How to Invest $500,000 for Your Future

By Mike Obel | AUG 30, 2023

If you have $500,000 to invest, you might not be entirely sure where to start. Investment strategies will vary depending on several factors, including how familiar you are with investing, your time horizon, risk tolerance and financial goals. For expert advice, it would be good to engage the services of a financial advisor for professional insights and expert advice that can make a big difference in your future.

Types of Investors

When investing, it's important to understand that there are different kinds of investors with access to particular kinds of investments. First, there's an ordinary investor who may have some experience already or may be exploring investing in securities such as stocks, bonds and mutual funds. 

On the other hand, accredited investors are people or entities with more exclusive access to more sophisticated kinds of investments. These investments are often complex, loosely regulated investments, such as hedge funds. The SEC requires very particular wealth, income and/or knowledge requirements to become an accredited investor. The investor would need specific professional certifications, a net worth exceeding $1 million and would have to meet a particular income threshold amount as well. They might have access to investment products such as hedge funds, venture capital funds, private equity deals, equity crowdfunding, angel investing or other private placements.

Understanding Your Needs

Along with understanding what kind of investor you are, investing a large sum of money also will involve a strong level of understanding what your needs are. Planning your investment out a little bit by using a calculator could be helpful to begin to understand how the investments might work for you in the long run. 

You also want to align your investment strategy with your risk tolerance, meaning understanding how much volatility you feel that you can handle at this point of your life or long-term financial plan. Some factors for risk tolerance can include age, job status, family status, etc. Certain investments are riskier, but often have a higher rate of return. It's good to understand what particular balance of investments your portfolio can handle at any moment in time. You may not be able to time the market, but understanding whether your approach should be more aggressive or passive, or a mix of the two, will largely defined by your end goal. 

Strategies to Strengthen Your Financial Wellness 

Choose a goal or two and start small. Maybe you want to get rid of your high-interest credit card debt or afford better health or life insurance. Or take a look at your spending. After you slash your expenses, look at your credit card debt. If you have high-interest, revolving debt, start paying on the card with the lowest balance. After that one is paid off, move up the ladder. Don’t pay the minimum payment. Increase your payment to as much as you can afford and you will succeed sooner rather than later.

Are you saving for retirement? It’s never too late. If your employer has a 401(k) program, put as much in it as you can afford and be sure to choose appropriate investments for your age, time horizon and investment goals. Open an individual retirement account (IRA).

Different Types of Investment Vehicles 

Here are five common types of investments that are potentially suitable for someone with $500,000 to put into the market.

Stocks

Stocks, also known as shares or equities, might be the most well-known and simple type of investment. When you buy stock, you’re buying an ownership stake in a publicly traded company. Many of the biggest companies in the country are publicly traded, meaning you can buy stock in them. Some examples include Exxon, Apple and Walmart.

Bonds

When you buy a bond, you’re essentially lending money to an entity. Generally, this is a business or a government entity. Companies issue corporate bonds, whereas local governments issue municipal bonds. The U.S. Treasury issues Treasury bonds, notes and bills, all of which are debt instruments that investors buy. The rate of return for bonds is typically much lower than it is for stocks, but bonds also tend to be lower risk.

Hybrid securities

Hybrid investments are a blend of stocks and bonds. One example is preferred shares, which is an equity security with a bond-like feature. Preferred stock generally comes with a fixed dividend rate. Dividends to preferred shareholders are paid before dividends to common shareholders. Another example is a convertible bond. It is a corporate bond that can be “converted” into shares of the company.

Commodities

There are four main types of commodities. You can invest in these with options and futures trading - not something a beginning investor should try - or with mutual and exchange-traded funds.

• Metals: precious metals (ie., gold and silver) and industrial metals (ie., copper)
• Agricultural: Wheat, corn and soybeans
• Livestock: Pork bellies and feeder cattle
• Energy: Crude oil, petroleum products and natural gas

Real estate

Real estate has provided investors with big capital appreciation. Farm land, for example, can grow in value significantly. Urban real estate can also be a strong option. A $500,000 pool of assets gives you the chance to buy into this market, whether in the form of a farm or ranch, a residence or even a storefront. Keep in mind that real estate is very illiquid. 

Bottom Line

There are many ways to invest $500,000, but it’s a good idea to plan ahead. A little independent research can go a long way to make sure you pay down any existing debt, learn about what kinds of investments you can make and plan ahead to save for your future. However, if you feel that you might benefit from the expert services of a professional financial advisor or financial planner, it might be a good idea to reach out to a few of them and speak about how they can support your goals. 

Tips on Investing

• You have a list of questions, but how do you actually get connected to an advisor? Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Financial advisors have different areas of expertise, so it’s important to consider why you want an advisor before diving into the search. If you’re looking for help crafting a financial plan, a certified financial planner (CFP) may be useful. If you’re going through a divorce, you might want the assistance of a certified divorce financial analyst (CDFA).

Photo credit: iStock.com/Kunakorn-Rassadornyindee, iStock.com/Ivan-Pantic