10 million dollar dilemma

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Topic Author
powercherry5
Posts: 43
Joined: Thu Dec 12, 2019 4:46 pm

10 million dollar dilemma

Post by powercherry5 »

I have been running a relatively successful business for 15 years which has allowed me to save a lot of money while still living a good lifestyle. The goal was always to retire early (which may still entail “working” but just not having the requirement to). I always spent a very small portion of what I earned as I am reasonably frugal and relatively financially savvy. Throughout the years I saved money in safe assets (read: cash/treasuries/etc) and very little in stocks as I started making money and investing during the great recessions and that left a bad taste in my mouth. Even more to the point, I made the cold calculation that It was also always more lucrative to spend time on my business than trying to figure out how to win a few % points on my savings and/or worrying about it. I currently spend about 160k-220k cash a year, and a safe bet would be about 200-250k pre-tax (especially when you start adding kids private school costs soon!).

Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.

Current allocations:
  • Cash: 3.9 million
  • Treasury Money Market: 3.2 million
  • Personal Home: 1.6 million
  • Total Stock Market Index VTSAX: 680k
  • Total Bond Market Index VBTLX: 162k
  • Total International Stock Market Index VTIAX: 142k
  • 401k (will have to check with the spread is but I think 80/20): 112k
  • Random stock picks (gambling) during covid crash: 100k
  • S&P500 index: 44k
  • I probably have another 200k+ of assets that could be sold if needed, but are depreciated assets and I don’t consider part of the equation (cars/boats/etc..)
So that works out to be about:
  • Cash equivalents: 71.4%
  • Real Estate: 16%
  • Stocks: 10.6% (86/14 usa/international)
  • Bonds: 1.6%
The goal: To be able to live my current lifestyle for the rest of my life, without the requirement of supplemental work. I don’t care to save money for inheritance and would be happy to use my last nickel on my last day.

I know many Bogleheads will cite the data and say that the correct action, especially at my age, would always be to sock away all my cash into stocks and forget about it. However I don’t always buy the idea that the past has to be a good predictor of the future, and emotionally I would feel A LOT worse losing 5 million of my hard earned cash for a decade or longer than losing out on 5 million in winnings. Living out my savings would be a walk in the park if it wasn’t for a huge whammy called inflation. I know this forum is very “high inflation is not a problem and will never happen again like the 70s”, but it’s something that does make me worry even if most members on here are much more optimistic.

From my perspective it seems like I am in the following situation:
  • Lose money: Terrible as it puts my retirement plans at risk
  • Make enough just to break even with inflation: Not bad
  • Make a little more than inflation: Great
  • Make a lot more than inflation: Theoretically should be very great, but realistically it would only have marginal benefit.
I am not risk averse in real life, but with my nest egg I believe I need to be very conservative because of this lopsided risk/reward equation that I just drew out. This is why for the last two years I have been putting away 24k into the market every month (16k usa stock,4k international, 4k bonds). It allowed me to not steal too much time from my business, while slowly add money into the market and hedging against putting all my money in before a collapse that always seems to be impending!

Anyways, to wrap this up, I think I need to start investing more of my money faster but I don’t feel any better about the market timing now (yes, we can never time the market!) than I did before. I know there are historically correct answers, but no forward looking correct answers, but advice would still be appreciated. What would you guys do in my situation?
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mrspock
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Re: 10 million dollar dilemma

Post by mrspock »

So you can not “buy” or “feel” whatever you like. But it doesn’t change the facts and the data which are clear.

I don’t even know what to tell you. I’d give you some advice backing it with data, and you’d come back with a bunch of nonsense about how you feel or “buy” like there’s no comeback to that.

Equity investing isn’t for everyone, maybe you need to be an business owner or real estate investor? Equity investing tends to work best for those who are cold, steady, unemotional, data driven people. For everyone else, it’s torture.

As soon as you start listing to your emotions, it’s game over with equity investing. You’ll have lost before you even start.
Makefile
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Re: 10 million dollar dilemma

Post by Makefile »

powercherry5 wrote: Wed May 12, 2021 7:46 pm Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.
Income taxes on the business sale are already accounted for and paid or excluded from the totals?

At a minimum I think you would want to eliminate the money market fund and switch to FDIC-insured accounts/CDs, although at that amount staying under the FDIC limit at each financial institution will be a small nuisance. You could also look into brokered CDs although I believe the rates are also near-zero. This alone, if you can average 0.40% on that 3.2M would bring in over $10,000/year with no added risk.

I suppose you just have to pick an asset allocation you can live with, one with a heavy allocation to short term reserves. One way you can look at it is that 10M/250K = 40 years of spending (assuming absolutely no inflation), which means half of the portfolio won't be touched for at least 20 years and therefore you should have a substantial portion in stock.
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retired@50
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Location: Living in the U.S.A.

Re: 10 million dollar dilemma

Post by retired@50 »

powercherry5 wrote: Wed May 12, 2021 7:46 pm
  • Lose money: Terrible as it puts my retirement plans at risk
  • Make enough just to break even with inflation: Not bad
  • Make a little more than inflation: Great
  • Make a lot more than inflation: Theoretically should be very great, but realistically it would only have marginal benefit.
...
What would you guys do in my situation?
I'd suggest (at your age) you need 40% stock index funds at a minimum to keep up with inflation over the remaining years of your life. Vanguard just so happens to have a fund that fits the bill. The Vanguard LifeStrategy Conservative Growth Fund. Globally diversified. 40% stock / 60% bond. Current dividend yield is near 1.65%. So, take the dividends, and if necessary, sell a tiny chunk as needed.

If you're looking for more tax efficiency, then you could consider the Vanguard Tax-Managed Balanced Fund, but it's 50% stock, 50% municipal bonds and has a lower dividend yield.

Links:
https://investor.vanguard.com/mutual-fu ... file/VSCGX

https://investor.vanguard.com/mutual-fu ... file/VTMFX

The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
This is one person's opinion. Nothing more.
Jebediah
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Location: Austin TX

Re: 10 million dollar dilemma

Post by Jebediah »

retired@50 wrote: Wed May 12, 2021 8:16 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm
  • Lose money: Terrible as it puts my retirement plans at risk
  • Make enough just to break even with inflation: Not bad
  • Make a little more than inflation: Great
  • Make a lot more than inflation: Theoretically should be very great, but realistically it would only have marginal benefit.
...
What would you guys do in my situation?
I'd suggest (at your age) you need 40% stock index funds at a minimum to keep up with inflation over the remaining years of your life. Vanguard just so happens to have a fund that fits the bill. The Vanguard LifeStrategy Conservative Growth Fund. Globally diversified. 40% stock / 60% bond. Current dividend yield is near 1.65%. So, take the dividends, and if necessary, sell a tiny chunk as needed.

If you're looking for more tax efficiency, then you could consider the Vanguard Tax-Managed Balanced Fund, but it's 50% stock, 50% municipal bonds and has a lower dividend yield.

