How Would You Invest $1 Million?

One million dollars is still a lot of money. If you handle it well, it's enough to let you retire right now to a modest lifestyle. Or, if you still have a couple of decades of work left in you, it's one heck of a foundation on which to build some serious wealth.

However, $1 million is not enough to let you get away with throwing your money away on bad investments. For your money to either last you the rest of your life, or grow into a spectacular nest egg, you need to shepherd it carefully and invest it well. In essence, you'd need to treat $1 million the same way you'd want to treat the first $10,000 you ever invested.

Spread your risk intelligently
A critical part of protecting your money is to properly diversify your investments. That doesn't mean buying everything willy-nilly. That sort of diworsification guarantees you mediocre long-run results, since you'll be buying obviously troubled companies along with your successes. Instead, it means buying companies with great long-run prospects across a variety of industries.

For instance, Intel (Nasdaq: INTC  ) and Advanced Micro Devices (NYSE: AMD  ) compete with each other in the microprocessor business. Intel completely dominates that industry -- to the point where Europe has fined it under antitrust rules, and AMD hasn't posted a full year's profit since 2006. While AMD may recover, Intel is obviously the stronger of the two.

The "buy everything" philosophy of diversification would have you own both companies. But that would simply tie up more of your limited capital without getting you any real long-run diversification benefits. Buying strong companies across industries, however, would enable you to put some money in Intel, and other money in a company like Wal-Mart Stores (NYSE: WMT  ) -- also the undisputed leader in its unrelated industry. That's a much better way to diversify.

Pay attention to valuation
That said, just because a company happens to dominate its industry doesn't make it an automatic buy. A decade ago, information technology and computer networking were riding high, thanks to a combination of Y2K spending and wide-scale adoption of the Internet. Cisco Systems (Nasdaq: CSCO  ) and Sun Microsystems (Nasdaq: JAVA  ) were among the must-have stocks of the era. Unfortunately, that must-have status blinded investors to their sky-high prices.

Cisco now trades at around a third of where it once did, and Sun is facing an expected takeover from Oracle (Nasdaq: ORCL  ) at a small fraction of its all-time high. While the technologies Cisco and Sun created were absolutely disruptive, and both companies were clear leaders in what they did, their stocks were priced based on impossibly high growth levels.

That their stock prices were high was obvious for anyone paying attention during the bubble. But the market as a whole didn't awaken to that fact until after Y2K spending wound down and the two companies' growth began stalling out. As an investor, understanding that a company's price can get out of whack with its true value is a critical part of protecting your own financial well-being. After all, even a great company can be a bad investment, if you pay too much for your shares.

Have it both ways
When you find a leading company trading at a decent valuation, you've found a potential investment worth investigating. Take food-service distribution giant SYSCO (NYSE: SYY  ) , for instance. The largest company in its industry, it nonetheless trades at a reasonable 15 times trailing and 14 times expected forward earnings.

Thanks to the strength afforded to it by its leadership position, SYSCO has done a heck of a job riding out this economic storm. Thanks to its decent valuation, it's worth owning as part of an intelligently diversified portfolio. In fact, the advisors at Motley Fool Million Dollar Portfolio think so highly of SYSCO that they've invested the Fool's own money in its stock, after they made it a recommendation for their members.

Invest like a millionaire
You see, at Million Dollar Portfolio, there's real money on the line behind every pick the service makes, invested out of $1 million of seed capital from the Fool's own pocket. Having real cash involved helps to ensure that MDP those critical principles of buying leading companies across multiple industries at reasonable valuations.

The same principles that serve the Fool's money well can also benefit the cash you plan to invest. If you're interested in learning more about the service and how it invests, just enter your email address in the box below. There's no obligation.

At the time of publication, Fool contributor Chuck Saletta owned shares of Intel and SYSCO. Intel, SYSCO, and Wal-Mart Stores are Motley Fool Inside Value selections. SYSCO is a Motley Fool Income Investor recommendation. The Fool owns shares of Intel and SYSCO. The Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (12)

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  • Report this Comment On October 27, 2009, at 3:56 PM, wuff3t wrote:

    How would I invest a million? Does "wine, women and song" count as diversification? If so then that's how...

  • Report this Comment On October 27, 2009, at 4:02 PM, pondee619 wrote:

    "How Would You Invest $1 Million?" Unless I had a million dollars, or was about to get a million dollars, it is really a silly question. More to the point, how would you invest $**0.00 a month taken from your salary?

    How would I invest a million dollars? It don't make no difference, I ain't got no million dollars. It is also unlikely that a million dollars will drop into my lap. HEY FOOL, how can I get a million dollars starting at $100.00 per month? Now there is a series of articles.

  • Report this Comment On October 27, 2009, at 4:11 PM, bmjones76 wrote:

    "How would I invest a million dollars? It don't make no difference, I ain't got no million dollars. It is also unlikely that a million dollars will drop into my lap. HEY FOOL, how can I get a million dollars starting at $100.00 per month? Now there is a series of articles."

    I love that post. I'm still fairly young and am trying to BUILD something. My holdings are modest in terms of shares. I'd love to see that series of articles pondee619 refers to...

