Quora Answer: What is the Best Way to Invest $1 Million, in Regards to Safety & Return?

The following is my answer to a Quora question: “What is the best way to invest $1 million, in regards to safety and return?”

There is no singular “best” way.  That is dependent on your investment horizon and risk tolerance, where you are based and the tax code.  However, there are some options to consider.

Firstly, you have to consider the type of investment.  If you want to create an immediate estate, that you can consider an investment-linked plan of sorts.  These are funds with an insurance element. Hey may be structured in various ways.  They share all the advantages of a mutual fund, including liquidity.  If you do not want to pay the mortality charges, then invest in a mutual fund.  They have the advantage of spreading your risk across markets and sectors.  A good fund can give you at least 4 to 6% per annum.  A good ILP gives you 33% over 15 years, and 60% over 20 years.

I would never recommend a direct investment into selected counters unless you actually know what you are doing, are familiar with the business and the market and have an exit strategy.  Bonds and fixed deposits, while safe, have every low returns, and when you factor in the inflation rate, and currency exposure, if any, you are likely to have made a significant loss over an intermediate to long investment horizon.  A good alternative, should you be able to get access to that market, is fine art.  This means putting your money into select pieces by select artists.  The ROI can be in excess of 50% over 6 months.  The authentication and appraisal papers are securities in and of themselves and can be traded.

Secondly, you have to consider the type of securities.  It is sensible to have a mix of equity and debt securities.  This ensures that when one end of the market goes down, the other goes up and you have some stability.  A second type of mix is the risk exposure.  You should have at least 20% of your securities in low risk funds, and not more than 20% in high risk.  Keep the rest in balanced funds.  This is a relatively conservative style, but it ensures that until you get a hang of it, you do not over-leverage yourself and end up with nothing.

As far as possible, stay away from derivatives.  Whilst they afford an opportunity for multiplied gains, they also have much higher risk due to leveraging.  Whilst it is never said, most of these movement are based on some form of market intelligence that the average investor will not have access to.  In the long run, you have a much greater risk of actually making losses as opposed to gains.