Links:
https://investor.vanguard.com/mutual-fu ... file/VSCGX

https://investor.vanguard.com/mutual-fu ... file/VTMFX

The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
I second this advice. Lifestrategy funds are excellent. If you want to keep up with inflation, you're just going to have to suck it up and take some risk. 40% stocks should suffice. If you can't handle the thought of a 20% (2 million) paper loss the next time stocks lose 50%, I suggest you read Siegel (Stocks for the Long Run) or Nick Murray (Simple Wealth, Inevitable Wealth) to help you understand what it means to hold stocks for the very long term. If you still can't handle it, then I suggest spending less than 200K a year.
wolf359
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Re: 10 million dollar dilemma

Post by wolf359 »

Makefile wrote: Wed May 12, 2021 8:02 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.
Income taxes on the business sale are already accounted for and paid or excluded from the totals?

At a minimum I think you would want to eliminate the money market fund and switch to FDIC-insured accounts/CDs, although at that amount staying under the FDIC limit at each financial institution will be a small nuisance. You could also look into brokered CDs although I believe the rates are also near-zero. This alone, if you can average 0.40% on that 3.2M would bring in over $10,000/year with no added risk.

I suppose you just have to pick an asset allocation you can live with, one with a heavy allocation to short term reserves. One way you can look at it is that 10M/250K = 40 years of spending (assuming absolutely no inflation), which means half of the portfolio won't be touched for at least 20 years and therefore you should have a substantial portion in stock.
https://www.cdars.com/

The Certificate of Deposit Account Registry Service allows you to have a single registry account that holds CDs in multiple FDIC insured institutions. You get a single statement from a single organization, but the funds themselves are held in multiple CDs spread out among various banks. This enables you to exceed the $250K FDIC limit while still having the convenience of a single statement.
FoolMeOnce
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Re: 10 million dollar dilemma

Post by FoolMeOnce »

With $8.4 million (excluding your home value) and ~$250k spend per year at the high end, if your assets and spending just keep up with inflation, you would run out of money in 33.6 years. You will be around 70 years old. It is crazy to think $10 million is not enough, but you spend a lot annually! If you just hold it all in cash, it is not enough. Unless you have more income in the future (which it seems you intend to do), merely keeping up with inflation cannot be a satisfactory goal. Unfortunately, you'll have to take some risk. Fortunately, you have the assets to also keep enough safe to weather pretty much any length of downturn in the market. You have good suggestions above on how to do this.
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rob
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Location: Here

Re: 10 million dollar dilemma

Post by rob »

You have more than enough - only in these parts would 10M not be a clear win.... If you don't like stocks that's fine but keep in mind that inflation is not benign... go back 30 years and look at the price of stuff.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
Topic Author
powercherry5
Posts: 43
Joined: Thu Dec 12, 2019 4:46 pm

Re: 10 million dollar dilemma

Post by powercherry5 »

mrspock wrote: Wed May 12, 2021 7:56 pm So you can not “buy” or “feel” whatever you like. But it doesn’t change the facts and the data which are clear.

I don’t even know what to tell you. I’d give you some advice backing it with data, and you’d come back with a bunch of nonsense about how you feel or “buy” like there’s no comeback to that.

Equity investing isn’t for everyone, maybe you need to be an business owner or real estate investor? Equity investing tends to work best for those who are cold, steady, unemotional, data driven people. For everyone else, it’s torture.

As soon as you start listing to your emotions, it’s game over with equity investing. You’ll have lost before you even start.
I appreciate the response. I may have not been too clear. I wouldn't survive long in my business without the ability to make steady & unemotional decisions. Once I make a decision on a plan I won't lose sleep over it or pull out because of fear. The problem is making the decision.

I used emotional words, like feel, because they were the simplest way to explain decisions that I actually believe to be rooted in rational thought. (or things resembling rational thought! :oops: ) For example, feeling worse about halving my assets VS missing out on doubling them could probably be more accurately explained by saying
I wholly believe that I will derive less utility from doubling my money than by a the utility I use of halving it.

I believe the Boglehead rule of thumb generally say the best way is to invest all your cash at once. Which I think is consistent with available data, so I can't argue there. But I'm not sure if it's taking in the whole picture. Not because of emotions, but because of other philosophical principles. The great depression didn't happen till it happened. The longest bull market didn't happen till it just happened. Lowest interest rates didn't happen till they just happened...

Also, what would the data say about putting in all your money after a "longest bull market" event? I know you can't time the market, but on the other hand, shouldn't you be able to use the data to figure out the historic risk of putting in all your capital at a certain amount of days into a bull market?

So I am all for data, I just think this situation is a different than the typical Boglehead "put a little money away every month and trust the process". Putting away 24k a month was a way of reproducing a more typical scenario.

Hope that clarifies my thought process.
cacophony
Posts: 668
Joined: Tue Oct 16, 2007 9:12 pm

Re: 10 million dollar dilemma

Post by cacophony »

powercherry5 wrote: Wed May 12, 2021 10:33 pm ...
So I am all for data, I just think this situation is a different than the typical Boglehead "put a little money away every month and trust the process". Putting away 24k a month was a way of reproducing a more typical scenario.
I don't think it's any different. A person working hard and saving aggressively for 15 years that earns $100k a year is going to feel just a bad losing half their savings to a down market as somebody doing the same who earns $1MM a year. Or maybe the person earning $1MM a year would actually feel less bad because cutting back expenses is easier at that net worth level.
Topic Author
powercherry5
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Joined: Thu Dec 12, 2019 4:46 pm

Re: 10 million dollar dilemma

Post by powercherry5 »

Makefile wrote: Wed May 12, 2021 8:02 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.
Income taxes on the business sale are already accounted for and paid or excluded from the totals?

At a minimum I think you would want to eliminate the money market fund and switch to FDIC-insured accounts/CDs, although at that amount staying under the FDIC limit at each financial institution will be a small nuisance. You could also look into brokered CDs although I believe the rates are also near-zero. This alone, if you can average 0.40% on that 3.2M would bring in over $10,000/year with no added risk.

I suppose you just have to pick an asset allocation you can live with, one with a heavy allocation to short term reserves. One way you can look at it is that 10M/250K = 40 years of spending (assuming absolutely no inflation), which means half of the portfolio won't be touched for at least 20 years and therefore you should have a substantial portion in stock.
Taxes already accounted for! Unless the president retroactively changes the Capital Gains tax rates... Then I will owe a little more....

The problem with the CD's is exactly what you mentioned. Literally near zero gains at the current time because of low interest rates. Obviously better than the current, even closer to zero, returns on the current treasury fund though. On the other hand the trade off is it's not as liquid. If there was another crash today, I would sock away alot more cash this time around and I wouldn't be able to do that with the CD's.

I think ultimately the goal is probably 5 to 7 million to be in the market in some way.
retired@50 wrote: Wed May 12, 2021 8:16 pm
The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
I will take a look at this fund, thank you!
Jebediah wrote: Wed May 12, 2021 10:10 pm
retired@50 wrote: Wed May 12, 2021 8:16 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm
  • Lose money: Terrible as it puts my retirement plans at risk
  • Make enough just to break even with inflation: Not bad
  • Make a little more than inflation: Great
  • Make a lot more than inflation: Theoretically should be very great, but realistically it would only have marginal benefit.
...
What would you guys do in my situation?
I'd suggest (at your age) you need 40% stock index funds at a minimum to keep up with inflation over the remaining years of your life. Vanguard just so happens to have a fund that fits the bill. The Vanguard LifeStrategy Conservative Growth Fund. Globally diversified. 40% stock / 60% bond. Current dividend yield is near 1.65%. So, take the dividends, and if necessary, sell a tiny chunk as needed.

