What to consider when investing 2 million dollars
You can invest 2 million dollars just about anywhere. However, the best way to invest 2 million dollars will depend on your life and goals.
Even if you’re not new to investing, take some time to consider risk tolerance, liquidity needs, time horizon, diversification, tax and estate planning, and your personal involvement. Some questions you may want to ask include:
Time horizon: How long do you have to invest before you need the money? Can you let the investments grow, or do you need to take some out for monthly expenses?
Risk tolerance: Can you ride the waves of uncertainty that come with investing, especially as it relates to growth-oriented securities, such as stocks?
Liquidity needs: How quickly do you need access to the money? Can you balance amounts in highly-accessible accounts vs. traditional retirement accounts?
Diversification: Can you create a balanced portfolio that aligns with your goals? What plans do you have for asset allocation and diversifying your investments?
Tax and estate planning: Do you know how to make investments more tax-efficient? Do you have a plan for passing money on through your estate?
Personal involvement: How hands-on do you want to be with investing 2 million dollars? Would you prefer an advisor to handle investment decisions for you?
How to invest 2 million dollars
With investments in the 2-million-dollar range, a financial advisor can help you think about the types of investments to buy, how to acquire them, and the type of account in which to hold them. At 2 million dollars, you’re likely still looking at mostly traditional investments, which are listed below.
Stocks: Many investors want to invest in individual companies by way of the stock market. Investing in shares of the company allows you to benefit from the growth of the company and the performance of the stock. You also take on the risk of the company's stock going down in price.
ETF: An ETF (exchange-traded fund) is a fund with a variety of investments related to a specific investing approach (funds dedicated to energy stocks or dividend-producing stocks, for example). The funds offer easy diversification and management of investments.
Mutual fund: A mutual fund is a group of investments compiled by an SEC-registered investment company. Investors pool their money in the fund to gain access to a diverse portfolio.
Bonds: Bonds are loans issued by governments and corporations to raise money. Investors on the other side are promised stable interest payments, usually paid out semi-annually.
Real estate: Real estate investors buy property (residential, commercial, land, etc.) and receive rents. The properties also increase the investor’s net worth when the property appreciates. However, real estate requires a high upfront investment, hands-on work, property management, ongoing costs, legal requirements, and tenant stressors.
Private equity: Private equity is an alternative investment class where money is pooled from investors for private investments, typically in long-term investments that aren’t very liquid. Although investment managers are registered with the SEC, the funds themselves are not.
Hedge funds: Hedge funds are private investment funds that may use advanced trading and risk management strategies to create returns for investors. Entry investment levels are high, and not all investors are able to access hedge funds.
Venture Capital: Venture capital is money for newer, growing companies that offer some form of ownership in return for your investment. It’s more common at higher investment levels.
Retirement and investment account providers
There are many retirement and investment account providers, many with excellent reputations and reviews from customers. Though this is not an exhaustive list, some of these include:
You may also want to consider fintechs such as:
And many others.
Types of accounts
There are three main accounts where you place investments. These are:
Traditional retirement accounts. These include 401(k) and IRAs. You pay taxes in retirement when you make qualified withdrawals.
Roth accounts. These include Roth IRAs and Roth 401(k)s. You’ll pay taxes on money before investing it, though there are limits.
Brokerage accounts. A taxable brokerage account doesn’t have many limitations or rules. Gains made during the year are taxable.
The main difference in these accounts is when you pay taxes. In traditional retirement accounts, you’ll pay taxes in retirement. For Roth accounts, you pay taxes before making a contribution to the account (but growth is tax-free). And with brokerage accounts, all growth is taxable.
How much interest would 2 million dollars earn?
How much interest you can earn on your 2 million dollar portfolio is an important consideration. The more interest you earn, the more you’ll be able to continue growing your portfolio.
Though market conditions and interest rates change frequently, here’s an example of possible interest earnings you might see from different investments.
| Investment | APY | Interest earned for the year on $2,000,000 |
|---|---|---|
| Savings accounts | 0.40% | $8,000 |
| Checking account | 0.07% | $1,400 |
| High-yield savings account | 3.90% | $78,000 |
| 6-month CD | 1.60% | $32,000 |
| 24-month CD | 1.34% | $26,800 |
| Bonds | 4.10% | $82,000 |
| Dividend Stocks | 2.45% | $49,000 |
| REITs | 3.88% | $77,600 |
| I-Bond | 3.98% | $79,600 |
How to invest 2 million dollars for income
Investing 2 million dollars for income is a different strategy from investing for growth. If you need investments that produce income, you’ll have some different investments to look at.
Real Estate
Investing 2 million dollars in real estate may allow you to collect enough rent to produce sufficient income. Real estate is more hands-on than other types of investments, even if you’re able to find a good property management company.
REIT
An REIT (real estate investment trust) is a company that owns and operates a collective of real estate properties. You invest in the fund as opposed to physical property as a way to be an investor in real estate without having to manage property. You receive dividends instead of rent, which can help provide income.
Annuity
An annuity is sold by insurance companies as a type of guaranteed income. Annuities can make sense, but you may find better investments and strategies by consulting a financial advisor.
CD
A CD (certificate of deposit) is money deposited with a financial institution that offers a return for keeping money in the investment for a specified period of time.
Bonds
Bonds pay regular interest for steady income over time. You can invest in individual bonds, Bond ETFs, or bond mutual funds.
Dividend stocks
Certain stocks pay dividends, which is a form of income. You can also buy an ETF of dividend-paying stocks if you don’t want to pick dividend-paying stocks individually.
HYSA or MMA
Depositing your money in a high-yield savings account or money market account will generate income on the amount deposited. If you have $2,000,000 deposited at a 3.5% rate, you would earn $70,000 in interest for the year.
Balancing income and growth with 2 million dollars
At 2 million dollars, there are trade-offs between investing for income vs. growth. With a financial advisor, you may be able to devise a strategy where you allocate assets in accounts and investments that balance income and growth.
You’ll also want to consider safe withdrawal rates. A safe withdrawal rate is how much you can spend each year to make your investments last through retirement. It’s usually figured as a percentage of your total investments based on how long you want your retirement to last (20 years, 30 years, and so on).
Conservative withdrawal rates between 3.5% and 4% are likely to help preserve your retirement income for 30 years, assuming you have a proper allocation of investments. For 2 million dollars, that’s a withdrawal rate between $70,000 and $80,000 per year.
Your money may even continue to grow by taking a lower withdrawal rate. Consulting with a financial advisor is a surefire way to ensure your investments are growing and producing income when they need to.
Other 2 million dollar investment considerations
Tax efficiency: Tax efficiency, or tax planning, is a way of legally paying fewer taxes. At the 2 million dollars level, this is key. Certain investments are more tax-efficient than others, and a good asset allocation strategy can help produce some tax efficiency.
Estate planning: Estate planning is a plan for where you want your assets to go and how you want them managed upon your passing.
Inflation: Inflation impacts how much your money is worth and how far it will go in retirement. If you’re not accounting for inflation in your investments, you may come up short.
Philanthropy: A financial advisor can help facilitate charitable donations, navigate complex relationships, advise on impact, bring you up to speed on current tax benefits, and warn of potential issues that may arise.
Work with Unbiased
A strategy for investing your 2 million dollars is the best way to preserve and grow your wealth. You can be a great investor, but without all the pieces, you may cut yourself short.
Consider seeking advice from an advisor. They have the know-how and experience to help set you on the right course to preserve your 2 million dollars into retirement and beyond.
Unbiased can connect you to an advisor to help answer any questions you have.
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