Investing $400k is a great way to build long-term wealth if done properly. With the right investment vehicles and strategies, a $400k portfolio can generate sizable returns over time through compounding. However, investing such a large sum also requires careful planning and risk management. Here are some tips on how to effectively invest $400k.
Asset allocation is key for $400k portfolio
A proper asset allocation that matches your risk tolerance and time horizon is essential when investing $400k. A good starting point is having 60-70% in stocks, 20-30% in bonds, and 5-10% in alternative assets like real estate. Within stocks, further diversify into US, international, emerging markets, and across market caps, sectors and styles. Regular rebalancing back to target allocations is also crucial.
Use broad market index funds and ETFs
For the stock portion, utilize low-cost, broad market index mutual funds and ETFs. Funds like VTI and VXUS provide instant diversification across thousands of stocks while keeping expenses minimal. Actively managed funds generally underperform and cost more. Stay away from stock picking unless you really know what you’re doing.
Add some bonds for stability
Bonds lower overall portfolio risk and provide steady income. Bond funds like BND, AGG and BNDX are great fixed income options. Shorten duration when rates are rising. High quality corporate and municipal bonds can enhance diversification as well. Don’t ignore this asset class.
Alternative investments in moderation
Small allocations to alternative assets like real estate, gold and private equity can boost returns while reducing volatility. But limit exposure to 5-10% due to higher costs and lower liquidity. Index funds like REET and GLD provide easy access to real estate and gold exposure.
In summary, a $400k portfolio should emphasize broad stock and bond market index funds while adding some alternative asset exposure. Maintain an appropriate asset allocation, utilize low-cost vehicles, rebalance periodically, and you will be on the path to growing your wealth over the long run.