Where to park $3M

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Where to park $3M

Postby airahcaz » Sat Dec 22, 2012 4:01 pm

The facts:
65 and retired (not me)
No debt
Largest obligations would include utilities and $10,000 annual real estate tax
As this couple are not big spenders, a rough high estimate could be $3000/month or let's call it 40k annually
$3M in cash from selling the land and business

The questions:
Where does one park the proceeds before investing? FDIC insure bank accounts only to $250K, I doubt the rich split their money by $250k each?
Given the above, the thinking is to keep $500K in cash (or something akin to cash and draw down on it over 10 - 15 years). Annuity?
$2.5M in an index etf or index mutual fund - thoughts? Which? Lowest expenses would be a criteria
Is it advisable to split the investments across 2 Firms, such as Vanguard and Fido? Disadvantage is maintenance. Any clear advantage other than reducing risk of having everything with one one firm?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
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Re: Where to park $3M

Postby RenoJay » Sat Dec 22, 2012 4:06 pm

Hi. I'll just chime in on the CD portion of the question. I did in fact set up multiple $250k CDs at various banks. I believe that depending how the CDs are titled, the FDIC protection may be double, but I'd double check that. Also, there's an organization called CDARS where you give them a bunch of money and they split it up amongst various FDIC insured CDs for you. Here's a link:

http://www.cdars.com/?gclid=CPCUk-PnrrQCFal7QgodhDUAPQ
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Re: Where to park $3M

Postby livesoft » Sat Dec 22, 2012 4:11 pm

It appears to me that these folks do not need any safety other than the normal avoidance of Madoff-like actors.

Just send to Vanguard and be done with it. If they want to split among financial institutions, I would recommend that they just use Vanguard ETFs or funds and Fidelity Spartan Advantage funds at those places. In my order of preference: WellsFargo, TDAmeritrade, Fidelity, Vanguard. The assets could be set up in "set-and-forget" mode except for one vendor. That one vendor would get all transactions except perhaps once every 3 or 4 years the other accounts would need some action.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where to park $3M

Postby airahcaz » Sat Dec 22, 2012 4:41 pm

livesoft wrote:It appears to me that these folks do not need any safety other than the normal avoidance of Madoff-like actors.

Just send to Vanguard and be done with it. If they want to split among financial institutions, I would recommend that they just use Vanguard ETFs or funds and Fidelity Spartan Advantage funds at those places. In my order of preference: WellsFargo, TDAmeritrade, Fidelity, Vanguard. The assets could be set up in "set-and-forget" mode except for one vendor. That one vendor would get all transactions except perhaps once every 3 or 4 years the other accounts would need some action.


Indeed, annuities can be a bit Madoff-like in understnading all the little hidden nuances, thus the recommendation to index

Wow, why Wells and TD as top two? Doesn't it make sense to invest with Vanguard if going with Vanguard funds or etf?

Also, what's most tax efficient? Does it make sense to put a relatively paltry $5000 into Roth?

Something else that came to mind, invest large lump sums or DCA?
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Re: Where to park $3M

Postby William4u » Sat Dec 22, 2012 5:07 pm

VTI, with a little VXUS.
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Re: Where to park $3M

Postby letsgobobby » Sat Dec 22, 2012 5:08 pm

Absolutely don't invest more than the FDIC limit. Why take unnecessary risk? But I agree with livesoft. Send the money to vanguard, get a very low risk plan from one of their CFPs for free, and move on with life.
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Re: Where to park $3M

Postby airahcaz » Sat Dec 22, 2012 5:41 pm

For the FDIC issue, does it make sense to go money market mutual fund?

As for ETF, are they liquid enough to not get raped on the spread by buying $3M worth at once?
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Re: Where to park $3M

Postby Van » Sat Dec 22, 2012 5:43 pm

There is plenty of room in my garage. :mrgreen:
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Re: Where to park $3M

Postby letsgobobby » Sat Dec 22, 2012 6:09 pm

Why not mutual funds? With admiral shares the same cost as ETFs in most cases, I see no reason to mess around with ETFs.
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Re: Where to park $3M

Postby livesoft » Sat Dec 22, 2012 7:04 pm

The FDIC issue is a red herring and not an issue at all. Think of it this way: What does FDIC insurance get them? Return of principal? If they want return of principal then why are they going to turn around and buy a stock mutual fund where they have a large chance of losing principal?

I could put $3MM into ETFs easily without paying commissions and with a very low bid/ask spread. In other words, ETFs are very liquid. I don't know if they can manage the trades or not, but index mutual funds with the same low expense ratios are available, so they don't have to use ETFs unless they want to. Or they could use a mix of funds and ETFs.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where to park $3M

Postby Dandy » Mon Dec 24, 2012 10:52 am

What are they comfortable with now? What can they reasonably be comfortable with? If they come from a "savings" orientation then ETFs might be a little much for them - mutual funds may not be too much. Even though they may not need this money they may feel a strong emotional attachment to it as it represents their life savings/achievement - and may not like the bumps in the road that investments invariably incurr.

