People are looking for different means of investing in income-generating assets for many reasons. But the main reason is to earn more money to grow the asset.
Whether you’ve inherited the money or saved it, investing $300,000 is difficult. Multiple options available make it easy for one to experience analysis paralysis and feel overwhelmed, which may lead to expensive mistakes.
To help you along the way, this guide on how to invest 300k explores some excellent investment options that will also generate income.
But before you invest, here is something you should know.
What to Do and NOT Do Before You Invest Money
What do you do when you have a lump sum of 300k waiting to be invested? What is the best way to invest that money?
The best way to take care of your money is to understand a few fundamental things of things you should do and not do before investing.
What NOT To Do
Here are a few things you should NOT do!
Do NOT Rely on Others to Make Financial Decisions for You
Do not let others make your personal finance decisions, especially when they know nothing about your current financial position, life goals, and long-term investments. Make sure you understand your goals first and let them guide your decision-making.
Do NOT Hand Over Your Money Blindly
Avoid giving your money to anyone else if you do not understand how to invest yourself. Financial literacy will help you understand what someone else is doing with your money. Otherwise, you may end up paying higher fees or be taken advantage of.
But that does not mean everyone is looking to swindle you at any opportunity. Minimize the risk at all times by maintaining your financial literacy. Further, make sure the people managing your funds know you are aware of what you are talking about.
Do NOT Purchase Liabilities Under the Guise of Assets
An excellent example is real estate timeshares. Unfortunately, getting rid of timeshares is notoriously hard. While timeshares are just one example, be on the lookout for other liabilities disguised as assets!
What To Do?
Now that you have gotten the things to avoid out of the way, here are some you should do.
Pay Off Interest-Earning Debt
Paying off debt is also an investment in your financial future. The strategy helps free you from mortgage, loan, and credit card payments for the long haul, which may otherwise cut into your household budget.
Plus, your credit rating will also rise. Paying off your highest interest rate debts first gives you more bang for your debt-reduction effort.
Start an Emergency Fund
An emergency fund will turn a financial disaster into an easily managed household cash scenario. Save at least six months’ worth of your life and home expenses in an emergency account. Consider starting with a bank savings account that offers a decent interest rate.
Invest in a Company Retirement Plan
If your company 401(k) plan is in a slump and the annual contributions are meager, imagine how much power an investment of $20,500 (maximum yearly contribution limit in 2022) will have?
The more money you put to work in a 401(k) plan, the higher and faster that money grows historically thanks to the investment power of compound interest. Further, a generous 401(k) plan contribution is a tax-advantaged investment too.
This is a winning hand for a retirement plan investment with big post-working plans.
Best Ways to Invest Your $300k
It is a wise decision to invest your 300k in different sectors. Below are a few options you will not like as much as a new motorcycle but are better for your financial future.
Invest Money in Index Funds
Investing in index funds is an excellent way to invest your 300,000. These funds are diversified and require low fees.
Index funds investments expose you to a basket of bonds or stocks without managing them yourself. The returns are stronger than most other investments. Expect an average return of about 7% to 10% each year.
Invest in Exchange-Traded Funds
Another great investment option is an Exchange-Traded Fund (ETF). These funds are like index funds, but they offer more exposure to more asset classes.
For instance, you can invest in a technology-focused ETF if you prefer investing in technology stocks. Exchange-traded funds are also an excellent way of investing in specific regions or sectors you have an interest in.
Expected returns are similar to index funds at an average of about 7% to 10% each year.
How to Invest 300k in Real Estate
Rental properties are an excellent investment option when you have a large capital. A rental property lets you generate unlimited income without selling the asset.
Plus, you do not have to worry about the withdrawal rates over time because rental properties and commercial real estate increase in value!
You can also adjust the rent due to reflect inflation, so the current inflation will never diminish the returns. There is the added advantage of predictable returns because you know the buying price and the rental market rate. Investing in a rental property lets you forecast the long-term averages accurately.
