How to Invest $100k for Passive Income [Best Ways in 2024]

Whether it has taken years of hard work and savings or you recently came into $100k, this amount of money opens many doors when it comes to investing.

It’s always nice to have options, but you’re probably wondering what’s the best way to invest $100k?

There isn’t a one-size-fits-all answer.

The best way to invest $100k is different for you than it is for me.

But there is a right way to figure it out based on your individual goals, risk tolerance, and circumstances, especially if you’re looking for passive income.

Here’s the process for how you should determine the best strategy for yourself, then I’ll list the 8 best ways to invest $100k for passive income in 2024.

Answer these questions before investing $100k

1. Do you have an emergency fund?

An emergency fund is a savings account with enough cash to cover 6-12 months of living expenses in case of a job loss, a medical emergency, car maintenance, or any other unforeseen expense.

Without an emergency fund, you’ll be forced to liquidate assets or use credit cards to meet financial crises. Plus, an emergency fund provides you with a safety net that can give you significant peace of mind.

A high-yield savings account is the best place to house an emergency fund and any other cash you’ll need within the next year. The highest-yielding HYSAs pay an APY of over 4%, including my favorite — M1 Finance.

2. Do you have high-interest debt?

If you have credit card or other high-interest, consumer debt, do not start investing until you pay it off.

Most credit cards have interest rates near 20%, much higher than you can reasonably expect to earn from any investment listed below. By paying off this debt, you’re essentially guaranteeing a 20% ROI.

While it’s not technically an investment, paying off debt with an APR of 8% is one of the best ways to accelerate your wealth accumulation.

3. What are your financial goals?

What are you trying to fund? Do you want to buy a vacation home, pay for someone’s college tuition, or donate to your favorite charity? Your financial goals should drive your investment plan.

How passive or active do you want to be with the investment? Some investments require more work, such as managing rentals. Others, like ETFs, are more hands-off. They’re still one of the best compound interest investments.

How much of that money are you willing to lose? $1,000? $10,000? All of it? If the thought of losing even $1,000 scares you to death, then you’ll want to avoid anything too risky.

When will you need to access the money? Need to use your $100k soon? You should keep your funds highly-liquid vehicles, such as bank accounts or short-term CDs.

The general rule of thumb is the longer the timeframe before you need to start accessing the money, the more risky the investment can be. The idea is that you’ll have plenty of time for the asset to rebound if it falls in the short-term.

Now, if you have 10 or more years until retirement — or if you’re comfortable taking on more risk for higher potential returns — I’ll share 3 tactics further down that can shorten your time to retirement by 5+ years.

Speaking of retirement, if you’re unsure whether you’re on track for retirement or want to see how long you have until retirement — here’s a wonderful retirement calculator that I use for clients.

Financial tools, like those offered by Empower, make it easier than ever to get to retirement on your own. Meaning, you don’t need a pricey money manager.

With the planning process complete, here are the best methods to invest $100k:

The 8 Best Ways to Invest $100,000 in 2024

1. High Yield Savings Account (HYSA)

Wondering where to invest $100,000 right now?

HYSAs.

It’s the best way to invest $100,000 in the short-term. Investing in an HYSA knocks out step 1 of the 3-step plan for investing $100k — your emergency fund.

Emergency funds cover 3 to 6 months of ongoing living expenses and must be kept in a low-risk, easily accessible account. HYSAs are that.

You should be maximizing your interest yield with every dollar in your $100,000 portfolio. Each of your investments should be evaluated in comparison to the best APY savings account.

Traditional savings accounts at the big banks pay a mere 0.2% on average. You can get 4%+ from the best HYSAs with absolutely no difference in risk.

HYSAs are the lowest risk on my list. You won’t lose money, but you have opportunity costs. The return you collect from HYSAs will likely fall short of the potential return you could get by investing your cash in other areas.

That’s why it’s great for the short-term. For longer-term investing, you’ll likely want to focus on your 401k.

2. Max Out Your 401k (while limiting fees)

So, what is the best investment for $100k, if you’re planning for the long-term?

To ensure you have the most income available during retirement — it’s best to start investing as early as possible (it’s never too late!) and max out your contributions as often as possible. (In the least, you should be taking full advantage of any employer match).

