How to invest 1 million dollars: It’s NOT what you expect

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Time to pop the champagne! You’re finally here to learn how to invest 1 million dollars. Welcome to the millionaire club! 

Being in the millionaire club is a whole new ball game when it comes to investing.

So today you’ll learn:

And in case you missed it, this is part of a larger “how to invest” series that includes: $1000, $10,000, $50,000, $100,000, $1M, $3M and $10M.


What? I still need to work?

This might feel like a slap in the face, but 1 million dollars is not that much money anymore. If we just follow the normal rules of investing (like the 4% rule) we can expect a regular cash flow of $40K per year. (Simple equation – 4% of $1M = $40K reliable income) 

Sure you could live on $40K for the rest of your life, but living like a monk isn’t why you worked hard to make your first million. You don’t want to spend the rest of your life whittling toothpicks for entertainment! 

So you either need to earn a bit more, or learn how to invest that 1 million dollars better


Why learning how to invest 1 million dollars is a turning point

If you’re at a stage where you can invest 1 million dollars, you’ve probably already done all the cheaper, more lucrative options I’ve recommended. So at this stage, you need to focus on just two things:

  • 1 – Protecting your money
  • 2 – Guaranteeing an income

Why’s that? 

The answer is the real secret of being a millionaire.

Building your way up to $100K doesn’t take too long once you have the skills and knowledge to do it. 

Making your first million dollars though takes a lot more time and effort, regardless of how many skills you have. You really don’t want to lose that time you’ve put in. 

If I lost everything I have, it would probably take me 5 years of grind to build my wealth back. That would absolutely break my increasingly lazy heart. So I’ll be leaning on the side of safety to avoid that outcome. 

You also want to start getting a passive income to live off. Everyone wants this but as a millionaire you have special reasons:

  • Your time is more valuable now that you are rich. You can get a typical person’s salary from your investments.
    • Use your investment income to offload parts of your life that don’t feel worth it.
  • You’ve built up a lot and you should get to enjoy it a bit.

How to invest 1 million dollars for guaranteed income and protection

#1 – Diversified stocks (semi-guaranteed returns = 4%/yr) 


What the heck are diversified investments? I already have indexes that represent over 500 companies!

Well. You have a lot of money now. It would be a shame if something happened to it. 

Say you invest in the S&P 500 index – which I’ve generally recommended. If you keep 100% of your money there, it will grow quite a bit over the years. The good years and the bad years will average to about a 10% annual return. 

Related reading:
Simple Investing Guidelines
Recommened Asset Allocations

BUT! What if you need to get your money out on a bad year? That would be bad. So we put some money into bonds. These don’t grow as quickly, but they also don’t fall. Nice and stable. (In general, I recommend a 70/30 split between stocks and bonds.) 

Good. Some added safety but we aren’t done yet becuase likely you already had this level of safety.

What else should I know? 

Well, up until now you could have happily invested in the US economy. I’m pretty confident that it won’t explode, but I don’t want to bet my entire lifestyle on that. So you should get into some international investing to diversify your money. Just in case. 

So I would put a third of my stocks and a third of my bonds into something else (like say VTSAX for non-US stocks, BNDX for non-us bonds). Then if something bonkers happens, and the US burns down you are still most of the way to living your current lifestyle.

Some people take their diversification to the next level, essentially just buying gold bars to keep in safes or going almost all bonds. That’s the ultimate instability, but I won’t be advocating for stuffing money into a box. That’s too close to 0% return. Blech. 

So let’s check in with our investment must-haves:

  • Protecting your money – Yeah, the entirety of the US can tank and you can be safe. 
  • Guaranteeing an income – Not the most aggressive of options, but it’s a guaranteed 4%/yr at least. 

Option 2 – Buy cash flowing houses (8%/yr)

This is going to feel blasphemous, but 

Newsflash! Not all rentals give cash flow even if they “profit”

  • Bubbles happen
  • Mortgages are sometimes gigantic
  • Tenants can stop paying enmasse (#Covid-19) 
  • Expensive repairs can stack on top of each other

Some real estate investments can be great for making money (think San Francisco 2010-2020) but can turn out to be a nightmare if you’ve put too much money into them. For example, having a lot of highly leveraged, highly appreciating, but low cash flowing houses can be disastrous if say your tenants miss a few payments. 

