How to Invest $250k for Income - SmartAsset (2024)

A stash of $250,000 can earn you a considerable income, given the right mix of assets. From real estate to corporate debt, assets are available that can turn your money into even more money with minimal risk. There are numerous ways to invest $250,000, depending on your goals. Here is how you can invest your money to produce regular income. You can also work with a financial advisor who can either make recommendations on making income-bearing investments or can manage your assets for you.

Best Investments to Invest $250k for Income

There are numerous opportunities to invest with the goal of receiving income in mind. Several investment vehicles offer ways for your to receive income while you have money invested into the market or give you the right to earn interest that is paid out within a period of time. Here are eight of the best investment options when thinking about investing for income.

1. Dividend Stocks

Companies can issue dividend stocks, meaning shareholders receive quarterly distributions when business is going well. You can buy two kinds of dividend stocks: common and preferred. The company’s leadership decides if holders of common stock will receive a distribution and in what amount. On the other hand, preferred stockholders receive guaranteed payments and are first in line to receive payments.

However, preferred stockholders usually receive smaller payments than common stockholders. In other words, common stock dividends have a higher risk versus reward, while preferred dividends aren’t as risky but also less profitable.

Dividend stocks come most reliably from blue-chip stocks (multinational, successful corporations) with steady cash flow. If you’re looking at companies to invest in for dividends, divide the company’s annual dividend by its stock price, then multiply the result by 100. If the calculation results in a yield between 2% and 6%, it’s a company that will likely improve your portfolio.

2. Money Market Funds

Money market funds are mutual funds that purchase short-term debts from governments and corporations. These investments carry low risk and modest returns. Every quarter your money market fund exceeds a value of $1 per share, you receive the surplus as income. As a result, money market funds must spread their success to shareholders, guaranteeing payments when the fund performs well.

3. Real Estate

While $250,000 won’t allow you to purchase several buildings outright, it gives you options for getting into real estate. For instance, you have enough to make down payments for investment properties. As a result, you can take out multiple 30-year mortgages to purchase rental houses, paying between $10,000 and $20,000 per unit (counting the down payment and closing costs). By collecting rents higher than your mortgage payments, you can eke out a profit and pay off the mortgages over time.

You could also get into real estate crowdfunding, where you use a platform, such as Fundrise, to pool your money with others to purchase an investment property or fund a mortgage. This approach doesn’t require tens of thousands of dollars but has higher risk because the government doesn’t tightly regulate crowdfunding.

4. Certificates of Deposit

A certificate of deposit (CD) is an interest-earning account you can acquire at a bank. CDs last for several months or years, with longer terms providing better interest rates. Once the term expires, you receive your principal back, plus interest. However, you can usually withdraw your earned interest at any time.

CDs are FDIC-insured savings accounts, meaning they carry little risk. In addition, you can maximize your interest rate with a 10-year term if you’re comfortable with not accessing the principal for a decade. If you invest in shorter-term CDs, you’ll have to repeatedly find others to invest in when the terms expire.

5. Bonds

Bonds are loans that governments and corporations take out for projects or expansions. US government bonds are called Treasuries, which investors consider rock-solid because the government has never missed a debt payment. However, they have the lowest interest rates among bond types. Likewise, state and local governments issue municipal bonds with a bit more risk and rate of return.

The riskiest and most profitable bonds are from corporations taking on debt. Because the business can go under and fail to fulfill its debt obligations, corporate bonds have higher interest rates. That said, bonds are generally stable and can provide steady income.

6. Peer-to-Peer Lending

As the name suggests, peer-to-peer lending means providing loans or portions of loans to others who need money for home improvement projects, debt consolidation or other living expenses. Such platforms allow you to profit from peer-to-peer loans lasting from several months to several years. Because consumer loans are risky, they typically provide higher interest rates than other assets, such as bonds or CDs.

7. Real Estate Trusts (REITs)

You can invest a chunk of money into real estate investment trusts (REITs) for passive income. REITs come from companies holding residential, commercial and industrial real estate. They generate income from rents and mortgage interest.

You can publicly buy and sell REITs like company stock. On the other hand, you can also get into real estate investing through a real estate limited partnership (RELP), which generally runs for a set number of years. RELPs are private funds, meaning you can’t buy or sell shares on a public exchange. In other words, once you buy in, you’re along for the whole ride – but you also have a chance for higher earnings than a REIT.

8. Annuities

An annuity is an arrangement with an insurance company to pay you monthly installments in return for investing a large amount of money into an account. The lump sum can accrue interest in three separate ways:

• A fixed, guaranteed rate from the insurance company. Your money will earn the same interest regardless of economic trends.
• A variable rate from mutual funds or other assets.
• A rate of return from an investment index.

Variable and index rates change with the stock market and economic dynamics. Therefore, they are riskier and generally provide higher interest than fixed-rate annuities. In addition, annuities can have excessive costs and fees, so understanding the details of an annuity is crucial before investing.

How to Determine Which Investment Is Right for You

With the host of investments available, it can be challenging to understand which will suit you best. There are many different options and the right strategy can vary quite a lot from person to person, based on their individual situation and goals. You may want to keep the following points in mind when considering your investments in order to find the right investments for you.

• Your financial goals should drive your actions:For example, if you’re retiring soon, you may want your investments to carry minimal risk and provide consistent payments.
• It’s a good idea to recommend according to your risk tolerance:In other words, a higher rate of return is only worth it if you can make peace with your decisions. Otherwise, stress can keep you up at night and affect your judgment.
• Don’t put all your eggs in one basket:Any financial advisor worth their salt will tell you that diversification is key to investing. So, even if you love real estate, branch out from REITs and invest money into another asset type.
• Paying off debt can be more profitable than investing:Investments introduce risks, meaning you can lose your money. The more you reduce your risk, the less you earn. On the other hand, credit card debt and student loans rack up a specific amount of interest every month, which can drag you down financially. Paying off these debts stops interest from building up against you, which can be as advantageous as investing. For instance, paying off a debt with a 7% interest rate is more profitable than investing in a CD with a 3% interest rate because the return wouldn’t surpass your debt.
• Maximize matching funds:If you have a 401(k) and matching funds from your employer, invest enough in the account to take full advantage of matching funds. You’ll get free money from your job to boost your investments.
• Rebalance your portfolio as needed:This idea goes hand-in-hand with diversification. If you notice your account becoming lopsided, allocate more money to a couple of different asset types. You’ll keep your investments from depending too much on one asset and give yourself exposure to profiting from multiple economic sectors.

The Bottom Line

Your options for investing $250,000 share a common characteristic: less risk and modest returns. While you can’t entirely eliminate risk from investing, these income-producing assets generally have less chance of losing money. In return, your gains will likely range from 1% to 5%. However, REITs and dividend stocks are exceptions, giving you a chance for even higher gains. That said, your financial plan and risk tolerance should guide your decisions.

Tips for Investing for Income

• Balancing a portfolio and earning your desired level of income can be challenging. A financial advisor can help you create a financial plan and then help you invest your assets toward your goals. Finding a qualified financial advisordoesn’t have to be hard.SmartAsset’s free tool matchesyou 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.
• It’s recommended to break large amounts of money into chunks to allocate across multiple investment types. As a result, you’ll likely have to research numerous investments to wisely invest your entire stockpile. This guide on ways to invest in $10,000 can help you zoom in on specific opportunities.

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