6 Tips to Invest and Use $5 Million

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Editor's Note: This story originally appeared on SmartAsset.com.

A $5 million retirement fund may seem like an impossibly large amount of money, but if you aren’t careful, it can run out quicker than you’d imagine. Through some simple investing strategies, though, you can make $5 million last you a very long time. In fact, it’ll likely be long enough that you can retire and enjoy life with your family and friends, regardless of how old you are right now. All it takes is a bit of patience and know-how, and your $5 million can keep you going for a long time. For help managing your $5 million, consider working with a financial adviser.

Build a Balanced Portfolio

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The most important part of investing, no matter how much money you have, is to focus on asset allocation. This means keeping a balance of various asset types. This namely covers your split between riskier options, like stocks, and safer but less lucrative investments, like bonds.

Generally speaking, while you’re younger, you’ll want to invest more heavily in stocks. With many years left in your life and before retirement, you can take more risks, as you’ll have plenty of time to ride out any market downturns.

As you get older, wealth preservation becomes more important, and you’ll want to shift your asset allocation more towards bonds and other fixed-income investments that will likely not lead to your money disappearing, even in the short term.

Diversification Is Key

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Another important part of investing, regardless of how much money you’re working with, is to make sure your portfolio is diversified. This means you need to invest in various companies and financial instruments, rather than putting all of your money into one industry, sector or company. This will protect your portfolio from large market losses in specific sectors, like health care.

Think of it like this: If you invest all of your money in the ABC Widget Company and it ends up going bankrupt, you’ll have lost all of your money. If you divide your money among five different firms, especially if they are in different industries, one company going south won’t destroy your entire portfolio.

Focus on Index Funds and ETFs

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Diversification can mean that you end up having to research a lot of companies, which is a lot of work. Furthermore, there’s no guarantee that you’ll make the right choices. An easy way to build a diversified portfolio is to use index-driven funds or exchange-traded funds (ETFs).

An indexed fund is one that follows a market index, which is a group of companies on a stock exchange that investment professionals follow. Examples of indexes include the Dow Jones Industrial Average and the S&P 500.

There are also indexes that track certain sectors, such as technology, health care or energy. An index fund invests across this index, so your investment will grow or shrink along with the overall market. If you put your money in indexed funds for the long run your portfolio is likely to grow.

Incorporate CDs Into Your Portfolio

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Certificates of deposit (CDs) aren’t the most exciting investment, but if you’re looking to make your money last for the rest of your life they are safe investments that both force you to save and provide solid – if unspectacular – growth.

CDs are financial instruments available from most banks. Essentially, you give the bank a sum of money and it holds on to it for a predetermined amount of time. The time frame can range from a few months to decades. The rate of return is generally low, but it’s guaranteed as long as you keep the money in for the specific time frame. There are significant penalties for early withdrawals, so there are major incentives to keep your money there.

Buying a few CDs – or perhaps creating a CD ladder, which is a series of CD investments with staggered maturity dates – will create guaranteed and steady returns and allow you to save some of your money in a place you essentially cannot touch it. Another bonus of CDs: They are FDIC-insured up to $250,000.

Annuities Are an Option

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Annuities can seem a bit complex, but they’re actually an easy way to create a guaranteed income stream. They are basically contracts with insurance companies. You pay a monthly, yearly or one-time premium, and in exchange you get a steady income, which begins either later in life or immediately.

There are various types of annuities, which a professional adviser can explain to you, but using annuities – especially as you get toward the end of your life – can be a solid way to make sure your money lasts a long time.

Investing in Real Estate

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One of the most important investments you can make is in real estate. This can be your primary home – the place you actually live – or a rental property. If you invest in real estate well – especially if you’re able to buy without a mortgage – your investment is highly likely to grow over time. When you get older, you can sell any properties you own and likely see a big gain.

Rental properties can provide you with a steady stream of income throughout your life. Remember, though, that being a landlord does come with responsibilities for upkeep and maintenance. So make sure you factor in those costs when you consider making that one of your investments.

Bottom Line

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If you have $5 million to invest, the most important thing to remember is to look for a variety of investments with a range of risk levels. Diversifying your portfolio, possibly through index funds, should provide you with a roadmap to a happy and easy financial life. The idea is that you’re able to retire early and enjoy your family and friends. And don’t forget to consider annuities and CDs.

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