You have just received good news. You have inherited $1,000,000 from a distant relative. You have to meet two goals with the money: one, start a small business and not spend more than $250,000 in total in the next 2 years, and two, save for your retirement in 30-35 years. How would you invest the money? Talk about the type of investments, the amounts in each and be sure to include your risk tolerance. Make the decisions as realistic as you can and have fun with the money!
What a fascinating assignment! What percentage would invest in the stock market? Which companies would you choose? Why? What other investments would you make?
This article has some excellent advice.
http://www.ameripriseadvisors.com/kaushik.1.meisheri/articles/28/six-keys-to-successful-investing/
To invest the inherited $1,000,000, I would adopt a strategy that helps me meet both goals of starting a small business and saving for retirement. Here's how I would allocate the funds:
1. Starting a Small Business (Goal 1):
Since the goal is to start a small business and not spend more than $250,000 in total in the next 2 years, I would set aside an initial amount of $250,000 for this venture. However, it's important to note that starting a business involves inherent risks, especially in the early stages. Therefore, I would allocate this portion with a moderate to high-risk tolerance, as I will be investing a significant amount of my capital.
Here are some ways to invest the remaining $750,000 for the small business goal:
- $250,000: Capital investment for the business itself
- $250,000: Emergency fund for unexpected expenses or cash flow issues
- $150,000: Marketing and advertising budget to promote the business
- $100,000: Hiring and training employees
- $50,000: Equipment and inventory
2. Saving for Retirement (Goal 2):
With the remaining $750,000, I would focus on long-term investments to secure my retirement in 30-35 years. It's important to consider a diversified portfolio and adopt a more conservative approach to minimize risks.
Here's how I would invest the funds for retirement in a conservatively balanced portfolio:
- $200,000: Stocks - Select a well-diversified mix of blue-chip stocks with a history of steady growth and dividends.
- $200,000: Bonds - Invest in a mix of government and corporate bonds to provide stable income and lower risk.
- $200,000: Real Estate - Allocate a portion to invest in properties that generate rental income for a long-term passive income stream.
- $100,000: Mutual Funds - Choose a mix of mutual funds to further diversify the investment portfolio.
- $50,000: High-Yield Savings Account - Set aside this amount for emergencies or short-term liquidity needs.
It's worth noting that the allocation percentages and investment vehicles can vary based on individual risk tolerance, market conditions, and personal financial goals. It's always wise to consult with a financial advisor or professional to tailor your investment strategy to your specific needs, and to regularly review and adjust your portfolio over time.