How to Invest a Million Dollars of Income

How to invest a million dollars of Income?

It should be an easy question. You already have enough money and freedom to live on your terms. It’s easier to make money when you have money.

Or is it?

Anyone who has $1 million of net worth may agree that this number is more of a curse than a blessing. While you may have all the money you need, you’re too busy protecting it. You may not have enough income streams, or you work too hard, or you spend too much.

You look successful in the eyes of others, but problems build up:

  • More taxes
  • More tempted to overspend
  • 2-3% of your wealth lost every year (due to inflation)

Unless you go frugal and extra-cautious, $1 million won’t be enough for long good life. You must invest, at least not to lose your hard-earned millions. But how to invest a million dollars exactly?

How to Invest a Million Dollars of Income?

Money brings immense freedom, which can be distracting. There are dozens of business models, hundreds of money ideas, and thousands of profitable companies. Yet, that doesn’t mean your dollars will grow anywhere you put them.

Your Financial Goals

Your investment will be a success or failure depending on what success means to you. What makes a good investment for someone may be a waste of time for you. No strategy will be worth it without direction.

You have a million dollars. Are you satisfied with where you are financial? Have you reached the lifestyle that you wanted?

More often than not, one-digit millionaires find themselves in the same reality. You may still work the same way you’ve always done because if you don’t, you run out of savings. Not different from a lottery winner who loses it all in three years.

If it works for you, you just need some passive income, and you’re ready to retire. But if you want more, it’s worth investing time in riskier opportunities. Why get 10% annual interest when you can get 500% ROI with a business?

Your Investing Style

Thankfully, there’s not just one way to invest a million dollars. Whatever your background is, you can find a strategy that works for you the best. Once you set your investment goals, you look at the options:

Investors make passive income by trusting money to a company. Based on your research skills, you expect it to grow your investment by the time you want to sell it. You can also get consistent cash flow from low-risk investments (loans).

Traders make money from reselling assets. Along with market demand, they can do some tweaks to sell for higher, whether it’s stocks, real estate, or retail products (even services). In the case of properties, one transaction could earn 5-6 figures. With retail arbitrage, you can find a profitable product and resell it forever, without ever holding inventory.

Entrepreneurs promote products designed to solve problems within a niche. By problem, we mean (1) solving a need, (2) people willing to pay for it, and (3) not many competitors solving it. A successful business can scale to 7-8 figures, can run semi-passively, and you can sell it for 20-30 times the monthly revenue.

Whether you choose one or another, mind that your decision may change depending on your stage. If you want to make $10M-$100M, you’ll choose active income streams, more responsibility, and higher risk. If you then decide to maintain, you’ll seek passive income, diversification, low risk.

Don’t try to get rich with methods to stay rich.

Invest a Million Dollars In Securities

You can make money work for you, whether it’s stocks, bonds, commodities, futures, ETFs, mutual funds, or retirement plans. Not only these are passive income streams, but the risk of losing your investment is minimal.

Because even if your portfolio loses value, you don’t lose money until you sell it. As long as you invest in the right companies (most of them do well long term), it’s a matter of time you profit.

Before you go all in an “invest in what you know,” make sure you’ve tried a bit of everything. The knowledge to chose the right vehicle comes from testing as much as possible. This guide introduces the 8 types of securities.

If you don’t know where to start, consider these options:

Living off Your Interest

When you have millions of dollars, you don’t need to create value to get more. You can lend the money you don’t use to others, who will happily pay some interest. Banks use your money without telling you, which is why most accounts offer 0.01% to 0.2% of annual interest.

Without doing anything, your account “grows.” Although not enough to beat the annual ~3% inflation rate. If anything goes wrong (e.g., 2020’s Covid), it could easily double.

Still, savings/checking accounts can be useful when there’s nowhere else to invest your money.

If you want to find higher returns, you’ll need to take more risks.

US Treasury Bonds offer are the closest thing to a savings account, offering ~0.7% on a five-year term. Depending on the maturity, it can yield 0.06% to 2% (1 – 30 years). And some Treasury bonds are inflation-linked (thus 0.06-2% in annual profits).

2021 08 02 20 10 50 United States Government Bonds Yields Curve
US Treasury Bonds Coupon Rate

You can also the bond if you can’t wait that long, although the price may not be the same you paid for it.

A more convincing alternative, P2P lending, can yield 6-30% per year for smaller amounts. Since you have a million dollars, you’re looking for a borrower with a high credit score who can manage it. It’s easier said than done, as many lenders are looking for clients like these.

Imagine you could get 5% of compound interest every year, $50K for $1M, passive income. Or you could earn 2% from Treasury Inflation-Protected Securities, $20K per year, inflation-free. And you can trade your bonds anytime there’s a willing buyer.

Learn more about how to live off interest here.

Exchange Securities

If you don’t have patience for interest, or you prefer taking more risk, it may be worth trading securities. If you have the time and skill to understand how the market evolves, you can adapt your portfolio for optimal profitability. Time the market.

While no one gets it right all the time, you just need to get it right more often than not. Every year, traders make money because they develop a method and trust it. You also improve your skills along the way and increase your success rate.

