What can you spend with a million dollars?

Having $1 million might seem like a lot of money, but you may eventually have a million dollars if you have saved and invested over the years. According to Credit Suisse, there were 18.6 million millionaires in the United States in 2019. Finding out how to invest $1 million dollars is a relevant question for literally millions of people.

But do you know what you would do with a million dollars? Though the specific strategies will be different for everyone, there are many possibilities, like buying stocks through and online broker or investing in real estate. Let’s dig deeper to find out all of the ways to invest $1 million.

How to Invest $1 Million Dollars?

• What to Consider Before Investing $1 Million Dollars
• The Best Ways to Invest $1 Million Dollars Right Now
• Advice for Picking Your Investments
• There Are Many Ways to Invest $1 Million

What to Consider Before Investing $1 Million Dollars

Whether you have $1,000 or $1 million, there are a few steps you'll need to take care of before you begin investing.

Understand Your Financial Goals

If you've already crossed the $1 million mark, you'll need to consider what your future financial goals are serious. Do you want to grow your fortune to $2 million or even $10 million? Or do you want to kick back and enjoy the good life? This helps determine how you'll manage your fortune and pick the right investing strategies.

Pay Off Debt

The best return on your money comes from paying off debt. If you have high-interest loans like credit cards, pay those off first. And if you're worth at least $1 million, neither a car loan nor student loan debt makes any sense.

Build a Fully-funded Emergency Fund

It may seem ridiculous to talk about an emergency fund if you have a million dollars, but all emergency funds are relative. And you'll need one regardless of your wealth level. You should have between three and six months' living expenses in your emergency fund, which will help protect you from unexpected emergency expenses and short-term income disruptions. An emergency fund acts as an insulator between you and your investments. It's recommended to keep a large portion of your emergency funds in a high-yield savings account.

Max Out Your Retirement Plan

Without even getting into how you'll invest the money, you should certainly max out any retirement plans you participate in. If that's a 401(k) plan, contribute the maximum of $19,500 (or $26,000 if you're at least 50 years old). If it's an IRA, contribute the maximum $6,000 per year (or $7,000 if you're age 50 or older).

The Best Ways to Invest $1 Million Dollars Right Now

Having $1 million gives you plenty of investment options. Below are some of our favorite strategies to put your money to work to continue building wealth.

1. Invest in the Stock Market

For most people, stocks occupy the largest part of their portfolio since they provide growth. Investing in Stocks can also help hedge against inflation. The roughly 10% average annual return stocks provide over the very long term will help reduce the impact of inflation and also grow your portfolio. (Including inflation, this 10% works out to 7%.)

You can invest in stocks through exchange-traded funds (ETFs) — which we'll cover in a moment — or by building your own portfolio of individual stocks. If you go the individual route, often referred to as self-directed investing, you'll need to open a brokerage account where you can trade stocks. You can choose from one of the many excellent online brokerage firms available.

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Investment apps like Robinhood are excellent for beginners because of the lack of fees and ease of use. And other commission-free online brokers like Ally Invest and TD Ameritrade are excellent options as well, especially if you want more research and investing tools.

However, keep in mind that stocks can fluctuate in value. In one year, you may feel the exhilaration of a 25% gain, only to get clobbered with a 20% loss the following year. You'll need to maintain your composure through the ups and downs, knowing that the long term can work in your favor if you have a diversified portfolio.

2. Invest in Bonds

If investing in stocks is about providing growth in your portfolio, bonds are mostly about capital preservation. Since they pay the full face value at maturity, you'll at least get back your original investment if you hold until the bond matures. In the meantime, you earn interest income.

Bonds work to counterbalance the risk involved in stocks. Because they're interest-bearing and guarantee payment of principal, their values tend to fluctuate much less than stocks. In fact, shorter-term interest-bearing securities (typically those with maturities of five years or less) hardly fluctuate all. Longer-term bonds (such as those with terms of 20 years or more) can rise and fall in value based on changes in interest rates.

Bonds are available in different types. For example, you can invest in corporate bonds, U.S. government bonds, municipal bonds, and even international bonds. You can buy bonds either directly from the government or through a brokerage account.

3. Invest in ETFs

If you're not comfortable choosing individual stocks and bonds, you can invest in exchange-traded funds (ETFs). These are low-cost funds that invest in either stocks or bonds and are often based on popular indexes. For example, if you want to invest in large-company stocks, you can invest in an ETF that's based on the S&P 500 index. The composition of the fund will match that of the S&P 500.

