If I handed you one million dollars in cash today and told you I wanted it back in five years with 6% interest, would you take it? If your answer is “no,” that’s okay; many people are confused about investing. The good news is we’ve rounded up eight ways to invest a million dollars smartly and strategically.

Below, you’ll find ideas on how you can invest a million dollars and pay back the money with interest (while still ending up with a nice chunk of change for yourself). And, if you’re starting with a million dollars of your own money, even better. I’ll explain how you can grow that initial investment by 6% and even more in just a few years.

But before discussing how and where to invest a million dollars, let’s consider the following four questions.

4 Questions to Consider Before Investing a Million Dollars

1. How do you rate your level of real wealth?

Do you have the money and the freedom to live life on your own terms? Are you fulfilled? How is your well-being? Where are you now and where would you like to be? If you are unsure, take the RealWealth Assessment and find out.

2. What Are My Financial Goals?

It’s best always to create an investment plan based on your financial goals. If you don’t have a clear direction or goal in mind, how do you expect to accomplish it? Ask yourself what you are looking to accomplish financially. Your goal could be to save for retirement, set up a college fund for your kids, or generate monthly cash flow through investments.

Setting clearly defined goals will help you decide the best ways to invest a million dollars.

3. What is My Timeline?

Once you’ve set a clear goal, the next step is establishing a timeline to achieve that goal. Your timeframe is how long you plan on holding an investment. If your goal is to invest for retirement, you’ll want to look at long-term options, depending on your age. If there’s a chance you’ll need access to your invested money within the next five years, a short-term strategy may work best.

4. What is My Tolerance to Risk?

If you can’t afford to lose your investment, your risk tolerance would be considered low. If you were mostly unaffected financially by losing your investment, your risk tolerance would be regarded as very high.

Now, let’s look at the best options for investing a million dollars.

How To Invest a Million Dollars?

1. Private Lending

The first way to invest one million dollars is through private lending. For example, you could borrow the funds and then turn around and lend them to someone else for more. That’s exactly what banks do. They borrow money from the Fed, mark it up about 3% and lend it to individual borrowers like us.

If you borrowed one million dollars for five years at 6% interest and then lent it to someone else at 9%, you’d earn $30,000 per year—and over $150,000 during that five-year period!

The first way to invest one million dollars is through private lending. For example, you could borrow the funds and then turn around and lend them to someone else for more. That’s exactly what banks do. They borrow money from the Fed, mark it up about 3%, and lend it to individual borrowers like us.

2. Rental Income From Real Estate

Another way to invest one million dollars is to purchase real estate investment properties. If you invest in the right real estate markets, you can yield as much as a 9% return on your cash flow annually.

Let’s say you bought 10 properties averaging $100,000 each and rent them for $1,000/month. Your net returns would be similar to those of a private lender, except you would have to account for closing costs of about $3,000 on each property. This would lower your profit to $120,000 after five years.

However, if those homes appreciated by 3% annually, you’d gain an additional $150,000 in equity. Between the home equity and the cash flow, you could sell eight homes to pay back your loan plus interest and keep two homes for yourself. You’d own them free and clear, plus have some left-over cash in your pocket.

Even better, if those homes appreciated in value by 4%, you could sell seven of the homes to pay back your loan and keep the remaining three homes free and clear. And if by chance they appreciated by 6% (which is not out of the question in areas experiencing high job growth), you’d get to keep four of the homes free and clear! Not a bad return on investment, right?

3. Investing in Business

You could also invest a million dollars in a great business idea. If all goes well, you could double, triple, or even quadruple your investment.

However, this is the riskiest venture out of the three since, statistically, 50% of new businesses fail during the first five years. If you invest in a company that fails, what kind of collateral would you have, if any?

You can see why getting a business loan is tough, even if you have great credit and a fantastic business idea. If the business fails, you’re stuck with a million-dollar debt and no real collateral to pay it back.

That’s why you must be VERY CAREFUL when friends or family come to you asking for your financial support in their business idea. If there’s no collateral, you must treat your investment like venture capital – assuming there’s a 50% chance you’ll get your money back. And that type of risk should be left to professional venture capitalists who can afford to take those kinds of losses.

