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 5,090 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 4.3%, I invested in Treasury bonds again. You can earn a 5% – 5.2% guaranteed yield in 3-month to 1-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.
Related: The Proper Asset Allocation Of stocks And Bonds By Age
Speculative Investments / Individual Stocks – Up To $25,000
I'm a buyer of up to $10,000 in various names like Apple, Google, and NVIDIA. 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 the Innovation Fund.
Debt Pay Down – $5,000
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 $5,000 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 private 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 two years, 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.
Reader Questions
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 500,000+ 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. My goal is to invest in real estate in cities with the highest gross rental yields for more income and diversification.
Join 60,000+ others and sign up for my free weekly newsletter. Also check out my instant Wall Street Journal bestseller, Buy This, Not That. It is the best personal finance book you'll ever read.
Great information. Thank you. Why not focus more on growing your dividend portfolio that would be taxed at a lower rate than interest from Treasuries?
I have both. But at this time, Treasuries at 5%+ with no state taxes are more attractive than the majority of dividend-paying stocks after tax. But dividend stocks are my #1 passive income investment.
Sam, Check out cruises.com . I found a 30 day cruise from San Francisco to Hawaii , South Pacific New Zealand etc. Cruises are the way to travel. Food , Transportation, lodging covered and water view all day long. We just went on a 50 day cruise for the three of us for less than 20k.
Sounds like a wonderful trip!
We just bought our forever home, so we will likely stay out for a while. But good to know.
Don’t you pay taxes on earnings from CDs or high yield savings accounts? So doesn’t it make more sense to pay down a 4% mortgage than use money for a 5% CD/high yield savings? Just wondering
Are those net worth and asset to liability ratios applicable at a household level or individual? I am never sure if I am looking at those if I have to double them due to being married. Thanks!
Household, which can include individual or dual income household.
You can see: The Average Net Worth For The Above Average Married Couple
What type business entity do you use for investing in Fundrise? Or maybe you have that in a self-directed Roth. Thinking about investing myself and since nearing retirement I must consider how to handle taxes on profits. Thanks a bunch.
Charlotte
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?
Fun exercise. Agree with your take on each category. Even more so now than when you initially wrote it. We’ve been derisking our portfolio a bit over the last couple of weeks (ie putting cash in the war chest).
If I had an extra $100k right now, I’d properly buy rental property.
The most frustrating thing about investing, when you are not a pro and are still learning, financial planners will NOT recommend alternatives, only the stock market.
I’d have known nothing about real estate investments if I hadn’t, by a fluke, stumbled onto a local real estate investment group.
I just recently got a 250k cash infusion. I’ve invested 50k of it in stocks/reits/bdc etc and I am sitting on the rest, for now. How would I invest 100k? Right now, I wouldn’t. Down the road? Probably another 50k in stocks/reits/bdc and 50k in crypto. I’ll probably keep 100k or so in cash in the near future just because it makes feel good.
The asset to liability chart appears to be new. I don’t think that works for real estate investors. 45% of my net worth is in real estate and my debt to asset ratio is 43%. Leverage and real estate were the keys to building my wealth over the past 8 years from my early to late 40s.
Great post (as always) Sam! I think I’d agree with you on most things, but as I am still quite young, if I had $100,000 I’d weight it more towards riskier investments with higher potential. Maybe something like:
– $10,000 in ETFs
– $25,000 in individual stocks
– $25,000 in crypto
– $40,000 in real estate.
Thoughts?
Depends on what percentage $100,000 is of your net worth. I’m assuming $100,000 is high as a college student graduating in 2025. So you can definitely take more risk.
But if you had to work for your $100,000, you might not want to be as aggressive.
As a 19-20 year old, I wouldn’t buy physical real estate because I don’t know where I’ll be living/working after college. But I may buy college real estate and live in it, then rent it out to roommates.
I would invest the $100,000 in growth stocks that have fallen significantly since February. I would really love to be putting money into the market now. Since I don’t have the cash, I opened up a paper trading account with Webull and am looking forward to seeing how I do in the next twelve months. I started paper trading 17 business days ago. I was up 4% until the fed’s inflation news yesterday washed away all the gains. The loss was short lived since I’m back up 2% today. It’s disappointing to see days with losses (in my paper and real life accounts) but I remind myself that these investments are for the long-term and the stock market always moves up and to the right over time.