If you're looking for more tax efficiency, then you could consider the Vanguard Tax-Managed Balanced Fund, but it's 50% stock, 50% municipal bonds and has a lower dividend yield.

Links:
https://investor.vanguard.com/mutual-fu ... file/VSCGX

https://investor.vanguard.com/mutual-fu ... file/VTMFX

The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
I second this advice. Lifestrategy funds are excellent. If you want to keep up with inflation, you're just going to have to suck it up and take some risk. 40% stocks should suffice. If you can't handle the thought of a 20% (2 million) paper loss the next time stocks lose 50%, I suggest you read Siegel (Stocks for the Long Run) or Nick Murray (Simple Wealth, Inevitable Wealth) to help you understand what it means to hold stocks for the very long term. If you still can't handle it, then I suggest spending less than 200K a year.
As I alluded to in my reply to the previous poster just now, I should have expressed myself better. I have no issue with the natural ups and downs of the market once the money is in there for the long haul. I am fine with being down millions. I believe what I'm not fine with is investing everything at once and it IMMEDIATELY halving and then spending a decade or longer (no one can know how long next bull market will take) for it just to get back to zero. I don't have the data to prove it (hence using the word feel), but it doesn't seem prudent to invest so much at once at the very top of the market when the downside is much larger than the potential upside.

I'll take a look at those books though!
wolf359 wrote: Wed May 12, 2021 10:22 pm
Makefile wrote: Wed May 12, 2021 8:02 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.
Income taxes on the business sale are already accounted for and paid or excluded from the totals?

At a minimum I think you would want to eliminate the money market fund and switch to FDIC-insured accounts/CDs, although at that amount staying under the FDIC limit at each financial institution will be a small nuisance. You could also look into brokered CDs although I believe the rates are also near-zero. This alone, if you can average 0.40% on that 3.2M would bring in over $10,000/year with no added risk.

I suppose you just have to pick an asset allocation you can live with, one with a heavy allocation to short term reserves. One way you can look at it is that 10M/250K = 40 years of spending (assuming absolutely no inflation), which means half of the portfolio won't be touched for at least 20 years and therefore you should have a substantial portion in stock.
https://www.cdars.com/

The Certificate of Deposit Account Registry Service allows you to have a single registry account that holds CDs in multiple FDIC insured institutions. You get a single statement from a single organization, but the funds themselves are held in multiple CDs spread out among various banks. This enables you to exceed the $250K FDIC limit while still having the convenience of a single statement.
thanks!
FoolMeOnce wrote: Wed May 12, 2021 10:27 pm With $8.4 million (excluding your home value) and ~$250k spend per year at the high end, if your assets and spending just keep up with inflation, you would run out of money in 33.6 years. You will be around 70 years old. It is crazy to think $10 million is not enough, but you spend a lot annually! If you just hold it all in cash, it is not enough. Unless you have more income in the future (which it seems you intend to do), merely keeping up with inflation cannot be a satisfactory goal. Unfortunately, you'll have to take some risk. Fortunately, you have the assets to also keep enough safe to weather pretty much any length of downturn in the market. You have good suggestions above on how to do this.
Honestly, I wouldn't have a huge problem cutting down on spending if I needed to. No one needs luxury SUV's. I would just like my "plan" to account for not cutting down on spending. If you guys couldn't tell yet, I like to think about and plan for the worst, even while actively working on making sure it doesn't happen. (As I am sure many of you on here do as well)
cacophony wrote: Wed May 12, 2021 10:52 pm
powercherry5 wrote: Wed May 12, 2021 10:33 pm ...
So I am all for data, I just think this situation is a different than the typical Boglehead "put a little money away every month and trust the process". Putting away 24k a month was a way of reproducing a more typical scenario.
I don't think it's any different. A person working hard and saving aggressively for 15 years that earns $100k a year is going to feel just a bad losing half their savings to a down market as somebody doing the same who earns $1MM a year. Or maybe the person earning $1MM a year would actually feel less bad because cutting back expenses is easier at that net worth level.
Right, totally agreed there. What I meant by "it's different" is that typically they are naturally putting in a little every month/year because of how normal people earn money. (a paycheck at a time!) The situation I am in is that a large portion of all my lifetime earnings were earned within a few years and then a big chunk at once just now. So I am not in a situation where I amortizes the risk of the crash happening tomorrow because of some "natural" earning/savings schedule.
Last edited by powercherry5 on Wed May 12, 2021 11:08 pm, edited 1 time in total.
cacophony
Posts: 668
Joined: Tue Oct 16, 2007 9:12 pm

Re: 10 million dollar dilemma

Post by cacophony »

powercherry5 wrote: Wed May 12, 2021 11:00 pm Right, totally agreed there. What I meant by "it's different" is that they are naturally putting in a little every month/year because of savings and not in the situation where they have the option to put it in the lifetime of savings at once. (typically!)
Ok, understood. Yeah, the only thing I can suggest would be to pick a goal asset allocation that you're comfortable with (eg. 40% equities, 60% bonds), and then dollar cost average the purchases over an extended period of time.
texasdiver
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Location: Vancouver WA

Re: 10 million dollar dilemma

Post by texasdiver »

Jebediah wrote: Wed May 12, 2021 10:10 pm
retired@50 wrote: Wed May 12, 2021 8:16 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm
  • Lose money: Terrible as it puts my retirement plans at risk
  • Make enough just to break even with inflation: Not bad
  • Make a little more than inflation: Great
  • Make a lot more than inflation: Theoretically should be very great, but realistically it would only have marginal benefit.
...
What would you guys do in my situation?
I'd suggest (at your age) you need 40% stock index funds at a minimum to keep up with inflation over the remaining years of your life. Vanguard just so happens to have a fund that fits the bill. The Vanguard LifeStrategy Conservative Growth Fund. Globally diversified. 40% stock / 60% bond. Current dividend yield is near 1.65%. So, take the dividends, and if necessary, sell a tiny chunk as needed.

If you're looking for more tax efficiency, then you could consider the Vanguard Tax-Managed Balanced Fund, but it's 50% stock, 50% municipal bonds and has a lower dividend yield.

Links:
https://investor.vanguard.com/mutual-fu ... file/VSCGX

https://investor.vanguard.com/mutual-fu ... file/VTMFX

The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
I second this advice. Lifestrategy funds are excellent. If you want to keep up with inflation, you're just going to have to suck it up and take some risk. 40% stocks should suffice. If you can't handle the thought of a 20% (2 million) paper loss the next time stocks lose 50%, I suggest you read Siegel (Stocks for the Long Run) or Nick Murray (Simple Wealth, Inevitable Wealth) to help you understand what it means to hold stocks for the very long term. If you still can't handle it, then I suggest spending less than 200K a year.
Vanguard charges slightly higher fees (investor share fees) for Lifestrategy funds than they do if you buy the underlying funds themselves and get Admiral Shares. For the ordinary smaller investor it isn't going to make much difference. But if you are talking about 10 million then the difference will add up. You would save on fees by building a portfolio that matched the Lifestrategy fund with separate individual funds.