Banks much prefer to lend on property. All they really want to see is that the property is worth more than the loan, that you can afford the monthly loan payments, and that you haven’t taken on more debt than you can handle.

You will get the best interest rate available if you have good credit because you pay your bills on time and have a low debt-to-income ratio. Even if you don’t have a great credit history, you can still get a loan! FHA will lend to borrowers who have had foreclosures just two years prior! Why? Because they still don’t see a real risk. If you don’t pay, they take the property as collateral.

4. Investing in the Stock Market

Investing in the stock market has the potential to generate decent returns, especially if you invest wisely. However, the stock market can experience both large and small fluctuations in value. While there is an opportunity to see big returns, it may be just as likely to see big losses, too. If you decide to invest in the stock market, spread your money across different industries to diversify your portfolio and minimize risk as much as possible.

5. Real Estate Investment Trusts (REITs)

REITs have been growing in popularity for a while now. Real estate trusts allow people to invest in real estate without actually buying a rental property. Instead, investors may buy into bigger real estate projects and own equity in the project as a whole. This is a great way to get into real estate investing without having to fork over a ton of cash.

Investor Tip: REITs can be an excellent option for those just starting out in real estate investing. However, you’ll have very little control over where the money is going, so it’s imperative to do your due diligence on the REIT that will be managing your investments.

6. Crowdfunding Real Estate

Another relatively new real estate investing option is crowdfunding. The idea is that individuals pool their money together to participate in larger real estate projects. The pooled money is used to fund the project and returns may be a set dollar amount, like a loan, or given a cut when the project is completed and producing income. Crowdfunding allows investors to buy into big real estate deals without putting up a huge amount of capital.

7. U.S. Government Bonds

One of the safer ways to invest a million dollars is in U.S. Government Bonds because the government backs them. With bonds, the investor will receive income via interest. Because the government insures them, returns are usually pretty limited, yielding around 3 percent. Investing a small amount of money in bonds is great for safe investing and diversifying your portfolio–but understand that the returns will be significantly lower than real estate, for instance.

8. Exchange Traded Funds

Exchange Traded Funds (ETFs) allow investors to purchase a number of different stocks instead of stocks tied to just one company. ETFs provide portfolio diversification and help minimize risk. Investing in various sectors will make you less impacted when one market drops. You can take advantage of growing markets in one industry and offset losses in other sectors.

Investors can also invest in REIT ETFs. Thus, instead of investing most or all of their money in one property, they may buy stock in multiple real estate projects via ETFs.

Note of Caution: Use the Power of Leverage Wisely

There are many ways to make money with money. When you borrow money, you can receive far greater returns than you could achieve using your own capital. That’s why financing is often referred to as “leverage.”

Please use caution and don’t take the use of OPM (other people’s money) lightly! If things go wrong, you could find yourself over-leveraged and saddled with debt you can’t pay back.

Never jump into any investment that you don’t understand. Never invest your money with someone who has not succeeded in that particular investment strategy over and over again.

While private lending and rental property can be highly lucrative, they can also become money pits. For example, investing in high-crime zones often are areas that lack job growth or properties that have deferred maintenance issues.

It’s essential to get educated on any investment you wish to pursue or mentored by someone who has repeatedly done what you are trying to do successfully.

Ready to Start Investing a Million Dollars?

If you’re looking to invest one million dollars, a variety of options are available to you. At RealWealth, we believe the best investments are those that help you create real wealth, which we define as having the money and the freedom you need to live life on your terms.

One of the best ways to do this is by investing in real estate that produces positive monthly cash flow. At RealWealth, we specialize in helping our members build their real estate portfolios. We do this by heavily researching the best markets for job growth, population growth and affordability. Then, we go into that market to find a team of highly experienced turnkey property providers that rehab or build single-family and multi-family homes. Our members get exclusive access to these investment properties, all with property management in place. Membership is 100% free. To start investing in real estate, join RealWealth today!