Imagine having $250,000 ready for investment. It’s an exciting prospect, but given that the global financial outlook has been shaky after 10 Federal rate increases since 2022, figuring out where to put that money isn’t so straightforward.
Look back at 2022, and you’ll find a rocky period for stocks and bonds. Real estate did well, beating stocks by more than 20%. You might even have noticed the impressive returns at Fundrise. However, after mortgage rates jumped, real estate returns slumped, falling behind the strong gains in the S&P 500 year to date.
Good news arrived when inflation topped out in mid-2022, followed by a calming in mortgage rates. Remember the banking scares at SVB and Signature Bank? That’s behind us now, and most S&P 500 corporate earnings are outpacing predictions.
The S&P 500 has bounced back into a bull market, recovering over 27% since October 12, 2023. So, I want to share my updated thoughts on investing $250,000 in this thriving market, instead of the bear market we left behind.
A glance at 2022:
- US treasury bonds vs stocks
- Challenges in investment
- My strategy for investing $250,000 today
After capping my I Bonds at $10,000 per person, I found myself accumulating a substantial cash reserve. Often, this ranged from $50,000 to $100,000, but at one point, it exceeded $250,000. This surge was partly due to a significant real estate investment windfall.
Besides stacking up cash, I also adopted a strategy of dollar-cost averaging in the S&P 500 during its decline in 2022. The same method applied to Sunbelt real estate, usually in $1,000 to $5,000 increments.
So, what’s the plan for this larger-than-usual cash balance? Let’s explore my strategy, which could be adapted if you have less than $250,000.
Understanding the Context: I’m 46, my wife is 42, and our children are 6 and 3. We have been moderately conservative investors since quitting our regular jobs in 2012 and 2015, respectively. The fear of losing freedom with young kids has made us cautious about taking excessive investment risks.
Even without regular jobs, we generate enough passive income to sustain our lifestyle. Financial independence, for us, is key.
We also reinvest our online earnings to grow passive income. Consequently, our cash pile keeps growing unless we spend or invest it.
The plan is to remain jobless until our youngest starts kindergarten in 2025. Perhaps then, I might pursue writing professionally, although it’s not lucrative. We have our children’s education and other financial planning in place, so there are no large unexpected expenses looming.
How We’d Invest $250,000: Remember, this is not investment advice for you. Always conduct your due diligence.
- Treasury Bonds (60% of Cash Holding): These are tempting, with up to ~5.4% return on a 1-year bond. The focus is on a peaceful mind rather than getting rich.
- Stocks (10% of Cash Holdings): Although 28% of our net worth is in stocks, the plan is to invest only 10% of the $250,000 in the S&P 500 due to high valuations.
- Venture Capital / Venture Debt (20% of Cash Holding): Investing in private funds brings a long-term, low-stress perspective. Contributions to existing funds will continue.
- Real Estate (10% of Cash Holding): Real estate investments in places like the Sunbelt will continue, taking advantage of cooling prices and mortgage rates.
- Debt Pay Down (0% of Cash Holding): In the current market, paying down mortgage debt doesn’t make sense. However, other debts should be addressed.
- Education (0.1% of Cash Holding): Education remains a valuable long-term investment. Consider investing in financial education tools to help build wealth.
In conclusion, the financial landscape has shifted significantly since 2022. Real estate, once a high-performing asset, has lost ground. Meanwhile, stocks have rebounded, the S&P 500 is booming, and the bond market presents new opportunities.
Investing during these times demands careful consideration of the global financial situation and your personal financial goals. Keep in mind that this investment strategy is tailored to my specific situation and should not be used without proper evaluation of your unique financial circumstances.
And don’t forget to take advantage of education opportunities to enhance your investment knowledge. With resources like Amazon’s low-cost college supplies and best-selling financial books, you can set yourself up for a financially prosperous future.