Quora Answer: What is the Best Way to Invest $500,000 if I Have No Time to Manage My Funds?

The following is my answer to a Quora question: “What is the best way to invest $500,000?  I assume $500,000 is less than the amount most professional personal wealth managers are interested in working with.  I am 29 years old, and I am busy enough on a daily basis that I cannot spend a lot of my time managing it.”

There is no real “best” way.  “Best” depends on your investment horizon, risk appetite and investment goals.  Also, it is dependent on your geographic location and how you want to spend the money you earn, the liquidity of the securities.  Assuming that you want to put all that money in, there are several types of investments that you can consider depending also on their availability.

The most conventional, and everyone is some form of an “expert”, would be to put that money in the market.  These include various types of funds, and both asset and debt securities, including derivatives.  Whilst there is a tremendous potential for returns, there is also a good chance you can lose everything, particular if you get involved in leveraged products such as various forms of derivatives, and collateralised debt obligation.  The safest way is to put the money in funds instead of directly putting it in any security.  This allows you to spread the risk so that a sudden turn in the market in one area will not result in substantial losses on your part.

Some people would recommend property or land.  However, you must note that unless this is REITs, and even with them, liquidity is an issue; you do not have the option of unscheduled withdrawals without the risk of substantial loss.  Also, unless you know property and have experience transacting deals, I would recommend that you avoid it.

There are investment bankers who specialise in mass affluent products and with $500,000, you would qualify.  In general, however, we must remember that the banks are not to make you money; the banks are there to make themselves money – with your money.  The returns on the first two will substantially outperform any product a bank offers for the $500,000 bracket.  Even if the bank manages your funds, and puts it in a fund or an investment-linked product, they charge a substantial management fee.  You would be better off dealing directly with the fund managers or the insurance company.

Insurance companies have special products for mass affluent clients that offer substantially better returns than what they offer other clients.  A single premium of $500,000 for example, creates an immediate estate of approximately four times that, and is still liquid in and off itself since you can leverage off the policy loan, and put the money elsewhere to earn from two sources.  The money in that single premium is also guaranteed an annual return of between 4 to 5%, and a non-guaranteed of substantially more.  Essentially, it will always make money.  This is as close to capital guaranteed as you can get.

Pulling off such an investment feat, however, is not easy.  Not every financial consultant or insurance agent can structure such a product, since it requires experience and knowledge of different categories of financial products.  But if done properly, you have a relatively low risk investment than returns above market.  It will not be spectacular since “spectacular” means high risk, but it will be comfortable.

One final aspect of investments that many people forget is taxation.  Depending on where you are, capital gains may not be taxed, so it is important to know your tax liability wherever you are before putting your money in something.  It is also important to know about that there are different levels of management fees, and it is important to understand where you can cut your costs there.  For example, a bank adds a layer of management fee as opposed to going direct to a fund.  Or, an insurance plan, whilst very attractive, has a mortality charge that increases with age.  To get around this, you can consider buying the plan for a younger person of insurable interest, and make yourself a member, for example.