Are you looking for ways to generate wealth passively? You probably have already heard the numerous success stories of regular people becoming millionaires through passive investments alone. But rarely do you learn the knowledge and skills it takes to get there.
We want to help you feel confident in your future investment. If you are seeking to secure your finances and retirement, start here to learn the best way to invest savings safely. Regardless whether you are a seasoned pro or a newcomer in the world of investing, this short guide will cover a variety of investment options to help you find the best strategy for you.
How Do You Invest $100k Safely?
There are numerous ways to end up with $100k in your savings account. You could have saved it from income earnings, or you could have inherited it from your family. No matter the case, you want to invest your money with confidence – knowing that your initial capital can turn into a lot more.
First, we’ll start the list with a few options in both the money market and capital market.
The Capital Market
The capital market is the central location for selling and purchasing long-term debt and equity instruments. The entirety of the stock market and bond market is categorized under the capital market.
A bond is defined as a promise to repay an investor through interest rates, in addition to the return on investment for buying into the bond fund.
The two different types of bond funds are the mutual fund and the exchange-traded fund. The latter does not have trading commissions. However, you will pay out an expense ratio and possibly other sales fees. The mutual fund is bought directly from the company instead of exchanged between investors.
An index fund is a type of mutual fund that is also an exchange-traded fund. It is designed to track the financial market index and construct a portfolio based on it.
Before you can start investing in capital market instruments, you need to open up a brokerage account. For investors, brokerage accounts are the central location for buying and selling investments, such as stocks, bonds, exchange-traded funds, and mutual funds.
Here are the safest types of capital market instruments to invest in:
Corporate Bonds. Companies use corporate bonds to finance a variety of business operations, such as managing new facilities and diversifying products. These bonds usually refer to instruments that mature in at least one year.
Government Bonds. Also known as sovereign bonds, government bonds are issued by the U.S. government to incentivize buyers to pay out the face value listed on the bond certificate, on the agreed maturity date, by giving out periodic interest payments along the way.
Generally, these are seen as the most low-risk type of bond since they’re backed by a government that can use taxes to cover the payments.
Municipal Bonds. Municipal bonds help to fund entities within local governments, such as schools and courts, seeking to fund civil projects. Tax-conscious investors are attracted to the bonds since they are commonly tax-free at the federal level.
Term Bonds. A “term bond” refers to a bond whose maturity date is also the deadline for the bondholder to repay the face value. The period of time for repayment is the amount of time between bond issuance and bond maturity.
Robo Advisors. Another passive form of investing is the robo advisor. It is an easy and low-cost option that allows you to invest in stocks completely hands-off.
Robo advisors are brokers that manage investments via algorithms. Robo advisors also predict your risk of losing money via questionnaires. You just specify that your goal is to be risk-free, and the robo advisor algorithm will handle the rest.
The Money Market
The money market is the central location for trading short-term debt securities. It refers to deals made within one year’s time. Governments and corporations use these investors in this market to keep their cash flow running.
Funds in money market accounts receive Federal Deposit Insurance Corporation (FDIC) insurance at banks and the National Credit Union Administration (NCUA) insurance in credit unions.
Here are the top investment options in money market accounts:
High-Yield Savings Accounts. If you are looking for a completely risk-free investment option, you can also use a high-yield savings account. With one of these, you can get a .5% annual percentage yield, as opposed to a .05% yield, which is typical with regular savings accounts. This method does not require much risk tolerance.
You just have to open an account and make money off of compounding interest rates.
CDs. Certificate of deposits (CDs) are another risk-free, profit-producing place to keep your money. Investing in a CD means you receive a fixed interest rate and agree to terms ranging from a month to ten years. The longer the term, the higher the interest.
What Is the Best Way to Invest Savings in Real Estate?
While it’s your personal choice to invest your money in anything you want, we believe the best way to invest 100k safely is in commercial real estate. This is less risky, provides better returns, and allows greater portfolio diversification than other investment types.
If you are not carefully following market trends, you could lose money on stocks and bonds in an instant. Real estate investing can also be volatile, but property values do not shift as rapidly as speculations in the stock market.
If you are new to real estate investing, you want to start with assets that are safe options for beginners. This means investing in commonly used, recession-proof real estate. You want to invest in something that will maintain a high occupancy rate no matter the state of the economy.
While most people think of residential properties when it comes to real estate investing, the main real estate that fits these criteria is commercial.
Commercial real estate options require much less maintenance, since tenants don’t live there, meaning you can still be very hands-off as an investor. If this sounds appealing to you, you could be looking to invest in self-storage units.
How to Invest in Self-Storage Units
Understand What Lenders Are Looking For. It is important to know about the market in your location before approaching lenders. Accurate knowledge of the particulars and statistics will help you convince them to open their pocketbooks.
Know where the demand for self-storage units are high, such as military bases and college towns, and provide a study demonstrating that self-storage is a scalable investment.
Factor in Location. Before anything else, you need to make sure a self-storage unit facility would contribute anything to the neighborhood. One secret of self-storage investors is to look for populated neighborhoods with small housing units. There, the demand increases, as people may not have enough space in their homes for their belongings, as opposed to a wealthier neighborhood, where finding tenants becomes much trickier.
Understand Risk. While self-storage investing is low-effort and low-risk, do not approach it like it’s a piece of cake. The best way to avoid losing money is to stay in touch with experts who know the market. Read up on trends, news, and articles on the industry whenever you have the chance.
Know the Competition. To attract customers, you have to know what other services similar to yours are in the area. Check out what your competitors offer, and try to provide even better products and services.
Choose the Right Type of Unit. The different types of self-storage units include drive-up, climate-controlled, non-climate-controlled, auto storage, and mobile units. All of these units have their own pros and cons, so consider which category best suits your potential clientele.
Evaluating a Self-Storage Business
To estimate your self-storage business profit, it’s essential to understand the variety of services you can offer and, most importantly, the costs you’ll incur. Before we address these aspects, let’s take a look at some numbers.
The Value of the Market
In 2019, the net value of self-storage real estate was $87.65 billion. This number is expected to grow to $115.62 billion before 2026. This makes opportunities to invest in this safe and profitable real estate even more exciting.
Over the last five years, construction spending on facilities alone has increased by 584 percent, according to the Census Bureau.
Based on Market Watch projections, the market is expected to snowball: “The market was valued at $37.33 billion in 2018 and is expected to reach $49.24 billion by 2024, at a CAGR of 134.79% during the forecast period (2019-2024).”
Understanding the Costs
The best part about self-storage investments is how low-cost they are. You do not need to waste time and resources hiring people to manage the facility operations that you would need for residential real estate, such as plumbing and trash.
The cost of your investment will depend entirely on the amenities you offer. For instance, if you are opening a non-climate-controlled unit, then there is no need to worry about temperature fluctuations or high bills due to ventilation systems. But again: The more you provide, the more you can charge.
Self-storage investing is one of the optimal options when it comes to safe, income-producing investments. Learn more about investing in commercial real estate and self-storage investment here. The real estate industry is filled with opportunities for those seeking safe passive income. Start taking advantage of them today!