How to Invest $200k to $250k Cash In 2024 - Physician on FIRE (2024)

Happy New Year – it’s the beginning of another year and a great time to plan for how you’d invest on your path to FIRE.

Last year was an incredible year, where you could have made significant or meager returns depending on your investment approach. We thought that there could be a recession, only to find that so far, the labor market in the U.S. was exceptionally resilient, and GDP continued to grow.

Due to my concerns about inflation, I accumulated more cash on the sidelines and placed money in risk-free yields in treasuries from 2022 to early 2023.

As those yields approached 5.5%, I carefully legged into a few assets I felt were exceptionally undervalued due to volatility throughout the year.

Finally, at the end of last year, my family took care of core FIRE items for tax-advantaged accounts (listed below) and rebalanced our portfolio to ensure we were well diversified.

• Funded 529
• Backdoor Roth
• Dollar-cost averaging into index funds and mutual funds for a diversified portfolio
• Tax loss harvesting
• High-yield savings account
• Pay off credit card debt
• Emergency fund to cover six months of living expenses and mortgage payments

Recession canceled, right? Well, let’s see.

While there is still some chance that a recession is on the horizon in 2024, the odds of a soft landing appear higher as we approach the Fed’s inflation targets of 2%. And looking at the bond market, we can anticipate 3-4 rate Federal Reserve rate cuts in 2024-2025. Given the current macro, I wanted to walk through how to invest $200k to $250k as an accredited investor in 2024.

As you think about your investment strategy, it’s best to define how your goals are implemented for passive income, equity growth, and retirement.

If you’ve done all the checklist items listed above and want to take on a more active approach to your portfolio allocation, this post is for you.

Let’s take a look.

1) Treasuries – $250k could earn $12,500 in interest in 2024

With greater than 5% yields, I’d still keep some portion of my cash to earn interest here until rates get cut and the dollar cost average into other assets. If the market takes an unexpected turn for the worse, this capital could be used for opportunistic investing.

Treasuries offer a passive, ‘risk-free’ income stream. Of course, nothing is without risk, but the risk is predicated on the US dollar.

While 5% interest on $250,000 won’t make you rich per se, it’s a great way to protect your wealth as inflation hopefully cools. Public.com is a free and cheap way to obtain treasuries with no fees.

Given that the bond yield curve is still inverted, there is still some chance of recession if the labor markets cool off unexpectedly. If that were to happen, the Federal Reserve would likely cut rates, making treasuries less appealing as a source of yield. Equities and risk assets like real estate, private equity, cryptocurrency, and venture capital will do better.

In summary, treasury holdings are a way I’ll continue to keep money safe from inflation but liquid so I can move into other assets as the macroeconomic situation changes.

Money market funds have also done great in 2023 but carry more risk.

2) Investing in the Stock Market and Mutual Funds – another stock market bull run upon us?

The U.S. stock market had an incredible performance in 2023, driven by technology stocks with >20% growth after tech stocks took a beating at the end of 2022 and early 2023. The magnificent seven stocks include the following:

1. Amazon.com (AMZN)
2. Apple (AAPL)
3. Google parent Alphabet (GOOGL)
4. Meta Platforms (META)
5. Microsoft (MSFT)
6. Nvidia (NVDA)
7. Tesla (TSLA)

These stocks had an incredible return profile this year, with Apple being the laggard of the pack and still driving a 48.2% return in 2023.

When compared against the other 493 accounts, it’s clear that only in the last quarter of 2023 did the other part of the S&P 500 index have more than a modest return. So now the question is, what’s the opportunity, if any at all? Will these magnificent 7 continue to dominate as Wall Street investors say that capital is on a ‘flight to quality,’ or will they have worsening returns in 2024?

My sense would be that large institutional investors will continue to favor relatively safe companies like the Magnificent Seven, and they’ll continue to do well.

Accelerating technology, adopting AI, and Multiples Oh my!

