Portfolio Review. 25 MILLION windfall; help me not lose it

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Internet posters or (well-qualified) professional help.

Postby Taylor Larimore » Sat Dec 29, 2012 9:27 pm

Longview:

You have received many suggestions including one of my own. Nevertheless, anyone with a twenty-five million dollar windfall will be very foolish to rely on the advice of anonymous internet posters over the advice of qualified professional advisers with fudiciary responsibility.

Happy Holidays!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Internet posters or (well-qualified) professional help.

Postby stemikger » Sun Dec 30, 2012 8:45 am

Taylor Larimore wrote:Longview:

You have received many suggestions including one of my own. Nevertheless, anyone with a twenty-five million dollar windfall will be very foolish to rely on the advice of anonymous internet posters over the advice of qualified professional advisers with fudiciary responsibility.

Happy Holidays!
Taylor


+1
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Re: Portfolio Review. 25 MILLION windfall; help me not lose

Postby sjelen » Sun Dec 30, 2012 9:44 am

With a portfolio of $25 or $35M there's no reason you need to stick with non state specific muni funds or an untailored portfolio. You can and should find a professional firm who will build a custom portfolio of individual securities for 20-30 bps. In addition, and much more important that portfolio design, you need appropriate tax, insurance, and estate planning. It's penny wise to design a portfolio for that size on an internet board.
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Re: The Three Fund Portfolio

Postby abuss368 » Sun Dec 30, 2012 9:45 am

Taylor Larimore wrote:Longview:

You will probably be besieged by family, friends and purveyors of "can't lose" investments. They will all offer a good reason for their recommendation. If it were me, I would invest in the simple Three-Fund Portfolio and spend my time helping others and enjoying life.

The Three Fund Portfolio

Best wishes.
Taylor


Hi Taylor,

As I wrote earlier, I liked your recommendation for the Three Fund Portfolio.

I was a little surprised that you did not recommend the Inflation Protected Bond fund considering you split your bond allocation 50%/50% between this fund and Total Bond Market.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + REITs
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Adding TIPS fund to Total Bond Market?

Postby Taylor Larimore » Sun Dec 30, 2012 12:14 pm

Abuss:

I was a little surprised that you did not recommend the Inflation Protected Bond fund considering you split your bond allocation 50%/50% between this fund and Total Bond Market.


It is dangerous to blindly mimic another's portfolio. I took a chance back in 2000, based largely on Mel's recommendation, to invest in Vanguard's then new TIPS fund. Our TIPS fund has enjoyed a higher return (with more volatility) than our Total Bond Market Fund, and together, they have made a nice combination. Nevertheless, I have no idea if TIPS will continue to do so. Frankly, I doubt if it will make much difference.

Small portfolios cannot afford two bond funds. Once TBM obtains Admiral status, a TIPS fund may make sense. I attempted to show this in the "Addendum" in my Three Fund Portfolio post when I wrote:

* Larger portfolios may benefit from adding TIPS, REIT, or a small-cap value fund in tax-deferred accounts.


There is more than one road to Dublin.

Happy Holiday!
Taylor
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Re: Internet posters or (well-qualified) professional help.

Postby longview » Sun Dec 30, 2012 10:36 pm

Taylor Larimore wrote:Longview:

You have received many suggestions including one of my own. Nevertheless, anyone with a twenty-five million dollar windfall will be very foolish to rely on the advice of anonymous internet posters over the advice of qualified professional advisers with fudiciary responsibility.

Happy Holidays!
Taylor


I understand what you're saying. I think I mentioned before though that this board is a great sanity check. I know several wealthy people who have a "qualified professional" advising them and they wind up chasing returns. IMO the theory/rationale scales very well, there are just some breaks you can get as your portfolio size grows. I wouldn't think to get more tricky/aggressive with a larger portfolio, but exactly the opposite.

