How to Invest $500K: 7 Best Methods in 2023

In this article, we’ll show you how to invest $500,000 by outlining the different types of assets you can invest in, as well as their main advantages and disadvantages. We’ll feature both relatively low risk and high risk investments, with the goal of demonstrating the range of investment options available to investors today.

Before deciding how to invest a large amount such as $500,000, it’s important to first ensure that you’re saving enough for retirement and have an emergency fund in place to cover your expenses in case of unexpected events in your life.

According to Fidelity, investors should look to save at least 15% of their pre-tax income each year for retirement if they want to maintain the same lifestyle they have while working.

Meanwhile, your emergency fund should be able to cover for about between three and six months worth of expenses even if all your income sources are suddenly cut off completely.

How to invest $500,000?

Now, let’s dive deeper into the best investments you can make if you have $500,000 to invest.

  • S&P 500 index funds
  • Dividend-paying stocks
  • Real estate
  • Bonds
  • Precious metals
  • Cryptocurrency
  • Alternative investments

The specific allocations into each of these investment types will depend on your personal situation, risk tolerance, type of employment and more factors. In general, you want to allocate more of your portfolio to safer investments while keeping the allocation to riskier investments small.

When investing significant amounts, it’s prudent to consult with a financial advisor beforehand to avoid making costly mistakes.

1. S&P 500 index funds

Many investors reserve a significant allocation of their portfolio to index funds that track the performance of the S&P 500. The S&P 500 is an index that consists of 500 major U.S. stocks, and is commonly used as a benchmark for the performance of the U.S. equities market.

There are several advantages to investing in a S&P 500 index fund. These funds provide solid diversification with just a single investment vehicle, as the S&P 500 includes companies from a diverse range of sectors. So, even if one major sector of the U.S. economy were to perform poorly during a certain period, there’s a solid chance that another sector would overperform and balance out the overall performance of the investment.

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SP500 historical chart

The performance of the S&P 500 index since 1964.

In addition, many S&P 500 index funds have low expense ratios. Since the goal of such funds is to track the S&P 500 index, they don’t have the high management fees which are often charged by actively managed funds. Another advantage of S&P 500 index funds is that they are easily accessible and highly liquid.

Between its inception and the end of 2021, the S&P 500 delivered an average annualized return of about 11.8%.

2. Dividend-paying stocks

Dividend-paying stocks are another type of investment that’s worth considering. Such stocks provide a steady stream of income on a quarterly or annual basis. You can also reinvest dividends to purchase additional shares, essentially compounding the growth of your investment.

Many companies that have a long-term history of paying dividends and regularly increasing them are often stable and established companies in mature industries. During market downturns, such companies can display more resilience than their less established counterparts.

Of course, this doesn’t mean that dividend-paying stocks are risk free, and dividend cuts are not unheard of. When investing in any particular company, industry challenges or mismanagement could negatively impact your investment.

If you want to learn more about dividend-paying stocks, make sure to take a look at our article highlighting the best “dividend aristocrats”.

3. Real estate

Real estate is a popular investment choice among those who have significant capital to invest. When we’re talking about a $500,000 investment, your ability to effectively invest in real estate will depend significantly on where you live.

Real estate is a tangible asset and also provides diversification, as it real estate investments have a low correlation with stocks and bonds. In addition, renting out properties is a source of cash flow.

Some of the main downsides of investing in real estate are high initial investment requirements and illiquidity. Selling real estate takes a lot more time and effort than selling your shares in a fund or stocks.

How to Invest $500K: 7 Best Methods in 2023

Median sales price of houses sold in the U.S. market. Image source: FRED

4. Bonds

Bonds are a type of investment that provide fixed interest payments in predictable intervals. They are typically less volatile than stocks, which makes them a good investment for capital preservation. Having a portion of your portfolio allocated to bonds also provides diversification, as they commonly display low correlation with other asset classes, reducing the overall risk level of your portfolio. In addition, inflation-linked bonds allow users to hedge against inflation.

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Potentially, bonds can also be advantageous from a tax perspective, although this will depend on your jurisdiction and the type of bonds you are investing in.

