How to invest 500k? 13 Best Investment Options

$500,000 is a significant amount for a majority of common people. However, everyone can earn or save such a sum. It is more difficult to invest wisely and avoid the scammers’ tricks. In this case, investments should start working and bring a stable passive income.

An inexperienced investor should minimize all risks. It is essential to avoid the financial pyramid and other unpromising schemes. The money should not be borrowed or received from the sale of a single apartment or house. The investor has to take into account the high investment risks and figure out that it is not always possible to get a profit in a short time. In this article, we will consider how to invest 500k and share only safe and proven options.

Contents

  1. The Fundamentals of Investing
  2. 13 Best Investment Options
  3. Which Investment Methods Are Right For You?
  4. Bottom Line

The Fundamentals of Investing

The owner of such an amount should avoid hasty and emotional decisions. To do this, it is vital to master the following basic skills:

  • Financial Planning: calculate the family’s annual expenses for food, medicine, and education and then add a financial cushion. If you still have free 500 thousand dollars, then you can proceed to the next steps;
  • Continuous Training: get a few books on investing, continue to improve your financial literacy in your spare time;
  • Strengthen Your Mind and Willpower: do not invest at random since hasty decisions do not lead to success. Think about the solution for a few days, and discuss the idea with your family or a financial advisor. Set time horizons, think about mutual fund diversification, and don’t forget about risks. Enter into a trade when the emotions have passed and productive decisions have appeared.

When you have received the necessary motivation and discipline, ask yourself the question: how to invest 500k for income? Half a million is a large amount that allows you to purchase:

  • financial instruments: stocks, precious metals, bank deposits;
  • real estate investments: land, apartment, shop;
  • intellectual-property: patents and research;
  • investment in education and the arts;
  • cryptocurrencies and other instruments.

Then, you should decide on the investment period. It depends on the repayment period of the principal amount as well as other factors. As a rule, investments are divided into:

  • short-term – up to one year;
  • medium-term – from 1 to 3 years;
  • long-term – over 3 years.

People who do not have investment skills can turn to professional market participants. According to this aspect, the investments are divided into:

  • Active: the owner of the money independently invests and then manages them;
  • Passive: the owner of the money becomes a trustee, he/she selects a person or company who will manage the capital.

13 Best Investment Options

You have learned the basics of investing. Now you are ready to make your first trade. To finally set a financial goal, you need to study in detail the options for investing money. Diversification implies the division of risks and the choice of several investment methods at once. You can diversify with $500,000.

It is essential to put aside the quick urge to become filthy rich and carefully study the 13 best ways to invest. After all, $500,000 can be spent in 5 years and left with nothing. This is the main motivation for making money.

ETF or Exchange Traded Fund

etf investments
ETF

An ETF constitutes an exchange-traded fund that holds securities. For a better understanding, it is worth describing the scheme for creating such funds:

  • the management company organizes the fund;
  • funds are allocated and various stocks are purchased;
  • there is a stock issue of such a fund and shares are placed on the stock exchange;
  • the investor purchases shares in the fund.

Profit constitutes the difference between the price of buying and selling shares. What matters here is that some shares provide for the payment of dividends. Funds can be industry-related, gold or real estate investment trust, monetary, and all that jazz. Investing in an exchange-traded fund implies simultaneous diversification between the companies’ shares included in the selected fund.

The main advantages are as follows:

  • low entry threshold, you can invest a small part of $500,000;
  • independent choice of the sector of the economy in which the fund invests;
  • you can sell and buy shares of the fund daily.

The key disadvantages are as follows:

  • availability of commissions;
  • profitability is not guaranteed;
  • the fund member does not influence the choice of shares.

The average return on funds is 8-10%. You are free to open a brokerage account with a company, create a personal finance plan, and then select current offers on the ETF stock market.

Hedge Funds

hedge funds investments

Hedge Funds

You may have heard of hedge funds before, but you are not familiar with how they work. The fund receives money from its investors, pools it, and acquires shares. After that, the income is distributed among the participants. As a rule, the distribution takes place on a pro-rata basis.

Usually, hedge funds take high-risk positions and aim for high returns. Such funds invest in exotic derivatives and even cryptocurrencies. They are considered to be more profitable. Nevertheless, they carry higher risks for investors. Have a look at their cons:

  • high profitability from 10% to 20% with annual return;
  • the activity is controlled by the regulator and is considered attractive to private investors.

As for its cons, they are as follows:

  • funds invest wherever they want, so their activities are associated with high risks;
  • commission from 2% for current management and 20-25% for profitable transactions;
  • the minimum investment is considered from 100 000 dollars.

