With an investment portfolio of $1 million or more, the question isn’t necessarily where to invest – after all, the options are virtually limitless. It’s more a matter of how to invest.

If you have this kind of money, you’re probably either retired or you have a high-paying, but all-consuming career that gets most of your attention. In either case, time may be the major limiting factor.

If that describes your situation, then how to invest $1 million comes down to two choices: self-directed investing or managed investing.

Chances are you’ll want the bulk of your portfolio professionally managed. But you may also want to engage in some self-directed investing, which is another reason to discuss that strategy.

Self-Directed Investing

Just as the name implies, this strategy involves handling your own investing. That includes everything from creating a portfolio allocation, to choosing the specific investments, to managing those investments, and to know when to either reduce or increase any given allocation or investment.

This type of investing works best for those who have the time, motivation, and hands-on experience to make it work successfully. If you don’t, well then that’s what managed investing is for. We’ll discuss that topic in a bit, or you can click here to drop down and read up on that.

Where to Do Self-Directed Investing

Though it’s possible to manage self-directed investing from several investment platforms, the most basic will be an investment broker. A good brokerage platform will not only have reasonable trading fees, but also a comprehensive range of tools and resources to enable you to maximize your investment returns.

Investment brokers that fit that description include Fidelity, Ally Invest and TD Ameritrade.

If you’re a particularly active trader, and you have access to all the trading tools you need from outside sources, you should also investigate Robinhood and Firstrade. These are true do-it-yourself investment platforms, in that they don’t offer all the bells-and-whistles of the brokers above. But they do enable you to trade with no commissions, which can make a big difference in your investment returns if you’re a very active trader.

What to Invest In

There are four general investment categories to focus on: capital preservation, income generation, growth, and speculations. Each is also an excellent allocation category for a portfolio of $1 million or more.

Because we’ve already covered those categories in some detail in that article, we’re only going to take a quick, high altitude look at them here.

Exactly how much of your portfolio you’ll allocate to each category will depend on your investment goals, time horizon, and risk tolerance.

Capital Preservation

Every portfolio needs at least a small allocation in capital preservation, regardless of the size of the portfolio. Capital preservation assets serve to minimize the impact of a declining stock market, as well as to provide a source of cash to scoop up bargains when the market improves.

Specific investments that will serve that purpose include:

  • Bonds
  • High yield savings products
  • US Treasury securities

All are interest-bearing, highly liquid, and will guarantee return of principle if held to maturity. If you’re close to retirement, or if you have a low risk tolerance, you’ll have a larger allocation in these assets than a younger person, or one with a higher risk tolerance.

Bonds can be purchased and held through an investment broker. High yield savings products can be purchased and held at an issuing bank or credit union, with no fees. US Treasury securities can be purchased and held through Treasury Direct.

Income Generation

With a portfolio of at least $1 million, income generating assets are likely to be a large part of your holdings. The capital preservation assets listed above do provide income, but at a relatively low level. The specific assets we’ll list here will provide higher rates of return, and a couple will even offer the potential of capital appreciation.

  • High dividend stocks. This is a very specific list of stocks, often referred to as dividend aristocrats. They offer both dividends and the potential for growth, and can be held with an investment broker
  • Real estate investment trusts (REITs). These are funds that invest in portfolios of commercial real estate. They’ve produced an average rate of return of 9% over the past five years, and can be purchased through investment brokers.
  • Peer-to-Peer (P2P) lending. You invest in personal loans to consumers, and often earn returns approaching 10%. The two biggest sources of these investments are Lending Club and Prosper.
  • Direct real estate ownership. At lower portfolio levels, we listed this as a speculation. But if you have $1 million or more, you can purchase investment properties either with very small mortgages, or in all-cash deals. That being the case, it will be easier to find properties that will produce an immediate cash flow.

Each of these investments pays well above capital preservation assets. Each also carries the very real potential for risk of loss of at least some of your investment. However, both high dividend stocks and REITs also offer the potential for capital appreciation, in addition to income. That’s why they should figure significantly in your portfolio.

Growth

Investing for growth means stocks, first and foremost. After all, stocks have returned an average of 10% annually since 1928. Like income generating assets, stocks need to be a major part of your portfolio.

As a self-directed investor, investing through an investment broker, you can invest either in individual stocks or in funds.

With a $1 million, you can easily develop a large, well-diversified portfolio of individual stocks. If you have a talent for stock picking, you may be able to identify certain stocks that produce outsized gains. You may even have a specific strategy to identify those stocks.