In March of 2019 I hypothetically invested $100,000 in nine categories (stocks, gold, commodities, fixed rate investments and cash) and actually started buying SFHs. This is where the value of the investments is as of 31 May 2021:
First TMP – TheMonopolyProject.com (2.0 Houses) $162,623
2nd VTSAX – Total Stock Market Index (1,425 shares) $151,221
3rd Gold (77 ounces) $146,885
4th WOOD – iShares Global Timber & Forestry (1,600 shares) $146,368
5th VGSLX – Vanguard REIT (845 shares) $119,610
6th VBLTX – Total Bond Market Index Fund (9,600 shares) $107,904
7th CD – Certificate of Deposit (3.1%) $106,938
8th US10YT – 10 yr Treasury Bond (2.82%) $106,293
9th USL – United States 12 Month Oil Fund, LP (4,500 shares) $105,525
10th Cash $100,000
Had I been more aggressive in timing and number, the SFH would be way ahead of all the other investments. I realize that this is primarily luck. I’m not a financial genius. Everyone makes money in an up market. Let see what happens when conditions turn.
My investments are split fairly evenly between the stock market (active value investing in my brokerage account and passive index investing in my 401k, IRA, and 529 plans) and real estate (seven single-family rentals and one commercial property).
My current focus is on my active stock investing, using traditional Benjamin Graham style as well as more modern Buffett style value investing. My portfolio has averaged a 40% annual return on average equity since the beginning of last year when I first start active equity investing.
Over the next few years, I plan to sell off the single-family rentals and transition that equity into commercial RE syndications for better cash flow. I plan to use that and other income sources to transition away from my day job, which I still have (I’m 40 with 4 kids).
I’m thinking of paying off my 50k mortgage I have left. The interest rate is 2.4% should I pay it off or keep it at that rate? I’m maxing out my savings and that’s spare cash i’d use.
“In my investment-focused mind, having perpetual income beats out one month of temporary pleasure 99 out of 100 times.”
I agree with your sentiment but as I get older (I’m 60), I’m finding that it is extremely difficult to change that mindset once established. I recently visited my parents in the US, and it finally dawned on me that unfortunately I have been following in my father’s footsteps. He is now 85 and one of his primary goals in life now is to pay no federal income tax. So every year, rather than enjoying the fruits of his wealth, he donates his minimum IRA withdrawals to charity so he does not have to pay any tax. When I point out that the charities he gives money to pay salaries to their employees who in turn pay federal income tax on those earning and that this is the equivalent of an alcoholic who gives a friend money to buy him booze so he can claim he never has purchased alcohol he only gets angry. I’m not disagreeing with his wanting to donate money but rather his flawed reasoning behind such donations rather than any altruism. One organization in particular is clearing taking advantage of him to ensure future donations – my mother sees this as well but is unable to convince him otherwise as well. She has to live with him, so she has simply remains quiet.
At what age, if any, do you think you might start prioritizing temporary pleasure over future income? This might actually be a good subject for a future article. Of course, I’m not one to write it as I fight with this concept on a daily basis!
I hope your dad is not getting too angry. Donating is a good thing to support other people.
For me, I’ve been slowly spending more money beyond the norm starting in Dec 2016 when I bought my 2015 Range Rover after leasing a Honda Fit in 2014.
I have been spending more money due to my property purchases in 2019, 2020. Although 2019 purchase was more an investment. 2020 house purchase was to live it up.
I think there’s a reason why people have a midlife crisis. And so perhaps the time to spend more money is once you hit that midlife crisis between the ages of 40 and 45.
My father in almost all cases, gets disappointed with the organizations that he donated money. He wants them to use the money in a particular way but it almost never works out that way. I have also tried to convince him to set up his own fund whereby he could actually control how the money is spent but he has little interest. His only goal seems to be to not pay taxes.
I’ve recently found out about creating your own fund for donations and will actively pursue it. The sad thing is that most people don’t know about this.
What about putting a few $ toward an allocation to some Crypto Stablecoins like Gemini Dollar (GUSD) or USD Coin (USDC)? Blockfi, for example, is offering 8.7% interest. Just beginning to do some research in this area but may be interesting if they are offering such compelling rates. I also like the idea of putting my toe in the water to get familiar with the different platforms and how they function.
