How To Invest 1 Million Dollars?

Not surprisingly, the US lost 1.8 millionaires in 2022 when the stock market fell by approximately 20% but in 2023 it came roaring back, so for those lucky enough to still have a million dollars to invest, the question is how?

We explore the various ways to to invest one million dollars, and unearth the amount of interest that can be earned monthly and annually, as well as the best ways to safely do so.

What Is The Safest Way To Invest 1 Million Dollars?

An insured bank account ranks as the safest home for your money. When your money is protected by the FDIC, it means the US government backs your cash even if the bank fails, as Silicon Valley Bank did earlier this year. 

Even though a checking account with a major bank is considered safe, it doesn’t offer much by way of returns. Certificates of Deposit (CDs) and high-yield savings accounts are bank offerings that can provide better yields along with the security of an FDIC-insured account.

A 1-year CD is currently available at rates of around 5.8%, so if you invested $1 million at that rate, you would earn $58,000 after 12 months.

The downside of a CD is that there are penalties if you want to withdraw any of your money early. So a CD would only be ideal if you don’t need your money immediately.

A high-yield savings account can offer more flexibility at a still respectable interest rate. With many high-yield savings accounts in or around a 5% annual yield, you get both near-CD yields and the flexibility to withdraw your money if needed.

How Much Interest Does 1 Million Dollars Earn Per Year?

Aside from CDs and high-yield savings accounts, several other relatively safe investment vehicles are available to investors. Bonds, especially treasury bonds, offer another secure way to grow your funds. When you buy a corporate bond, you’re making a loan to a company whereas a government bonds means Uncle Sam gets to use your capital in return for the promise of a higher payout later.

10-year treasury bonds are currently trading at 4.32% yields. So, say you buy treasury bonds worth $1 million. You’ll get back a portion of your million every six months plus 4.23% in annual interest income ($42,300) over the following decade. 

Diversifying your investment portfolio is crucial, and bonds have been a longstanding cornerstone of diversification. Still, bonds do have drawbacks.

Over ten years, even a 4.3% return could drastically underperform the stock market. In addition, inflation can outstrip long-term low-yield investments like bonds. 

Can You Live Off The Interest Of 1 Million Dollars?

People often talk about living off the interest if they hit an unexpected windfall like the lottery. But can you live off of the interest earned on 1 million dollars? 

Living off of a million is very possible with a diversified portfolio of CDs, high-yield savings accounts, and bonds. This relatively safe mix could provide a predictable return in the order of 5-6%.

It’s worth noting that inflation and the cost of living continuously rise so while $50,000 to $60,000 might be enough for some people to live on each year, it won’t go as far as time goes by because inflation will erode purchasing power.

That’s why many investors turn to the stock market, which has historically delivered a 10% annual return, although the past ten years have delivered an over 12.3% return. That means you could have made an average of $123,000 per year over the past decade if you left your million invested in the S&P 500.

But the past isn’t always the best guideline to make future investment decisions and 2022 showed how drawdowns can apparently come out of nowhere. Significant and consistent returns aren’t guaranteed. For instance, you might gain $200,000 one year but only $40,000 the next, or worse lose $200,000 as happened last year on a starting investment of a million.

While you could gain $120,000 annually on average, it takes a disciplined investor to weather the storm.

Best Thing You Can Do With Your 1 Million Dollars?

If lucky and smart enough to reach a million, you may question what to do. In general, the best way to go is to live off the interest from a CD or a high-yield savings account because you will be protecting principal while still earning income. If you’re a speculator willing to take risks, the stock market offers historically higher returns. 

Another common investment that holds a lot of promise to millionaires is real estate, which has generally averaged a 10% annual return as well. This can be a result of appreciation of the property over time or income in the form of rent.

The downside of real estate is that it generally requires more active involvement do stocks and bonds. When owning property, you must maintain it. That can be very costly, and not everyone has the skills or the inclination to be a landlord. 

How Much Monthly Income Will 1 Million Dollars Generate?

While a stock investment could generate a 10% annual return or $100,000 per year on $1 million, the volatility is too harsh for many investors. But $50,000 a year from bonds or CDs might be too low. That’s why so many investors look for the best of both worlds through portfolio diversification.

Diversification means spreading your money across multiple investments. It’s a common practice because it allows you to benefit from stock market gains while still experiencing the safety that bonds and CDs can provide.

For many years, financial advisors recommended the 60/40 rule. That means investing 60% of your money in stocks and 40% in bonds. Even though it might seem like the high concentration of bonds might drag returns down, the 60/40 portfolio was returning around 8.7% until 2022.

That means $87,000 a year, or almost $7,500 in monthly income, from your $1 million, and it’s much safer than investing in stocks alone.

While there is much controversy around whether the 60/40 portfolio is still the best investment strategy, the consensus among financial advisors is to keep a balanced portfolio.

Can I Retire at 45 With 1 Million Dollars?

Your ability to retire at 45 will, of course, depends on primarily on your expenses. If you have multiple children and you’re still assisting with expenses and college, it won’t be easy to retire at 45 safely. But if you’re frugal and disciplined, making $1 million last using safe investments may be possible.

But because there can be so many unexpected significant expenses in life, it can be hard to meet your budget consistently, even for disciplined investors. While it may be challenging, retiring at 45 with $1 million and pursuing your dreams can be possible, especially if you live in a lower cost of living area.

Using a 60/40 balanced portfolio, if you earned $87,000 on average annually, ask yourself if you could pay the bills after taxes, and ideally have some dry powder leftover. If not, you might want to keep earning income before hanging up the professional boots, so to speak. 

Can I Retire at 60 With 1 Million Dollars?

While retirement at 45 may be a stretch, 60 is much more doable. Still, because people are living longer and longer, it will require discipline to ensure you don’t overreach and leave yourself open to financial hardship in the last years of your life.

Depleting your funds early can be even harder on you the older you get because it becomes tougher to find higher-paying employment. But for most investors, $1 million at 60 will be enough to fund a comfortable retirement.

Is 1.5 Million Dollars Enough To Retire at 65?

If you have a little more money and shortened time span, you are more likely to meet your retirement goals. It’s still important to be disciplined and protect your assets for yourself and your heirs.

Sticking to established investing strategies like diversification and understanding your goals and desires will help you make the most of your retirement years.

With $1,500,000 using a 60/40 stocks and bonds composition, earning $135,000 pre-tax annually is quite possible. Check with your tax accountant to see what your take home income would be and if your monthly budget falls below your monthly income, retiring at 65 with $1,500,000 may be very possible.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.