How to Invest $3 Million

Acquiring $3 million is a significant financial milestone that opens up a world of investment opportunities. You may have built this wealth through hard work, a business sale, or inheritance. Sound investment decisions help you preserve and grow your capital. With a well-thought-out strategy, you can achieve financial security, generate passive income and even leave a lasting legacy. From traditional options like stocks and real estate to alternative investments such as private equity and hedge funds, each choice comes with its own set of risks and rewards.

A financial advisor can help you allocate your assets in a way that fits your goals, timeline and risk profile.

Retire On Index Funds

Index funds are some of the most stable investments you can make over time, yet on an annual basis even these can be unpredictable. Between 2022 and 2024, the S&P 500 posted annual returns of -18.11%, 26.29%, and 25.02%. A $3 million investment in a strong S&P 500 index fund would have lost $543,300 in 2022, gained $645,866 in 2023 and gained $776,262 in 2024.

Careful investors may find opportunities here.

On average a mainstream index fund will issue strong returns for investors and will generally trend up. While recent years have seen particularly strong growth in stock market investments, the S&P 500 has returned about 10.53% on average since its inception in 1957. A $3 million portfolio generating a 10.53% annual return can provide enough income for retirement. A 10.53% annual return generates over $315,000 in growth, which you can withdraw. The principal remains invested and continues to generate returns.

Here’s the upshot: An S&P 500 index fund is a relatively reliable investment over the long term. With $3 million to invest, you have enough money to generate a very comfortable income from its returns. However, you must plan for annual fluctuations in the market. When your returns exceed 10% in a given year, put that excess aside to draw on in years when the market takes a dip. Do that and you can live indefinitely off the proceeds from this nest egg.

Invest in a Business

Now that we’ve looked at one of your most conservative options, let’s go in the other direction.

One of the most potentially lucrative investments on the market is business investment. Helping someone to launch a successful product or business can increase your money by orders of magnitude … if you invest in the right company. Funding the next Google or Facebook could multiply your $3 million. Investing in a corner video rental store, on the other hand, is less likely to pay off.

Funding a business is as high-risk as it is high-reward. Depending on how you read the statistics, anywhere from many to most startups fail, taking their seed money with them. At the same time, this kind of investment often jumps off of personal relationships. You need to find the people with that next big idea in order to buy into them. By the time you could find someone like this online, it’s usually too late.

If taking that big swing sounds exciting, most major cities have innovation hubs and incubators that specifically foster startup communities. The same is true of major universities, which often have programs for students trying to launch their own businesses. As a potential angel investor, you will likely be welcomed into these circles. Attend events, connect with incubator organizers and professors and meet entrepreneurs in your community.

Take this process slowly. Meet people, hear ideas and be ready to move once someone comes to you with the right pitch.

Invest in Real Estate

Real estate is one of the most popular high-end investments on the market. While it costs a lot of money to get into the real estate market, you can defer many up-front costs with debt. That is, if a property costs $1 million, you might only need to put up $200,000 of your own money and can finance the rest through a mortgage.

This is also a difficult asset class. In the right market, real estate can provide some of the strongest returns of any investment. Nationwide, the median home sales price has increased more than 87%, according to the Federal Reserve Bank of St. Louis. These numbers are stronger in some areas, like high-cost cities, and weaker in others, such as rural communities.

Investors in real estate can seek their returns through capital gains or income investing.

Through capital gains you will buy property in hopes of appreciation. Some investors simply hold their property and allow the market to appreciate around it, while others make capital improvements to the property to increase its value. You then sell it for a profit. With income investing, you buy real estate to generate rental income, often by renting the property to commercial or residential tenants. A management company can handle operations, keeping a share of the rent and sending you the remainder as passive income. Generating revenue is a slower way to capitalize on your investment, but in the long run, it can often be more lucrative.

That said, real estate can be a very high-risk investment. Like investing in a startup business, when real estate works it can be extremely profitable. However, when a real estate investment fails it can cost you a lot of money in losses.

Build a Portfolio of Private Investments

Private investments include assets that aren’t publicly traded, giving investors a chance for greater diversification and higher returns. Only accredited investors can typically access these options because of their risk and limited liquidity.

An accredited investor is an individual or entity that meets certain financial criteria, such as having a net worth of over $1 million (excluding their primary residence) or an annual income of $200,000 ($300,000 if combined with a spouse). This designation allows access to private markets, which can include a variety of investment options.

Private equity: Private equity means investing in private companies or buying public companies to take them private. Investors work to improve these companies and sell them later for a profit.
Venture capital: Focuses on funding startups and early-stage companies with high growth potential. While the risks are significant, the rewards can be substantial if the company succeeds.
Real estate: Real estate investments in private markets can include commercial properties, multi-family units or real estate development projects. These investments often provide income through rents and capital appreciation.
Hedge funds: Hedge funds offer strategies that include equities, commodities, and derivatives. These funds aim to generate high returns regardless of market conditions, though they come with higher fees and risks.
Direct lending: Direct lending is also gaining popularity, where investors provide loans to businesses or individuals, earning interest income. This can be an attractive option for those seeking regular cash flow.

Private market investing requires thorough research, as these assets are less regulated and information can be scarce. Lock-up periods are also common, which may tie up your capital for years. For accredited investors willing to accept the risks, private investments can add value to a diversified portfolio by offering unique opportunities not found in public markets.

Bottom Line

Access to millions of dollars, unsurprisingly, opens up a wide variety of investment options. Even if you just want to imagine how you might invest that kind of cash, looking into options like real estate, business creation and accredited investments is worth exploring.

Investing Tips

This is a fun thought exercise, but the best way to make a million dollars isn’t to plan for how you’ll spend it. It’s to plan for how you’ll get it. That’s where a financial advisor can offer value. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and 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.
Use our free asset allocation calculator to get a quick estimate of how your $3 million should be invested based on your risk tolerance.