You’ve got $100,000 to invest. Importantly, you’ve also got a goal for that money: to invest it wisely enough that it can help provide monthly income for at least 30 years. What moves should you make to turn that initial sum into long-term income? That’s the question GOBankingRates reader Brad sent in to our Top 100 Money Experts series.
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Luckily for Brad, we knew just who could help him. Andrew Lokenauth is a financial expert who writes TheFinanceNewsletter.com. He’s also the founder of Be Fluent in Finance and a successful investor in his own right. Lokenauth offered Brad a solid, practical framework for wise investing that can lead to sustainable income.
First, Talk to Your Advisor
While Lokenauth had some smart tips for Brad, he’s not privy to the intimate details of Brad’s finances or his personal goals. His first piece of advice: review your overall financial picture with a trusted financial advisor.
Doing so helps identify the key factors that should shape your investment approach — including time horizon, risk tolerance, existing savings and other income sources.
“For example, if you’re already in retirement and this $100K is your primary savings, you’ll likely want a more conservative strategy focused on steady, reliable income,” Lokenauth said. “But if you’re still working and building wealth, you may be able to take on a bit more risk in pursuit of higher returns.”
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Find a Balanced Approach
Brad has likely heard the term “diversification” mentioned as a smart investment strategy, but Lokenauth said it’s especially important when investing a large lump sum for long-term income.
“Spreading your money across different asset classes and income-producing investments can help reduce your overall risk and create a more stable, consistent flow of monthly payments,” he said.
The trade-off: a diversified portfolio may produce slightly lower peak returns than putting everything in one high-performing option. But concentrating all your risk in one area leaves your entire income stream vulnerable if that one investment hits a rough patch.
For Lokenauth, a balanced approach that smooths risk and rewards is best.
“Personally, I tend to recommend a balanced approach — put the majority of the funds into a diversified portfolio of stocks, bonds and other income-oriented assets,” he said. “Also allocate a smaller portion to a higher-risk, higher-reward investment that could supercharge your monthly payouts.”
Examine Your Income Options
Lokenauth also suggests Brad reviews the main income-generating investment options with his advisor to see which best align with his goals and comfort level.
- Dividend stocks: “These can provide a nice, steady stream of monthly or quarterly dividend payments, plus potential for long-term appreciation,” he said. “The trade-off is higher volatility and risk compared to bonds.”
- Bonds: “Government, corporate and municipal bonds offer more stability and predictable income, but lower overall returns,” Lokenauth said. “Great for risk-averse investors or as a portfolio diversifier.”
- Annuities: Lokenauth said annuities can lock in a guaranteed lifetime income stream, which can benefit retirees. However, you give up liquidity and control of your principal and may pay high fees for that guarantee.
- Real estate: Acquiring rental properties can bring in steady cash flow every month — provided you have the time, energy and ability to handle hands-on management and maintenance. These investments also come with a fair share of risk and volatility.
“The best approach is usually to blend a few of these together to create a diversified, balanced portfolio optimized for reliable monthly income,” said Lokenauth.
Factor In Fees, Taxes and Inflation
As Brad embarks on his investment journey, Lokenauth wants him to be aware of factors such as taxes, inflation and any required minimum distributions related to retirement accounts. By accounting for these hidden fees, expenses and withdrawals in his strategy up front, Brad can avoid costly surprises down the line.
The Bottom Line
Lokenauth also has parting words of wisdom for Brad: “Don’t be afraid to start small and gradually build up your monthly income over time.”
By working with a financial advisor to develop a diversified, income-oriented portfolio, Brad can turn his initial investment into sustainable monthly income for life.
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here’s How To Turn $100K Into Monthly Income for Life