On the other hand they may be very comfortable with risk having been in business etc. You need to get to understand not only what they say but what they really feel and can tolerate. Not easy.

My advice if they are not very experienced in investing is to start slow and always have a decent amount in low or no risk vehicles. See how they handle a market "correction" and whether they see that as a buying opportunity. If so, they can move forward if not maybe investing a lot of their nest egg is not for them.
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Re: Where to park $3M

Postby airahcaz » Mon Dec 24, 2012 11:06 am

Dandy wrote:What are they comfortable with now? What can they reasonably be comfortable with? If they come from a "savings" orientation then ETFs might be a little much for them - mutual funds may not be too much. Even though they may not need this money they may feel a strong emotional attachment to it as it represents their life savings/achievement - and may not like the bumps in the road that investments invariably incurr.

On the other hand they may be very comfortable with risk having been in business etc. You need to get to understand not only what they say but what they really feel and can tolerate. Not easy.

My advice if they are not very experienced in investing is to start slow and always have a decent amount in low or no risk vehicles. See how they handle a market "correction" and whether they see that as a buying opportunity. If so, they can move forward if not maybe investing a lot of their nest egg is not for them.


Thanks - yes they will be comfortable with the risks but good point on maybe DCA to get them accustomed slowly.

so then what do you recommend in terms of investments?
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Re: Where to park $3M

Postby letsgobobby » Mon Dec 24, 2012 11:12 am

Do they need the money at all, or does their modest spending come from SS and/or pensions?

Do they have heirs? Are they investing for them?
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Re: Where to park $3M

Postby airahcaz » Mon Dec 24, 2012 11:22 am

letsgobobby wrote:Do they need the money at all, or does their modest spending come from SS and/or pensions?

Do they have heirs? Are they investing for them?


Minimal SS so didn't really factor into equation.
Yes heirs and grand kids who can use some college funding help, however they really won't need much more than the annual living expense for themselves. They 'may' buy a certified pre owned luxury car, but nothing bigger than that in foreseeable future.
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Re: Where to park $3M

Postby letsgobobby » Mon Dec 24, 2012 11:34 am

25% each TISM, TSM, and 50% bonds either munis or TBM depending on tax situation. Variable annuity an option for the stocks and TBM if their taxes are high, but it sounds like they aren't.
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Re: Where to park $3M

Postby Dandy » Mon Dec 24, 2012 2:29 pm

Thanks - yes they will be comfortable with the risks but good point on maybe DCA to get them accustomed slowly.

You asked about what investments to begin with. Naturally, the allocation can depend on age and risk tolerence. In general - if a 40% equity and 60% fixed income I would consider Life Strategy Conserative Growth - if they want one fund and a steady allocation to equities. If they are relatively young you might want to add an allocation to VG Inflation Protection fund. Naturally, that will reduce your 40% equity allocation attained by the Life Strategy Fund above. If so you can "trade up" to a higher Life Strategy fund and offset the equity risk with the Inflation protection fund and other fiexed income vehicles such as short term bond funds, CDs etc.

You can also mix two Life Strategy funds to fine tune the equity allocation that fits their needs. If they can handle 3 funds: Inflation Protection, and Life Strategy Conservative Growth and if needed some to Life Strategy Moderate Growth or just plain Total Stock Market to get the equity alocation/risk desired.

The suggestions above ignore the allocation for money not "invested". As you DCA into the above fund(s) and they become used to the ups and downs of investing and their fund(s) you can adjust your DCA by increasing it,stopping it and/or changing dollars allocated to various funds.
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Re: Where to park $3M

Postby German Expat » Mon Dec 24, 2012 3:15 pm

You can easily get 750k per bank and with some more complicated things you can go even higher (e.g. revocable trust). For the 750k you will need to have

- account in your name for 250k
- account in your wife's name for 250k
- joint account for 250k

https://www.fdic.gov/edie/fdic_info.html

I would not leave it in low interest accounts too long though but until you get settled you could split it across 4 institutions that are FDIC insured.
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Re: Where to park $3M

Postby thebogledude » Mon Dec 24, 2012 3:40 pm

airahcaz wrote:Where does one park the proceeds before investing? FDIC insure bank accounts only to $250K, I doubt the rich split their money by $250k each?


