Here’s the good news: having 2 million dollars saved up and sitting in your savings account can give you an almost endless amount of investment options, helping you achieve financial freedom quicker than the large majority of Americans.
The investment power that 2 million in the bank can give you, however, has to be handled carefully: a risky move can quickly turn your hard-earned savings into nothing when you're navigating the troubled waters of the stock market.
Investing over 1 million dollars is certainly not for the faint-hearted, but with the right combination of risk assessment strategies and financial literacy, you can pretty much guarantee a stable cash flow and safe returns on your hefty investment for you and your family to enjoy.
Whether you're looking to grow your money for income or retirement, there's a number of ways you can invest your millions and bag long-term profits, but for potential investors with lower risk tolerance, there is one foolproof way that reigns supreme: real estate investment. This is arguably a tale as old as time and what every financial advisor will suggest upon consultation — but that's because it works! In this guide, we'll walk you through all the investment options available (beyond real estate alone) for those wanting predictable rates of return each year in the most stress-free way possible.
Don't Jump the Gun!
Before we dive into the best way to invest your $2 million, let us preface with a little caveat: investing can be a risky business, no matter where or how you invest your money. At the same time, having your millions sit in a bank account will have them lose their value at an exponential rate, as the inflation rate will almost always exceed the interest rate on your checking or savings account.
No matter the circumstance, investing your money is definitely the best way forward — all you have to do is invest smartly. Before you commit to a decision, any investment decision, your first step should be assessing your long-term and short-term needs and building a sound portfolio based on those needs. Contrary to popular belief, diversifying your portfolio is not the best way to maximize your returns; it's actually the easiest way to lower investment risk and reduce volatility. While diversification is usually regarded as the best direction for all types of investors, it won't necessarily be the winning strategy for your needs and financial goals, especially if you are looking to invest over a million. Take a long, hard look at your personal finance and your risk tolerance, and make sure you are consulting with a trusted financial advisor throughout.
The bottom line is that your money matters and that no financial decision of this magnitude should be taken lightly!
Before you start investing, you should also make sure you have fully paid off any major debts (house, college, car), with a special focus on high-interest debt, so you can prepare a healthy financial base to launch your investments from. Consider maxing out your retirement savings and building a solid emergency fund as well —2 million dollars might seem like an incredibly large amount of money at first, but in today's market, experts argue that$ 2 million is exactly the amount you need to retire in the first place!
Where Should I Invest My 2 Million Dollars?
So, you've sold your business, your land, your house, or maybe you've come upon the inheritance of a lifetime. Where should you invest that 2 million dollars in a way that's safe and easy for a first-time investor?
After you've broken down your needs and goals (perhaps you want to retire early and escape to a tropical paradise, or perhaps you want to leave plenty of wealth for your children and grandchildren), you should get a comprehensive understanding of the different ways you can invest the generous sum.
Here is an overview of what to expect:
Stocks & Bonds (The Risky Option)
It's been said time and time again that a healthy, sensible portfolio should include a combination of stocks and bonds.
Bonds are a type of fixed-income investment that makes it easy to figure out your returns in advance, as you will be issuing a loan to a business or government with a set term length and interest rate. Bonds can be issued by private companies, the federal government, or the state government.
As you’re shopping for bonds, you’ll be able to see the price of each bond, time to maturity (meaning the time it will take for the borrower to pay back the full value of the loan), and coupon rate, aka the money you'll receive per year.
Now, the risk of investing in bonds mostly resides in the volatile interest rate: Changes in interest might devalue your investment dramatically, especially if you're dealing with a long-term bond. If you decide to hold on to your bond until the end, you are mostly guaranteed to get back your principal in full, though a bankruptcy or any inability for the borrower to pay back the full value of the loan can be a real possibility.
Between the issue of inflation, the rise of “junk bonds,” and other unforeseen risks to your hefty investment, putting all your money in bonds might not be the ideal option if you want to maximize your returns.
When paired with high-return stocks, your 2 million dollar investment might give you more generous short-term profits, but you'll lose much of the security associated with a bond investment. If you decide to invest in a company that's gone public and become a shareholder, you'll have to do plenty of individual research to figure out the risk of buying 100k, 400k, 500k, or 1 million dollars' worth of stocks.
When you invest in the stock market, there is little to no guarantee that you'll make a good amount of returns to cover your initial investment or that your stocks will be worth a decent amount when you decide to sell them. The possibility of making amazing profits is certainly there, but it's still a lottery ticket based on appreciation and yearly dividends, mostly recommended to those who have little to invest, which is not the case if you're sitting on 1 million or 2 million dollars.
Real estate is overall the best investment for investors who have the capital to put down and the long-term vision to see the investment through!
Real Estate (The No-Brainer Option)
Buying real estate allows you to have a tangible asset that won't be as enslaved to market fluctuations and inflation as much as other investment opportunities. Whether you're an "accidental" or vocation-led landlord, you can make a steady and straightforward income by collecting rent every month and being on the receiving end of appreciation.
With a 2 million budget, however, you can reap the benefits of diversification without putting most of your savings in stocks and bonds: There is an almost endless list of different investment opportunities in the real estate market, and even more so if you are looking to invest millions for profit!