But even if you don’t have any special abilities to pick stocks, you can always opt to invest in funds. Mutual funds attempt to outperform the market, while ETFs look only to match it, through index investing.

Much as is the case with stocks, there are literally thousands of funds to choose from, both ETFs and mutual funds. But since each fund is virtually a portfolio of stocks, the job will be simpler. You just need to pick the funds representing the specific industry sectors or groups of stocks you’re most interested in buying.

Speculations

These are asset classes that sit somewhere between investing and gambling. They include real estate crowdfunding, precious metals, and cryptocurrencies. There are actually dozens of potential speculations, but those three have been the most enduring in recent years.

If you do choose to get involved in speculating, it’s best done with a very small percentage of your portfolio. Something less than 10% would be the safest bet. While there may be potential for a big payoff, the likelihood of a crushing loss is at least as high.

What also increases the risk with these speculations is that they have limited or no liquidity. It may be difficult to get out of any one of them quickly should their fortunes reverse.

The Pros and Cons of Self-Directed Investing

Pros:

  • You may be able to earn higher than average returns if you’re a particularly skilled investor.
  • You can choose to invest in any company or industry you think is likely to outperform the market.
  • Set and change investment allocations as market factors warrant.
  • You can choose the level of risk you’re willing to hold in your portfolio, then make changes as your life circumstances dictate.
  • The wide variety of online investing platforms gives you access to tools and resources that can make you a better investor.

Cons:

  • Self-directed Investing can be a complete disaster if you don’t have the talent for it.
  • Trading in individual securities, and even funds, can result in substantial investment expenses that will reduce your return on investment.
  • Emotions can get in the way of your investment decisions.
  • Selecting individual investments is time consuming.
  • So is managing your portfolio, especially rebalancing periodically to keep your asset allocations on target.
  • Investment strategies that work so well in a rising market can fall apart quickly in a declining one.

Managed Investing

If you have no desire to engage in self-directed investing, managed investing is the better alternative. There are two primary ways to do this, traditional investment advisors and robo-advisors.

Traditional Investment Advisors

Traditional investment advisors are very popular among those with high six- and seven-figure investment portfolios. This is likely because the investor is afforded regular access to one or more live financial advisors.

That advisor may be involved in the creation of the investor’s portfolio, as well as the management. But more importantly, the advisor is available to the investor at any time. Contact can be by phone, email, or even text or live chat. As well, financial advisors often schedule periodic meetings with investors to discuss investment goals, and even broad financial objectives.

The investment advisor can either be independent, or work with a specific financial institution.

Examples of institutional investment advisors include Bank of America Global Wealth & Investment Management, Morgan Stanley Wealth Management, and J.P. Morgan Private Bank.

The advantage of these firms, in addition to regular live contact, is that they usually go beyond simply managing your investments. They often take a holistic view of your entire financial situation, which can include asset protection, business succession plans, and estate planning.

The downside is cost. Traditional investment advisors typically charge a flat fee of between 1% and 1.5% of your portfolio for investment management alone. There may also be certain fees charged in the use of certain investments. And in many cases, additional financial advice may come at a premium price, such as an hourly fee. In some cases, the special financial services are even subcontracted out to provider partners.

It’s a very hands-on investment management arrangement, but one that comes at a high cost. You have to weigh out the benefit versus the cost before going this route.

Robo-Advisors

Robo advisors provide much the same investment service level as traditional investment advisors, but do so at a fraction of the cost. This is why we at Autopilot Finances like to recommend robo-advisors, especially for large portfolios.

Robo advisors are dedicated automated online investment platforms. That means they handle strictly the management of your investments. This includes creating a portfolio for you, based on your investment goals, time horizon, and risk tolerance. Every aspect of ongoing investment management is also provided.

Robo-Advisor Investment Methodology

Your portfolio will include a mix of ETFs invested primarily in stocks and bonds. That means you will get capital preservation, income generation, and growth in the same portfolio. And some robo-advisors, like Wealthfront also include alternative investments, like real estate and precious metals. In other words, you can get all the investment allocations you can with self-directed investing through a robo-advisor.

Once the portfolio is created, it’s fully managed for you on a continuous basis. This includes periodic rebalancing, to make sure the portfolio maintains target asset allocations. It also includes automatic reinvesting of dividends. And most robo-advisor platforms now provide tax-loss harvesting, an investment strategy that minimizes capital gains taxes by selling losing asset positions to offset gains.