ETFs are designed to match the market, not outperform it. But that has a big advantage in that it won't underperform either. It's the best way to invest in the general market without taking on the risk that comes with individual stocks or bonds. ETFs are especially important with bonds because they allow you to invest in a portfolio of many bonds rather than choosing just a few.

ETFs, unlike mutual funds, don't charge load fees. They also have very low expense ratios. This means you'll get to keep more of the investment return they provide. You can use brokers such as Public.com to invest in specific sectors, such as international stocks, financial companies, energy, precious metals, health care, or technology, among many others. Brokers like Ally Invest and TD Ameritrade also support commission-free ETF trading on thousands of ETFs.

4. Invest With a Robo Advisor

If you like the idea of investing in ETFs but don't want to choose and manage the funds in your portfolio, you can sign up with a Robo advisor. These are online, automated investment platforms that create and manage your portfolio for you. All you need to do is fund your account, tell the platform your risk tolerance and goals, and then go about your life.

Robo advisors build a balanced portfolio of stocks and bonds, though some will also add natural resources and other sectors. And since they invest in ETFs, your money is spread across thousands of different securities, including those on international markets.

Best of all, they charge very low fees for the service: typically no more than 0.25% of your portfolio value. A $1 million portfolio can be fully managed for just $2,500 per year.

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You can choose from one of many outstanding Robo advisors. Our personal favorite for beginning investors is Betterment, as it comes with no minimum deposit and has low fees. Options like Personal Capital are also excellent if you want to work with a human advisor and use a variety of other useful financial tools, like its net worth tracker.

5. Private Lending or P2P Lending

Interest rates on traditional investments — savings accounts, certificates of deposit (CDs), and even U.S. Treasury securities — are admittedly very low these days. If you want to increase the income level on the fixed-income portion of your portfolio, you can add some private lending to the mix to improve your portfolio's overall yield.

An easy way to do this is through peer-to-peer (P2P) lending. These are online platforms where borrowers come to take loans that are funded by participating investors. Some P2P investors earn double-digit returns on their investments.

You won't want to invest a large percentage of your portfolio in this type of lending. The loans you'll invest in do carry the risk of default. But a small position can really improve your fixed-income returns.

6. Invest in a Business

This can be one of the most lucrative ways to invest $1 million dollars and is also a more entrepreneurial path you can explore. It can be done in one of two ways. Either you invest in a business that you will operate or act as a silent partner for an existing business.

If you're going to invest in your own business, you can either start a business from the ground up or buy an existing business. Buying an existing business will typically require more capital, but it will be a lower risk than a startup since it's already established. Either way, make sure you're familiar with the business and feel confident you can make it a success. The failure rate of new businesses is uncomfortably high.

If the idea of starting your own business doesn't interest you, you can go the silent partner route. This is when you invest money in a successful, established business that's in need of capital for growth. In exchange for your investment, you'll get a share of ownership of the business. This will also entitle you to a percentage of future income.

Finally, crowdfunding platforms like Mainvest also let you invest in business loans to help small American businesses, and the platform targets 10% to 25% returns for investors. Alternatively, you can consider investing in startups through crowdfunding platforms like OurCrowd and SeedInvest.

7. Invest in Rental Properties

Another way to invest $1 million is through renting individual properties, including single-family homes, multi-family homes, small commercial properties, or even specialized projects like fix-and-flip projects.

Historically, real estate has been one of the very best long-term investments. However, it has the disadvantage that it is a very hands-on venture. In fact, it's really a hybrid between investing — because of the capital you'll need to put into each transaction — and business because of the direct involvement you'll have in the purchase, management, and sale of the property.

On a long-term basis, real estate can be very profitable. For example, if you make a 20% down payment ($60,000) on a $300,000 small duplex and rent it out for a combined $2,500 per month, you'll make a monthly profit while also paying the mortgage. After 30 years, the combination of property appreciation and paying off your mortgage will give you a mortgage-free property. You can then sell the property at a huge gain or continue renting it and reaping an even larger net cash flow.

Plus, companies like Roofstock let you invest in single family rental homes in promising markets, and you can let Roofstock's property management team manage properties for you to keep things passive. Our Roofstock review covers all of the details if you want to learn more.