Now, trading isn’t all stocks:

  • You can buy futures and sell options
  • You can resell bonds and rebuy them with higher interest
  • You can sell and outsourced services from another marketplace (drop servicing)
  • You can flip properties or rent someone else’s (Airbnb business)
  • You can find items to resell on local stores and garage sales

Or you can train someone to flip assets for you. AKA agency entrepreneurship.

Warning: Many Ponzi schemes claim to make 20-30% profit per month with arbitrage bots (see HYIPs). Beware when lending money to these platforms, as they may freeze your funds and shut down anytime.

Long-Term Investing

The most reliable strategy is traditional investing. It means that you study the market and find companies with lasting growth potential. You then invest most of your money and hold for years, regardless of what the markets are doing.

It’s also an enjoyable method, as you don’t need to worry about money. Once you know what companies will deliver, you don’t need to do any more work. Except earning more to reinvest while prices are low.

If you think investing is complicated, or you don’t care about the markets, this is for you.

Now, finding the winning companies will require financial analysis skills. A good way to start is diversifying your portfolio or using index funds.

5-10 years from now, your $1M portfolio may be worth $5M, or $50M, depending on how you exit. Profit nonetheless, way more than bonds and loans combined.

Invest a Million Dollars In a Business

When you don’t have enough money, investing doesn’t work. It either takes too long or becomes risky. Because the lower the investment, the more profit margin you need.

If you’ve seen the compound interest charts, it takes decades before your money starts multiplying. If you don’t want to waste that time (and are willing to take risks), entrepreneurship is the “shortcut.”

Traditionally, entrepreneurs create products/services and sell them. But you might also be a career professional starting an agency, or an active investor to manage someone’s business. There isn’t a single way to do business.

Turn Your Career Into an Agency

Starting a business may not be as hard as you think. If you racked up a million dollars, you probably did some skill-based work to get there. So why not use your career, invest in what you know?

Let’s say you have a method to find good clients consistently and get paid per project. The problem is, you have limited time. And what got you to $1M won’t work for $10M.

All you need to do to shift is a bit of arbitrage. Spend extra time finding profitable clients and building a team of skilled freelancers. You let them do the work and spend all your time looking for clients, getting paid in commissions.

You find better deals this way because all your time goes into market discovery. And because finding clients is the most challenging part for freelancers, they will happily join your agency. Eventually, you could also hire a manager to find clients and hire people.

That’s how to multiply your income, shifting from hard work to smart work.

Create and Sell Products Online

Many e-com businesses started with less than $3000. Some now make 8-figures a year, because entrepreneurs understood the leverage power of the Internet. Once you have a working product, you can sell it to anyone around the world.

Maybe you believe that you need creativity to invent a product. In reality, you just need research skills to read the market, because people will tell you what they want. And it doesn’t need to be a physical product either:

  • Infoproducts have almost no production cost and can sell above $1,000
  • Create a high-authority online brand and get paid for advertising/sponsors
  • Build a B2B software-as-a-service company (which price around $500-$200/mo, or $4K+ per sale)

If you have the time and resilience, the cash flow you make in your first year will easily go above your initial investment. A business gives full control of your investment and you can delegate almost everything.

Later on, you can choose to exit the business and live off the interest. If you have a consistent history, you could sell for 20-30x the monthly revenue (depends on the niche).

Become an Activist Investor

Activist investors own enough shares of a company to influence how it’s run. You’re a decision-maker, just like every insider in the team. The difference is, you don’t risk starting a business: you support one that’s making money already.

$1M isn’t enough to buy companies with dozens of workers. But you can work with small teams on companies that are about to scale. First, make sure you know how to invest in businesses.

As an activist investor, your advice could help the company:

  • Reduce costs
  • Improve management
  • Recognize and solve problems
  • Offer to consult to improve sales/visibility
  • Suggest product ideas according to market trends

In a large firm, the activist investor has decision power when joining the Board of Directors. In a solopreneur business, however, the investor is more like a funding partner. The role changes depending on the people involved and the revenue.

Activists are the middle option. You get the passive income of investing without losing control. And you get the income potential of entrepreneurship with reduced risk.

Turning $1M Into $10M

Your first million is a huge step towards financial freedom. But will it be the last one or one of many to come? It depends on how you invest your income.

Protecting the money is the fastest way to lose it. In an inflationary economy, you have to always grow your portfolio:

  • If you don’t know where to start, reinvest in what made you earn $1 million. If it’s a career, turn it into an agency. If it’s a business, automate and scale it.
  • Stay broke to stay away from the comfort zone. Sometimes it’s better to invest and freeze your money, so you have nothing left, no choice but to earn more.
  • Use your savings to focus on a project. A million dollars allow you to work on a career/business without distraction for at least one year, regardless of the economy. That’s enough time to build new income streams.
  • Invest a small amount (<1%) in weird projects. Investments you consider too risky might grow exponentially. Innovation always seems a waste of time until it works.
  • Convert your $1M into passive income streams with consistent cash flow. Would you rather have a million-dollar account that’s getting lower every day? Or a $100K/mo stream that’s growing your savings?
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