However, the amount may not be enough to purchase a rental property. So, here is how to invest 300k in real estate—join crowdfunded real estate!
The strategy lets you add investments you would normally never have access to unless you have millions of dollars. Crowdfunded real estate pools money from different investors to make large investments such as multi-family and apartment buildings.
Crowdfund managers manage the properties, so you never have to deal with the tenants or properties. Returns from the investment depend on the type of property and location, but common returns are between 10% and 15%.
Invest in Bonds
Bonds are low-risk investment vehicles that provide stability, making them an excellent option when you have 300k to invest.
Bonds are loans you give to a business or government. The return is a fixed interest rate paid back to you at given intervals. Returns depend on how much you will loan the institution.
Government bonds are the safest, but they offer a low-interest rate. Corporate bonds will give you a better interest rate, but come at a higher risk.
Buy a Business
Investing in a business or buying a running business is another safe investment option. Starting a business is difficult, but a $300k investment can help you get started.
Buying a business also comes with its own risk. But purchasing an offline or online business can be a source of long-term income for years or even decades!
Further, transforming your small business into a large corporation allows others to run it for you and you enjoy a massive passive income stream. Consider purchasing a business with lots of potential demand, such as a local business, in the finance sector, or IT business.
You can also invest in small offline and online businesses using platforms. Platforms allow you to invest in a business for as little as $100. Plus, you have the option of investing in different industries.
Other Ways to Diversify Your Investment Portfolio with 300k
A diversified portfolio has a collection of different investments that help reduce your overall risk profile. The various investment assets work together to reduce your risk of a permanent loss of capital, according to your risk tolerance.
Here are some ideas that can help diversify your investment portfolio.
An excellent option to diversify your portfolio and earn some extra cash along the way. The investment involves lending money to others at a fixed interest rate return.
Many peer-to-peer lending platforms make this investment vehicle easy to get into.
Investing in art is another way to invest your 300k and bring some diversity to your portfolio.
Art investments are a recent option. Previously, it would take millions to buy famous art pieces. But online platforms now make it easier to invest in art with less.
Using dividend-paying stocks is an excellent addition to your portfolio for earning passive income.
Many companies are paying dividends, and you can use them to increase your returns. The dividend stock market offerings have the potential to bring in consistent income—perfect for retirement savings.
What to Consider Before Investing 300k
While deciding what to invest in, you need to consider several factors.
To build wealth, individual investors should seek low-risk investments that pay a modest return or take on more risk for a higher return. Remember, there is a trade-off in investing between return and risk.
Other considerations include.
Your Risk Tolerance
Tolerance is how much you can withstand in case of fluctuations in the value of investments.
Ask yourself: Whether you can take on enormous risks for potentially big returns? Or are you comfortable with a conservative portfolio?
Conservative investors or those close to retirement may consider allocating a bigger portion of their portfolios to low-risk investments. Such investments are excellent if you are saving up for short- and intermediate-term goals.
The risk-takers are individuals still working on their retirement nest egg and have a decade or more before they need the money. A long-term horizon lets you ride out the volatility of stocks and leverage potential higher returns.
Your Time Horizon
The time horizon is when you need your money.
If you have a short time horizon, account for the specific time you will need the money. This means investing in safer vehicles, such as bonds.
A longer time horizon allows you to take on risks that offer higher returns. The horizon makes riding out the ups and downs of the market easier, for better returns.
How Much You are Investing
The more money you can direct to investments, the more likely it will be worthwhile investigating high-return, high-risk investments.
However, that does not mean you cannot invest less than $300k. For example, here are five ways to invest 100k.
But larger amounts mean you need to consider the time it takes to understand a specific opportunity. This is because the potential rewards are so much greater.
The Bottom Line
Investing your 300k is an excellent way to build wealth. Fortunately, you have several investment options available. But the number of options means you need to educate yourself on how to invest 300k to ensure you make informed decisions.
Consider the eight options above, and you will be on your way to attaining financial freedom.
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.