  • Report this Comment On October 27, 2009, at 4:27 PM, madmilker wrote:

    In America....where all the "my sh!! don't stink" corporate @ssholes and the dipsh!!'s on Wall Street have gave up on years ago.

    NONE TODAY would have what tat got if it had not been for the American worker(non-union and union).

    Have a gr8 day!

  • Report this Comment On October 27, 2009, at 4:36 PM, mikecart1 wrote:

    I wouldn't spend any of it. That is what loser's that die with nothing do. I don't spend any of my profits from the stock market either. That is what loser's that die with nothing do also.

    Drop $1M on MO and get easy $80,000 salary on dividends alone. Then keep working and make at least $100,000 from work. That is $180,000 a year in easy money. Drive a used car, live in a cheap apartment until you want to buy a house in CASH, and then do whatever you want to do in life.

    If everyone spent like me, credit card companies would go out of business because I always pay in full, and fast food would be history, I'm not a fatty.

    :o)

  • Report this Comment On October 27, 2009, at 6:31 PM, socalmont wrote:

    One million?!?

    Invest in stocks that pay dividends and that are optionable.

    That way every month a just sell a call on each stock and live off the dividends and the option payments.

    I'm doing it know with much less than one million dolloars.

  • Report this Comment On October 27, 2009, at 7:04 PM, IvanKapulica wrote:

    Hmm .. $1 million.. yep it's still a fair amount of money if you ask me. afterall I'm a student and like most of my friends at university completely broke :). But I'm full of knowledge and a fool for the stock market. I have read every single book about investing that makes sense so investing $1 million for me is an easy job. yea right! it's easy to invest when you got 1 million in virtual cash but when it's your money that you worked for that is a different story. But no risk and pain give you no gain! Because i'm 22 years old and full of my self (larger that life type) I would go and invest in small cap great value business and try to use some of mr. greenblatt and mr. buffett ideas that are more than great. Take advantage of special situations! I like to see my self as 80% Buffett/Graham and 20% Joel Grenblatt.

    Thank you and good bye!

  • Report this Comment On October 27, 2009, at 8:24 PM, Chinastocks55 wrote:

    GFRE: Gulf Resources.

    Opened on Nasdaq today.

    This is a major China energy play.

    http://investorshub.advfn.com/boards/board.aspx?board_id=724...

  • Report this Comment On October 27, 2009, at 8:35 PM, m4perez wrote:

    I would buy a house that I could afford to live in, in a growth area where I work. I would take advantage of the tax breaks for home owners to reduce my taxable income. I would send my children to college where they will learn skills to make a good living. I would bank the rest.

  • Report this Comment On October 27, 2009, at 9:00 PM, TrailerParkJawa wrote:

    If I got $1 million dollars out of the blue tax free to invest as I choose it would be pretty simple for me. I would not invest any of it in stocks. I'd throw it into a bank and use the interest to make life easier and leave the principal alone.

    In 20-30 years from now that $1 million will be around plus whatever I have from my regular investing.

    I would consider m4perez suggestion to get a place. Mabye a nice little condo or townhome outright.

  • Report this Comment On October 27, 2009, at 9:08 PM, HectorLemans wrote:

    I swear this isn't a plug for the site but I've been running a million dollar portfolio over at marketocracy.com for over 6 years now. I'd highly recommend the experience no matter where you do it. It has helped me in my personal investments and satisfies my itch to trade when the market is volitile.

    So far, I'm averaging 16% annual returns which is about triple the S&P500 over the same time period. Nothing special - no single stock that's been a 10 bagger...just pick 10 to 15 solid companies that you know a lot about. Whenever there's temporary bad news that pushes the price down, I buy more. The other key is was hedging when things got really bad last year - I bought a small amount (<5% of the fund) of inverse index ETFs right after Bear Sterns collapsed. Beginning of this year I cashed it in when everyone thought the world was ending. I also keep most my free cash in the TIP ETF (inflation protected treasuries). I'm in the top 100 out of 80,000 or so.

    http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa...

  • Report this Comment On October 28, 2009, at 10:32 AM, JohnQuill wrote:

    Hello!

    Remember the "good old days" when being a "millionaire" merely meant that you had a million dollars?! I think today it must mean that you have a million dollars - every year! Anyway, I'm still working on it, but I am twenty-five years closer than when I started. And I don't see why it cannot happen. Of course the old joke in 2001 (and you might recycle it for 2008) goes something like, "I know one easy way to get a million dollars in the stock market: Start with TWO million!" LOL But that being said, let me tell you something of what twenty-five years "in it" has taught me.

    I had the same frustration that some have expressed here when I was in my twenties. Try to turn that anger and frustration into ACTION. I remember feeling financially helpless when I had to pay child support, based on gross (before-taxes) income. Instead of just getting mad, I decided to get even. Financially even. In the state I lived in, they wouldn't even take a personal check! I had to visit the bank each month and wait in line to get a cashier's check! Of course I loved my son, and wanted to support him, and I even still cared for my former spouse. But I hated that SYSTEM, that often made my kid's Mom wait sometimes weeks even after receiving my payments, which were never missed or late for fourteen years. Every time I had to make that child support payment, I was angry. I already had a stock broker at that time, but I had basically sold off my few positions in anticipation of the impending divorce. I was not quite thirty, and nearly 25% of my gross income was now utterly out of my control. This is when I began to invest in earnest. Today, I laugh at the initial amounts I saved back then: I could only afford to buy a few shares, and commissions back in the 1980s were often close to or over a hundred dollars per trade.

