovation of my primary residence. Maybe I should use $35k to pay down the loan and invest the rest in real estate?