To invest, you should understand how hedge funds work and how they suit your needs.

Real Estate

investing in real estate
Small houses

Real estate is a great option to invest 500,000 dollars in. The thing is that residential real estate rarely becomes cheaper. According to the market trends, there is a doubling in the price of residential properties in a lot of major metropolitan areas. This is a strong investment category that comes with risks. You can invest in both residential and commercial real estate investment trusts.

Its advantages are as follows:

  • land and real estate have been rising in price in recent years;
  • you can make good money on rental properties;
  • it is a long-term investment that will then pass on to your children.

Let’s study its disadvantages:

  • you can buy an illiquid piece of land or a real estate object that will be sold for years;
  • depending on the city, real estate is sometimes subject to high taxes and other contributions;
  • high cost: 500 000 dollars will allow you to buy a farm, shop, or apartment.

The property is characterized by a high level of demand, especially the popular locations must be taken into account. If you do not have all the necessary knowledge and do not know how to best invest 500k, you should contact a realtor or financial advisor. In addition to buying a house or apartment, you can consider alternative options:

  • purchase of land for subsequent development and its lease;
  • resale of the house at a higher price;
  • real estate investment trust

Bonds

US bonds
Close up photograph of U.S. Savings Bonds, selective focus.

US government bonds are recognized as the most liquid and reliable assets. Treasury bonds are considered assets with the lowest level of credit risk. Government securities work on the following principles:

  • the investor transfers dollars to the state;
  • during the maturity of the bond, the investor receives coupon payments;
  • the investor then receives the original amount of the debt.

The US budget deficit is financed by four types of securities:

  • short-term, medium-term, and long-term bonds: their terms are up to one year, from 2 to 10 years, and over 10 years;
  • treasury inflation-protected papers (TIPS): the face value and coupon amount are regularly indexed to the amount of existing inflation in the country.

It is a reliable tool. However, the profitability is extremely low. Nowadays, the real level of inflation can make an investment unprofitable. It is the main disadvantage of bonds. After all, even TIPS with inflation protection relies on official inflation statistics, which are significantly underestimated.

Deposit Certificate

deposit certificate
Certificate of deposit

Deposit certificates have now returned to reasonable interest rates. At the moment, certificates have a high reputation and are great for people who would like to earn passive income from their $500,000 investment.

They are insured for a certain amount as well as offer a fixed rate of return if they are not withdrawn before maturity. Simply put, a security certifies the fact of depositing funds and the right to receive money after the expiration of the deposit. Here are their benefits:

  • flexibility and liquidity;
  • interest is higher than on a bank deposit;
  • insurance allows investors to consider it as the foundation of the investment portfolio.

The main disadvantages are listed below:

  • loss of profitability in case of early withdrawal of money;
  • interest is not added to the main sum (there is no capitalization);
  • the initial cost and the interest earned are taxed.

Securities

investing in securities
Simulation of Stock Currency Background

There are plenty of securities in the stock market. You need to choose the company you like and purchase shares. Apple, Google, and Tesla securities of these companies have already brought enormous income to their holders.

Nowadays, trading securities is easy since you just need to register on the desired platform and start trading. The user has access to company shares, futures, and other derivatives. Moreover, margin trading will allow you to easily double your $500,000.

It is worth compiling your portfolio from the shares of the 10-15 best companies in the market. This approach diversifies the purchase and reduces possible risks. Explore the benefits of securities:

  • they can be easily bought and sold;
  • day trading is available since you can open transactions for buying and selling several times a day;
  • some securities pay dividends;
  • a low threshold for entry means that you can purchase shares even for a small amount.

The disadvantages are as follows:

  • exchange trading is closely associated with high risks;
  • it is highly recommended to avoid margin trading on borrowed funds for novice investors;
  • stocks can plummet sharply, it is recommended to trade with “stops”;
  • the above aspects require significant and deep knowledge in the trading sphere.

Precious Metals

investing in precious metals
A golden ring

For several millennia, gold has been considered the world’s main asset class. It does not lose its relevance to this day. You can buy gold in the following forms:

  • derivatives for gold and shares of gold mining organizations;
  • a bank deposit in which the balance is reflected in the amount of gold;
  • physical gold bars.

During crises, banks, stock exchanges as well as other financial establishments are closed. It will be impossible to get payment from such organizations. Physical gold constitutes a universal option in case of any crisis.

With 500,000 dollars, you can buy several large ingots of the highest standard. If any disaster occurs, they can be thrown into a bag and moved to a safe place. What counts here is that over the past 20 years, gold has increased in price by more than 10 times.