Honestly, for a newby investor nervous about equities who is holding $10 million. I would just hire a Vanguard advisor and follow their advice.
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mrspock
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Re: 10 million dollar dilemma

Post by mrspock »

powercherry5 wrote: Wed May 12, 2021 10:33 pm
mrspock wrote: Wed May 12, 2021 7:56 pm So you can not “buy” or “feel” whatever you like. But it doesn’t change the facts and the data which are clear.

I don’t even know what to tell you. I’d give you some advice backing it with data, and you’d come back with a bunch of nonsense about how you feel or “buy” like there’s no comeback to that.

Equity investing isn’t for everyone, maybe you need to be an business owner or real estate investor? Equity investing tends to work best for those who are cold, steady, unemotional, data driven people. For everyone else, it’s torture.

As soon as you start listing to your emotions, it’s game over with equity investing. You’ll have lost before you even start.
I appreciate the response. I may have not been too clear. I wouldn't survive long in my business without the ability to make steady & unemotional decisions. Once I make a decision on a plan I won't lose sleep over it or pull out because of fear. The problem is making the decision.

*snip*
Here's the deal. This what the math says: you stick your money in the market today, at whatever AA you think you can sleep at night with. 50/50, 60/40, 75/25 ...whatever. Since you are young, use a SWR between 3-3.5%, confirm with various Firecalc like tools, and then just spend that money each year. That's it. Done. Finished. It really doesn't matter if a Great Depression happens, or a 2008 happens....it doesn't. It's irrelevant unless you do something foolish like mess with your portfolio during such events -- see my original points. All of these tools take these events into account.

Now, there may be some --exceedingly rare -- events you can't predict, and that's just too bad. Just like owning a business, you don't get to control all the factors here, let things happen and deal with it as it comes (e.g. reduce your spending temporarily if you like).

Let me take this piece by piece:
powercherry5 wrote: Wed May 12, 2021 10:33 pm Not because of emotions, but because of other philosophical principles. The great depression didn't happen till it happened.
Irrelevant, see above.
powercherry5 wrote: Wed May 12, 2021 10:33 pm Also, what would the data say about putting in all your money after a "longest bull market" event? I know you can't time the market, but on the other hand, shouldn't you be able to use the data to figure out the historic risk of putting in all your capital at a certain amount of days into a bull market?
Yes, it says you win by lump summing -- even at a market peak (which we are no longer at BTW...5% correction so far). Waiting for a pull back is a form of market timing, and the worst thing that can happen is you actually fool yourself into thinking you can time such things. The first time by dumb luck, and then you'll start losing money by being unable to reproduce your luck (which you will think was skill).
powercherry5 wrote: Wed May 12, 2021 10:33 pm I wholly believe that I will derive less utility from doubling my money than by a the utility I use of halving it.
You have it wrong. You will derive maximum utility from your money (specifically the bonds) when the market loses it's mind, investors think they are fortune tellers and people are willing to hand you their shares at 50% off. You are getting twice as many shares for the same money. You re-balance and ride it all the way back up. Right now with markets at ATHs, I sit here buying bonds to keep my AA in check.

If you are really worried about this, just choose a conservative AA like 50/50, the worst draw down in *history* was -22.5%, or 60/40 which max'd out at -26.6% (both in the great depression). The trade off? You won't be able to spend quite as much. There's also some risk going heavy on bonds with yields as low as they are and if inflation runs hot for a while. IMO the safest thing people can do right now is take some modest risk on the equity side, as bonds have their own unique risks these days.

Honestly, I hate to say it, but there's no safe harbor right now. With $10m in cash, you are losing $20-40k/yr to inflation for every $1m in cash you hold. The government is basically telling you: either take a 100% chance of losing 2-4% of your money each year, or swim in the equity market and make on average 7-10% but you might risk losing as much as 40-50% at times (with it eventually coming back to even).

Again, and I can't stress this enough. This is an easy call, take door #2, have equities in your portfolio. It's completely irrelevant what the market does after you begin withdrawing money per your SWR. If you are a bit worried in the moment, just cut back on some spending, but you don't really need to do this.
tomsense76
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Re: 10 million dollar dilemma

Post by tomsense76 »

It sounds like you've already gotten a lot of great responses from folks. So will just focus on this one piece.
powercherry5 wrote: Wed May 12, 2021 10:33 pm Also, what would the data say about putting in all your money after a "longest bull market" event? I know you can't time the market, but on the other hand, shouldn't you be able to use the data to figure out the historic risk of putting in all your capital at a certain amount of days into a bull market?
Certainly if one knew we were "after" a bull market, it would be better to stick the money in "once" it crashed. However here's the problem. No one knows it is after. And anyone who says they do is either lying or crazy (maybe both :wink:). So watch out for anyone giving you guarantees.

Could the longest bull market ever run another decade? Sure. It's hard to imagine maybe, but it could happen. In fact in the run up after the 80s looking at the early 90s, wouldn't have been surprised to hear people say surely the crash is coming. Yet the 90s were a roaring time with the US stock market up 500% at the end of the decade. IOW "after" is terribly challenging to pinpoint.

That said, I think I know what you are getting at. What if one was so unfortunate to invest at the peak? Well here's an example of a hypothetical individual Bob the world's worst market timer, who managed to only invest at peaks. Will let you read the post, but suffice it to say as grim as the setup sounds the result ends up being not so bad.

However I think we need to come back to something. What you are really identifying is there is risk to putting money to work and you need to ask yourself how much risk you are willing to accept. TBH I think you may be ahead of most (not simply on the savings side), but because you are coming to this from a perspective of risk management as opposed to simply eyeing the returns of 100% stocks. So as others have said, you need to identify how much risk and what kinds of risk you will accept. The risk of all cash as others have noted is it gets devalued away by inflation. The risk of all stocks is high level of volatility. So the question is how much volatility will you accept to preserve what you have worked so hard for? This page from Vanguard might give you some ideas.

Would suggest reading up on these things a bit. Then come back and ask more questions :happy
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Wiggums
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Re: 10 million dollar dilemma

Post by Wiggums »

The US spending and the market is not 100% normal, because we are fighting a global pandemic. The economy was shut down, the government spent tons of money and we have a semiconductor shortage and maybe even signs of stagflation. The reopening of the economy has been slow and uneven.

I retired at 56 and I your understand the challenge. The ups and downs of the market are fine. However, you are now drawing down on this money, you need to cover your high spending and make it last for your family. We have about the same amount as you, but we spend less and our asset allocation is now (close to) 60/40.

You have more options than 100% stocks and bonds to cover inflation and grow the portfolio a little. I think that is the first decision point. For that reason, I personally scheduled weekly investments into index funds and bonds while I consider all my options. That way I’m doing something positive with the money. Take your time to make the right investment decision for your family and then enjoy your family. You earned it.

