Investment Options and Potential Returns on $500,000

Whether you’re planning for the future or have already built a strong financial foundation, making thoughtful decisions with your money is always a smart move. If you have $500,000 to invest, putting those funds to work can set you up for long-term growth and financial security. Using SmartAsset’s investment calculator, we explored what returns you might expect from some of the most effective ways to invest half a million dollars. And if you want tailored guidance, working with a financial advisor can help you develop a strategy that fits your goals and risk tolerance.

An S&P 500 Index Fund

Average Rate of Return: Over the past 10 years, the S&P 500 has had an average rate of return of around 10%, historically.

Total Portfolio After 10 Years: $1.296 Million (a gain of nearly $800,000)

Active investors, defined as people who trade individual assets to beat the market, underperform the market on an overwhelming 9-to-1 ratio. This means that if you go out and buy individual assets, nine times out of 10 you will make less money than if you had simply invested in the market itself and held on for an equivalent length of time. The market, usually defined by either the S&P 500 or the Dow Jones Industrial Average, has historically outperformed almost every other asset over the long run.

Just as one example, real estate prices nearly doubled between 2010 and 2022. As we’ll discuss later, this makes real estate one of the best assets you can buy. However, the S&P 500 has nearly quadrupled in that same period, jumping from around 1,300 points in 2012 to more than 5,200 at the time of writing.

It may not be the most exciting option, but the numbers don’t lie. A good index fund is one of the best investments you can make.

Private Equity or Hedge Funds

Average Rate of Return: This is more difficult to calculate. By their nature, private equity firms and hedge funds don’t always report their losses and earnings. However, most estimates suggest that you can expect average returns of up to 14%.

Total Portfolio After 10 Years: $1.85 Million (a gain of $1.35 million)

If you have $500,000 to invest, there’s a good chance that you meet the criteria for an “accredited investor.” The SEC defines this as an investor whose annual income exceeds $200,000 when filing single or $300,000 when filing joint, who has more than $1 million in household assets, or who holds a position that indicates sophisticated market knowledge (for example if you’re an officer with an investment bank).

Many higher-risk assets are restricted to accredited investors because the SEC considers them to be more insulated from those risks. If you’re an accredited investor, you’re more likely to know what you’re getting into or at least have enough money that you can handle losses.

For those investors, private equity firms and hedge funds offer the potential for significant gains. These companies invest in assets outside of the traditional market, like startups, loan origination and real estate. They can post average returns of around 12% to 14%, making them potentially strong investments for high-net-worth households. (Currently, this is equivalent to investing in the stock market. Historically, this has beaten S&P 500 returns by between five and seven points.)

Just remember: These assets are restricted for a reason. These potentially outstanding gains come with the potential for real loss. Invest accordingly.

Individual Businesses

An investor looking for the best return on a 500k investment.

Average Rate of Return: We can’t really give you hard numbers on this one. Investing in a new business can post high returns or high losses. It depends entirely on the individual business. Estimates on successful startup investments can range as high as an annual 40% rate of return. However, we can’t quote or source this with any confidence.

Total Portfolio After 10 Years: This one depends on the individual investment.

Climbing the ladder of risk vs. reward, we’ll get to potentially the riskiest but potentially the most rewarding option on offer: individual startups.

Investing in an individual business can take many forms. Many investors do this based on relationships. They have money to invest, so they look for people with an idea who they can trust and believe in. Often that connection comes from someone’s personal or professional network. Other investors find new businesses through third-party networks, they have firms or brokers who help them find startups to buy into.

In either case, investing in a new business generally means buying equity in this new company. You give them your money in exchange for an ownership stake, or at least a pledged percentage of future profits. If the company does well, this can be by far the most rewarding investment on the market today. If it does not, this can lead to some of the most comprehensive losses on the market.

Not for the faint of heart, investing in entrepreneurs is a great way to take a big swing.

Real Estate

Average Rate of Return: Real estate continues to be a popular and potentially lucrative option for high-dollar investors. We can look at returns in two ways:

Direct Property Investment: According to the Federal Housing Finance Agency (FHFA) and Federal Reserve data, U.S. home prices have risen by about 88% over the past 10 years. That represents an average annual appreciation of roughly 6.5% for residential real estate. Of course, gains can vary significantly depending on location, property type and market conditions.
REITs and Real Estate Securities: The Dow Jones U.S. Real Estate Index, which tracks real estate investment trusts (REITs) and related securities, posted a 10-year annualized return of approximately 6.3% as of 2024.

Total Portfolio After 10 Years: As we did above, let’s break down potential real estate returns into two separate categories:

REITs: At a 6.3% annual return, a $500,000 investment in REITs could grow to approximately $914,000 after 10 years.
Direct Property Investment: At a 6.5% appreciation rate, investing $500,000 in property could yield a portfolio worth around $935,000 after 10 years — assuming a straightforward buy-and-hold strategy and excluding rental income, taxes and maintenance costs.

Real estate remains one of the most popular destinations for large sums of capital. It’s historically viewed as a stable, long-term growth asset. Events like the 2008 housing crisis challenged the belief that property values always rise. But the long-term trend for real estate continues to be upward, particularly in high-demand metro areas.

Real estate also has high barriers to entry. Whether you’re purchasing raw land or a condo in Los Angeles, you’ll need substantial liquidity. Even if you take out a mortgage, lenders typically require a sizable down payment. And the more you finance, the more your returns are diminished by interest payments. Simply put, the more cash you can put into the property up front, the more profitable the investment is likely to be.

Despite its illiquidity and the complexity of managing property, real estate offers the potential for capital appreciation, rental income, and tax advantages. With housing prices still high in many markets and demand for rental units strong, real estate remains a compelling asset class for investors with the funds to participate.

Will real estate values continue to climb at the same pace? No one can say for sure. But with the right market selection and strategy, real estate can still be a valuable piece of a diversified portfolio.

Bottom Line

Real estate is potentially one of the investments you could consider for a return on a 500k investment.

With $500,000 on hand, several investment options open up to you. Just a few of the strongest include a safe, but typically profitable, index fund, investing in or being an entrepreneur, buying real estate or seeking out hedge funds and private equity.

Investing Tips

Index funds are always a strong investment option, but at the time of writing, they were performing historically well. A 14% annual rate of growth is double what investors have historically gotten from their S&P 500 funds. That makes this a good time to look into that section of the market.
No matter how much money you have, it’s always smart to seek out sound advice. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.