May 27, 2014 Kevin Mercadante

Close your eyes for a moment, and imagine that you have a million dollars to invest. What would you do – and what would you do that’s different from what you’re doing right now?

The idea, and the question that follows it, are more than just imaginary. In today’s financial and monetary climate, you may one day find yourself with a million dollars or more to invest. The time to figure that out is before you have that kind of money. And that’s really what we’ll consider doing today.

Don’t get crazy you have plenty to lose!

It could be argued that you should do the very same thing with a million dollars as you would do with $100,000, or even $10,000. Yes, that could be said – but I completely disagree.

When you have an amount like a million dollars, something fundamental changes: you have a lot to lose. That means that you need to do things differently. It’s one thing to make mistakes and lose $10,000. It’s quite another to do that with a million dollars. If you’re lucky, that kind of money will pass through your hands once in your life. Blow it, and you may never have another chance again.

That thought alone should make you do things differently. More specifically, what you want to do is to grow the money gradually but securely, rather than taking ridiculous chances, like trying to double your money in five years.

Invest for income  and growth

One thing that doesn’t change no matter how large or small your investment portfolio is, is that inflation will reduce the purchasing power of whatever money that you have. For that reason, you must invest for growth. At the same time, a portfolio as large as $1 million should provide some income for your current enjoyment.

If you can achieve an optimal balance, it should provide growth to increase the value of your portfolio, while the income portion provides for your current living expenses.

Since fixed rate type investments are paying close to nothing in interest, your best bet here is growth and income stocks. These are stocks that pay fairly large dividends, but are also represented by companies that have above average growth prospects. In addition, dividends can help preserve the value of a stock during market downturns. It can be a perfect example of an investment that allows you to live off the interest, while building your portfolio through growth.

Growth and income stocks should represent the biggest holding in your portfolio, probably 50% or more of the total.

Spread your stocks over the sectors with the best prospects

In addition to investing in growth and income stocks, you should also spread your holdings across various sectors. Much of your growth and income portfolio should be invested in various sectors, but you can invest additional capital in sectors where dividend flows are not typically expected.

The type of sectors that you want should be the type that represent value over the long haul – like decades – rather than just in the latest market cycle.

Some stock sectors that have withstood the test of time, and should have a place in a million-dollar portfolio include:

• Energy
• Utilities
• Emerging markets
• Technology
• Healthcare

There are others, so be sure to investigate the possibilities.

Cover yourself for the worst case scenario

At least some of your money should be invested in what you might want to consider to be “investment fail-safes”. These are investments that would help you to weather general declines in the financial markets, such as those seen during the 1930s, the 1970s, and the twin bear markets/crashes of the early 2000’s.

This portion of your portfolio should include US Treasury securities. which would provide some protection in the event of a general price deflation, such as what was seen in the 1930s. At the opposite end of the spectrum, you should also have a position in gold. This will help to protect your portfolio in the event of an inflationary environment, such as that seen in the 1970s.

It’s worth noting that gold performed extremely well during the schizophrenic financial markets of 2000 through 2011. Gold also held its own during the deflationary 1930s. Theres a message in there somewhere.

A small position in gold. and a larger position in treasury securities can go a long way toward protecting your million dollars from the two financial extremes of inflation and deflation.

Invest a small portion in high risk/high return speculations

A small percentage of your million dollars – probably no more than 5% or 10% – should be invested in more speculative vehicles. This would include stocks and other investments that have the potential to offer 50-to-1 returns, but could just as likely wipe out completely.

The idea is to spread your money out among 10 to 20 of these speculations, with the idea that you will be way ahead if just one or two hit it big. This kind of speculating could provide a nice supplement to the growth that is provided by your growth and income stocks.

Remember to reinvest

No matter how well you do with your investments, you should always remember to reinvest money, so that your million dollar portfolio will grow steadily over time. This is the best way to ensure that your million dollars will always be worth at least million dollars.

It’s always important to make sure that you are reaping some direct benefits from any financial venture that you have. That would include the investment returns on a million-dollar portfolio. Some should be taken out for current living expenses and enjoyment – after all, none of us know how much time we have in this world.

The worst of all possible alternatives would be if you were so impressed with the amount of money that one million dollars represents, that you end up spending all of your investment income, under the misguided notion that a million dollars will always be enough. Always be sure to reinvest in your portfolio at a level that is at least consistent with the rate of inflation.

How would you invest a million dollars?

P.S. If you currently own any type of IRA or 401k account, learn how you can place precious metals and real estate into one of these accounts, click here to learn more.