Sure, fits into my speculative investments section. Just in case it all turns out legit, you don’t want to miss the boat.
$100,000 in iBonds. Risk free 3.5%.
Hmmm….. maybe 20%. But not 100%, unless you’ve got maybe $10+ million and don’t really want to bother making capital gains anymore.
Hi
Long to listener, 1st time caller.
100k on our Mgt.
Keep up the great work.
Thanks Jen
It looks like Sam is really wanting people to post what they’d do with $100k, so I’ll comment here for the first time. For this exercise, I’m going to assume $100k after taxes in excess of what I already have in cash (which is significant due to my job instability).
1) Top off my and my wife’s Roth IRAs – $4k
2) Pay off our mortgage – $53k
3) Pay off the rest of my student loans – $7k
Those plans are already set and have been for some time. And we just got back from vacation (first one in over a decade), so no trips again anytime soon. That leaves $36k to figure out how to utilize in taxable accounts (or start 529s for our kids). That’s why I find this post interesting, as we’d be reaching this point next year anyway–the end of our current approach of tax-advantaged accounts –> mortgage –> student loans and into the wilderness of having money in excess of tax-advantaged accounts without the debts to pay down. As such I have been doing a lot of research into diversifying away from being so equities heavy (hard to do in 401k’s) as well as ways to maximize tax efficiency.
I’d probably use at least some of the remaining $36k to dip my toes into direct real estate (e.g. FundRise) and farmland (e.g. Steward and/or Harvest Returns, as I’m not an accredited investor). This would let me get a feel for these tools before engaging in them more seriously next year on a more continual basis. I’d probably keep the last $10k or so to make improvements to our house that my wife has been wanting though. Happy wife, happy life. :-)
Thanks for the thought exercise!
Always good to max out your tax advantageous accounts.
I like your conservative allocation of the $100K. Hard to go wrong paying off debt.
Thanks for sharing!
Thanks for the great article Sam.
If I currently had $100k to invest, I would find either an AirBnb or Commercial Real Estate to invest in. Using leverage the returns are just to good to ignore.
Hi Sam – Love your advice – “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.”
However, I always feel I’m at a disadvantage when it comes to valuating a real estate opportunity as I don’t have your experience level in the field. Do you ever publish advice on specific CrowdStreet opportunities when you see a good one come up?
Hi Barry,
I would read every one of the posts linked here: https://www.financialsamurai.com/real-estate-crowdfunding-learning-center/
You need to understand the capital stack. Further, I would really focus on the sponsor’s track record and history. The longer the better usually.
Sam –
Curious why there is no recommendation to allocate a percentage to international investments. Vanguard Total International Stock fund for example.
Do you recommend and invest in the US only?
Great breakdown! It speaks to me a lot, as I am in almost this exact situation. Don’t have a lot of conviction in the market at the moment, but have about 100k in cash and am looking for avenues to invest in.
Will probably follow a similar allocation as you mentioned unless I find a good property.
Really interested in your experience buying and selling watches. I think they could be a great investment if chosen wisely. Looking to splurge on a nice watch as well later this year.
Thanks. You’ll enjoy this post about watches if you want a nice one that will likely also appreciate in value: https://www.financialsamurai.com/how-to-buy-and-sell-watches-for-a-profit/
How do you think about your liquidity (cash) as a percentage (%) of your net worth at any given time? Seems as though you keep yours fairly low and you are running fairly “efficiently”. Though most of your big purchases (i.e. home) are behind you so probably doesn’t make as much sense to maintain such a large balance.
I enjoyed the article, thanks!
Check out this post: The Need For Liquidity Is Overrated If You Are Financially Competent
How would you invest $100,000 today? Thanks
Thank you, sir!
How would I invest $100,000? I would invest $40k in real asset / infrastructure funds for protection against inflation and current yield. $20k in a basket of undervalued large-cap china-based securities. $20k in US-based individual stocks. $10k bonds. $10k cash/vacation.
Should think about working real estate in there more specifically but likely would be encompassed in the real asset bucket.
I love your break-down here, it touches on a lot of points that people don’t discuss much.
