How to Invest $100k | Investing for Passive Income

by Christopher Levarek

“The biggest risk is not taking any risk.”

Mark Zuckerberg

There are 7.753 billion people in the world according to data by World Bank for 2020. I’m sure that number is already much higher in 2021. Think how many different viewpoints, ideas and goals are created every single day. That’s the beauty of the world, no two people will have the exact same idea of success. This creates opportunity in the investment realm.

This opportunity is balanced on a tightrope called risk. Take too much risk and you could lose it all to said opportunity. Take no risk and you could never see any opportunity at all. So where do investments sit as far as risk according to type? How does one know where to invest?

Today, we look at the varying types of investments and how to invest 100k for maximum success and diversification. By the end of this article, you should have a good idea as to which types of investments you favor and whether that meets your goals for investing. Let’s jump in.

Investment types : The Risk vs. Reward

At a high level, asset classes carry inherent risk as well potential reward. See the graph below which demonstrates this risk/reward relationship :

Real estate falls somewhere in the middle for risk and reward potential, named “property” above. This makes it at a high level a fairly lucrative, mediocre risk asset class. An asset such as crypto would rank in the Emerging Market Stocks category representing high risk but also high reward potential. In contrast, a bond or even cash in a savings account would represent low risk but also very low reward.

Real Estate Investment Types

Diving even deeper, real estate itself has it’s own risk/reward relationship. Not all real estate represents the same type of risk versus reward scenario either! See the graph below which demonstrates this risk/reward relationship regarding real estate specifically :

So return potential is on the left side while risk is on the bottom of the graph. The line represents the forms of investment into real estate. If one were to favor a more risky investment approach, that investor might invest at the Opportunistic level in a Development project.

In the case of Valkere, we invest mainly in the Value-add, Core-Plus areas so as to minimize risk and maximize potential for our investors as it falls in the middle. Core represents those stabilized Class A type assets which have lower risk and lower reward potential in the long run when compared to Value-Add.

How to Invest 100k ?

As you can see there are many ways to invest 100k. Simply looking at the high level investment opportunities, one could split 100k across various asset classes and then even split those investments across various real estate asset classes. So first of course, start with your goals and preferences.

Do you favor slow and steady gains with tax benefits? Or are you looking for that home run, high risk but high reward potential? Is this 100k your only 100k to your name? These are all good questions to start with.

However, if it was up to me and remember, I’m just one out of 7.8 billion people out there, I would invest my 100k in this manner :

1-2% - Metals (Gold/Silver) - Low Risk
15% - Index Funds/Mutual Funds - Low Risk
5% - Individual Stock Picks - Medium Risk
75% - Real Estate - Medium Risk
3% - Crypto - High risk

Within the real estate investments, I would again focus my capital in the middle tier whether passive or active depending on available time, experience and capital :

50% - Value-add B/C class assets(Core, Core-Plus) invested passively (syndications, private loans, joint-ventures, etc)
50% - Value-add B/C class assets(Core, Core-Plus) invested actively (house hacks, live-in flip, brrrr, etc)

These are of course just recommendations. I favor a more conservative approach when it comes to investing and thus allocate my capital in the middle tier of risk/reward. Once a person gains more experience and/or has more capital to risk, then the allocations will vary. As a person ages, risk taking typically decreases in favor of capital preservation.

For me, I focus on risk mitigation and capital preservation first, followed by return on investment and tax benefits.

In Final

…Your results may vary! Consider your goals, risk tolerance, available time, experience and available capital when balancing your portfolio. Adjust and modify every couple of years if you are not attaining your desired outcomes.

There is no one size fits all for everyone. The only real recommendation is to invest early in one’s life and continue to improve the result as best as possible through learned experience. Happy Investing!