Ways to Invest and Use $5 Million

$5 million may sound like a vast sum, but without proper financial planning, it can deplete faster than expected. However, with smart investment strategies, you can make that wealth last for decades—potentially securing your financial future and allowing you to retire comfortably. Regardless of your current age, disciplined investing and prudent money management can help you sustain your wealth while enjoying life with family and friends. With the right approach, patience, and financial knowledge, $5 million can provide long-term security and financial freedom.

For help managing your $5 million, consider working with a financial advisor.

Build a Balanced Portfolio

The most important part of investing, no matter how much money you have, is to focus on asset allocation. This means keeping a balance of various asset types. This namely covers your split between riskier options, like stocks, and safer but less lucrative investments, like bonds.

Generally speaking, while you’re younger, you’ll want to invest more heavily in stocks. With many years left in your life and before retirement, you can take more risks, as you’ll have plenty of time to ride out any market downturns.

As you get older, wealth preservation becomes more important, and you’ll want to shift your asset allocation more towards bonds and other fixed-income investments that will likely not lead to your money disappearing, even in the short term.

Diversification Is Key

Diversification can help you spread risk and support more stable returns.

Another important part of investing, regardless of how much money you’re working with, is to make sure your portfolio is diversified. This means you need to invest in various companies and financial instruments, rather than putting all of your money into one industry, sector or company. This will protect your portfolio from large market losses in specific sectors, like healthcare.

Think of it like this: If you invest all of your money in the ABC Widget Company and it ends up going bankrupt, you’ll have lost all of your money. If you divide your money among five different firms, especially if they are in different industries, one company going south won’t destroy your entire portfolio.

Focus on Index Funds and ETFs

Diversification can mean that you end up having to research a lot of companies, which is a lot of work. Furthermore, there’s no guarantee that you’ll make the right choices. An easy way to build a diversified portfolio is to use index-driven funds or exchange-traded funds (ETFs).

An indexed fund follows a market index, which is a group of companies on a stock exchange that investment professionals follow. Examples of indexes include the Dow Jones Industrial Average and the S&P 500.

Some indexes track certain sectors, such as technology, healthcare or energy. An index fund invests across this index, so your investment will grow or shrink along with the overall market. If you put your money in indexed funds for the long run your portfolio is likely to grow.

Incorporate CDs into Your Portfolio

Certificates of deposit (CDs) aren’t the most exciting investment, but if you’re looking to make your money last for the rest of your life they are safe investments that both force you to save, and they provide solid – if unspectacular – growth.

CDs are financial instruments available from most banks. Essentially, you give the bank a sum of money and it holds on to it for a predetermined amount of time. The time frame can range from a few months to decades. The rate of return is generally low, but it’s guaranteed as long as you keep the money in for a specific time frame. There are significant penalties for early withdrawals, so there are major incentives to keep your money there.

Buying a few CDs – or perhaps creating a CD ladder, which is a series of CD investments with staggered maturity dates – will create guaranteed and steady returns and allow you to save some of your money in a place you essentially cannot touch it. Another bonus of CDs: they are FDIC-insured up to $250,000.

Annuities Are an Option

Annuities can provide steady income in retirement, sometimes for life.

Annuities can seem complex, but they are an easy way to create a guaranteed income stream. They contracts are purchased from insurance companies and carry a monthly, annual or one-time premium In exchange, you receive steady income, beginning either immediately or later in life.

There are various types of annuities that you can explore with a financial advisor to determine which is right for you, but popular options include fixed and variable annuities. Whichever type you choose, annuities can be a solid way to ensure your money lasts a long time.

Investing in Real Estate

One of the most important investments you can make is real estate. This can be a primary residence or a rental property.

If you invest in real estate well, your investment is highly likely to grow over time – especially if you are able to buy with no money down. Then, when you are older, you can sell these properties and likely see a big gain.

Rental properties can provide you with a steady stream of income throughout your life. However, being a landlord does require management for upkeep and maintenance. Be sure to factor in those costs when considering making it one of your investments.

Tax Planning for a $5 Million Portfolio

When you hold a $5 million portfolio, tax management is just as important as how you choose your investments.

Without a clear tax strategy, annual liabilities can eat away at returns and shorten the life of your portfolio. However, with smart planning, you can keep more of your money working for you while extending how long your wealth lasts.

Tax-advantaged accounts are one tool. Even with a high net worth, contributions to 401(k)s, IRAs or HSAs can lower taxable income, giving your investments room to grow without immediate tax drag. Roth conversions may also make sense, as they allow money to be shifted into accounts where future withdrawals are tax-free.

The type of investment matters, too. Selling stocks, funds or real estate can trigger capital gains. Timing those sales, offsetting gains with losses and using long-term holding periods can all help lower your tax liability.

Municipal bonds are another kind of investment that can provide steady income. They are exempt from federal taxes, which may appeal to high-net-worth investors.

Estate planning ties in with taxes, as well. A $5 million portfolio that continues to grow could face exposure to estate taxes, depending on future exemption limits. Strategies including charitable giving, trusts and lifetime gifting strategies can all reduce that impact while aligning with long-term financial goals.

With proper planning, taxes become another tool to manage wealth rather than drain it.

Bottom Line

If you have $5 million to invest, the most important thing to remember is that diversification is key. For the best protection, look for a variety of investments with a range of risk levels. Diversifying your portfolio, possibly through CDs, index funds or annuities, can provide you with a roadmap to a financially secure future. This way, you can enjoy your sunset years with family and friends instead of worrying about earning income.

Investment Tips

Financial help is a good idea for anyone, but especially for those looking to invest big sums. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted 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.
Still working at a job? Don’t forget to use a workplace retirement account like a 401(k), if you have access to one. This is a tax-efficient way to put money aside. Make sure you take advantage of any employer match available to you as well.