Should I invest 1 million dollars for guaranteed income? Hell no!

If you’ve been with me for a while, you’re probably quickly climbing to your own millionaire status. So you might be asking how could you invest 1 million dollars for guaranteed income? Like…really guaranteed. Like no risk, all gain guaranteed. 

It’s a question I get a lot since I’m launching so many people up millionaire mountain.

If that’s what your heart’s set on, then that’s what I will teach you but I’ll also teach you why I’m against guaranteed investments.

So today you’ll learn:

• Guaranteed income investments, why they exist, and whether or not you should go there (whether you’re a millionaire or not.)
• Why being safe might hurt you
• A pseudo-investment that’s far better
• And what I REALLY think you should do instead.

How to invest 1 million dollars for guaranteed income 

If you really want to dive into playing it safe.

No risk.

Then good ol’ guaranteed income through short-term bonds, CDs, and savings accounts are music to your ears. What’s different about them and why they exist though? (Don’t worry. We’ll get to the good stuff after.)

Short term investment bonds (2.8%)

What are they and why they exist

Sometimes governments just need some money for a little while.

Imagine organizing your own monthly credit card payments but your credit card bill was billions! It would be hard to get right!

Why you would want it

Investment-grade bond’s values don’t move around much in general (and yield 3.7%) because they are backed by stable governments (don’t buy “junk” bonds though, they are nuts!) 

Any movement bonds do have is when people try to trade them before they’re due. For example, if someone buys a 30-year treasury note but there’s a recession and they want to invest in stocks instead. 

Short-term bonds don’t have the opportunity to move like that at all. In one year the government will take your money and then pay it back to you. Badda bing Baddaboom. 

So the value moves very very little.

Summary: Great safety. Great liquidity.

Certificate of Deposit – CD – (1.0% – 1-yr, July 2020) 

What are they and why they exist

CDs are very safe (FYI, they’re called GICs in Canada meaing Guaranteed Investment Certificate). This is where you commit to giving some cash to the bank for a set amount of time.

You’re not allowed to take that money back at all (at least not without some penalties). And then for that commitment, the banks give you some extra interest above what you’d get through your savings account. 

Newsflash! Banks love having your money. It’s their literal raison d’etre. It’s why they exist. 

They take your money, wander off with it and invest it in something better and keep the profits. When you commit to give them money for a year (or some other term) they can put that money into the stock market and know they don’t have to make short term plans to pay you back. 

Why you would want it

Well. This is about as safe as investments get. So safe, you can barely call it an investment. But it’s good for when you have some plans for your money in exactly X months/years. 

Say you want to buy a house in two years. Stock markets give you good returns in the long-term, but who knows where they’ll be by January of next year. CD’s on the other hand, won’t grow much but you know what it will be.

Summary: Ultimate safeness. Poor liquidity <- You lose a lot for the added safety vs bonds!

Savings accounts (0.9%) 

What are they and why they exist

This is kind of like CDs above but super short term. Banks offer slightly better interest rates on cash that’s in your savings account than your checking account.

Unlike with your checking account, you can’t use that money immediately (even if it seems like you can transfer it instantly). It usually takes a day to move it around. So while it’s in that account, the bank assumes it can use it at their will before you come back for it. 

Why you would want it

Hey. Everyone needs some cash just to live life. Pay some bills… Buy some groceries… Have money to buy more rental houses… You know, the usual. It’s cash so it’s not going anywhere.

Summary: Ultimate safeness. Super liquidity. 

Are these smart ways to invest 1 million dollars for guaranteed income though?

These types of investments do have a place in a wealthy person’s portfolio because it’s good to have some “cash”. It’s good to be prepared. Saying there is a way to invest 1 million dollars for guaranteed income also makes the financial advisor feel smart.

I don’t though. It is too painfully low returns. Yeah, I have cash but it’s not an investment. It’s my spending money.

Beware. Being safe is going to hurt you. 

So one thing the “investments” above have in common is that they are incredibly safe. 

They also have incredibly low returns. 0.9% to 2.7%. Blech!

That means the million dollars you worked for hard for is only going to bring in $27K AT BEST! I’m all for living stingy and stealth wealth and all, but this is basically the poverty line! 

Brutal! There’s gotta be a better way to invest 1 million dollars for guaranteed income! So I’ll show you what’s way better.

The pseudo-better way – Debt payments (4% return) 

If you’re a millionaire that still has debt, I ain’t judging. In fact, I say good on you.

You hopefully used some awesome investment to get rich and now you can get conservative if you really want to. If you really want to be guaranteed, pay off your debt.

Here’s why this works for millionaires:

1 – Guaranteed debt = the opposite of guaranteed income. 

Debt usually has monthly payments which are essentially guaranteed NEGATIVE income. If you get rid of that negative income you can grow your NET income.

But only once the debt’s all paid off – which is why it’s only a rich person’s strategy.

2 – My old advice on debt doesn’t work if you want guarantees

In general, I’m pretty comfortable with owning debt because market investment returns can beat debt interest. But if you’re really interested in something guaranteed, these payments will not beat your debt’s interest so you might as well just pay it off. 

MY method to invest 1 million dollars for guaranteed income!

So you might think that having a million dollars means that now you can lean back and stop investing like a normal person but I say NO WAY!

I go into this way more in my How to invest a million dollars guide, but here’s my method.

I don’t really own any “guaranteed investments.” My money’s in rental properties, the stock market, and some normal bonds as an emergency fund.

Normal stuff.

So how do I know I’ll be ok? I bring in more money than I need and I save a lot of money. It’s not really a way to invest 1 million dollars for guaranteed income, but I CAN almost guarantee a massive income.

How is that guaranteed?

• If I had an expensive year, I should be fine.
  • I bring in too much!
• If my investments had a bad year, I should be fine too. 
  • I can dip into my emergency fund if I really need to.
• Every year that’s not horrible: my income grows!
  • Making the other years safer!

To match that ~2% I could get from the guaranteed investments above, I’d only need to live on a quarter of my rental home output. The chances of me losing that are close to zero, so we’re fine. 

And even if the sky really does start falling, I have 18-months of living expenses ready.

So would I recommend investing 1 million dollars for guaranteed income? No.
Would I recommend you have a bigger retirement income than needed? Heck yeah.

Let me write out the numbers to make it clear:

Invest your $1M in stocks

Investing in the stock market index can provide you with a minimum of 4% income from your investment.. (And that’s being SUPER conservative) 

By the way, we’re talking 4% of your total portfolio here. This is according to the 4% rule from Bill Bengen.

It’s not guaranteed income per se, but the index represents the US economy, and that’s certainly not going bankrupt. This will net you an annual average $40,000 for your living expenses. And that beats CDs by a long shot!

Invest your $1M in real estate. 

In my experience, you can make a consistent 8% cash-outflow from cash-flowing real estate. Again. It’s not guaranteed, but I say it’s close. If you have 10+ houses, your expenses will average out to a reliable 8% cash, netting you a cool $80,000 for your living expenses. 

Update: Cobine the world of stocks and real estate with Crowdfunded Real Estate and eREITs – read the full guide and comparison here.

TL;DR – Invest 1 million dollars for guaranteed income? No!

• Short-term bonds, CDs and savings accounts are the safest way
• They also have incredibly low outputs. Like 2%! Ahhhh!
• Paying off your debt is a better way to get rid of your “negative income” 
• But if I were you, I’d go with the usual mix – stocks and real estate. 
• Oh, and if you aren’t a millionaire. Join us and make a million dollars in 5 years.

So what about you? Have you ever tried one of these “guaranteed” investments? What were your thoughts? Leave me a comment below.