That means using part of your $100,000 to max out your 401k if you don’t plan to already. For 2024, that’s $22,500 (or $30,000 if you’re 50 or older).

But the best tip for making your 401k contributions go even further is to reduce taxes and fees.

Over the long-term, investment expenses sink your returns. Money that’d be compounding for decades in your 401k is lost to management fees. For example, $500 in 401k fees could have grown to $3,600 if you’d let it compound at 10% a year for 20 years.

That $500 is just for one year of fees — imagine being able to save $500 a year and compound that at 10%.

$500 seems small — just 0.5% of $100,000. But it adds up year-over-year.

Don’t take my word for it; use a fee calculator and see for yourself. Here’s the one I use — Empower’s fee analyzer. The results can be staggering. If you’re 45 and plan to retire at 67, just the difference of 0.85% in management expenses means you’re losing over half a million dollars in fees.

Ready to break free from high fee funds? Enter: index funds.

3. Index Funds

Index funds are investments that track underlying indexes, which means there’s virtually no management fees.

They are the easiest way to diversify your stock market portfolio — and also the cheapest.

You can find an index fund to invest in almost any area of the stock market. They greatly reduce the riskiness of investing in stocks. That’s why I recommend it as the no. 1 way for beginners to get started investing in stocks. Investing in index funds is also the best way to invest $100k for retirement.

Investing in the stock market is consistently recommended as the best way to generate long-term returns of 10% or more. But what many investors overlook is the money they are losing to fees.

Index funds are the best tool you have to limit the amount of money you’re losing in your 401k. It’s easy to overlook just how much you’re paying in fees. A 2% fee seems small, but over the long-term it can drain your 401k. Roughly 30% of all 401k earnings are wiped out by fees when considering compounding.

You can see exactly how much you’re losing with Empower’s fee analyzer, but it’ll also give you suggestions on which index funds you can pick that track the same indexes, but charge lower fees.

The Ally investing app is one of the best places to start buying index funds with minimal fees.

4. Real Estate

You’re probably not looking to acquire a portfolio of rental properties for $100,000. Most investors would happily avoid the headache of being a landlord. So here’s how to invest $100k in real estate.

REITs are publicly-traded investments that own income-generating real estate and pay out at least 90% of their taxable income to investors.

You don’t have to invest a huge amount of money either. For example, real estate investing platform Fundrise lets you get started for just $10. When I’m asked how to invest $100k in real estate, this is always the answer.

REITs are also income investments. When thinking about how to invest 100k for passive income, again, REITs are the answer. For example, some REITs pay dividend yields of 5% or more. Some REITs also pay monthly dividends, such as Realty Income Corp., which would generate a monthly income of between $350 and $400.

You ask how to invest $100k in real estate? A monthly income REIT or platform like Fundrise.

Fundrise offers various strategies, such as fixed income and growth property portfolios. It also has strategies that take advantage of underutilized properties or those located in growing markets.

REITs do well in an inflationary environment as owners can raise rents, but certain private, non-traded REITs can be illiquid.

5. Pay off high interest debt

If you’re carrying pretty much any credit card debt, the best way to invest $100k is to pay that off. While paying off high interest isn’t technically an investment, it’s a guaranteed return.

Consider this scenario — you have $5,000 in credit cards with an APY of 20%. Would you rather invest $5,000 to maybe get a 10% return over a decade (again, no investment return is guaranteed), or pay off that credit card for an immediate 20% return on your investment?

Paying down debt becomes more important when interest rates are rising. Any debt where interest rates can change, such as credit cards, become an even greater liability. Low fixed-rate debt, such as mortgages or auto loans, are okay.

When thinking about what to do with $100k, paying off debt should be just as high as having an emergency fund. Even if paying off high interest debt takes up a chunk of your $100k, even if it means you’re left with figuring out how to invest $50k.

6. Start a business

One of the best ways to invest $100k and build long-term passive income is by owning a business. However, coming up with an idea that‌ works is the hardest part. Buying an existing business is essentially a “cheat code” to entrepreneurship. If you ask me how to invest 100k to make $1 million, I’ll tell you that you need to be investing in your own business.