And I do admit to being paranoid about giving people access to my accounts for investing, buying individual bonds, etc. I'd have to invest enough time to watch them closely to be able to sleep at night.
(To color my comments: my situation is ER trying to make a large portfolio that is 99% taxable last 45 years)
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Re: Internet posters or (well-qualified) professional help.

Postby Grt2bOutdoors » Sun Dec 30, 2012 10:46 pm

longview wrote:I understand what you're saying. I think I mentioned before though that this board is a great sanity check. I know several wealthy people who have a "qualified professional" advising them and they wind up chasing returns. IMO the theory/rationale scales very well, there are just some breaks you can get as your portfolio size grows. I wouldn't think to get more tricky/aggressive with a larger portfolio, but exactly the opposite.

And I do admit to being paranoid about giving people access to my accounts for investing, buying individual bonds, etc. I'd have to invest enough time to watch them closely to be able to sleep at night.


If you used a fund in place of a separate managed account for your fixed income selection, would you second guess (watching them closely) their bond selection then? I believe the Vanguard muni bond funds are actively managed - they are buying and selling individual bonds on a daily basis.
The benefit of holding individual bonds to maturity - you have the option of what and when to sell or buy. If you are paying someone a management fee - let them earn it.
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Re: Internet posters or (well-qualified) professional help.

Postby longview » Sun Dec 30, 2012 10:48 pm

longview wrote:And I do admit to being paranoid about giving people access to my accounts for investing, buying individual bonds, etc. I'd have to invest enough time to watch them closely to be able to sleep at night.


On this note, if anyone has a larger portfolio with a well-priced adviser they love/trust and have been using for a long time please DM me. References help.
(To color my comments: my situation is ER trying to make a large portfolio that is 99% taxable last 45 years)
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Re: Portfolio Review. 25 MILLION windfall; help me not lose

Postby petem1866 » Thu Jul 04, 2013 10:01 pm

I know it's been 7 months since your last post but I have dealt with similar issues (on a smaller scale) the past year or so and a strategy was recommended to me which I wanted to pass on. Whether for you specifically or others in similar situations I think it has merit and would be curious to read about other peoples' thoughts assuming anybody still cares about this thread.

It isn't as attractive in low interest rate environments but as rates start rising it might be worth considering. You originally mention an $800k/year spending nut with a portfolio of $35m. Basically it is laddering zero-coupon muni bonds so you annually have your spending amount mature. So if we say you want to spend $800k/year for the next 10 years you would need $8m however b/c of interest from the zero coupon munis you might only need to spend $6.5m. Perhaps $800k/bond the first year or two, $700k in the middle and $600k towards the end. You can then take the remaining $27m and invest it normally not worrying about draw-downs. In 10 years you would re-evaluate your spending needs and hopefully be dealing with $35-40m in your "other" portfolio.

If you (or anybody else) wants to go this route you'd probably want to work with a professional. I'd recommend at least 3-4 bonds each year to handle credit risk and there also could be capital gain implications if you are purchasing the zero-coupon muni at lower than the adjusted issue price (since rates are lower than when they were originally offered). The benefit I find with this type of strategy is that you have a set period of time that you know what your dealing with (in my example ten years) where you can set your expenses at $800k a year. Then in ten years you can look again at your situation depending on how your other $27m performed as well as how your lifestyle is changing.

That always seems to be the largest difficulty with managing large sums of money for long periods of time. You are dealing with two major unknowns of how your investments will perform and how your lifestyle/spending will change over time. Breaking this down into smaller buckets make it easier and less risky. Otherwise I find people will either be too cautious and spend far less than they could have had they known their portfolio performance would be better or are not cautious enough and overspend annually expecting a certain portfolio return which doesn't materialize and now must adjust to a lower cash bucket while also being used to an extravagant lifestyle which is unsustainable.

Here is a thread from a year ago I started which also deals with a large (not as large) portfolio, higher than normal annual spending and a long time horizon:
Not your regular retirement questions

Good luck.
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