However, there are some considerations which require a point of view. If you’ve already invested in ETFs and allocated capital, as the premise of this article suggests, our focus is whether we can find better returns. The first is whether technology is accelerating. If you believe this, continuing to invest in tech may reap rewards.

Another point of view is that every company is a tech company now. Even PWC, an accounting firm, is spending a billion dollars on artificial intelligence. While spending money on AI doesn’t necessarily mean it’ll drive a return, as big traditional companies are famously poor at capital allocation, it is a sign that AI will be a big part of improving efficiency and is a deflationary force for our economy.

Finally, there’s the case of multiple to consider. Technology companies have had significant multiple compression from a peak forward revenue multiple of 14x, dropping to 6x in 2023.

Compare this to the broader S&P price-to-earnings multiple increasing compared to a year ago to near all-time highs.

However, price-to-earnings ratios across indexes have risen to near all-time highs again.

Given this interesting parting of equities, I’m seriously considering investing in the small-cap companies and allocating more to certain tech companies that are not as well represented in the regular ETFs I’ve already invested in.

In late 2022 and early 2023, I legged into a few tech stocks that I believe to be high-quality companies that I wanted to own for a long time and that finished the year with 60% returns, to my surprise. These included stocks like Google and Twilio which were heavily disfavored by the markets. In 2024, I’ll be looking for similar opportunities, especially if there’s significant volatility.

3) Cryptocurrency – the halving is coming

This is controversial, for sure, but I think cryptocurrency is here to stay.

I have spent months studying crypto from 2021 into early 2022 before selling all right before the Terra Luna crisis and the FTX debacle. Luck to some degree, but there was enough volatility that you could have gotten out if you were paying attention.

Now that the dust has settled, Bitcoin, Ethereum, and Solana look to be three core cryptocurrencies that represent an alternative to fiat currency. Bitcoin’s halving in April 2024 will also be a symbolic moment for cryptocurrency.

I think cryptocurrency will become mainstream by 2030, barring government intervention, and I’m seeing evidence of businesses requiring crypto in certain tech-oriented sectors during ‘no fiat’ December.

I’m relatively bearish on its utility at the moment, but much like gold, cryptocurrency is secular and has a religious fervor that makes it as resilient as Miami real estate.

4) Investing in the Real Estate Market

Real estate is a favorite of doctors and others to build wealth. The tax advantages are those we’ve written about many times. It can be a path to wealth creation due to tax implications and savings for rental income plus leverage.

However, for most high-income earners with W2s, like physicians, accessing the best tax savings in real estate with cost segregations on rental property providing depreciation and real estate professional status is much more difficult without a spouse or stepping back to part-time work.

Real estate crowdfunding and syndication are the best opportunities for most people, and this year is no exception. It’s the first time since 2008’s great financial crisis that cap rates have improved for buyers, and prices have dropped. The crowdfunding real estate we reviewed has a minimum investment for accredited investors, but this year, we will review some options with lower minimum investments. The challenge has been rates are high, so it’s hard to have your cake and eat it too if you want income and equity in properties in good locations.

This vintage of real estate will likely prove to be one of the best performers if interest rates get cut moderately.

Additionally, qualified opportunity zones such as those from Origin Investments offer a unique asset that I’ll be evaluating as I allocate capital for the new year due to the tax savings from capital gains.

5) Buying Businesses like Warren Buffet and Charlie Monger, may he rest in peace

This one may be a bit counterintuitive, but buying businesses is one of the best moves if you’ve completed the standard items and are looking for wealth creation due to the dividend income they can provide. The question is how?

You could participate in this simply via equities or a holding company like Berkshire Hathaway, like Leif did a few years ago.

You could also buy Bill Ackman’s Pershing Square Holdings company, which holds equity in other businesses and has been trading at a significant discount to the underlying net asset value (NAV) throughout the year. Its NAV is ~$65, yet the stock price is ~$45 at the end of 2023. That is a significant discount in equity value where the stocks include those like Chipotle and Google’s Alphabet. Given the market dynamics, there is a significant disconnect between price and the underlying asset value.