If I model a 1 million dollar real estate investment like some of my more aggressive houses. I would be pulling in $40K rent per month and paying $30K in mortgages. Add in a few missed payments, and any cash flow you had quickly turned the wrong direction. 

I think those houses are great when you can cover any badness with your income. If you had only put $100K in the market, it would be easy to cover any surprises with your paycheck. Move-in 1 million dollars and the numbers can get too big to cover.

Enter cash flowing houses – invest 1 million dollars for guaranteed income

These can give you a lot more safety. Here’s how they work. They are:

  • Cheaper
  • Low-appreciation (hence the tradeoff) 
  • Have a higher rent to price ratio (AKA cap ratio) 
  • You can buy it with or without loans due to the low cost
  • Consistently yield of cash each month instead of paper gains 

Have a few of these houses and if one or two tenants disappear on you, paying bills is still no problem. 

Hurrah! Safety! I can make a pile of rent every month and not need to worry about a “bad month”. This is why as a millionaire you want to start transitioning your new real estate investments into cash-flowing properties, instead of high yield ones.

I find that I earn less on this type of house compared to the more aggressive style (8% cashflow/yr and 11%/yr total on these cheaper ones vs. 25%/yr on the more aggressive: See my houses) but I like the security.

Pricy houses are great for building wealth. Cashflow houses are good for keeping it.

So how do we stack up with our checklist?

  • Protecting your money – Houses that spit out cash can always cover their own bills.
  • Guaranteeing an income – Literally, the output is cash. What’s more guaranteed?

I have to add:
Starting into real estate investing at this point would be a bit much. 1 million dollars turns into like 15 low-cost houses. If you have already vetted a manager to deal with everything, that’s not too bad. If you don’t have those people, don’t start now.

What’s the alternative?

If I didn’t already have my real estate portfolio, at this stage I’d recommend either:

  • Put money into something like Fundrise instead. Just skip getting into direct real estate altogether and take advantage of the simplicity of the online platforms. 
  • Go straight into apartment buildings (see the $5M article.) It’s the same concept, but you only own one building – which simplifies life. 

Option 3 – Buy a stable business (100%/yr) 

So, full disclosure, I’ve haven’t actually done this myself. Yet. But I’m thinking about it. 

This is the most aggressive way to invest your money, but also the most lucrative by far..

And if you’re thinking “that sounds like work”, well yes. But not as much work as building a company from scratch. Plus you can make A LOT.

There are plenty of companies out there with a ghost for an owner. You can be one of them, just hire a really good management team. 

For example, at time of writing, there’s a 1 million dollar organic food market in Manhattan up for sale that claims $1M in annual profit. (It’s surprisingly easy to browse and research your options). Does it? I would check before I bought it.


Source – Business for Sale

As long as you do your research, it ticks the boxes for:

  • Protecting your money – Your money is in a business that already went through the pain of gaining a reputation and a client base.
  • Guaranteeing an income – Buy something stable, none of these “I bet I could turn it around” dreams.

Honorable mention

Paying down debt 

Debt payment is a good thing in general, but not a great investment per se. 

The difference now is that you can pay off entire credit lines or entire houses in one shot instead of just increasing your payments a little bit. Having one less mortgage is a pretty good path to financial safety. 

But if we’re strictly talking numbers, the returns are just okay. My suggestion: If you want safety, do something else, like go heavy on bonds. It’s roughly an equivalent payout, plus it’s much easier to liquidate in case of emergency. 

Having said that, if paying down debt gives you a warm and fuzzy feeling on the inside go for it. 

Cheaper investments if you haven’t done them yet: 

This is a bit below the one million dollars category, but it’s still recommended. Visit them all here.

  • Invest in yourself
  • Rent out your basement ← although once you are a millionaire maybe you can live without the extra $1000/mo noisy neighbour downstairs.
  • Pay off high interest debt
  • Refinance your house
  • Tax sheltered investments

Now get back to that champagne! You have lots of money to invest and now you’re all set to both protect it and get an income. Growing your wealth is a little different from now on. 

TL;DR – How to invest 1 million dollars

  • Diversify your stock investments between stocks, bonds, and international
  • Buy a couple of cheaper but high cash-flow houses to avoid scary surprises
  • Buy an established business 

So what about you? What was the first thing you’ve invested in? 
And if you’re not in the millionaire club yet, what’s the first thing you WILL invest in?
Leave me a comment, I’d love to know if there’s anything I missed!

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