Congratulations on the sale of your business. Good luck to you.
snailderby
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Re: 10 million dollar dilemma

Post by snailderby »

With the understanding that the past doesn't always predict the future, check out the heat maps and safe withdrawal rates for different portfolios at https://portfoliocharts.com/. You certainly don't have to be 100% stocks if a lower stock allocation will generate enough growth for your needs. Some investors also use TIPS, gold, and/or commodities to hedge against inflation, although there are mixed views on this forum about the latter two asset classes.
gips
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Re: 10 million dollar dilemma

Post by gips »

i was in a similar situation after the sale of a business albeit in my early 50s, about same portfolio size and expenses. i ran into bill bernstein here on the forum and he was kind enough to post his notion of “if you’ve won, why continue to the play the game”.

i created a simple spreadsheet of different asset allocations, stress tested each one with varying loss levels and decided i could sleep at night with a 40-60 asset allocation and a 50 per cent drop of equities prices. so for a $10mm portfolio that’s a $2mm loss.

then i used firecalc to make sure, from a probability pov, we wouldn’t run out of money after a $2mm loss. the last step was to dollar cost average the money into the market over two years (knowing full well a lump sum investing would probably have a better result). i parked the money in a whole lot of cds, which was painful, but rates were btw 2 and 4 per cent at the time.

hope that helps, congrats on selling your business!

ps “ Make enough just to break even with inflation: Not bad”, you could look at allocating some of your fixed income allocation to tips.
HomeStretch
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Re: 10 million dollar dilemma

Post by HomeStretch »

Agree with prior posts that your portfolio should hold a higher percentage of equities in order to keep up with inflation to last your lifetime at your spend level.

Given the long time period that your invested portfolio (excludes home equity) needs to support you, consider 40-50% equities. If you don’t want to lump sum invest, consider increasing your DCA rate to $100k - $200k per month so you reach at least 40% equity in 1-2 years. At your current DCA rate of $24k/month, it will take ~ 8 years to reach 40% equity during which time you will be drawing down your portfolio.
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Re: 10 million dollar dilemma

Post by Jack FFR1846 »

powercherry5 wrote: Wed May 12, 2021 11:00 pm
As I alluded to in my reply to the previous poster just now, I should have expressed myself better. I have no issue with the natural ups and downs of the market once the money is in there for the long haul. I am fine with being down millions. I believe what I'm not fine with is investing everything at once and it IMMEDIATELY halving and then spending a decade or longer (no one can know how long next bull market will take) for it just to get back to zero. I don't have the data to prove it (hence using the word feel), but it doesn't seem prudent to invest so much at once at the very top of the market when the downside is much larger than the potential upside.
This whole paragraph defines investing by "feel". "All time high" happens in the market every 18 days. Your paragraph makes it seem like it's a once in a lifetime event. It's not. Wait 3 weeks and it'll (on average) be higher than ever before......again. The bolded part shows you're avoiding investing because of fear, not information. The market is NOT "what goes up must come down". There's no gravity in investing.

My suggestions:

1) learn how to live on less. Sorry, but your spending is outrageously high.

2) unless you plan to sell the house and boat and cars, they are not usable assets, so don't count them in your investments.

My recommendation? Put all of your money into a Vanguard target date fund, write down a new password you can never remember on a small piece of paper, change the password, then eat the paper. You need to leave the investments alone and this is a cheap way to do it. Otherwise, pay some shark 1% AUM to not allow you to mess with your investments and take a set income every month.
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TimeTheMarket
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Re: 10 million dollar dilemma

Post by TimeTheMarket »

Your cash allocation at your age is insane. You can avoid market losses by staying cash and at the same time lock in wealth destruction courtesy of inflation on your cash and embrace a tremendous opportunity cost. I question whether anybody here can tell you things you don't already know but due to fear avoid heeding. You have enough money that you could actually live on dividends alone on an index fund and never touch the principle.
Username is not serious :)
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TomatoTomahto
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Re: 10 million dollar dilemma

Post by TomatoTomahto »

Look at some of the “you’ve won the game, so quit playing” threads. You might be a candidate for a Liability Matching Portfolio (LMP) or maybe one of the variations. That said, your annual spend is high, and while you’re ahead in the second period, you might not have “won the game.” Apologies for the sports metaphors.
I get the FI part but not the RE part of FIRE.
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goodenyou
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Re: 10 million dollar dilemma

Post by goodenyou »

I would find a way to make some earned income to offset your consumption. It will give you something tho do and distract you from the anxiety of how to meet your spending needs with a (too) conservative portfolio. Being young and desiring a high-consumption lifestyle requires growth in your portfolio. Stocks are still the best bet for the long run.
"Ignorance more frequently begets confidence than does knowledge" | “Do you know how to make a rain dance work? Dance until it rains”
59Gibson
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Re: 10 million dollar dilemma

Post by 59Gibson »

$10 mil just ain't what it used to be, and in 20 years it'll be even less..so you need equity 40% min
invest2bfree
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Re: 10 million dollar dilemma

Post by invest2bfree »

My opinion is for you to take 1.6million of the 8.6million put it in safe instruments like short term treasury.

Then invest the rest in into a World Index like VT.

VT provides 2% dividend so will give you about $140k just in income.
Then don't worry about your market ups and downs.


Think about this, if VT is down 50% then the entire world stock market wealth of 80Trillion is down 50%.

So you are not going to escape collective pain or gain.
95% VT, 5% vgsh
invest2bfree
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Re: 10 million dollar dilemma

Post by invest2bfree »

invest2bfree wrote: Thu May 13, 2021 8:26 am My opinion is for you to take 1.6million of the 8.6million put it in safe instruments like short term treasury.

Then invest the rest in into a World Index like VT.

VT provides 2% dividend so will give you about $140k just in income.
Then don't worry about your market ups and downs.


Think about this, if VT is down 50% then the entire world stock market wealth of 80Trillion is down 50%.

So you are not going to escape collective pain or gain.

So the key is how do you buy it. If you are bargain hunter by heart then invest in days VT is going down. If you are systematic investor then allocate 50% now 50% progressively over a year.

Research says going all in today is better than Dollar Cost Averaging.
95% VT, 5% vgsh
smitcat
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Re: 10 million dollar dilemma

Post by smitcat »

powercherry5 wrote: Wed May 12, 2021 11:00 pm
Makefile wrote: Wed May 12, 2021 8:02 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.
Income taxes on the business sale are already accounted for and paid or excluded from the totals?

At a minimum I think you would want to eliminate the money market fund and switch to FDIC-insured accounts/CDs, although at that amount staying under the FDIC limit at each financial institution will be a small nuisance. You could also look into brokered CDs although I believe the rates are also near-zero. This alone, if you can average 0.40% on that 3.2M would bring in over $10,000/year with no added risk.

I suppose you just have to pick an asset allocation you can live with, one with a heavy allocation to short term reserves. One way you can look at it is that 10M/250K = 40 years of spending (assuming absolutely no inflation), which means half of the portfolio won't be touched for at least 20 years and therefore you should have a substantial portion in stock.
Taxes already accounted for! Unless the president retroactively changes the Capital Gains tax rates... Then I will owe a little more....

The problem with the CD's is exactly what you mentioned. Literally near zero gains at the current time because of low interest rates. Obviously better than the current, even closer to zero, returns on the current treasury fund though. On the other hand the trade off is it's not as liquid. If there was another crash today, I would sock away alot more cash this time around and I wouldn't be able to do that with the CD's.

