How to invest a lump sum of money | Vanguard (2024)

FAQs

What is the best investment for a lump sum? ›

Start paying off the debt with the highest interest rates and work your way down to the debt with the lower rates. If you cannot pay all your high-interest debt with your windfall, pay as much as possible and focus your attention on other high-interest debt.

Buy a low-cost index fund that tracks the S&P 500; your $100,000 could grow to $1 million in about 23 years. You'll get there even faster by investing additional funds. Add $500 monthly and reach $1 million in just 19 years. Of course, past results don't guarantee future outcomes, but history is on investors' side.

A lump-sum investment is made at a point in time. The price you pay for the investment(s) may be high or low. If you invest when prices are high, you run the risk of incurring a loss if you need to sell in the near term.

CDs offer a fixed interest rate for a set term, while high-yield savings accounts provide more flexibility. The interest you can earn on $50,000 in one year can range from $2,125 to $3,000 depending on the interest rate.

While the top savings accounts currently beat inflation, many people instead choose to invest in stocks, shares and potentially bonds as a better way to generate higher returns. Each different investment you make will have a different level of risk, and your returns will vary as a result.

Millionaires also bank differently than the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth. There is no standing in line at the teller's window. Studies indicate that millionaires may have, on average, as much as 25% of their money in cash.

Is it better to invest monthly or lump sum? ›

Most people earn money over time, and therefore must stick to a monthly investment schedule, that's fine. However, if you can make a lump sum, it is worth exploring the option. Making a lump sum investment is the most effective way to invest. This is because it maximises 'time in the market'.

How To Use the Rule of 72 To Estimate Returns. Let's say you have an investment balance of $100,000, and you want to know how long it will take to get it to $200,000 without adding any more funds. With an estimated annual return of 7%, you'd divide 72 by 7 to see that your investment will double every 10.29 years.

Let compounding work its magic on its own

At the market's long-run historical return rate of around 10% per year, $100,000 will turn into $1 million all on its own in around 24.2 years.

The U.S. stock market is considered to offer the highest investment returns over time. Higher returns, however, come with higher risk. Stock prices typically are more volatile than bond prices.

A lump sum could be invested to include a prudent allocation of equities and TIPS (Treasury Inflation-Protected Securities) to help assets have a better chance of keeping up with inflation. Or couple a pension with a portfolio of investments to provide a combination of both.

The Top Mutual Funds For Lump-sum Investment based on 5-year CAGR are ICICI Pru Overnight Fund, Quant Small Cap Fund, Nippon India Small Cap Fund, Canara Rob Small Cap Fund, and Axis Small Cap Fund.