It may sound absurd to you, but by the time you retire you may have to know how to invest $1 million - or some big amount close to that. Talk about a problem you want to have, right?

If you save 10 percent of your income from every job you ever have and work for forty or more years, you may find that your IRA holds 10 to 15 times your income. Depending on your income, that could easily put your savings at over $1 million. If you are young - let this be motivation. Consistent investing will leave you with over $1 million in your retirement account.

Now, let's talk about what to do with it:


The first key principle to observe is the idea of asset allocation. You'll want to allocate your million into three smaller piles. One pile is for stocks. Another pile is for bonds. Another pile is for cash. If you are just starting retirement you may want to allocate about 30 to 40 percent to the stock pile, 40 to 60 percent to bonds and 10 to 20 percent to cash. The more you invest in stocks, the greater risk and greater return you can expect. Cash is risk-free, so if you are conservative you'll want to have more cash and less invested in stocks. For retirees, bonds represent the central pillar of your investment program as they generate income you can spend.


Do not put your entire stock allocation into one or two stocks. Don't invest it all in twelve different stocks all from the same industry. The market prices assets as part of a portfolio; when you concentrate your investments you take risk that no one is paying you to take. Investing in a wide range of stocks is called diversification. You should do the same with bonds, too.


The easiest way to get diversification is by buying mutual funds or ETFs (Exchange Traded Funds-always referred to as ETFs). Funds invest in dozens of different stocks or bonds, providing good diversification. Each fund has an objective. It is a good idea to buy funds with a variety of different objectives. With $1 million you may want to invest in as many as ten different funds, you may want to use this list of Morningstar fund categories as a guide for the types of funds you include. This example would provide an allocation of 40% stocks, 50% bonds and 10% cash.

  1. Small Growth: Funds that invest in small, growing companies

  2. Sector-Real Estate: Funds that invest in real estate related assets, including REITs

  3. Mid-Cap Blend: Funds that invest in mid-size companies, including both growth stocks and value stocks

  4. Large Value: Funds that invest in large companies viewed to be undervalued

  5. Multi-Sector Bond: Funds that invest in government bonds, foreign bonds, and high-yield bonds (junk bonds)

  6. Long-Term Bond: Funds that invest in long-term corporate bonds

  7. Intermediate Term Bond: These funds invest in corporate bond maturing in less than ten years.

  8. Short Term Bond: These funds invest in short-term corporate bonds.

  9. Short Government Bond: These funds invest in short-term Treasury Bonds.

  10. Money Market: These funds have very low yields, but your cash is safe here.

There are many different funds available for each category. Seek out funds with no load, no commission through your broker and low expense ratios. All of these factors can be easily screened with almost any "mutual fund screener" (search that phrase on the internet to find one).

Here's the kicker: The same basic rules for investing apply to any amount of money. You may want to reduce the number of funds you invest in if you have significantly less than $100,000. You'll want the diversification and allocation benefits of having at least five funds once you have $10,000 in your retirement account.

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