I think they go with a major bank that's not likely to be insolvent like a JP Morgan or Bank of America. Also it was made mention on this forum that Vanguard holds its funds with JP Morgan.
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Re: Where to park $3M

Postby dmcmahon » Mon Dec 24, 2012 6:40 pm

By titling the accounts in different ways they could get beyond the $250k limit. A trust can also provide a higher limit ($250k per qualified beneficiary).

Whether or not to invest in equities is a separate matter. Assuming they want to do that, SIPC is limited to $500k per brokerage account, and it's not backed by the full faith and credit of the government. After MF Global, I can't blame anyone for being skeptical of the safety of custodial accounts. Mutual funds bought directly from a fund provider such as Vanguard avoid that risk. If they like ETFs (as I do), then the small risk needs to be accepted and having multiple accounts at different institutions is a reasonable way to minimize it. (Some people also think cash accounts are less risky than margin accounts, even if you don't use the margin, simply because assets in the cash account can't be lent to short sellers.) The truly paranoid may also want to diversify fund companies, e.g. owning essentially the same index via both Vanguard and iShares ETFs.
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Re: Where to park $3M

Postby airahcaz » Fri Dec 28, 2012 1:46 pm

Thanks for all the replies. So sounds like folks agree with my original post, albeit with some variations, but bottom line is a portion in cash/CD or cash-like product, and the rest in a broad market index ETF or fund, again with variations on whether it all be at one discount broker or two.

Yes? Anything else? Does one shop around for any fringe benefits that a Vanguard or Fido or Schwab would provide whilst informing them a transfer of X million dollars is coming?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
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Re: Where to park $3M

Postby livesoft » Fri Dec 28, 2012 1:48 pm

Certainly I would take advantage of rebates. I was just in TDAmeritrade and they still remember me from the rebate I got 3 months ago. Apparently, no one else got that high a rebate. So I asked for some free trades which were granted instantly.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where to park $3M

Postby letsgobobby » Fri Dec 28, 2012 1:56 pm

ETrade is offering $500 for $250k; Schwab $200 Apple gift card for $50k; TD Ameritrade is offering $600 for $250k. TD Ameritrade used to allow 2 individual and 1 joint account to each receive the promo. If true for all 3 brokerages then you are looking at $3900 in promos to bring $1,650,000 in business. Is that worth it? I don't know, it's a lot of money but also 9 different accounts to manage.

I haven't moved anything to any of these brokers for the money.
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Re: Where to park $3M

Postby Default User BR » Fri Dec 28, 2012 3:22 pm

Most of the brokerages I have looked at won't give multiple bonuses for separate accounts. Some will aggregate the move, that is 100k in a Roth and 150k in a brokerage might count as 250k total.


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Re: Where to park $3M

Postby khh » Fri Dec 28, 2012 3:39 pm

I have a safe deposit box with plenty of room. That would save you $85/yr.
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Re: Where to park $3M

Postby airahcaz » Fri Dec 28, 2012 9:29 pm

livesoft wrote:I could put $3MM into ETFs easily without paying commissions and with a very low bid/ask spread. In other words, ETFs are very liquid. I don't know if they can manage the trades or not, but index mutual funds with the same low expense ratios are available, so they don't have to use ETFs unless they want to. Or they could use a mix of funds and ETFs.


Looking at daily trade volumes and large spreads, isn't this really limited to SPY and VTI in terms of broad market ETF's? (Not QQQQ, etc)

Large Good Till Cancel Limit trade.
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Re: Where to park $3M

Postby livesoft » Fri Dec 28, 2012 9:41 pm

I'm sorry, I did not understand your comment.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where to park $3M

Postby airahcaz » Fri Dec 28, 2012 9:50 pm

livesoft wrote:I'm sorry, I did not understand your comment.


2-3M. Broad based S&P 500 or TSM index etf. Somewhat large order, looking to have executed and filled at a limit order, with very tight spreads.

Given the relatively large order (personally), I see this only getting filled with something like SPY or VTI?
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Re: Where to park $3M

Postby livesoft » Fri Dec 28, 2012 9:55 pm

Probably true, but why would anybody in their right mind submit a single order for $2MM? I would think they would spread the buying out over several days or even a few weeks. I think it was Mr Ferri or Mr Swedroe who wrote here years ago that one could get their broker to do such transactions for them in a special way. I personally would not trust my broker, but would just do it myself.

Anyways, doing orders of $100K to $250K each over a few days would not be too hard for all the ETFs that one would want to own.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Where to park $3M

Postby airahcaz » Mon Dec 31, 2012 9:53 am

Suffice to say this will be in a taxable account as $5,500 is a lot of money that could go into an IRA but trivial based on the amount to be invested. Anywhere else to park it?

Also, if a majority invested in SPY, wouldn't that produce ~3% in cash dividends annually? To be decided if taken as cash or reinvested?
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