Let’s say you’ve come into a large sum of money—perhaps $1 million or more from stock grants, a bonus, or the sale of a home. Congratulations! After accounting for taxes, the real challenge is deciding how to invest it. Given the significant amount, the last thing you want to do is lose a portion of it due to poor planning.
After 30 years of investing, I’ve learned that no matter how wealthy you become, investing a large sum of money can still feel daunting. Even if that $1 million represents just 10% or less of your total net worth, reinvesting it presents several challenges. First, you don’t want to feel foolish if your investments underperform. Second, you may second-guess your decisions. Third, you might even start questioning the true purpose of having so much money in the first place.
Ironically, there are moments when not having the responsibility of investing a large sum might seem easier. But if you’re fortunate enough to receive a financial windfall, my goal is to help you feel confident about your investment choices. And if you’re still unsure, hiring a financial advisor can be a smart move to provide guidance and peace of mind.
“A lot of money” is subjective. However, if the amount you’re planning to invest is at least 10 times greater than your typical investment, that’s what I call a lot of money — and having a clear investment plan becomes essential.
Reinvesting a Large Sum of Money Is Stressful
One reason I prefer real estate investing is that I can deploy substantial capital without feeling as much stress as I do when investing in stocks. As a result, I often end up allocating more money to real estate, often using mortgage debt, which can potentially generate larger returns.
With physical real estate, there’s no daily ticker symbol reminding me how much I’ve gained or lost. And since losses hurt far more than gains bring joy, stock market corrections can feel particularly painful. By contrast, I prefer to buy and hold real estate, focusing on generating rental income.
However, the challenge with owning a large real estate position is that selling can result in large windfalls. In 2017, I sold a property I had owned for 12.8 years, netting about $1.15 million after fees and taxes (~340% cash on cash gains). Due to regular and extra principal payments along the way, my total proceeds were closer to $1.75 million.
Figuring out how to reinvest the proceeds from a home sale was incredibly challenging. Ultimately, I decided to split the funds roughly equally among municipal bonds, stocks, and private real estate. While stocks and private real estate performed well, municipal bonds struggled after the Fed began aggressively hiking interest rates in 2022.
In 2025, I plan to sell another property to streamline my physical rental portfolio down to three properties in San Francisco. If I sell within my expected price range, I anticipate walking away with a significant windfall. As a result, I’m writing this post not just for you but also for myself in preparation.
How To Reinvest A Large Amount Of Money Wisely: A 3-Step Framework
For many personal finance enthusiasts, diligent saving and investing will eventually lead to large financial windfalls. However, because you’re likely frugal by nature, suddenly having a lot of cash can feel overwhelming. The large amount of money will likely not be commensurate with your spending habits. That’s why I follow a three-step process for reinvesting large sums of money wisely.
Step 1: Understand the Source of the Money and Its Risk Level
Windfalls usually stem from a liquidity event. Perhaps your company was acquired or went public. Maybe you had an exceptional year and received a large bonus. Or you finally cashed out a long-held stock position for substantial gains.
Identify where your money is coming from and assess whether you want to maintain, reduce, or increase its risk profile.
- High-risk money: Startup equity is akin to a lottery ticket with extreme volatility.
- Medium-risk money: Proceeds from selling a rental property or primary residence.
- Low-risk money: Year-end bonuses, as these are earned through effort and not guaranteed annually.
Your goal is to thoroughly understand the risk profile of your windfall and determine whether to maintain or adjust it through reinvestment.
Step 2: Create a Capital Allocation Plan by Percentage (Not Dollar Amount)
Once you understand your money’s source and risk level, it’s time to establish an appropriate capital allocation strategy. Use percentages instead of dollar amounts to help you overcome your fear of investing.
For example, since my rental property sale proceeds come from a relatively stable asset, I don’t want to take on additional risk that would increase my stress. However, I also don’t want to be overly conservative because I remain bullish on San Francisco real estate. I’m confident there will be tens of thousands of future millionaires looking to buy homes and start families, driven by upcoming IPOs and acquisitions of artificial intelligence companies.
Real estate is generally less volatile than stocks, and I appreciate its stability. Therefore, reinvesting 100% of my proceeds into the stock market wouldn’t make sense. Instead, I’m considering these allocations:
- 100% in a money market fund earning ~4% (risk-free)
- 65% bonds (Treasuries and munis), 35% stocks (S&P 500)
- 35% private real estate, 30% bonds, 30% stocks, 5% cash
To finalize my plan, I compare the expected return of the asset I sold with that of the new allocation. I estimate that San Francisco real estate appreciates by 2%-5% annually. For San Francisco rental properties, I expect total returns (including rental yield) between 4%-7%.
Based on this, I’ll likely allocate 35% to residential commercial real estate, 30% to bonds, 30% to stocks, and 5% to cash. All of these asset classes are 100% passive, unlike being a landlord. So there’s a lifestyle boost at the minimum.