Personally, I only allocate 5% – 10% of my portfolio in the more speculative investments (I’m still fairly young, so I’m trying to establish an excellent foundation before I’d feel comfortable enough to allocate more there). Also, as you said, paying off debt when you’re in doubt isn’t a bad decision!
I like commercial real estate right now. But I invested earlier this year already so I’m good.
For the rest of this year, I’m saving up cash to prepare for our around-the-world trip next year.
Oh, I’m also finally splurging on a covered pergola for our deck.
I should have done it 2 years ago when lumber was more reasonable. Bah!
Curious with your financial experience what you think the current trend in MEME stock investing. Redditors trying to force hedge funds holding shorts into short squeezes and driving the stock price “to the moon”?
AMC stock seems to be the “meme stock” de jour right now. Have you considered ever placing a bet on a stock like AMC for short term gain? Kinda amazing seeing a 543% return in 1 month.
In addition, do you see this sort of Meme stock gambling as a potential destabilizing factor in the broader market and economy or just a side effect of our inflationary environment that can be safely ignored?
It’s truly incredible right? It’s one of the reasons why I always allocate between 10% – 20% of my capital to speculative investments. There’s always a moonshot, somewhere. I rode a 50X moonshot in 2001 from $3K – ~$155K. This gave me enough capital to put 20% on a property in SF in 2003.
Never stop fortune hunting with the capital you can afford to lose.
The problem for most people is, as they get wealthier, they get more complacent. This is one reason to farm out money to the hungriest money managers.
Related post: Real Estate Is Less Risky Than Stocks And The Irony That Follows
For my wife and I, it’s been all about real estate. We own all kinds of different investment vehicles, from a state pension (untapped), to long and short term rentals and everything in between. Nothing has performed like real estate. For example, we turned $300k into $700k in four years on two SFH’s not counting rent collected. That’s not all of our properties either. And it certainly only seems to be getting better in my neck of the woods. I genuinely don’t think I’m a great investor. Mainly just lucky.
Not bad! And the reality is, millions of people have probably gotten lucky as well over the past 5, 10, 20, 30+ years. This massive wealth creation by asset owners is greater than people realize.
Now thing about people who have been focused on investing and making money for their careers and such. So many people have gotten rich.
It’s really time to spend more of our money on others and on more joy.
I am with you on the lucky part. I bought a ten acre plot (at about USD150/acre) seventeen years ago because I wanted to be as far from my nearest neighbor as possible. Farming and investing were not in my mind – I just wanted peace and quiet. Fast forward to 2021, the same plot is now more than USD20,000 an acre and rising! I still can’t believe it. This appreciation of land made me buy another plot where I am building apartments. BTW, these plots are in my home country in Africa.
Correction – price was $1,500 per acre seventeen years ago….
Sam,
I’d like to thank you for all your writing over the years. Because of you I recently diversified my holdings by buying a future retirement condo. I found one on a golf course that was listed from out of town sellers by an inexperienced realtor. Combined with your love letter a 7 hour deadline to either accept or deny my offer I got the condo for 2k less than the deceased owner paid for it in 2016. The estate was selling the condo. I’m easily up 75k and I just closed.
If it hadn’t been for your writings on the benefits of real estate combined with your tips, “love letter” “inexperienced realtors” and dislocations in the market I’d never even be looking for deals. Not only was this a great deal but it will provide much joy for myself and family in the future.
Thank you very much!
Bill
Wonderful Bill! Congrats, and you’re welcome too. Fun to spread the knowledge and help folks get ahead.
And when my book with Penguin Random House comes out in 2H2022, I hope to have hour support. Shouldn’t cost much and it should provide at least 10X, if not 100X the value of its cost, upon finishing.
I’m actually working on the real estate chapter now.
Hi financialsamurai,
Your thoughts on precious metals such as gold and silver? Like having a nice stack of gold and silver bars in your safe
Great points Sam, but I want to emphasize to all newbie investors that equities are still the best in terms of getting into investing due to low cost and low barrier to entry compared to anything else. If someone has only $100,000 to their name I think their best chance of the highest ROI would most likely be stocks, specifically index funds.
“Therefore, it may not be necessary to continue investing as aggressively anymore. Your current investments may just naturally continue to grow on their own.”
Great points Sam, including this one you wrote as I often go to the well on my DA Davidson retirement/ future income growth calculators of what will be the worth.
