Here is a problem that most people would be happy to have: You find an extra $100,000 in discretionary cash on hand, and you're not sure what to do with it. The operative word here is discretionary. We're assuming that your $100,000 of extra cash really is extra and that you do not have any outstanding debt, especially high-interest credit card debt.

If you have outstanding debt, most finance professionals would say that your priority for that chunk of change is to pay down your debt.

Once that is done, and if you already have some other assets in place—such as a viable retirement plan, an adequate emergency fund, and some other well-placed capital—you're already ahead of the game. If so, you probably already know what some of your options are. However, if you are new to investing, you may want to start with some research.

There is no one best way to use this cash as there are many options. Your goal is to choose the investment vehicle—or combination of vehicles—that is right for you. Cited below are some of the best options for your cash windfall.

Real Estate

Although it may not be the most exciting prospect, consider paying off your mortgage if you have one. If you do not own your home or another investment property, consider investing in real estate. Real estate can be a solid investment. However, it has risks and requires that you do your due diligence.

Traditional Real Estate Investing

When most people think about investing in real estate, they think of purchasing and flipping properties or purchasing and renting out for income. Several factors contribute to whether gains would be realized quickly, over a long period, or even at all. First: location, location, location! A property's location is one of the most important determinants of its value. For the biggest bang for your buck, choosing the right location is just as important as choosing the right property. The condition of the market is perhaps the best indicator of whether traditional real estate investing is a good idea. If prices are volatile it might be a good time to sit back and wait for them to settle. Real estate purchases command a significant outlay of capital. An investor should consider their return on investment (ROI), the property's profitability, and the associated costs before investing. Consider how much of your $100,000 will be used towards the purchase, repairs, renovations, and marketing of the property. For flips, selling costs should be factored in. For rentals, maintenance costs must be considered. Real estate is one of the few assets that tend to appreciate over time. As a result, some investors hold their properties until such appreciation is large enough to generate the desired profit.

Real Estate Investment Fund (REIT)

If you want to invest in real estate without the complexities associated with directly purchasing property, a real estate investment trust (REIT) could be a great option. Investing is simple and does not necessarily require a lot of money. Some investment platforms allow investments as low as $100.

Unlike traditional real estate investments that are flipped and resold, REITs have properties in their portfolios that generate income. They include retail spaces, medical facilities, residential properties, and commercial properties such as office buildings.

You can purchase REIT shares through a broker or directly from the REIT company. REITs pay their shareholders dividends, which are taxed as regular income; however, gains are taxed as capital gains.

Taxable Investments

You can put your extra cash into taxable investments. That is, your earnings or capital gains will be considered taxable income.

Among the more common taxable investments are stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Some of these instruments, like dividend-paying stocks, could generate periodic income. This approach is made more attractive by a tax policy that generally treats capital gains favorably compared to earned income and ordinary interest income.

Low-Risk Investments

If you are squeamish about investing in the market and want your money to be safe, you can invest in high-yielding certificates of deposit (CDs) or a high-interest savings account. Your principal is even insured by the federal government if it is an FDIC member (as almost all banks are).

Don't just drop by your local bank branch. You should shop around for the best bank rates. The best rates for high-yield savings accounts may be offered by the online platforms of various financial services firms whose names you might already know—such as Goldman Sachs, American Express, and Barclays Bank. You can also find out-of-state banks with competitive offers online.

Retirement Accounts

If your retirement plan is an individual retirement account (IRA) or a 401(k), both of which are tax-deductible but not tax-free, you could look into opening a Roth IRA account.

With a Roth account, you pay the income tax due in the year you deposit the money but owe no further tax on the principal or investment gains when you withdraw the money.

Not only can Roth earnings grow tax-free, but the account is not subject to the IRS required minimum distribution, allowing funds to accumulate past retirement. Unlike for traditional IRAs, there is no maximum age limit to participate.

Unless rolling over from an eligible retirement account, investing the entire $100,000 would not be possible because the IRS limits how much you can contribute to a Roth annually. For 2022, the maximum contribution is $6,000 or $7,000 for individuals age 50 or older, rising to $6,500 ($7,500 for those age 50 or older) in 2023.

Also, the taxpayer's adjusted gross income (AGI) must not exceed the limit for Roth eligibility. Married couples filing jointly and widowed persons cannot contribute if their incomes are $214,000 or more, rising to $228,000 in 2023.

Diversify, Diversify, Diversify

Your $100,000 is a respectable enough sum to be able to apply the Investing 101 mantra of diversification. In other words, you'd be wise to divide up the $100,000, putting a portion of it into vehicles that you already own, like your IRA, and trying some new investment tools with the balance.

Deciding how to allocate this kind of extra capital involves weighing your options carefully, considering your short- and long-term financial goals, and being realistic about your risk tolerance. As always, it is a good idea to seek the advice of a financial professional before investing.

Additional Tips

There are plenty of options for investing your $100,000, including building and managing a portfolio of investments. If you're a savvy investor, you might be able to go at it alone, picking your stocks, bonds, and other securities. If you are a novice investor, enlisting the services of a licensed financial advisor makes sense. These professionals create investment solutions that help you achieve your financial goals. In addition to making recommendations, they can also manage how and where to invest your money.

Understanding how your money will be taxed is crucial for protecting it and determining where you should put it, as different investments produce different tax situations. If your $100,000 is tax-free, you'll want to consider tax-efficient investments. If the source of your $100,000 is a qualified retirement account, consider rollover or transfer options that defer taxation and offer features that match your financial goals.

The Bottom Line

You have $100,000 and need to know where to invest it. The recommended first step is to research your options to make an informed decision. Exercise due diligence so that your funds land where you want them to. There are plenty of options available, from real estate to managed portfolios. The journey to find the right investment can be just as rewarding as the money invested.