    Don't try to make a million dollars, not at first. Try to SAVE merely $100. This will be the most difficult amount you ever save, for those who are young and have very little earnings. Over the next few years, work on moving the decimal point one place, such that you have $1000 invested. Time is your best friend; time is a force multiplier. Keep with it. Imagine if every time you paid for gasoline, or paid for cell phone minutes, if you also just bought just a few shares of some company! Apple is a wonderful example: The value of GOLD has doubled in the past five years. But something that weighs a lot less, something you might even carry around with you almost everywhere you go, has grown nearly TEN TIMES THAT MUCH in the same period! Look around you and see if you can find companies that are growing. This means EARNINGS. Find YOUR Apple.

    Lean into it. Growing that $100 up to $1000 is your next hurdle. It will take time. But it will get EASIER, not harder. Instead of filling your car each week, you're going to fill your car AND buy one or two shares, of SOMETHING. And instead of paying that cell phone bill every month, you're going to pay that bill AND maybe buy a share or two of Verizon or AT&T. Try to limit the number of things in your life that COST money to own, and INCREASE the number of things that PAY you to own them. Fewer things like boats and cars, and more things like a home and stocks that pay dividends. Once you reach $10,000 then you're on your way and you won't need any further advice, not if you keep doing what got you there. But if you're at this stage, and do need guidance: I usually recommend that people AIM to get $10,000 invested in FIVE good companies, in different sectors (for diversification). My guess is that this approach will grow into the million mentioned in the article. I'm somewhere along the path, and the mathematics tells me that it will work.

    Since March of this year, if you invested ANYTHING, you're probably enjoying anywhere from 60% to 80% return. That means, in hindsight, 2009 will be a year where you probably doubled your savings. Or could have. It's still happening RIGHT NOW. Don't fool yourself into thinking that if all you have to save is $50 (or even less) that it doesn't matter. Regardless of how much you have invested or saved at age fifty, here's one thing that is certain: if you can DOUBLE what you start with in 2009 or 2010, then the amount you do have saved at age fifty will become TWICE AS MUCH. Sure, markets go down as well as up. But I was once where many of you are now, and it's stunning what TIME can do. Remember, the DOW was about 800 in 1980. Good luck!

    - john quill -

    october 2009

  • Report this Comment On March 25, 2011, at 7:47 AM, eutrade wrote:

    Remember always ... when transferring your money to another account there will is ALWAYS the risk that you never see your money again. No matter what offer you have been given.

    In a financial economic climate as we all are experiencing, where growth is at its minimum and

    inflation seems to be eminent, are you just waiting to see it happen that all your funds that you worked so hard for will dwindle away over a short term of time ? There are possibilities making use of that same principle that are able to protect your funds even making it grow in order to offset inflation. Now if you had $ 1 M (or more) you would be very carefully not see anything happen to it and if there was a system as described above, you might want to jump on it. But this world is full of frauds. So if there was a system whereby you only would have to prove the existence of those funds, not having to transfer even one cent of it, but this system would be able to fight off inflation, possibly making you twice as much over a period of one year, it would certainly doubt any fears, specially when YOUR money does not have to leaf its present situation. The certified proof of funds would be enough to enter the system. If the above is of interest to anyone with $ 1 M. or more in a secure place, feeling that he needs to grow this for the reasons stated, contact me privately and I will explain in detail the workings of it. bbbeph@gmail.com

  • Report this Comment On June 03, 2011, at 2:47 PM, docscholl wrote:

    With all due respect, a little perspective on a previous post:

    "On October 27, 2009, at 8:24 PM, Chinastocks55 wrote: GFRE: Gulf Resources. Opened on Nasdaq today. This is a major China energy play."

    The week of October 26th, 2009 that stock was $9.40 a share.

    Today (June 3, 2011) it is $3.05...and does NOT pay a dividend.

    Oh, well - guess Chinastocks55 is eating those shares right about now.

    As for my plan (if and when the money tree drops a cool $1M in my lap), I'd invest in high yield utility, energy and consumer goods stocks.

  • Report this Comment On October 22, 2011, at 2:59 PM, Sdsfghj wrote:

    hello

    my name is Sergey, I'm from Ukraine

    I would like to offer a profitable business for you

    purchase hotels on the Black Sea

    and purchase of industrial plants in Ukraine

    from 100 000 to 2 million dollars

    registration in your name

    in return I want to be managing your business in Ukraine

    business in Ukraine - it is very profitable and important

    (Looking for an investor)

    SergiiGavrikov@yandex.ua

  • Report this Comment On October 22, 2011, at 2:59 PM, Sdsfghj wrote:

    !

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