I think ultimately the goal is probably 5 to 7 million to be in the market in some way.
retired@50 wrote: Wed May 12, 2021 8:16 pm
The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
I will take a look at this fund, thank you!
Jebediah wrote: Wed May 12, 2021 10:10 pm
retired@50 wrote: Wed May 12, 2021 8:16 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm
  • Lose money: Terrible as it puts my retirement plans at risk
  • Make enough just to break even with inflation: Not bad
  • Make a little more than inflation: Great
  • Make a lot more than inflation: Theoretically should be very great, but realistically it would only have marginal benefit.
...
What would you guys do in my situation?
I'd suggest (at your age) you need 40% stock index funds at a minimum to keep up with inflation over the remaining years of your life. Vanguard just so happens to have a fund that fits the bill. The Vanguard LifeStrategy Conservative Growth Fund. Globally diversified. 40% stock / 60% bond. Current dividend yield is near 1.65%. So, take the dividends, and if necessary, sell a tiny chunk as needed.

If you're looking for more tax efficiency, then you could consider the Vanguard Tax-Managed Balanced Fund, but it's 50% stock, 50% municipal bonds and has a lower dividend yield.

Links:
https://investor.vanguard.com/mutual-fu ... file/VSCGX

https://investor.vanguard.com/mutual-fu ... file/VTMFX

The beauty of the all-in-one fund solution is that you'll never have to re-balance again in your life. This frees up your mind to focus on other things and think of it as a really good bank account that grows faster than most.

Regards,
I second this advice. Lifestrategy funds are excellent. If you want to keep up with inflation, you're just going to have to suck it up and take some risk. 40% stocks should suffice. If you can't handle the thought of a 20% (2 million) paper loss the next time stocks lose 50%, I suggest you read Siegel (Stocks for the Long Run) or Nick Murray (Simple Wealth, Inevitable Wealth) to help you understand what it means to hold stocks for the very long term. If you still can't handle it, then I suggest spending less than 200K a year.
As I alluded to in my reply to the previous poster just now, I should have expressed myself better. I have no issue with the natural ups and downs of the market once the money is in there for the long haul. I am fine with being down millions. I believe what I'm not fine with is investing everything at once and it IMMEDIATELY halving and then spending a decade or longer (no one can know how long next bull market will take) for it just to get back to zero. I don't have the data to prove it (hence using the word feel), but it doesn't seem prudent to invest so much at once at the very top of the market when the downside is much larger than the potential upside.

I'll take a look at those books though!
wolf359 wrote: Wed May 12, 2021 10:22 pm
Makefile wrote: Wed May 12, 2021 8:02 pm
powercherry5 wrote: Wed May 12, 2021 7:46 pm Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.
Income taxes on the business sale are already accounted for and paid or excluded from the totals?

At a minimum I think you would want to eliminate the money market fund and switch to FDIC-insured accounts/CDs, although at that amount staying under the FDIC limit at each financial institution will be a small nuisance. You could also look into brokered CDs although I believe the rates are also near-zero. This alone, if you can average 0.40% on that 3.2M would bring in over $10,000/year with no added risk.

I suppose you just have to pick an asset allocation you can live with, one with a heavy allocation to short term reserves. One way you can look at it is that 10M/250K = 40 years of spending (assuming absolutely no inflation), which means half of the portfolio won't be touched for at least 20 years and therefore you should have a substantial portion in stock.
https://www.cdars.com/

The Certificate of Deposit Account Registry Service allows you to have a single registry account that holds CDs in multiple FDIC insured institutions. You get a single statement from a single organization, but the funds themselves are held in multiple CDs spread out among various banks. This enables you to exceed the $250K FDIC limit while still having the convenience of a single statement.
thanks!
FoolMeOnce wrote: Wed May 12, 2021 10:27 pm With $8.4 million (excluding your home value) and ~$250k spend per year at the high end, if your assets and spending just keep up with inflation, you would run out of money in 33.6 years. You will be around 70 years old. It is crazy to think $10 million is not enough, but you spend a lot annually! If you just hold it all in cash, it is not enough. Unless you have more income in the future (which it seems you intend to do), merely keeping up with inflation cannot be a satisfactory goal. Unfortunately, you'll have to take some risk. Fortunately, you have the assets to also keep enough safe to weather pretty much any length of downturn in the market. You have good suggestions above on how to do this.
Honestly, I wouldn't have a huge problem cutting down on spending if I needed to. No one needs luxury SUV's. I would just like my "plan" to account for not cutting down on spending. If you guys couldn't tell yet, I like to think about and plan for the worst, even while actively working on making sure it doesn't happen. (As I am sure many of you on here do as well)
cacophony wrote: Wed May 12, 2021 10:52 pm
powercherry5 wrote: Wed May 12, 2021 10:33 pm ...
So I am all for data, I just think this situation is a different than the typical Boglehead "put a little money away every month and trust the process". Putting away 24k a month was a way of reproducing a more typical scenario.
I don't think it's any different. A person working hard and saving aggressively for 15 years that earns $100k a year is going to feel just a bad losing half their savings to a down market as somebody doing the same who earns $1MM a year. Or maybe the person earning $1MM a year would actually feel less bad because cutting back expenses is easier at that net worth level.
Right, totally agreed there. What I meant by "it's different" is that typically they are naturally putting in a little every month/year because of how normal people earn money. (a paycheck at a time!) The situation I am in is that a large portion of all my lifetime earnings were earned within a few years and then a big chunk at once just now. So I am not in a situation where I amortizes the risk of the crash happening tomorrow because of some "natural" earning/savings schedule.
"Honestly, I wouldn't have a huge problem cutting down on spending if I needed to. No one needs luxury SUV's. I would just like my "plan" to account for not cutting down on spending. If you guys couldn't tell yet, I like to think about and plan for the worst, even while actively working on making sure it doesn't happen."

Please confirm a few important data points for future planning....
- you desire a budget for expenses of $220K per year
- does that budget already include growing health care costs for the family?
- when you model your current fed and state taxes what draw amount do you need to support $220K after taxes?
Independent George
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Re: 10 million dollar dilemma

Post by Independent George »

powercherry5 wrote: Wed May 12, 2021 11:00 pm As I alluded to in my reply to the previous poster just now, I should have expressed myself better. I have no issue with the natural ups and downs of the market once the money is in there for the long haul. I am fine with being down millions. I believe what I'm not fine with is investing everything at once and it IMMEDIATELY halving and then spending a decade or longer (no one can know how long next bull market will take) for it just to get back to zero. I don't have the data to prove it (hence using the word feel), but it doesn't seem prudent to invest so much at once at the very top of the market when the downside is much larger than the potential upside.
1. It is mathematically sub-optimal, but dollar cost averaging your stock allocation over the course of the year offers some emotional protection from a bear market. I think this is perfectly justifiable with the large amount you are working with.
2. If you maintain a conservative allocation (40/60), a bear market will not come close to wiping you out, and rebalancing will likely benefit you in the long run.
3. A market crash followed by Japan-like lost decade is a small (but real) possibility; inflation is a certainty. At least some equity exposure is needed.
bloom2708
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Re: 10 million dollar dilemma

Post by bloom2708 »

Just don't spend so much, that fixes all scenarios. Spending for spending sake isn't that much fun after a certain point.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
carolinaman
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Re: 10 million dollar dilemma

Post by carolinaman »

Have you considered annuities, especially single premium immediate annuities (SPIA). Annuities usually provide a higher return than other fixed income investments. These are typically not indexed to inflation but are a better option than most fixed income.

There is a saying that "why play the game when you have already won?" That sounds like you. As long as keep up with inflation, you can easily maintain your lifestyle.

