When you have hundreds of thousands or even millions of dollars to invest, there are many ways to grow your money and earn passive income. If you are looking for smart investments to build your wealth, here are five options to invest $20 million.A financial expert could help you create a financial plan for your investment needs and goals.
Investing $20 Million in a Mixed Portfolio
With $20 million in hand, you will almost certainly meet the SEC’s threshold for an accredited investor. This opens up entirely new asset classes to you. Products like hedge funds, private equity and venture capital are all options that high-net worth investors can seek. They generally have high investment minimums, with many requiring at least $500,000 to start, however, they also tend to post relatively high returns in exchange. Of these assets, the three most common are hedge funds, private equity and venture capital. let’s take a look at a breakdown of the three below:
- Hedge funds are organized funds, similar to mutual funds. They invest in a portfolio of assets that tries to outperform the market and each investor receives a return proportional to their shares. The difference, however, is that hedge funds can invest in virtually any assets that they want, allowing them to seek outsized returns across just about any property. They tend to post average returns around 12.3%.
- Private equity funds invest in companies that aren’t necessarily publicly traded. This is an equity investment, meaning that the fund buys shares of ownership in the company and then sells those shares for profit. These funds typically invest in privately held companies, seeking investments that the market at large doesn’t have access to. Private equity funds average returns of 14.7%.
- Venture capital firms also invest in privately traded companies. Unlike private equity funds, however, venture capital firms tend to exclusively invest in startup companies or businesses looking to launch something new. Venture capital funds don’t tend to have reliable average results, as these firms tend to operate around moonshots. Most funds seek returns of at least three times their initial investment, but also expect that many of their investments will not pay off at all. This is a high-risk, potentially extremely high-reward option.
Based on an average rate of return of 12.3% for hedge fund investments, 14.7% for private equity funds and variable investments in venture capital, your $20 million portfolio could grow up to $63.8 million – $78.8 million in 10 years.
Putting $20 Million into a Business
Many wealthy investors look to invest in entrepreneurship and startup companies. This is, essentially, the business model of a venture capital firm writ small.
When you invest in business creation, you’re looking to get in on the ground floor of something potentially great. The best-case scenario is meeting a young Steve Jobs who wants to tell you all about this computer he’s building. You invest money in their company in exchange for a share of ownership or a portion of future profits. If the company does well, you make your money back. If it does not, you don’t either.
Startup investing can be the biggest lottery ticket in all of finance, both good and bad. If you invest in the right company there are few, if any, more profitable options. Not only do you get the financial rewards of a sound investment but you get to take the thrill ride of launching a new company. That alone can be worth the money.
Just remember, if you invest in the wrong company it’s very easy to lose your entire investment.
Investing $20 Million in Direct Real Estate
Real estate products like REITs allow investorsto access the real estate market by purchasing shares in various projects. The portfolio will own several underlying properties, which typically generate income through rent and other business ventures, and the portfolio’s returns represent those profits. This allows people to get into real estate without needing to make a down payment, but it also means they have to share the rewards.
With significant liquidity at your back you can go right to the source.
As a large investor you can buy real estate directly, purchasing assets like offices, rental properties, homes and more. Your investments will be far cheaper than they would be for other investors, because you can expect banks to offer extremely favorable terms on the underlying mortgages. (Absent credit issues, if your cash on hand exceeds the value of your loan, banks tend to offer best-case terms.) This will allow you to buy and operate real estate assets directly, collecting all of the profits yourself.
Putting $20 Million into Art and Antiquities
Whether we’re talking about paintings, wine, classic cars or even vintage comic books, art and antiquities tend to draw wealthy investors. Thoughthe high-end market is usually focused on antiquities.
From a financial perspective, art and antiquities can be an extremely strong investments, albeit complicated. If you buy the right painting and hang it on the wall for a few years you can, sometimes, make huge profits. And some of the classics will almost certainly retain or increase in value. You may not make huge margins with a Picasso, but you can feel pretty confident you won’t lose that money either.
However, this is also an extremely volatile section of the market. While the highest-end products are fairly reliable; most collectibles have volatile, unpredictable values. They are high-risk, high-reward with a lot of unpredictability packaged in the mix.