Therefore, it is worth buying gold right away. It is essential to note that gold will not pay you any interest or dividends. Nevertheless, you can simply sell it after a few years and make a profit.

Gems

investing in gems
Different gems

Diamonds and other precious stones are always valuable. The situation here is similar to the gold market, but there are several remarks:

  • in some countries, the trafficking of precious stones may be prohibited;
  • you can easily find a fake gem, so you should resort to the help of a highly qualified person;
  • selling gemstones is not easy, and plenty of resellers lower the purchase price.

It is an extremely conservative asset that is acquired for decades. Gems do not bring passive income right away. However, their value is growing every year. Precious stones allow you to protect your invested money from inflation and economic instability.

Cryptocurrencies

investing in cryptocurrencies
Ethereum

The market is efficient. Bitcoin appeared 12 years ago and all this time it has shown growth. Nowadays, the first crypto investors have a significant fortune. It’s never too late to start since new cryptocurrencies appear almost every day.

You can start trading on your own and first register on a crypto exchange. All the necessary information about trading is available for study on the Internet. Besides, it is essential to choose a trusted exchange and make sure that there are no viruses on the computer, otherwise, you can easily lose $500,000.

Experts predict that bitcoin may be worth $400,000 soon, so investing in cryptocurrencies is justified. The only drawback is the high level of risk.

Business Opening

How to invest 500k in business
Creating a business plan

Not all people believe that starting a business is another investment option. Owning a business will require plenty of dedication and round-the-clock attention. However, the profits can be extraordinary.

Without any doubt, the option is suitable for those people who already have an idea or their personal business development. $500,000 will help bring the idea to life and receive a legitimate reward.

Avid investors recommend that newcomers should start with a small business. For instance, a car wash or a bakery will allow you to go through the fundamentals of management and investment. In the future, it will allow you to scale your enterprises at an incredible speed.

Any business can go negative or be closed by supervisory authorities. It is necessary to clarify the risks in advance and draw up a development plan.

Solo 401 (k)

401k plan

A freelancer, entrepreneur, or self-employed person can take care of their retirement accounts and invest in the Solo 401(k) program. This is a long-term investment in which business owners can become participants.

If you invest pre-tax dollars, the money will be counted as tax contributions during working years. When you retire, you withdraw index funds and pay taxes due. The funds withdrawn are added to the investment income that has accumulated over the years.

The advantages of Solo 401(k) are as follows:

  • savings account for retirement
  • investment income will be added to them;
  • people select the sphere of investment by themselves.

Study its disadvantages below:

  • complex registration, additional documents may be required;
  • it is impossible to withdraw money before retirement without getting a fine.

Investments in Education

Stationery

First of all, you can read books on psychology and self-development. The initial stages of financial education can be obtained free of charge. After that, you should take courses for traders or IT specialists. Such knowledge is always in demand since it will allow you to earn more.

Expanding your horizons is always relevant. So, part of the $500,000 can be left in preparation for investing. The acquired skills will allow you to invest the remaining funds wisely. There are no cons to self-development. The main thing is discipline and daily training of your brain.

Art

Art gallery

Art objects rise in price exponentially over time. Paintings, sculptures, and other art objects have been kept for centuries and have their admirers. However, the investment horizon is dozens and even hundreds of years.

It’s not worth it to invest the whole $500,000. You can qualitatively diversify your portfolio by purchasing 1-2 paintings by a contemporary master worth up to $50,000. The rest of the money should be invested elsewhere.

Creativity is always appreciated. So, it is a must to understand it and acquire only worthwhile things. Lack of the necessary knowledge should lead to hiring an art consultant to help close the deal. The option is excellent. However, it is necessary to take into account the above circumstances.

Which Investment Methods Are Right For You?

There are lots of ways to invest 500, 000 dollars. Some are high risk. Others are of low-risk tolerance. Therefore, it is worth diversifying your portfolio in any case.

Answer the questions above. This will allow you to choose the most appropriate methods from the 13 above. For instance, it is desirable to buy cryptocurrencies and stocks, and use the remaining money to open a small store and buy paintings.

Part of the investment should bring monthly income, while the other is in long-term storage. This rule is always relevant. As the saying goes, never put all your eggs in one basket.

Bottom Line

Always raise your level of education and be aware of the high risks. The article is just an overview and is not investment advice. Keep a clear head, when approaching transactions. With a lack of knowledge, be sure to resort to consultations. This approach will not only save money but also increase your $500,000. 

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