Another holding company worth looking at is Andrew Wilkinson’s Tiny Capital. Tiny is focused primarily on acquiring majority stakes in businesses that it expects to hold over the long term. Andrew Wilkinson took his holding company of internet brands public this year, and it has traded at approximately $400M in equity value. The businesses have performed with $24M in 3 quarters with good growth and EBIT forecasts.

However, if you’re like me and my partners you’d want to run things yourself. We recently wrote about purchasing an online business with Mushfiq, who has a long history of acquiring and selling digital businesses.

The advantages here are you can have a semi-passive source of income with a cash-on-cash return while using the creative part of your brain on a topic you’re passionate about. So many of us had passions like photography, design, travel, and more that go by the wayside after clinical training and corporate jobs. These can be a great way to rekindle those passions, even if only from a laptop, and be a deduction against those hobbies. Many (perhaps too many) travel bloggers and content creators use the perks and income to subsidize their love for travel.

Key Takeaways

Despite all the volatility in recent years, the main lesson for anyone working towards FIRE is to keep investing in a diversified portfolio. If you take high risks, mentally prepare for the risks, too. The low-risk approach is to continue to stay invested, the dollar cost average, and have an emergency fund to cover living expenses. I know docs who got wiped out due to investing all their money in crypto in 2022 and some who made exceptional returns as crypto rebounded.

I tend to try to follow Warren Buffet’s number 1 rule – don’t lose money.

Try to be diversified, focus on a few core ideas, and test them over the next year, which will certainly be exciting, whether up or down.

As usual, consult with your financial advisor, and do not invest all your money in one place.

Happy investing in 2024!

Frequently Asked Questions

Q: How can I invest my money?

A: There are many ways to invest your money, such as in real estate, stocks, bonds, or businesses. The best way to invest depends on your personal finance goals and risk tolerance.

Q: What are the best ways to invest 250k for income?

A: Some options for investing 250k for income include real estate investing, dividend stocks, or creating a diversified investment portfolio with a mix of assets.

Q: What is real estate investing, and how can I invest in real estate?

A: Real estate investing involves purchasing, owning, and managing real estate properties to generate income or profit. You can invest in real estate by buying rental properties, real estate investment trusts (REITs), or through private real estate funds.

Q: What are passive income investments, and how can I invest in a passive way?

A: Passive income investments are those that generate income with little ongoing effort. You can invest in a passive way by putting money into rental properties, real estate funds, or dividend-paying stocks.

Q: What is asset allocation and why is it important for investors?

A: Asset allocation refers to the distribution of your investment funds across different asset classes such as stocks, bonds, and real estate. It’s important because it can help manage risk and optimize returns based on your investment goals and risk tolerance.

Q: Can I invest 250k in private real estate opportunities?

A: Yes, it is possible to invest 250k in private real estate opportunities such as commercial real estate ventures or private real estate funds. However, it’s important to conduct thorough research and due diligence before making such investments.

Q: What are the best investments to consider for steady income?

A: Some of the best investments for steady income include rental properties, real estate investment trusts (REITs), dividend-paying stocks, and bond funds.

Q: How can I diversify my investment portfolio?

A: You can diversify your investment portfolio by spreading your funds across different asset classes, such as stocks, bonds, real estate, and alternative investments. Diversification can help reduce risk and improve potential returns.

Q: Is it a good idea to invest 250k for income?

A: Investing 250k for income can be a good idea if it aligns with your financial goals and risk tolerance. It’s important to consider various investment options and consult with a qualified financial advisor to make informed investment decisions.

Q: How can I create a monthly income from my investments?

A: You can create a monthly income from your investments by focusing on income-generating assets such as rental properties, dividend stocks, or real estate funds. Building a diversified investment portfolio that includes these assets can help you generate regular cash flow.