Learning how to invest 200k is important because it lies on the threshold for large and small investors. Using this amount of money productively requires you to come up with unique strategies. $200,000 is a large sum of money that you need to fully diversify so that it is properly protected. To increase your investment success, you need to come with specific tools and strategies to complete your investment goals.
Here are some helpful financial tips that will help you understand how to invest 200k in such a way that you are able to secure your future.
You need a properly managed investment strategy if you want to invest in bonds. Here are some types of bonds that you can invest in:
- US Treasury bonds are really popular because they are similar to pension funds. The 30-Year Bond has a 2.25% APY yield. You can get them through a bank or a broker, but they will charge a commission. There are options to get them commission-free as well as holding them at the Treasury Direct.
- Treasury Inflation-Protected Securities (TIPS) has a lower interest rate than the US Treasury, even after inflation. However, you don’t receive the payback until the bond matures, and you still have to pay tax on it.
- Municipal bonds are similar in yield to Treasury bonds and have tax exemptions. How much you are able to yield depends on your income tax bracket.
- Bond funds are better for investors that are beginners in the world of investing in bonds. A portfolio of different bonds makes up each fund. You can choose the portfolio and specific maturity periods.
2. Stock and Equity Investments
If you want to know how to invest 200k, you can’t go wrong with stocks. They are a major source of growing investments and have the best rate for returns. The investment needs to grow because you need to make a profit as well as outrun inflation. To stay even, you need to match the inflation rate.
Index funds are professionally managed and are perfect for beginners since they need a smaller investment expense. You don’t need big commissions to sell or buy them as they are usually no-load funds. With $200k, you can also work on individuals stocks too. You can use smaller amounts to invest in individual stocks, which can minimize the risks of investing in one place only.
One problem with individual stock trade is the fees. Even low commissions can eat up a portion of the total value. For example, a $7 fee per trade can out you up to $14 per position. This means that if you spend $1000 in stock, the commissions will still take around 1.4% of the total value.
So how much do you invest? If you are around 45 years old, you should make sure that 80% of your portfolio is invested in stocks. Your overall portfolio should look something like this:
- 80% stocks, out of which 80% is in index funds and 20% is in individual stocks.
- 10-15% bonds
- 5-10% cash
Considering annuities is dependent on your financial journey and retirement goals. Annuities come with fixed interest rates, principal protection, and income benefit guarantees. There are different types of annuities that you should do ample research on before you make any purchases.
How to invest 200k into insurance in such a way that it secures your future? Different types of insurance can help protect your assets in case of a disaster or unforeseen events. Instead of using your savings, insurance will pay for your claims. Adequate insurance for homeowners, health, auto, and business liabilities should be your priority.
If you have earned $200k, you probably sit in the category of high-income earners. This means you will also need life insurance. It can help you pay for estate taxes, medical expenses, and any debt at the time of death.
If you have recently come across a large sum of money, then you should invest in a stress-free, debt-free life. Doing so can give you more control over your cash flow and will ensure that there are fewer financial issues for you to worry about later on. Paying your debt off can be a great investment since you don’t have to continue letting it affect your returns.
6. Saving for Retirement
Despite the $200k portfolio you have, you should still take care of your retirement. While it’s a lot of money, it may still not be enough to sustain a comfortable retirement. You should take the time to plan your retirement plan to make sure that it is fully funded. If you don’t have an employer plan that can cover for you, or if you want to save more money, you can consider an IRA or Roth IRA.
While you won’t get a tax exemption for your contribution, you will get the distribution tax-free at the end of the plan. For that, you need to be in the plan for at least five years and be older than 59 ½ years.
7. Estate Planning
You should also take the time to make sure that your inheritance details are secure, which is why you should do some estate planning. You can set up a trust fund for the beneficiaries, which can ensure that they have money that they can count on for the rest of their lives.
Now that you know how to invest 200k into a secure future, you should make sure that you follow the right kind of strategies and make the correct decisions. Don’t be scared to consult lawyers and financial experts for this journey since they can help you create a sound portfolio.