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How To Invest 2 Million Dollars For Income
You've just hit your $2 million savings target, or you've sold your business, or inherited that money or perhaps just won a lottery. 2 million dollars in your account right now. What do you do with it? How do you use that 2 million dollars to generate even more income for yourself? Let's go through a step by step on how best you can convert that money to sustainable income.
3 Golden Rules of Investing
Check in with a financial advisor/ wealth manager
Before you think of splurging or investing that 2 million dollars, check in with a financial advisor or wealth manager. They will guide you on how best to manage your money and make it work for you long term. Even after you've come up with a clear investment plan and executed it, be sure to regularly check in with your advisor just to make sure that you stay on top of things in order to hit your financial goals.
Diversify your investment portfolio
Every investment that you make is a risk as that's the nature of the industry. However, you can mitigate these risks by diversifying your investments depending on your investment strategy. As the popular saying goes, don't put all your eggs in one basket. The same principle applies when it comes to investing. Allocate different assets in different investment vehicles so that you maximize your gains while minimizing your risks.
Rebalance your portfolio occasionally
With the ever changing market rates, it is important that you do regular check ins on your money so that you make sure that you're not overemphasizing on one asset category while ignoring the others. This will help you monitor your assets easily while minimizing your risks.
If you have $2 million at your disposal, here are some smart ways that you can invest for income.
Annuities
An annuity is a type of insurance policy where you pay periodic premiums or a lump sum payment and then in return, you receive regular payments right away or at a a specified duration in the future.
The payments may last till the day you pass away or for a predetermined period. This is all dependent on the type of annuity that you have as there are different types.
If you're looking for a low risk but also low growth investment, this is a good option for you.
Bonds
Bonds are structured debt sold by the federal government/ its agencies and municipal governments to raise funds. Usually, the interest is tax free. They are a preferred type of investment by many because of their stable nature and interest payments.
To get started, investors purchase bonds by paying a principal, which is an upfront initial investment. When the bond matures/ expires, the investors are paid back their principal amount. Periodically, investors usually receive a fixed interest payment from the institution that issued the bond.
The prices for bonds usually depend on the length of maturity, interest rates and rating.
Dividend Stocks
For investors looking for regular income, dividend stocks are a great choice. Dividend stocks are companies that pay dividends or distribute a portion of the income generated by a company to their investors on a regular basis. Some investors may choose to continue building their portfolios by re-investing their dividends to buy more shares.
Well established companies are the ones that tend to pay dividends to their investors. This type of investment can add some stability to your investment portfolio and they are generally considered low risk.
It is important to note that dividend amounts can fluctuate depending on the profits made by the company as well as the fluctuation of the prices of shares. Also, dividend stocks are subject to double taxation as the corporations usually pay tax on their earnings before paying out the dividends, and then the individual investors also pay additional tax on the income earned.
Before dividends are paid out, they are usually approved by the company's board who also have the power to cancel dividends.
Exchange-Traded Funds (ETFs)
Exchange-traded funds are a pool of investments like stocks or bonds that let individuals invest in multiple securities all at the same time. They are packaged into individual shares that trade like regular stock in the stock market.
How ETFs work is that the provider of the fund remains the owner of all the underlying assets. The fund provider is the one who sells shares to investors and tracks their performances. This therefore means that the shareholders only own a portion of the ETF but not the underlying assets. Shareholders are entitled to a share of the profits, such as interest or dividends periodically.
ETFs often have lower fees than other types of funds and are traded more easily too.
Master Limited Partnerships (MLPs)
A master limited partnership (MLPs) is an investment option that is publicly traded on an exchange. MLPs offer a combination of tax benefits of a private partnership with the liquidity that publicly traded securities like bonds and stocks offer.
It is also important to note that MLPs are limited to companies in the natural resources and real estate sectors.
If you're an investor looking for an investment option with high yields, MLPs are something that you should consider as the earnings are taxed only once. MLP distributions are similar to the dividends from a dividend-paying stock or mutual fund.
You can invest in MLPs directly or through funds.
Preferred Stocks
Having stock in a company means that you have equity or some percentage of ownership in a company or firm.
Preferred stocks differ from common stocks as dividends for preferred stocks have a fixed interest rate and dividends for these stocks are usually paid out before those for common stocks.
When it comes to dividends, preferred stocks generally have higher yields than common stocks and can be paid on a monthly or quarterly basis. The interest rates for preferred stocks are usually benchmark rates used by the London Interbank Offered Rate (LIBOR).
Peer-to-Peer Lending
Peer-to-peer (P2P) lending, also known as “social lending” or “crowd lending" is a form of lending that uses money from individual investors to directly loan to other individuals. This makes things easier as it cuts out the middleman.
For P2P lending, the returns can be great but the risks are higher especially because of defaulters who may not pay back their loans. Another thing to look out for is the fees charged on the different transactions.
Real Estate
Another way that you could invest your 2 million dollars is by purchasing rental property. This type of investment can offer high returns if you choose the right market.
Real estate investing can offer you financial security as there is monthly cash flow. Many investors see real estate investing as a great option as there is guaranteed income and with this, you can be able to afford the lifestyle that you want.
Real Estate Investment Trusts (REITs)
A REIT is a company that owns or manages commercial real estate that is income producing. They can manage the property itself or the mortgage on that property.
REITs are a good investment choice for people who want to invest in rentals that generate income or own the mortgage on such property without having to own rental property. Generally REITs focus on residential and commercial real estate but you can also find hybrids that combine a variety of assets. If you're looking to purchase REIT shares, you can do so through a company or a fund.
Overall, REITs are a good investment option if one of your priorities is portfolio diversification as they offer high returns and the risks are lower.
Bay Street Capital Holdings
Bay Street Capital Holdings is an independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They manage portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility. Although many advisors may focus on maximizing returns, they place a higher priority on managing total risk and volatility.
Our founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2021. In California, only two black-owned firms out of nineteen firms received this recognition. In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs. In 2021, Bay Street was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).
Are you interested in talking to a financial partner to guide you through your investment options? Schedule a meeting with Bay Street today to review the best investment options that fit your financial goals.
Sources
https://smartasset.com/financial-advisor/how-to-invest-2-million-dollars-for-income
https://www.quora.com/I-have-2-million-dollars-What-should-I-invest-it-in
https://www.sec.gov/investor/pubs/tenthingstoconsider.htm
https://time.com/nextadvisor/investing/best-investments/
https://www.investopedia.com/ask/answers/041515/treasury-bond-good-investment-retirement.asp
https://www.nerdwallet.com/article/investing/how-to-invest-dividend-stocks