What’s interesting is that many traditional investment advisors use automated investment strategies that are virtually identical to robo-advisors. But by adding a dedicated financial advisor to the mix, they’re able to justify a much higher fee for the service.

Robo-Advisor Fee Structure – A Major Advantage

Robo-advisors charge an annual advisory fee of between 0% and 0.50% of your portfolio. Popular robo-advisors, like Wealthfront and Betterment charge just 0.25%.

When compared to the fees charged by traditional investment advisors, the robo-adviser fee can make a huge difference in long-term investing.

Consider two portfolios, each yielding an average annual investment return of 7%. One is with a traditional investment advisor, charging an annual management fee of 1%, while the other is with a robo-advisor at 0.25%.

If you invest $100,000 with the traditional investment advisor, your net annual return is 6%, after subtracting the 1% management fee. After 30 years, your portfolio will grow to $574,350.

If you Invest $100,000 with a robo-advisor, your net annual return is 6.75%, after subtracting the 0.25% management fee. After 30 years, your portfolio will grow to $709,638.

That’s a difference of $135,288 over 30 years, just as a result of an annual management fee that’s lower by 0.75%!

This isn’t to say that traditional investment advisors don’t provide additional value for the higher fee they charge. But if you’re looking for pure investment management with maximum results, the robo-advisor is clearly the better strategy.

The above example is based on a robo adviser with an annual fee of 0.25%. But there are robo-advisors that charge no management fee at all.

One example is M1 Finance. Not only did they not charge a management fee, but you can also select your own investments. That makes this platform something of a hybrid between self-directed investing and a robo-advisor. But the long-term investment results could be even better with this type of robo-advisor, considering the absence of a fee.

Expanded Options as a Result of the Low Robo-Advisor Fee

When you work with a traditional investment advisor, you’re paying a flat fee for the service. But you may be paying additional fees for trading commissions and even annual or monthly account fees. And there may still be additional fees paid to outside providers, or for premium services, like financial planning.

In the example given above, we showed how you can save more than $135,000 over 30 years as a result of the lower fee charged by a robo-advisor. You could probably get many of the same broad financial services offered by traditional financial advisors from independent sources, using some of that additional investment income.

What’s even more important is that you’ll have a choice over which services you’ll use, and how much you’ll pay for those services. This will allow you to keep those fees to an absolute minimum, preserving the investment advantage gained through the robo-advisor.

For example, Betterment is now offering financial planning as a premium service to investors. But you can rest assured it’s less costly than the fees being charged by traditional investment advisors.

Comparing Self-Directed Investing, Traditional Investment Advisors and Robo-Advisors

Method/FeatureSelf-Directed InvestingTraditional Investment AdvisorsRobo-advisors
Minimum investmentVariesCan be anywhere from $100,000 to $500,000 $0 and up
FeesTrading commissions $0 to $6.95 per trade1% to 1.5%, plus trading commissions and fees for premium services0% to 0.50% per year
Potential to outperform the marketHigh, depending on your investment skillsLowVery low
Potential to underperform the marketHighLowVery low
Professional portfolio managementNoYesYes
Investment expertise neededHighModerate/lowLow/none
Comprehensive financial planningNoYesNo, but some are offering the service on a fee-basis
Best forSelf-directed investorsInexperienced investors looking for comprehensive financial planning and investingInexperienced investors looking for cost-effective investment management

Final Thoughts on How To Invest $1 million

If you have at least $1 million to invest, how you invest it is as important as the specific investments you choose for your portfolio.

True, return is the most important metric in determining investment success. But once you’ve accumulated $1 million or more, time becomes just as important. After all, time is the most valuable commodity money can buy. And if you either lack the time or the expertise to engage in self-directed investing, you’ll need to seriously consider a managed option.

At that point, you’ll need to decide between a traditional investment advisor and a robo-advisor. Speaking strictly of investing, both services deliver approximately the same service. But robo-advisors do it at just a fraction of the cost.

That will free up your finances to purchase only those additional financial services you deem necessary, and at price levels you consider reasonable.

Go with the self-directed investing if you have the time and the experience. But if you prefer a professionally managed portfolio, robo-advisors are the way to go.

Note: Though this article is about how to invest 1 million dollars, the strategies present will be relevant for people with 5 million, 10 million, and more. If you have less than 1 million dollars, read one of these articles for investing strategies more suited to your situation.

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