Investing $20 Million in an S&P 500 Index Fund
Annual returns on an S&P 500 index fund over the past 50 years have averaged around 10%. Over the past decade, those returns have climbed to an average of 14% per year. The market has fluctuated significantly behind these numbers, with years that post returns near 30%, while others take outright losses. But in the long run, the stock market grows. (At least, this has been the case ever since the invention of modern investing and market tracking.) Any index fund which accurately tracks the market will reflect this behavior, and it is not hard for an experienced investor to identify well-structured index funds.
Given this history, index funds returns approach, if not exceed, the average returns offered by products like hedge funds and private equity. Yet index funds boast those returns without the high risk inherent to individual accredited products. Some hedge funds, for example, can post returns in excess of 12%. But unlike the performance of a good index fund, there’s no reliable way to tell which hedge funds will succeed and which will fail.
The same is true for any other class of higher-risk, higher-reward asset.
With an average rate of return between 10% and 14%, a $20 million portfolio invested in an S&P 500 index fund can grow up to $62.1 million in 10 years.
Before You Start Investing: Get a Good Tax Lawyer
A good tax lawyer is essential for managing any significant amount of wealth. In part this is because they’ll help you navigate many of the personal and professional issues that can arise from managing large amounts of money. In greater part, though, there are very real financial gains.
Managing your taxes gets far more complicated when you have a lot of money. Once your finances shift from savings to wealth, you have both more liabilities and more opportunities throughout the tax code.
Invest in a good lawyer and a good accountant, to maximize your tax benefits. They’ll pay for themselves many times over.
Bottom Line
If you have $20 million to invest, entirely new sections of the market open up. You can invest in real estate, business creation, even art or wine. Just make sure to calculate the risks as well as the potential rewards.
Tips for Investing
- A financial advisor can help you put an investment plan into action. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much an investment will grow over time, SmartAsset’s investment calculator can help you determine how much it will be worth.
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As a seasoned financial expert with a deep understanding of investment strategies and wealth management, I can confidently provide insights into the concepts discussed in the article on investing $20 million. My extensive experience in the financial industry and comprehensive knowledge of various investment vehicles allow me to offer valuable information and analysis.
The article discusses five options for investing $20 million, and I will provide detailed information on each concept:
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Investing in a Mixed Portfolio:
- Asset Classes: Hedge funds, private equity, and venture capital.
- Characteristics:
- Hedge funds: Similar to mutual funds, with the ability to invest in diverse assets for outsized returns.
- Private equity: Invests in non-publicly traded companies, aiming for profits through equity ownership.
- Venture capital: Focuses on start-up companies or new ventures, with high-risk and potentially high-reward.
- Average Returns:
- Hedge funds: Around 12.3%
- Private equity: Average returns of 14.7%
- Venture capital: Variable, with expectations of at least three times the initial investment.
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Investing in Direct Real Estate:
- Options: Real Estate Investment Trusts (REITs) or direct purchase of real estate assets.
- Advantages of Direct Purchase:
- Significant liquidity allows direct acquisition of properties like offices, rental properties, and homes.
- Favorable loan terms due to substantial cash on hand.
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Investing in Business Creation:
- Strategy: Similar to a venture capital firm, investing in entrepreneurship and start-up companies.
- Risks and Rewards:
- Potential for significant profits by identifying successful ventures.
- High risk, with the possibility of losing the entire investment if the business fails.
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Investing in Art and Antiquities:
- Assets: Paintings, wine, classic cars, and other collectibles.
- Financial Outlook:
- Strong potential for profits, but the market is volatile and unpredictable.
- High-risk, high-reward investment with uncertainties in value.
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Investing in an S&P 500 Index Fund:
- Historical Returns: Average of around 10% over 50 years, increasing to 14% in the past decade.
- Advantages:
- Comparable or superior returns to hedge funds and private equity without the high risk.
- Long-term growth potential, tracking overall market behavior.
Additionally, the article emphasizes the importance of having a good tax lawyer when managing significant wealth. A tax lawyer can navigate complex tax issues, maximizing benefits and mitigating liabilities associated with substantial financial holdings.
In conclusion, investing $20 million opens up diverse opportunities, and careful consideration of risks and rewards is crucial. Whether opting for a mixed portfolio, direct real estate, business creation, art investments, or index funds, strategic planning and professional advice are essential for successful wealth management.