The downside of bonds is that they may offer relatively lower returns than other popular forms of investment such as stocks and real estate.

5. Precious metals

Precious metals like gold, silver and platinum have been recognized as stores of value for an extremely long period of time. Investors commonly use precious metals to hedge against inflation and fluctuations in the value of currencies.

Having some precious metals in your portfolio can provide some very welcome diversification, and they can potentially serve as a safe haven in time of market turmoil. Precious metals also have fairly strong liquidity, which means that they can be converted into cash when necessary without too many complications.

However, there’s also quite a few cons to investing in precious metals, so their allocation in your portfolio should be limited. Even though precious metals are recognized as stores of value, they can still display significant price volatility.

Precious metals also don’t provide any yield or dividends. In addition, you’ll have to ensure that your precious metals are stored securely if you decide to invest in precious metals physically instead of using investment vehicles like gold ETFs that provide exposure to precious metals.

6. Cryptocurrency

Cryptocurrencies are a fairly new asset class that was introduced in 2009 with the invention of Bitcoin. However, cryptocurrency is gradually becoming more legitimate as an investment, with established players like Fidelity Investments, Goldman Sachs and JP Morgan offering cryptocurrency investment products to their clients.

If you’re not planning to actively follow the latest developments in the cryptocurrency and blockchain space, it’s probably best to stick to well-established cryptocurrencies like Bitcoin and Ethereum. Bitcoin can be especially interesting to invest in for those with a long-term outlook.

If you do decide to invest in cryptocurrency, it’s important to store it securely. One of the best ways to do so is to use a hardware cryptocurrency wallet, which will keep the sensitive information securing your cryptocurrency away from devices that are connected to the internet.

Cryptocurrencies are a high-risk asset class, which means they should comprise a relatively small part of your portfolio. Still, their upside potential is high enough that including some cryptocurrency is a worthwhile consideration for any portfolio. If you’re interested in investing in cryptocurrency, make sure to check out our list of the best cryptos to invest in.

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7. Alternative investments

If you have a higher risk tolerance, you can allocate a small portion of your portfolio to alternative investments such as:

  • Private equity: Investments into private companies, including startups and early-stage ventures
  • Private debt: Investments that are not financed by banks or traded on an open market
  • Artwork and collectibles: Investments into artworks, sports memorabilia, toys, stamps, rare wines, vintage cars, etc.
  • Peer-to-peer lending: Loan money to individuals or businesses through dedicated platforms

Please note that the term “alternative investments” can be very broad, as it could also include investments such as real estate and commodities. We included less common types of investment to provide readers with ideas that could be worth exploring.

How to invest $500,000 for monthly income?

If you have $500,000 to invest and want your investments to generate income on a monthly basis, here are some investing ideas to explore:

  • Invest in real estate and rent it to generate monthly income
  • Certain REITs (real estate investment trusts) pay out monthly dividends sourced from leasing and renting real estate
  • Invest in cryptocurrencies like Ethereum, which can be staked to generate regular income
  • Put your funds in a savings account that pays interest on deposits monthly
  • Invest in monthly income bonds

How to invest $500,000 for retirement?

Meanwhile, if you have $500,000 to invest with an eye on retirement, here are some of the best options to consider:

  • 401(k) or employer-sponsored retirement plans allow you to contribute of your salary on a pre-tax basis, and some employers also offer matching contributions to boost your retirement savings
  • IRAs (Individual Retirement Accounts) can be opened by individuals independently. You can choose between a traditional IRA or a Roth IRA
  • Mutual funds and index funds tracking the S&P 500 can be very strong performers over the long term
  • Investing in real estate, either directly or through REITs, can also be a very solid long-term investment strategy

The bottom line

Hopefully, our article provided a helpful overview of options that are available to investors who are looking to invest $500,000.

Of course, you should seriously consider consulting with an investment advisor when investing significant amounts of money. Based on your financial position, risk appetite and future plans, a good investment advisor will be able to advise you on how to divide your investment portfolio among different asset classes.

If you’re interested in exploring the stock markets, make sure to check out our list of the best stocks to buy at the moment.