If you have 3 million and basically did nothing and figured 15% return (only because I know 10% is about average and only because I have been averaging 25-30% returns with dividends going to be reinvested as well for even higher returns) and did so for 10 year period, (again, not adding a dime to the accounts) the same account would be worth 12+++ million dollars.
I think once you get to 5 million and even think in the William Bengen terms, 200,000 a year should afford you the greatest lifestyle in the world! It would basically be a house paid for, as well as cars, as well as a lot of charitable giving as well.
I am firmly in this boat I think………………..and I think you may be right
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.
Help me get out!!!!!
The Minimalist Movement is one of the best ways to live this lifestyle as noticed too many have too much and too little use for most of it too. One TV, One Car, One good beats 10 crappy items any day of the week.
Sure! Negotiate a severance so you feel like you’re winning while leaving and winning again once you have all the time in the world.
Then, make sure you retire to something!
See: Pre-retirement Checklist For A Post-Pandemic Life
I’ll retire to be as lazy as I want plus not deal with annoying work supervisors.
Indeed. And, given your dad was a partner at GS, no worries at all!
Dear FS. Sometimes the articles switch up on me
Like gremlins. One day I’m caught up with new articles, then boom! The next time I check in the articles have been jumbled up. Is your son editing format on occasion? I suppose your method works. I start reading al the articles again trying to find where I had left
Off!
$100,000 to invest now-
$20,000 allotted for a rental home on Kauai, airfare, food for the decision maker, our twins and grandparents for 10-14 days. We were married there many moons ago. It’s our favorite location outside of our house.
24,000 allotted for ROTH conversion for taxes. Our
Income bracket will likely always be in whatever is the 24% zone. This will get us down the path to 7 figures in ROTH accounts. ROTH accounts are earmarked for our kids.
25,000 in Fundrise long term eReit.
5000 local children’s hospital.
5000 boys and girls club.
529s – nope, fully funded as of this year to cover in state costs.
21,000 on mortgage which a 10 y fixed. Slated to pay off in 30 months. This will speed that up.
Not sure if you are insulting my son or not, but thanks for sharing what you’d do with $100,000.
As for my son, I’ve got to put him to work so he rightfully earns money for his Roth IRA and custodial investment accounts.
No way am I insulting your baby. But sometimes the articles disappear And reappear. Makes me think I’m
Losing my marbles.
Letting him edit now would provide succession planning for the future of FS. No way should you ever contemplate selling again. Keep it rolling in the family for generations.
We opened custodians over 2 years ago. You can fund them at 399 per year without having to file.
Gotcha. I purposefully make the top articles disappear whenever I think another article deserves more attention towards the top.
You have to scroll down to read the other articles.
This is confusing for many readers. In the past I thought you had taken down the most recent chronological post.
Sorry to confuse you. I wouldn’t necessarily go through my chronology of writing when it comes to financial issues. One day I could be writing about cars. But if the Fed is hiking rates, I think it would be pertinent to sticky a post on how to make money in a rising interest rate environment for example.
Most people don’t leave a pertinent comment either. For example, I’d love to hear how you’d invest $100,000. But for some reason, most people don’t share and leave comments on different things.
I totally hear ya on the opportunity cost analysis. I always do that too before I spend money on anything big. I can afford to fly business or first class, but I just can’t do it. I always think about what I could use that money on instead. Especially since I only take short flights when I do fly, which isn’t often anymore.
I’d be more inclined to spend up on a long flight, but then it costs that much more. so I probably still wouldn’t pay up for it. I’d rather use the money for something tangible that I could use long-term or invest it.
I also like paying down principal when there’s nothing I feel like investing in when I have extra cash. It always feels good to see my mortgage decreasing!
Yeah, paying $10,000 to fly first class to Japan is nice. But man, once that 8-hour flight is over, you kinda wish you gutted it out in economy! $9,000 could buy you the best sashimi for two over many, many meals.
I think I’d need to start regularly earning over $2.5 million to comfortably afford first or private on short flights.
I’m seriously considering trading in some points to fly business class for my next trip to Thailand. That’s the only way I’d consider flying that luxuriously.
Although, my trip in January was pretty good. The plane was 1/4 full and I could stretch out. I don’t mind flying economy like that. Heh heh.