How to Invest $10 Million

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

If you have $10 million, you are among the wealthiest people in the United States. The 2021 Wealth Report published by London-based real estate agency Knight Frank classifies the top 1% as Americans with a net worth of $4.4 million. With $10 million to invest, you’re certainly part of this exclusive group.

But with that kind of money comes significant responsibilities and opportunities. Not only can $10 million fund a wonderful lifestyle, it can also provide financial security for future generations of your family and enable you to support the causes most important to you. Keep reading, and we’ll walk you through some options for how to invest your $10 million. With such a large sum of money, you’ll have the luxury of putting the funds in different assets. If you want additional advice, consider working with a financial adviser who can help with financial planning and asset management.

Invest in Index Funds

The simplest and least labor-intensive way to invest a portion or all of your money is to purchase index funds. These low-cost funds, which were created by Vanguard founder Jack Bogle, track individual market indices, like the S&P 500 or Dow Jones Industrial Average. Rather than investing in individual stocks, an index fund allows an investor to “buy the market” and provides wide exposure to different types of companies and sectors.

The logic for investing in index funds is simple enough. The stock market has an extensive record of long-term growth. While markets may fluctuate on a year-to-year basis, they produce consistent returns over long periods of time. The S&P 500, which comprises 500 large companies, has averaged annual returns of over 11% since 1928, historical data from NYU shows.

Because index funds are passive investments, they typically have lower fees than actively-managed mutual funds. According to Morningstar, the average asset-weighted expense ratio for index funds was just 0.12% in 2020. Meanwhile, the asset-weighted average expense ratio of all U.S. open-end mutual funds and exchange-traded funds (ETFs) was 0.41%. The difference may not seem like a lot, but over 30 years, the lower fees of index funds could save you millions compared to mutual funds.

Open a Separately Managed Account

While similar to mutual funds and ETFs, separately managed accounts (SMAs) offer a more personalized approach to investing. With an SMA you can invest in a variety of securities, but your money won’t be pooled together with the assets of other investors, like mutual funds and ETFs. Instead, a money manager or financial adviser invests your money in a portfolio of assets customized to your investment goals, time horizon and risk tolerance. With an SMA, you’ll have more control and flexibility over how your funds are invested as compared with mutual funds, which rely on fund managers to conduct transactions.

While financial institutions typically require a six-figure initial investment to establish an SMA, that won’t be an issue with $10 million to invest. They also require a bit more attention and effort to manage with your adviser than a typical index fund or mutual fund. The personalized touch offered by an SMA also comes at a cost. The fees associated with SMAs are also typically higher than the expense ratios of mutual funds. The industry standard for investment management is 1% of assets under management, although many advisory firms reduce their fees as account balances grow.

Invest in Real Estate

Real estate remains a highly popular asset class for its relative stability, track record of appreciation and tax advantages. Specifically, rental properties and commercial real estate can serve as profitable investments that provide consistent cash flow. Being a residential or commercial landlord can be more labor intensive than owning a stock. Then again, you can outsource landlord duties to property management companies that will collect rent, fill vacancies and arrange for maintenance.

In addition to the rent checks that will come in every month, your properties stand to increase in value each year. Though not adjusted for inflation, the median sales price of a one-family home in the United States has gone from $119,900 in the second quarter of 1991 to $374,900 in the second quarter of 2021. Additionally, there are several tax advantages to owning rental properties, including the deduction of property expenses, like insurance and taxes, from the rental income you earn.

If owning properties doesn’t suit you, you could also consider loaning hard money to house flippers or rental property investors. Hard money loans are short-term loans that you usually must repay within a year. While hard money lending carries considerable risk, these loans have interest rates between 7% and 15%, making them lucrative short-term investments.

Keep Cash on Hand

You don’t necessarily need to invest your money all at once. Keeping a portion of the $10 million in cash will provide you the flexibility and liquidity that may be required to quickly pounce on future investment opportunities. With ample cash on hand, you can capitalize on future market dips and purchase equities at bargain prices or quickly close on real estate. With all of your capital tied up in other investments, you’ll have to sell assets to free up cash to jump on an attractive investment, which may take additional time and/or resources.

But how much cash should you retain within your portfolio? While keeping too much cash on hand can be a bad thing, financial professionals recommend having anywhere from 3% to 10% of a portfolio’s assets in cash. Then again, how much you choose to keep in cash will ultimately depend on your current investments, goals and other personal factors.

Bottom Line

With $10 million at your disposal, you’ll have seemingly endless choices for how to invest the money. Index funds are a great option for set-it-and-forget-it investors looking to piggyback on the stock market’s historical long-term returns. Investors looking for more customization can work with a financial adviser and set up a separately managed account with investments that fit their personal needs.

Rental properties and commercial real estate are also solid asset classes, providing investors cash flow from rents, tax benefits and appreciation. A savvy investor will spread their money across a number of investments in different sectors, and keep cash on hand to capitalize on undervalued assets in the future.