If you’ve recently found yourself with a big sum of money, like 1 million euros, and not sure how to invest, we can help.
Investing 1 million euros might seem challenging, but there are several accessible and potentially profitable options available.
Here at Investing In The Web, we spend hours listing and comparing over 100 financial services to help our users make informed investment decisions.
In this article, we’ll provide you with several ideas on how to invest €1 million, focusing primarily on stock market investments. We won’t be covering real estate or commodities in this piece.
Consult a financial advisor or wealth management firm
With a sum as significant as 1 million euros, seeking professional advice from a financial advisor or a wealth management company can be a wise move.
These professionals can help tailor an investment strategy that aligns with your financial goals and risk tolerance.
Most European countries have regulated independent financial advisors who can guide you through the process.
A financial advisor can offer personalized advice, manage your portfolio, and help you navigate complex tax implications.
On the downside, be aware of potential conflicts of interest, especially with advisors who earn commissions from the products they sell.
It’s important to vet multiple advisors, ensuring that fees don’t exceed 0.5% to 0.75% of your investment.
A good rule of thumb is to avoid investments you don’t fully understand and to never settle on the first advisor you meet.
Feel free to contact us directly if you need help finding or vetting an advisor or wealth management company for you.
Explore tax-advantageous investments and savings options in your country
Before diving into stock market investments, investigate whether your country offers any special tax-advantageous accounts or high-interest savings accounts. These can be beneficial in optimizing your returns by reducing tax liabilities.
Taxes can significantly impact your investment returns, so getting advice from someone experienced in managing wealth in your country is crucial. Look into local options that provide tax relief or enhanced interest rates to maximize your earnings.
To give you an example, some country charge taxes on dividends distributed, while others don’t. It’s important to be aware of this in order to choose which investment instruments to buy.
Option 1: Invest in an ETF Tracking the S&P 500
One of the most popular ways to invest 1,000,000 euros is through an ETF (Exchange-Traded Fund) that tracks the S&P 500.
Why the S&P 500?
- Diversification: Includes companies from various sectors.
- Historical Performance: Over the long term, the S&P 500 has shown substantial growth. For example, the average annual return over the past 10 years has been approximately 10%. Remember that past performance is not indicative of future results so invest with caution.
- Accessibility: Many brokers offer low-cost options to invest in S&P 500 ETFs.
For detailed steps on how to invest in the S&P 500 from Europe, you can refer to our comprehensive guide: How to Invest in the S&P 500 from Europe.
Option 2: Consider high-yield savings accounts
While not a stock market investment, high-yield savings accounts can be a low-risk way to grow your capital while keeping it relatively liquid.
Some European banks offer attractive interest rates on euros, with platforms like Raisin and PickTheBank.eu providing comparison tools.
Benefits:
- Low Risk: Savings accounts offer protection for your capital, often with government-backed guarantees.
- Interest Rates: Current rates can be as high as 3.70%, providing a safe haven for your money with some growth potential.
At Investing in the Web, we have created a Brokerage Interest Rate Comparator. You can check the interest rates offered by different online brokers and digital banks there.
Option 3: Buy Vanguard LifeStrategy Funds
Vanguard LifeStrategy Funds are a mix of stocks, bonds, and cash, automatically rebalanced over time.
There are several LifeStrategy funds, each with a different allocation between equities and bonds:
- Vanguard LifeStrategy 20% Equity Fund: 20% in equities, 80% in bonds. Suitable for very conservative investors.
- Vanguard LifeStrategy 40% Equity Fund: 40% in equities, 60% in bonds. Suitable for conservative investors.
- Vanguard LifeStrategy 60% Equity Fund: 60% in equities, 40% in bonds. Suitable for balanced investors.
- Vanguard LifeStrategy 80% Equity Fund: 80% in equities, 20% in bonds. Suitable for growth-oriented investors.
- Vanguard LifeStrategy 100% Equity Fund: 100% in equities. Suitable for aggressive investors.
Benefits of Vanguard LifeStrategy Funds
- Diversification: These funds invest in a wide range of assets, providing exposure to different markets and sectors.
- Automatic Rebalancing: The funds automatically rebalance to maintain the desired asset allocation, reducing the need for manual intervention.
- Low Management Fees: Vanguard is known for its low-cost funds, making it an affordable option for investors.
- Set and Forget: Ideal for investors who prefer a hands-off approach, as the fund is managed and rebalanced by professionals.
You can check more details in Vanguard’s Lifestrategy page.
Option 4: Invest in Bond ETFs
Bonds are loans made by governments or corporations to raise finance. In return, investors receive interest for the borrowed money.
The loans are set for a specific period, and if all goes well, you’ll get your capital back at the end of the period, plus the interest earned along the way.
Key Characteristics of Bond ETFs
- Credit Rating: This indicates the likelihood of the bond issuer defaulting on the loan. Higher ratings (e.g., AA, AAA) suggest lower risk. Government bond ETFs typically have higher ratings than corporate bond ETFs.
- Yield to Maturity (YTM): This is the average yield (expected return) of all the bonds in an ETF’s portfolio, assuming they were held until maturity.
- Duration: This measures the sensitivity of the bond ETF to changes in interest rates. For example, a duration of 5 means that for every 1 percentage point increase in interest rates, the bond’s value will decrease by approximately 5%, and vice versa.
- Annual Cost (TER): This represents the cost of running the fund. For example, a TER of 0.10% means that an investment of €1,000,000 would incur an annual cost of €1000.
Examples of Bond ETFs
iShares Core Euro Government Bond UCITS ETF (Government Bond ETF) – As of September 2024:
- Credit Rating: AA
- Yield to Maturity: 2.62%
- Duration: 7.25 years
- TER: 0.07%
This ETF seeks to track the performance of an index composed of Eurozone investment-grade government bonds.
iShares Core EUR Corporate Bond UCITS ETF (Corporate Bond ETF) – As of September 2024:
- Credit Rating: BBB
- Yield to Maturity: 3.20%
- Duration: 4.49 years
- TER: 0.20%
This ETF aims to track the performance of an index composed of Euro-denominated investment-grade corporate bonds.
Bottom line
Remember, this is not financial advice but our opinion based on years of experience. Here’s a quick summary:
- First things first, find a local independent financial advisor!
- High yield savings account: Lowest risk option.
- Investing in Bonds: Low-risk but more sophisticated.
- Vanguard LifeStrategy Funds: Diversified and suited for long-term, hands-off investment.
- S&P 500 ETF: Higher risk due to 100% equities.
These are just ideas to get you started. It’s crucial to do your research and understand each option thoroughly. You can also consider buying individual stocks, though this tends to be riskier and requires additional company insights.
For more ideas, check out our list of recommended investing courses and recommended investing books.
This information does not constitute financial advice or recommendation and should not be considered as such. This article’s author is not a regulated financial advisor and it is therefore not authorised to offer financial advice
If you have any questions or feedback, feel free to reach out to us – we’re happy to help!