The beauty of buying a business is that you’re buying an idea that already works. The business already generates money. In your city alone, there’s likely many businesses bringing in hundreds of thousands of dollars a year. How to invest $100k for passive income? Buy a business and hire someone to operate it.

Buying a business means your investments are more concentrated, versus spreading your money out across hundreds of public companies via index funds. But buying a business is cheaper — many small businesses can be purchased for less than 5x profit, while the S&P 500 trades at 20x earnings.

There are several platforms and brokers that list businesses for sale, such as Flippa, BizBuySell, and Empire Flippers. Or go to your favorite local business and ask them if they’ve ever considered selling.

If this route doesn’t appeal to you, check out our Equitybee Review to start investing in startups that haven’t hit the stock market yet.

7. Alternative Investments

If you’re looking for further diversification or are open to something a bit more risky, alternative investments are the place to look. Alternatives tend to be a bit more risky, but they’re one of the 11 ways to invest for high returns. If you want to invest in the highest risk asset class, alternatives is the best way to invest $100k.

Historically, alternative assets included commodities, such as gold. Modern-day alternatives have grown to include angel investing, cryptocurrency, artwork, and collectibles — all of which are more accessible than ever.

Want to know how to invest $100k to make $1 million?

This is the second-best way, behind running your own business. But alternative investments can be volatile and illiquid. That’s why it’s also one of the quickest ways to lose $100k. I recommend only investing a small part of your portfolio, less than 10%, in this area. Note that investing in less correlated assets can increase long-term returns while reducing risk.

8. US Government I-Bonds

Bonds are great for low-risk, stable passive income. And it doesn’t get much better than Series I-Bonds, which are backed by the US government. The risk of losing money is as close to 0% as it gets.

What’s special about I-Bonds is that they also protect you against inflation. The return on I-bonds rises with inflation. You can buy up to $10,000 a year directly from the Treasury’s website.

It’s a no-brainer place to invest $10,000 in a high-inflation environment. The rates being paid on today’s I-Bonds are 6.89%* — and you can buy as little as $25. But you must hold them for at least a year. And if you redeem before holding for five years, you lose 3 months of interest.

*As of February 3, 2023

Above all, be a risk manager

Proper diversification is the best way to lower the probability that you’ll lose money.

With $100,000 to invest, your list of investment options gets a bit longer than when investing $1,000.

But there are still major “gotchas” to watch out for.

One thing you shouldn’t do is invest all $100,000 into a single asset. This is where a good asset allocation strategy comes into play.

It’s well-touted by every financial expert. You’ve been told 1,000 times how important diversification is, especially for your 401k.

“Don’t put all your eggs in one basket. If you do, and that basket breaks, there goes all your eggs.”

“Don’t invest all your 401k in one stock. If you do, and that stock goes to $0, there goes all your retirement.”

So, how do you actually balance risk and reward in a $100,000 portfolio?

It depends on so many factors, including:

• Your current asset allocation 
• What your target asset allocation is (or should be)
• The costs (fees & expenses) for the assets you own 
• Availability of the same assets with lower volatility

That’s where Empower’s free allocation analyzer comes in. A free portfolio analyzer tool like this will ensure you don’t have too much of your portfolio in a single asset class. It can also help you find similar investments with lower fees and volatility.

This means more consistent returns year-over-year and less risk to your net worth.

If you prefer a more hands-off approach, these passive money making apps can also offer impressive returns.

Investing $100,000 wisely means you’ll be well-positioned to build long-term wealth. Here’s the best ways to invest $100,000 in 2024. 

Final Word: How to Invest $100k

Trying to figure out what to do with $100K can feel daunting.

It isn’t.

The 8 options above are the best ways to invest $100k.

But don’t forget to set your priorities and be a relentless “risk manager.”

Employ HYSAs to keep — and grow — your emergency fund. Paying down high-interest debt is the epitome of guaranteed ROI. Use your 401k wisely — take full advantage of any employer match and cut your fees with index funds.

Consider other investments to further diversify your finances, such as I-Bonds, REITs, and alternatives.

That’s how to invest $100,000! Next stop: how to invest 1 million dollars.

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