I have $100,000 to invest. Where should I place it?

If you’ve saved $100,000, give yourself a big pat on the back. It takes a lot of time and financial discipline to save that much money. If you don’t have a plan yet, the next step is deciding what to do with it.

Some people keep all their money in savings because they are afraid of losing it. Although your money is safe this way, it won’t make much money, which could cost you hundreds of thousands of dollars over the course of your career.

To build wealth with your money, you need to invest it. Here’s how to get started.

Start by opening a brokerage account

With an investment account you buy and sell investments. When you open an account with a stock broker, you can transfer your money into it and start investing.

Fortunately, there are more brokers available than ever before, so you won’t be short of options. Here are a few key features to look for so you can find the best stock broker:

• Commission-free trading
• No monthly fees
• No minimum balance requirements
• A user-friendly platform

Don’t want to spend a lot of time looking for a real estate agent? Take Robinhood, the broker that pioneered commission-free trading. It is also one of the best brokers for beginners, making it easy for you to get in and start investing. Click here to learn more and open an account today.

Investment opportunities

Once you have an investment account, the next step is deciding which investments you want to buy. The most common options are stocks and bonds. Here’s how they all work:

• A stock is a share of ownership in a company. Although stocks can be volatile, they are one of the best investments for growth. The stock market, as represented by the S&P 500 index, has produced long-term returns of about 10% per year.
• A bond is a debt obligation issued by a government agency or a company. When you buy a bond, you borrow money and receive a steady income in return. Bonds are a more stable investment with a lower return, normally around 4% to 5%.

You could buy individual stocks and bonds, but that is time consuming. There are some much faster and easier ways to invest.

Target date funds

A target date fund does all the work for you. You choose one based on when you want to retire. For example, if you plan to retire in 2055, you can invest in a 2055 target date fund.

With this type of investment, a portfolio is created for you based on how close you are to retirement. If retirement is still decades away, most of your money will be invested in stocks to maximize growth. Then it will gradually shift some of your portfolio into bonds so that your portfolio isn’t too volatile as retirement approaches.

Index funds

An index fund aims to track a specific market index, such as the S&P 500. When you purchase an index fund, your money is invested in many stocks or bonds, all in one investment.

For example, you can invest in a total stock market index fund that aims to track the entire U.S. stock market. Instead of looking for a needle in a haystack, you actually buy the whole haystack. This is what I personally do with most of the money I invest: I put it into a total stock market fund.

How to divide your money

When managing money, it is important to find a balance between wealth building and financial security. It is not a good idea to invest all your money because you will have nothing left in case of an emergency.

It is generally recommended to have an emergency fund with three to six months of living expenses. So if you have a total of $100,000 saved, set aside at least three months’ worth of expenses for emergency savings. You should also set aside money for any major expenses you will incur.

Once you’ve met your savings needs, you can invest the rest of your money. Make sure you use retirement accounts in addition to a regular investment account. Individual retirement accounts (IRAs) allow you to invest while saving taxes. Click here to learn more about IRAs and see our top picks.

How you invest your money depends on your age and risk tolerance. Target date funds and index funds are both good options. What’s important is that you have the right mix of stocks and bonds so you can grow your money without taking on too much risk.