Invest a Million Dollars – Three Possible Scenarios

If you have a million dollars to invest there are three possible scenarios or considerations before embarking on this. A million dollars is still, even today, a heck of a lot of money and the income it can produce, even in a humble bank term deposit is still enough for any middle class lifestyle to be afforded.

At around 7% per year, a million dollars simply put in a bank would deliver a before tax return of $70,000 or around $1400 dollars a week. Last time I looked, that amount of money can still buy a steak dinner every night and a holiday once a year. It is a reasonable return, but the first consideration you need to think about is the growth of that million dollars.

If you lived off the income the million dollars produced for you in a bank term deposit, then each year the capital will not be compounded, in fact if you spent it all, the interest component. In 10 years or 20 years or 30 years time, your million will still be a million dollars. However, inflation would take care of a nice large chunk of that money by 30 years time.

The second consideration is connected to this diminishing million dollars in 20 or 30 years. Typically when they talk about inflation, they do not talk about living expenses for people that own their own property. Usually inflation refers to the cost of housing and that historically goes up and up and up each year, historically to the tune of 7% a year in appreciation and 7% in possible rent returns. So in actual fact, that diminishing million dollars is not really diminishing if you are not interested nor need housing. If you think about it, things like cars, tv’s food and a host of life’s other luxuries and necessities are actually cheaper in today’s dollars compared to 10 or 20 years ago.

The third consideration is connected to the last. Real estate is historically a very safe place to park your money. Especially if you are buying for the long term it really matters little what part of the economic cycle you are buying in especially if you dont have finance to contend with. Real estate as stated bove historically returns 14% made up of rent and capital appreciation and therefore would be the most sensible choice for the investment of a million dollars.

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