How to invest $200,000?
I'm 22 and I recently inherited $200,000 and I'm wanting to invest it all. Any tips on how to invest it well?
What is very exciting, is how much that money will grow since you're 22 (and very sensible to invest it and not blow it!!). Even if it was $1000 and you were investing now, you would see it grow exponentially with all that compound interest.
I listen to a lot of finance podcasts & have read a lot of books. The biggest take away, is that investing is easy although investment advisors would have you think otherwise. It's how they earn their commissions. Invest in the whole market in index funds. Diversify your investments. Keep the fees low & under 0.25%. Most mutual funds charge 1-3% which is deducted from your interest being made. For example, if the market makes 8% (standard for the S&P500 over time) your earnings would be 8-2=6% whereas with the index funds it would be 8-0.25=7.75%. This really adds up over time! Many index funds are around 0.07 which means $7 fees a year on $10,000 versus $300 if the fee is 3%. Multiply that by the money invested and the years invested and you can see how the fees will eat away at your earnings. LOW FEES (MERs) are crucial.
1) Open an account with Questrade or another DIY brokerage account. You will save big time on fees by doing it yourself. It is easy. Just watch some videos like I liked at the bottom.
2) Research etfs (exchange traded funds) that buy the WHOLE market. I'm assuming you're American (I'm Canadian) but I do know the most popular etf is the Vanguard S&P 500. I think the ticker symbol is $VOO. I believe it's MER is only 0.03%. If you did nothing but bought this etf, then your investment portfolio would include the 500 largest companies in the whole US stock market, in all the different industries & companies that are international.
Another option, which I have, are the Vanguard All-in-one funds. VGRO has 80% equities/20%bonds and VEQT has 100% equities (Cdn Ticker). These equities include US, Developed markets, & Emerging markets and the bonds include international. I don't need to do anything but just keep contributing to them. These are just examples. There are other similar funds by companies other than Vanguard. Etfs can be bought like stocks since their price fluctuates during the day vs mutual funds that get the price at the end of the day (I believe). https://investor.vanguard.com/mutual-funds/all-in-one-funds
3) Max out your 401k/Roth IRA for tax free growth. Put the remainder in a taxable account. (Listen to the podcast: DIY Money Podcast and find the topics about these accounts for clarification.)
4) Buy the etfs, then do nothing. Just let them sit. And grow. And grow. Investing is simple: invest often, buy funds with low fees, and let time do its thing.
5) Finally, you are young & with a whole runway of time for your money to grow. Now is the time to buy 100% equities (stocks within the index fund). Bonds are a safer option when you are nearing retirement and something you can visit later on.
Another exciting thing about your age & investing so much so early, is you could totally jump on the FIRE movement or COAST RETIREMENT. With FIRE, (Financially Independent Retire Early), the idea is that if you have $1 million invested, you could pull 4% a year or $40,000 to live off of without affecting the total invested. That gives you options. Many people who are aspiring to reach FIRE are in their 30's & 40's and aren't necessarily retired in the conventional sense, rather they have options to leave their 9-5 jobs and start their own businesses, side hustles, and become digital nomads living & working while travelling in cheaper countries. COAST RETIREMENT refers to the math of compound interest. I believe if you invest $65k in your 20's in a retirement account then let it grow, you will have $1million + by the time you're ready to retire at age 65 without having to contribute anything else. That is the power of compound interest. It is one of the wonders of the world. The rule of 72: 72 divided by the interest amount = # of years it will take for your money to double. So with the standard 8% of the stock market historically: 72/8% = 9 years. Your money will double every 9 years! That is why you need to INVEST your money & not "save" it in a bank account. In fact, in a bank account, your money will actually lose value over time since the inflation rate is so much higher than the bank account interest.
Here's some links worth checking out. Some are Canadian but the information is the same. You just call your investment accounts and the ticker symbols different names. Good luck!
https://podcasts.apple.com/us/podcast/diy-money-personal-finance-budgeting-debt-savings-investing/id1454855065 (DIY Money: 2 Investment Advisors out of Kentucky. Smart, funny, & knowledgeable)
YNAB of course
YNAB: Little Book of Investing
The Wealthy Barber, David Chilton
https://www.savvynewcanadians.com/ (Really good advice on everything investing & easy to understand.)
https://www.millennial-revolution.com/ (FIRE movement)
https://www.youtube.com/playlist?list=PLj8bU3AuW2qEIaIoR89ZHl9enwMJzz9De (Canadian in a T-shirt: I have watched a lot of videos, but he makes things so SIMPLE!! This playlist is all about opening a Questrade account. He has videos on how to buy etfs & everything you need to know. So very informative. I'm a teacher & can honestly say that he is a great instructor.)