Another thought. I know a guy who sold his small business about 20 years ago. He then began investing in real estate: single family homes, duplexes and apartment buildings. He currently has about 50 homes he rents and recently sold a couple of apartment buildings he had converted in condos. He is very disciplined in what he pays for property, fixes them up and either rents or sells them. He has the advantage over many people in that he can pay $1M for a property if the price and situation is right. Most people cannot. You could do the same thing, either in real estate or some other investment opportunity. There are investment opportunities for people like you who have substantial cash. Of course, you have to do due diligence to make sure what you are buying. Most Bogleheads do not have this opportunity.
Independent George
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Re: 10 million dollar dilemma

Post by Independent George »

carolinaman wrote: Thu May 13, 2021 8:55 am Have you considered annuities, especially single premium immediate annuities (SPIA). Annuities usually provide a higher return than other fixed income investments. These are typically not indexed to inflation but are a better option than most fixed income.
He's not going to find an annuity at his age.
Wricha
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Re: 10 million dollar dilemma

Post by Wricha »

I think Mr Spock gave you some excellent advise. I would analyze what he saying and not rationalize why you are almost there. You are asking why $10M is not secure? The answer is it’s not and never will be. Now if you want to improve your odds of $10M working out, see Spock if you want decrease your odds of it working out invest in checking/savings accounts. All at once or a million a year (8+ years to be fully invested. $24k/month is silly given the amount you need to deploy).
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powercherry5
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Re: 10 million dollar dilemma

Post by powercherry5 »

I appreciate everyone's responses! There is alot of good analysis and information in all the replies. I will be re-reading them a few times and doing some serious thinking. I may need to sniff test some of my long held beliefs and thought processes before I can formulate a good response to all the good advise.
StillLearning1977
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Re: 10 million dollar dilemma

Post by StillLearning1977 »

Sounds like you're a perfect rental property investor. It's still "work" in a way, but fairly minimal. Start buying rental properties or small multi-tenant, and a great hedge on inflation. So, less risky than stocks, but you get inflation protection (which as we've seen this month is very real and insidious) and steady cash stream to fund your lifestyle. Also, typically great tax breaks, etc.

The only problem is home prices are at very frothy prices.
Eat33
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Re: 10 million dollar dilemma

Post by Eat33 »

You are a young, bright, successful man with 30 years of traditional working life to go. If you try to live off your nest egg you will be bored and stressed.

You enjoy a nice life style: nice home, car, spending money without a second thought. This is a great feeling.

Do your homework and invest in a manner which makes you feel comfortable. Three fund portfolio is easy. Real estate is not easy. You achieved success by being good at a particular discipline. Don't turn your back on that knowledge going forward. Being good at your field makes you feel comfortable so why turn your back on it? It gives you security and you probably enjoy many aspects of your work.

Find another job. Not necessarily start another business but a challenging job. Something that allows you to take off for awhile if you want.

Embrace happiness!
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patrick013
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Re: 10 million dollar dilemma

Post by patrick013 »

powercherry5 wrote: Wed May 12, 2021 7:46 pm
Recently I sold my business for a large chunk of change and now is the time to figure out what to do with the money. My net worth is about 10 million, which is obviously a great financial position to be in at my age (mid 30s), but it is also a bit nerve racking trying to figure out the right way to do this.

There's alot of warnings lately of a market crash. More than usual. If
that happens it certainly would not be a good entry point for a large equity
position thru purchase. Perhaps do nothing till after COVID.

I would consider a conservative asset allocation at 25% or less of stock
funds. TSM isn't a bad choice.

Added to that some defensive investment in tickers SPHQ, VPU, and XLU will
add income and some growth with limited risk. Another 25% asset allocation.

For fixed income a 5 to 10 year individual treasury ladder, or a combination
of a treasury index and a muni index fund. Asset allocation of 50%.


Monte Carlo Simulation


The Monte Carlo will take inputs and calc results based on stat data. This one
has come up with estimates that have 4605 portfolios out of 5000 simulated
portfolios (92.10%) survived all withdrawals.

If you adjusted your spending to $200,000/year 4952 portfolios out of 5000
simulated portfolios (99.04%) survived all withdrawals.

If you're more comfortable with less stock and less risk just adjust those figures
and your withdrawal amount downward and see where the Monte Carlo leads.
age in bonds, buy-and-hold, 10 year business cycle
barneycat
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Re: 10 million dollar dilemma

Post by barneycat »

You've received some great advice here. The only thing I can offer is to think carefully and honestly about your spending. Coming from personal experience, it's much easier to say, "ah I can cut back if I need to" than to actually follow through with doing so. Lifestyle creep is very real. And actually cutting back spending is likely much harder when you have $10 million (maybe $7 million after a market fall) sitting the in the bank and your family questions why you need to cut back on things they are used to.

You say your current spend is $160-220k per year with a planned increase to a maximum of $250k for kids' private schools. I live in a MCOL area and private schools range from $8k to $22k per kid for elementary school. Private school isn't the only cost to plan for as your kids age: activities, camps, family vacations with four or five plane tickets versus two. Kids are expensive, but totally worth it. You've presumably worked hard for your money and should feel total joy for providing for them. But that goes back to my first point of "cutting back." Are you really going to cut back on these things?

Just be honest with yourself. Great work and keep us informed of what you decide to do!
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powercherry5
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Re: 10 million dollar dilemma

Post by powercherry5 »

I am starting to look into alot that has been mentioned here. I came up on a question along the way about the bond side of the investment strategy. Is the bond side of the equation even worth it right now (like VBTLX) compared to having the money in money markets or whatever else. (and especially considering my age).

I thought the redeeming quality of bonds is that even though they still go up/down, their yield ends up making them a good hedge and smoothing things over. Now that interest rates are at the floor and yields are pretty miniscule, are the bond risks worth it? I can't tell if these really are extenuating circumstances or if I'm playing the "trying to time the market like an idiot" game again. Since I don't have any inside knowledge, I'm guessing you guys would reply that the market has already priced all this in so it's still worth it..?
sambb
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Re: 10 million dollar dilemma

Post by sambb »

10% per month in total stock and intermed term bonds (or tax exempt), and you are done in 5 months at 50/50 and enjoy life.
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retired@50
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Re: 10 million dollar dilemma

Post by retired@50 »

powercherry5 wrote: Thu May 13, 2021 3:11 pm I am starting to look into alot that has been mentioned here. I came up on a question along the way about the bond side of the investment strategy. Is the bond side of the equation even worth it right now (like VBTLX) compared to having the money in money markets or whatever else. (and especially considering my age).

I thought the redeeming quality of bonds is that even though they still go up/down, their yield ends up making them a good hedge and smoothing things over. Now that interest rates are at the floor and yields are pretty miniscule, are the bond risks worth it? I can't tell if these really are extenuating circumstances or if I'm playing the "trying to time the market like an idiot" game again. Since I don't have any inside knowledge, I'm guessing you guys would reply that the market has already priced all this in so it's still worth it..?
In my opinion, Yes, you should consider holding some bond index funds, like VBTLX.

There are a variety of ways I could try to explain this...
1. Cash is earning about 0.5% right now, and VBTLX is earning 1.35%, and inflation is maybe around 2% depending on what you read. So, cash actually puts you further behind inflation than the bond fund does.