If you’re looking for a way to invest in real estate that’s considerably lower risk than buying property, you should consider investing in a real estate investment fund (REIT), which works similarly to mutual funds: one big basket with many eggs. Your REIT investment will go towards buying and developing properties that will turn into profit overtime, getting paid dividends just like a regular mutual fund, or better yet, stock. These funds are a great way to start if you're a first-time investor who doesn't need to have complete control of the investment.
It goes without saying that another way to grow your 2 million investment is buying a couple of properties to rent out, a more hands-on approach that has become increasingly popular in the aftermath of the 2008's recession. Rent prices will rise every year, at times dramatically so, while your mortgage repayments will remain relatively stable. Becoming a landlord comes with many rewards, but also a good amount of risk and hefty initial investment — not everyone is cut out for the job!
Real estate funds are also another popular option for smart investors. Similar to REITs, real estate funds will allow you to invest in a mutual fund composed of property management companies, but with the main difference that they will also include direct investments into properties. This option will offer more tax breaks and decision-making powers, so it's definitely more suited for investors with good real estate knowledge and a sense of initiative.
Finally, we have private equity funds, an investment option often out of reach for Americans with little funds but definitely accessible to investors with over a million for investing. Once again, they are similar to mutual funds in the sense that your money will be pooled together with other investors', but they differ by requiring significant capital upfront. Putting your 2 million in private equity funds can definitely be classified as a risky move, but with potential returns of 8% to 10%, it's a move to consider nonetheless.
Other Money-Making Real Estate Investments
The investment opportunities found in the real estate market don't end with REITs or rentals.
With the rise of Airbnb and other gig-focused online platforms, there’s the option of dedicating different rooms of your primary residence to short-term renting or buy a second or even a third home to renovate extensively and either resell or rent out at a dramatically higher price.
Of course, you'll want to balance your pros and cons carefully before diving into "flipping," as it's essential to make sure that your profit margins are worth the many repairs and precious time needed to make this strategy work. However, if you have a keen eye for emerging trends and understand how the value of a property and of an entire neighborhood will rise or decrease over time, you might want to give house flipping or hacking a try —you likely won't get the same returns as REITs, real estate funds, or equities, but you can incorporate a flipping or short-term rental project into an existing real estate investment strategy if you want to diversify your real estate investment portfolio.
With 2 million dollars available, you have greater investment freedom than most, so maxing out your options without diving into the "stocks and bonds" narrative can definitely help you achieve a safer income for a brighter future.
Whatever avenue you end up choosing, investing in real estate can be an exciting and rewarding journey, even beyond the enviable returns. And speaking of returns, let's see exactly how much profit you can expect by investing 2 million in the real estate industry.
How Much Profit Can I Expect if I Invest 2 Million Dollars?
When investing a million dollars or more, the key to making the investment worth it is to focus on long-term gains rather than short-term returns, which is generally the preferred strategy for investors putting in much smaller sums in stocks, bonds, and real estate investment.
That's exactly why investing in the real estate market is the perfect avenue for making long-term profits: unlike the volatile stock market and the low-return but lower-risk bond investments, real estate is not affected by the short-term fluctuations of Wall Street, or at least, not to the same dramatic extent. To make the picture even rosier, those investing 2 million or one million dollars in real estate can also enjoy great tax benefits such as considerable expense deductions, depreciation (in the case of rental properties), and tax-free retirement accounts.
Putting a total of 2 million dollars into real estate investments will buy you more value than the same amount put in stocks thanks to tax deductions and depreciation. Of course, the exact number of annual returns or long-term returns you can expect will vary based on individual factors, but it is estimated that residential and diversified real estate investments average at 10.5%, while real estate investment trusts can also provide an average annual return of 10.5%.
Compared to the overall market, real estate has done just as well despite the 2008 financial crisis and the recent 2020 nosedive in housing prices, with the S&P 500 Index's average annual return over the past two decades sitting at approximately 9.8%.
All in all, splitting your money between different real estate investing options is the safest way of ensuring you are turning a real profit, and the possibility of making even more rises if you take into account other low-effort, low-investment income-making strategies like vacation rentals.
Now, for our last question: Will your hefty investment be enough to live off with and enjoy a healthy retirement?
As we have briefly touched upon earlier, today's American families are estimated to need at least $2 million and up to $2.5 million to enjoy a stress-free retirement, spending an average of $100k annually with a 5% withdrawn each year. This means that the money you have been regularly saving or have inherited will have to be invested wisely, even if it may seem like an overwhelmingly generous sum at first! You can easily live off a $2 million investment if you diversify strategically, avoid high-risk, quick-gain investments, and keep up to date with the latest on the real estate market.
Investing Doesn't Have to Be a Headache
Having 2 million or 1 million to invest can ensure a lifetime stable income stream - as long as it's invested wisely. The time when having millions in the bank was a surefire path to generational wealth and headache-free prosperity is long gone, but that doesn't mean making smart investments won't take care of the majority of your needs as you approach retirement, or perhaps start a new business.
Our team of expert realtors and advisors can help you enjoy your 2 million, 1 million dollars, or any number of hard-earned savings by growing them with smart real estate investments that will turn a profit in the safest way possible! Get in touch today to examine your options, find the perfect property to buy for making reliable profits, and take your first steps toward building your wealth for a prosperous future.