Researchers have found that 30% to 40% of households eventually receive an inheritance, and over the next decade or two, the current younger generation are about to receive over $80 trillion from their older forebears.
Although this represents the greatest wealth transfer, there is a lopsidedness to it. The larger population on one end of the spectrum receive less than a few thousand dollars, and a few others on the other end of the spectrum receive a couple of million dollars.
This means that most people receive inheritances that are not large enough to retire on. So how do you make your inheritance count for you?
This blog lays out useful steps for turning your 100k inheritance into a million dollars. Our trusted financial advisor and certified financial planner are also just click away. They can offer you personalized financial guidance.
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning and financial management here. More on disclaimers here.
The range in U.S. inheritance is strangely wide, with the top 1% receiving on average nearly $1 million of the wealth transfer and the closest 9% receiving just over $100k. As a result, several research suggests that the average inheritance is between $100,000 and more than $1 million.
And a good rule of thumb is $100,000 or more is considered a large inheritance. Receiving such a substantial sum of money can potentially feel intimidating, particularly if you’ve never previously had to manage that kind of money.
Before splashing cash on high end cars and your longed-for vacation experience in Hawaii, you might want to consider making your inheritance count.
What if it were possible to conveniently afford that luxury car and expensive vacation several times over? What if you just had to wait a few years for your inheritance to mature as an investment?
Of course, this is best accomplished with the help of professionals such as a financial advisor, a financial planner, or an expert in the real estate market.
An advisor can guide you in wise spending, saving, and investing both in volume and options. For example they can help you decide what you could purchase such as an annuity that would generate income in the near future.
Yes! It is possible to turn 100,000 into $1 million dollars, although it requires a long-term investment strategy and the ability to weather market ups and downs. Depending on the investment, sometimes, you will lose money. But with the right financial advisor, you will ultimately come out on top.
In addition to investment returns and inflation, turning 100k into 1 million successfully involves taking into account several other factors.
You need to ask yourself a few questions such as:
Am I able to live on my current earnings?
What size of debt am I in?
Et cetera.
These will determine if you can put the whole inheritance into good use in terms of investments or if you have to take some out to pay off debts or support yourself.
It's important to remember that investing involves risk and that past performance is not indicative of future results.
But it's always a good idea to consult with a financial advisor who can help you make informed investment decisions that align with your goals and risk tolerance. For example, they can help you identify investment firms that are vetted by the federal deposit insurance corporation.
There's no specific time frame for a 100k investment to mature into 1 million. Your desire and risk tolerance will determine what investments to go for and how long before they can reach your goal.
On average, if you're able to achieve an average annual return of 10% and to re-invest this, it would take a little above 30 years to reach $1 million dollars. This might be convenient for a much younger inheritor who has that much time before they hit the retirement age. But it may not be a good option for those who are near retirement.
However, this is just a rough estimate and the actual time it takes may be shorter or longer depending on your individual circumstances. If you invest in the real estate market, you may achieve this faster.
A $100,000 inheritance could be useful for very different purposes such as paying off debts, putting it into a high-yield savings account, or dumping it into a retirement account. But none of these will multiply your inheritance; even a tax advantaged retirement account will not.
High-interest debt can eat into your returns and slow down your progress towards your goal. Avoid taking on new debt and consider paying off any existing debt as soon as possible.
While it's important to minimize risk, taking some calculated risks can help you achieve higher returns. Consider investing in growth stocks or alternative investments that have the potential for higher returns but also come with higher risk.
Before you start investing, it's important to create a financial plan that outlines your goals, risk tolerance, and investment strategy. This will help you stay focused and on track as you work towards your goal.
Regardless of what time frame you have for your investments to hit $1 million, it's important to be mindful of asset allocation. This refers to the balance of assets in your portfolio in terms of their risks and returns.
Your asset allocation also depends on your investment strategy, which could be either passive or active. For an active hands-on approach, you may want to put more time and effort into trading individual stocks, mutual funds or exchange traded funds for the best returns. For a passive hands-off approach, your investments efforts might be channeled into passive mutual funds such as index funds.
Diversifying investments is key to minimizing risk and maximizing returns. Consider investing in a mix of stocks, bonds, real estate, and alternative investments.
Stock market investments can be a great means to build wealth over time. Creating an emergency fund or looking towards a money market account won't do the job.
Consider investing in low-cost index funds or actively managed mutual funds that align with your investment goals and risk tolerance.
Real estate investing can be a good source of passive income and can help to diversify your portfolio. Consider investing in rental properties or real estate investment trusts (REIT).
The real estate market is a fertile setting for a $100k investment to yield $1 million. And it's possible for this to happen between 5 to 10 years. You can achieve this if you continue to add new properties to your portfolio. And you can consider selling smaller properties to secure more luxurious properties.
The goal is very achievable; with a little time and a little planning. Real estate experts such as Bay Street Capital Holdings' Ila Corcoran can help you with the planning. She's experienced in traditional real estate and has handled some really large real estate transactions. She can easily point you to an income producing real estate.
Building wealth takes time, and it's important to stay disciplined and patient as you work towards your goal. Avoid making impulsive investment decisions and stick to your plan over the long-term.
It's important to remember that there is no guarantee of returns and that past performance is not indicative of future results. It's a good idea to consult with a financial advisor who can help you make informed investment decisions that align with your goals and risk tolerance.
Do this if you truly want to become FIRE; financially independent and retire early.
Endeavour to build your portfolio till it reaches $1.5M. Although inflation is not accounted for, once you pass the $1.5M mark in terms of investments, your average returns should exceed your household income (as well as your typical household expenses). And this means that you don't have to work as much anymore since your money is earning much more than you are. Then you can afford and adopt whichever lifestyle you choose.
Also, since 90% of actively managed funds or portfolios under-perform the S&P, the safest large-long-term-gain way for the average person to turn $100,000 into more may be to invest in an S&P 500 Index fund. But most who have achieved this feat have done so with the help of professionals such as a financial advisor or a financial planner.
Whether you're going for real estate investing or some other kind of investing, working with a professional is essential. There is no better strategy.
If you are in need of experts to guide you, reach out to the team at Bay Street Capital Holdings.
Bay Street Capital Holdings is a Black-owned, independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. The firm manages portfolios with the goal of maintaining and increasing total assets and income with a high priority on minimizing total risk and controlling volatility. Although other advisors emphasize maximizing returns, the team at Bay Street places a higher priority on managing total risk and volatility.
The firm’s founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2022. In California, Bay Street Capital Holdings is the only Black-owned firm out of the twenty firms that received this recognition.
In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail.
Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs. In 2021, Bay Street was shortlisted as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).
https://smartasset.com/investing/how-does-inheritance-work
https://www.bls.gov/osmr/research-papers/2011/pdf/ec110030.pdf
https://www.newretirement.com/retirement/average-inheritance-how-much-are-retirees-leaving-to-heirs/
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