I find commercial real estate to provide the best value out of all the asset classes today, so I’m increasing my exposure through Fundrise.
Focus on Percentages First, Then Adjust by Dollar Amount
Looking at percentages first is crucial, as large sums can feel intimidating. My usual stock or private real estate investments range from $500 to $10,000, but sometimes $100,000. Investing over $100,000, let alone over $1 million requires careful planning.
To ease stress, I first focus on percentages, then convert them into dollar amounts to ensure they align with my risk tolerance and goals. For example, if I receive $1.5 million in proceeds from selling my rental property, my initial allocation might look like:
- 35% private real estate: $525,000
- 30% bonds: $450,000
- 30% stocks: $450,000
- 5% money market: $75,000
After reviewing the dollar amounts, I might adjust if something feels off. It’s important to do a gut check to ensure the percentages and dollar amounts feel appropriate based on your risk tolerance. For example, $525,000 into private real estate feels like too much, while $450,000 into stocks might be too little after a ~7% market dip.
A revised allocation could be:
- $300,000 private real estate
- $500,000 bonds
- $600,000 stocks
- $100,000 money market
Step 3: Dollar-Cost Average Within a Set Time Frame
After determining the appropriate allocations, it’s time to start dollar-cost averaging (DCA). While you could invest everything at once, spreading out purchases can help mitigate risk. It’ll also help you feel less like a fool given it’s impossible to perfectly time the market.
I generally recommend holding a windfall for at least a week before making any investment moves. Let the gravity of the windfall settle in so you can think more carefully. There’s often a temptation to deploy all funds immediately, but with cash still earning attractive yields, patience is valuable.
- Shortest DCA period: One week (in case circumstances change).
- Longest DCA period: One year (to avoid cash drag).
- Recommended DCA period: Three to six months
Investing a large sum of money over three to six months is my ideal timeframe. It’s short enough to take advantage of opportunities and minimize cash drag, yet long enough to learn more about the investing landscape and refine your financial goals and risk tolerance.
Personally, I plan to reinvest my rental property proceeds over three months, splitting the investment into 15+ tranches. For example, if I receive $1.5 million, I’ll invest about $100,000 per tranche. This method helps reduce the risk of investing at a market peak while still allowing me to capitalize on good opportunities.
Of course, if market conditions shift — like a 15% correction in the S&P 500 or a significant drop in bond prices — I may accelerate my investments.
Having An Investment Game Plan Is Key
Investing large sums of money can be nerve-wracking. Even as $1 million becomes a smaller percentage of your overall net worth, you’ll still feel pressure to deploy it wisely. As a multimillionaire, you likely value time more than money, making losses more painful.
The key is to develop an investment plan and stick to it. If you’ve accounted for different scenarios in advance, you’ll feel more confident executing your strategy. But if you have no plan, you will feel like a leaf in a hurricane, unsure of what to do.
Also, remind yourself how fortunate you are to have this capital to invest. Even if an investment drops initially, you’ve only lost a percentage, not everything. A classic example is buying the S&P 500 at an all-time high, only to see a 5-10% dip. While it’s frustrating to lose $5,000-$10,000 on a $100,000 investment, having additional tranches allows you to buy at lower prices.
Zooming out, history shows that holding quality investments like stocks and real estate over the long term tends to generate strong returns. By keeping a long-term perspective, you can overcome the fear of investing large sums and continue building your wealth effectively.
One Last Point: Don’t Forget to Enjoy Your Money Too!
Hopefully, you’ve found this guide helpful in learning how to invest a large sum of money in a rational and strategic way. Interestingly, whenever I receive a financial windfall, my default instinct is to invest 100% of it. That’s what happens when you’ve focused on building as much passive income as possible to achieve financial freedom since graduating college in 1999.
But at some point, you’ll accumulate enough where decumulation makes sense. That’s why I encourage you to set aside a small portion—perhaps 1% to 3% of your proceeds or 10% of your profits—and enjoy it however you like!
For example, let’s say you invest $1 million, and after five years, it’s worth $1.5 million post-tax. That means you could take $15,000 to $50,000 and do some guilt-free spending. Buy yourself a new pair of shoes for $200. Donate $5,000 to your school or favorite charity. Treat your parents to a two-week cruise for $10,000. Splurge on 15,500 worth of Pokémon Go coins for $85.
It’s OK! You’ll be just fine spending some of the money. Remind yourself of the hard work it took to save and the risk you took to grow your wealth. These rewards are well deserved. Because let’s be honest—plenty of people spend everything today without even thinking about their future. At least you’re doing both!
Readers, how do you go about investing a large amount of money? Does it give you stress? Or do you find investing a lot of money exhilarating? How would you invest over $1 million today?
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Source: A Simple Three-Step Process To Investing A Lot Of Money Wisely
