It’s common for people to ask hypothetical questions, like “if you had a million dollars, how would you invest it?” Essentially the heart of this question is asking how YOU should invest YOUR money… Which is a very different question.
I’ve gotten asked by my friends on countless occasions how they should invest their money.
The problem is that questions like these are inherently unrealistic. They ignore two other questions that have to be answered first.
- What’s the goal with these dollars (when do you plan to need them?)
- What accounts do you have access to?
First off, I can’t tell you how to invest if you don’t even know what the plan is for this money. Did you get an inheritance of $1M at 25 years old and don’t plan to touch the money for 40 years? Or are you already 55 and have $1M but would like to retire in 5 years.
The way you would invest that money is drastically different in each scenario.
Second, if this money is locked up inside an employer’s 401K, then the options you have for investing are likely to be significantly lacking. And unfortunately, the vast majority of American’s have their money inside employer-sponsored plans. Which means that even if I give you a recommendation on how to invest, you may not be able to do it.
Let’s Get To The Point
I’ll get off my soapbox now.
The heart of the question is simple enough: “What’s the best investment strategy for my money?”
The bottom line is that I would invest $1M the same way I would invest $100M or $1,000.
Keep It Simple Stupid
I’m a huge fan of target-date-retirement funds. A lot of people will give me crap for that, but they just make sense. 99% of people don’t actually understand investing. They don’t truly understand how to diversify, re-balance, or properly execute a tax-loss harvesting maneuver.
On top of that, people are lazy.
Target-date retirement funds are typically some of the best options for normal people investing in their 401ks and IRAs. They’re easy to understand, they’re well diversified, and they require absolutely no work. You can set up the investment and then completely forget about it.
This isn’t the most optimized portfolio and it won’t return the most money. It isn’t sexy and it’s nothing to write home about.
But it lets you go on living your life while knowing that your future is taken care of.
Which Fund Should I Choose?
It all goes back to the very first question – what’s your goal?
Target date funds are great because you can choose the fund that matches the year you want to retire. Simply find that fund and invest all $1M into it.
For me, that looks like Vanguard Target Retirement 2055 Fund (VFFVX)
When it comes to investing $1M, I like to focus on the human aspect. Yes, a computer could do a lot better and likely beat VFFVX by a percentage point or two. And as computers increasingly take over investing platforms, I may change my recommendation in the future.
But for now, while people are in control, the safe and un-emotional way is to invest in a simple, boring, target-date fund.
This post is part of a competition put on by Joe at Give Earn Live.