8. Invest in Real Estate Investment Trusts (REITs)

Perhaps the easiest way to invest in real estate, particularly commercial real estate, is through a real estate investment trust (REIT). These are essentially mutual funds that own and manage commercial real estate. That can include office buildings, retail space, large apartment complexes, warehouses, industrial space, and other property types.

Each trust holds multiple properties. This gives you greater diversification with a small amount of money.  They're often spread across different geographic markets, which avoids having your entire real estate investment concentrated in a single local market area.

One of REITs' advantages is that they're legally required to disperse at least 90% of their net income as distributions to shareholders. That means they're an excellent source of annual revenue and can also provide capital appreciation upon the sale of properties held in the trust. If you're an accredited investor with at least $100,000 to invest, the private equity firm Origin Investments might be for you, as it offers investments in diversified and carefully-vetted real estate funds.

9. Invest Through Real Estate Crowdfunding

If you like the idea of being more directly involved in specific real estate deals but don't want to get involved in the day-to-day details of the process, you can consider investing through real estate crowdfunding.

There are many different real estate crowdfunding platforms to choose from, and each has its own specialization. For example, you can choose a platform that invests in individual commercial buildings. Or you can choose individual residential properties or even fix-and-flip opportunities.

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Companies like Fundrise are an excellent way to start dabbling in real estate investing, and the company pays quarterly dividends and has low fees. CrowdStreet and RealtyMogul have more deals on their platforms, but with $1 million, you can explore several real estate crowdfunding sites if you want to test the waters.

Overall, real estate crowdfunding offers you an opportunity to invest in either an equity position or debt to finance real estate projects. It's a classic high reward/high-risk venture, with the potential for loss. For that reason, many real estate crowdfunding platforms require you to be an accredited investor. But if you have $1 million, you'll automatically qualify.

10. Try Alternative Investments

One of the benefits of investing a million dollars is that you can create a diverse portfolio because you have so much capital. And with alternative investments, you can do just that while potentially hedging against inflation at the same time.

Examples of popular alternative assets and how you can start investing in them include:

• Investing in artwork through Masterworks
• Investing in wine with companies like Vint and Vinovest
• Investing in precious metals like gold through companies like Vaulted
• Investing in farmland with crowdfunding platforms like AcreTrader or FarmTogether
• Investing in cattle with companies like Agridime

This is just scratching the surface for what's out there. Some investors dabble in crypto investing, or even investing in sports cards or other collectibles.

Ultimately, you should consider your risk tolerance and how much of your portfolio you want to invest in alternative asset classes. But if you're trying to move away from the stock market, these alternatives could be an excellent place to start.

Advice for Picking Your Investments

There are so many ways you can invest $1 million dollars. But before you get started, here are a few more factors to consider when picking the investments and strategies that are right for you.

Consider Working With a Professional

If you're not comfortable investing your own money or even using an automated service, working with an investment professional may be the best choice. And many financial advisors work with high-net-worth clients on a one-on-one basis. They'll not only manage your investments for you but can often provide advice on overall financial management, such as estate planning.

Investment advisers are commonly associated with large brokerage firms and generally charge annual fees between 1% and 2% of the assets under management. That can be a lot if you have $1 million.

An alternative is to work with Personal Capital. They're a hybrid between a Robo advisor and a full-service personal investment manager. You'll get one-on-one advisory services but at a much lower fee than you'll pay to a traditional investment manager.

Be Mindful of Fees

Options like investing with a robo-advisor or DIY investing are some of our favorite ways to invest $1 million because of the low fees. If you decide to go another route like real estate investing or dabbling in alternative assets, make sure you account for potentially higher fees for your projected returns.

Simplicity Is Often Best

Time and compound interest are two of the most powerful things investors have on their side. So, unsurprisingly, keeping investments simple and sticking to a gameplan often yields the best results rather than trying to micro-manage every aspect of your portfolio.

When you invest $1 million, consider your long-term investing strategy and how actively you want to manage your portfolio.

There Are Many Ways to Invest $1 Million

The good thing about reaching the $1 million mark is that it gives you plenty of investment options. But the basic investment objectives are the same as if you had a much smaller amount of money.

You'll still want to develop the best combination of growth, income, and capital preservation. It's possible to do, but it requires diversifying your funds. You'll need to decide the best investments and best accounts for you.

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