How should I invest $300,000 in cash to supplement my current income of $200,000?
I have $300,000 in cash that I want to strategically invest to supplement my income for the long term. I have already maxed out my IRA and 401(k), I have no debt and I make $200,000 a year. How should I invest this amount?
This really depends on the level of your investment knowledge. But if you are looking for income/dividends/cash flow, then some combination of dividend paying ETFs and individual dividend paying Blue Chip stocks should be part of the mix. You could also add some energy MLPs & REITs, but I wouldn't go overboard in any one sector or be lured by higher yields. A good rule of thumb is that the higher the yield, the greater the risk. This is because a lower credit quality has to pay more to attract capital, whereas a very solid company doesn't.
Lastly, at this phase in the market cycle, I would have some type of sell discipline in place so as to limit drawdown risks. This is true for both the stock and bond markets. Without knowing more about your life - spending, retirement age, current net worth, health etc.. , I cannot give you specific answers.
Hope this helps and best of luck, Dan Stewart CFA®
Depending upon whether you mean investing for the long-term or supplementing your income right now, the answer is different. If you're looking to invest for the long-term another tax-advantaged account you may have access to is an HSA (health savings account). If you have a high-deductible health insurance plan, you're eligible for an HSA. Contributions are tax-deductible and can be withdrawn tax-free for qualified medical expenses. However, using an HSA as an additional retirement account might make more sense. You can invest the balance, and after age 65 it essentially turns into a traditional IRA. You can make withdrawals for anything without paying a penalty.
If you don't have access to an HSA, you may consider opening a brokerage account and investing in a diversified portfolio that suits your tolerance for risk and achieves whatever it is you hope to achieve with the money. Unlike a retirement account that you're accustomed to, a brokerage account will have to pay taxes in years you realize gains/losses. Managing it tax-efficiently is key when investing in a brokerage account.
For current income, municipal bonds would be very appealing in your situation. The income is tax-free for federal tax purposes.
How much total monies do you have? Over $1 million net worth? If so, don't dismiss selective private placement offerings for accredited investors that can provide you with uncorrelated returns to the stock and bond market with targeted double-digit returns. I am talking about fixed returns in the low single digits......the stock market isn't the only place to invest, and you are already maxing out everything (congratulations) then you should seriously take a look at some of these offerings.
Note--offerings mentioned are 506(c) offerings that can be advertised, but only to accredited investors, and they could also provide you with some substantial tax benefits.
Great job on your current situation! I highly recommend a balanced ETF portfolio in an individual taxable account. This can support gains while retaining liquidity. You can even split it between a more aggressive or conservative allocation based on your goals or timeframe to needing the funds.
The answer to this question really depends on what you mean by supplementing your income. If you'd like to generate current additional cash flow, municipal bonds may make sense as the coupon payments may be exempt from federal taxes. If you'd like to invest for a later date, that would probably lead us in a different direction. The important thing to do is to quantify your risk tolerance and come up with a portfolio that is structured to achieve the goals you have in mind. If you'd like to discuss that process with a financial professional, reach out to us for a no-obligation initial consultation.