2. Bond funds like VBTLX typically have a relatively steady share price. VBTLX has traded between $9.58 and $11.79 per share since the fund started back in 2001. So, you might be thinking how does anybody make any money since the share price never seems to go anywhere? The monthly interest is how. For long term bond fund holders, the monthly interest, and the subsequent "interest on interest" is what adds up over time. Ignore the share price. Know that once interest rates start to rise in the general economy, the yield for VBTLX will rise from 1.35% to whatever the prevailing rate is.

Hope this helps.

Regards,
This is one person's opinion. Nothing more.
Finridge
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Re: 10 million dollar dilemma

Post by Finridge »

This is probably a great starting point:

https://www.bogleheads.org/wiki/Managing_a_windfall

Especially see Section 4.1 and 4.11 about timing and lump sum vs averaging it in.

Personally, facing this choice, I would lump sum invest it into a three fund portfolio. But you have to decide what is right for you.
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aj76er
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Re: 10 million dollar dilemma

Post by aj76er »

You could take an approach inspired by William Bernstein:
  • Keep 20 years of base expenses in safe, fixed income
  • The rest put in a riskier market portfolio
He further says you can assume 50% of dividends (from diversified equities) as "safe". So, let's say 1% yield from a mixture of VTI and VXUS.

If you assume 220k/year as base living expenses, then 20X is 4.4mil. However, assume some dividends from equities (~50k), and you only need to draw 170k per year from the fixed income, which is 3.4mil @ 20X. So, this would leave your liquid portfolio of 8.4mil split as follows:

Fixed Income: 3.4mil
Equities (VTI+VXUS): 5mil

The 3.4 mil could be any combination of FDIC savings, money markets, Treasury bond ladder (STRIPS perhaps), CD ladder, TIPs ladder, etc. Personally, I'd put 2 years worth in FDIC savings and then do a Treasury and/or CD ladder for the rest.

Using this scheme, if equities have an amazing year, take all your living expenses from the equities and roll the rung of the ladder to extend it out, and maybe even add to the fixed-income pile. If equities take a dump one year, harvest living expenses for that year from fixed income. With so many years in fixed income, you can ride out a prolonged equity bear with no problem.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
Chuckles960
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Re: 10 million dollar dilemma

Post by Chuckles960 »

powercherry5 wrote: Wed May 12, 2021 10:33 pm ...
I believe the Boglehead rule of thumb generally say the best way is to invest all your cash at once. Which I think is consistent with available data, so I can't argue there. But I'm not sure if it's taking in the whole picture. Not because of emotions, but because of other philosophical principles. The great depression didn't happen till it happened. The longest bull market didn't happen till it just happened. Lowest interest rates didn't happen till they just happened...

Also, what would the data say about putting in all your money after a "longest bull market" event? I know you can't time the market, but on the other hand, shouldn't you be able to use the data to figure out the historic risk of putting in all your capital at a certain amount of days into a bull market?
Others have said this many times, but I'll say it differently : in spite of all the blah blah, "data" and "historic risk" don't say squat about what will happen tomorrow, next week, next year. It is all Monday morning quarterbacking. If the market is high, this means (a) it will go higher or (b) It will go lower. As soon as something happens, analysts will "explain" why it happened, and people will say they knew it all along.

I've made good money in the stock market. But I had to let go of the belief that I could predict the future reliably if only I tried hard enough. Do I try to predict the future? Sure, but I'm wrong half the time. Fortunately, I'm mostly in stocks most of the time and that has helped. It may or may not help in future.

if something is a sure thing, that is already factored into the price. If something has a reasonable likelihood, that is already factored into the price. You can't beat the market based on what you know from public sources, because everyone else already knows it. Unless you have insider information, you are always jumping into the unknown. Again, the fact that stocks have done well in he last year does not tell you anything either way. If the consensus was that the market should be lower, it would not be this high.Tomorrow's consensus may be different.

So it's all up to what your gut tells you to do. And you will be wrong over and over again, but maybe still make money.
4803
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Re: 10 million dollar dilemma

Post by 4803 »

Dear powercherry5,

Perhaps you'll find the following article encouraging:
https://awealthofcommonsense.com/2014/0 ... ket-timer/

The article, by Ben Carlson, is about Bob, the worst market timer, who only invests at market peaks. Nevertheless, it turns out quite OK for Bob.

Best wishes,

:) 4803.
523HRR
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Re: 10 million dollar dilemma

Post by 523HRR »

Agree with other replies here. What you describe as conservative is not risk-free. Your risk is declining purchasing power arising from price inflation over time, together with longevity risk. Looking at possibly 60+ years in retirement, you're going to need some growth potential in your portfolio, friend.
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powercherry5
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Re: 10 million dollar dilemma

Post by powercherry5 »

I appreciate everyones input, even if I didn't get to replying to it in this post. Some of the posts were getting at the same thing, so I cut down to only replying to one.
mrspock wrote: Thu May 13, 2021 1:09 am Here's the deal. This what the math says: you stick your money in the market today, at whatever AA you think you can sleep at night with. 50/50, 60/40, 75/25 ...whatever. Since you are young, use a SWR between 3-3.5%, confirm with various Firecalc like tools, and then just spend that money each year. That's it. Done. Finished. It really doesn't matter if a Great Depression happens, or a 2008 happens....it doesn't. It's irrelevant unless you do something foolish like mess with your portfolio during such events -- see my original points. All of these tools take these events into account.
...........
Again, and I can't stress this enough. This is an easy call, take door #2, have equities in your portfolio. It's completely irrelevant what the market does after you begin withdrawing money per your SWR. If you are a bit worried in the moment, just cut back on some spending, but you don't really need to do this.
I'm now with you. I do have a few questions for you though.

1. If you believe in the cold hard data and thats it, why are you in any bonds at all? 100% stock allocation always ends up better in all circumstances according to history. There is more volatility, but since we are only taking out the SWR at any one time, volatility shouldn't matter as long as it comes back. Unless I am missing something, it sounds like it's diversifications for the purpose of something novel happening in an unpredictable way. Which isn't too far from some of the feelings I was suggesting.

2. I am attempting to decide allocations and I am having a tough time coming to terms with if bonds are really the "lower risk" asset class right now. When you combine their reward (low) with the fact that there isn't much room for govt interest rates to go down (consequentially raising bond value), it seems like a bad deal. I was thinking 30%, but not sure that is even right.

I will be making a post on this thread immediately after this post that talks about my future allocations and would appreciate your opinion on it.
tomsense76 wrote: Thu May 13, 2021 2:34 am
Certainly if one knew we were "after" a bull market, it would be better to stick the money in "once" it crashed. However here's the problem. No one knows it is after. And anyone who says they do is either lying or crazy (maybe both :wink:). So watch out for anyone giving you guarantees.

Could the longest bull market ever run another decade? Sure. It's hard to imagine maybe, but it could happen. In fact in the run up after the 80s looking at the early 90s, wouldn't have been surprised to hear people say surely the crash is coming. Yet the 90s were a roaring time with the US stock market up 500% at the end of the decade. IOW "after" is terribly challenging to pinpoint.
This really got me and was one of the posts that kicked me out of "timing the market" mode. I've looked at the s&p500 graph throughout the years, but your post pushed me to take another look at the inflation adjusted graph here. I tried to put myself in the 80/90's and you are completely right. In the early 90s I would think that there is no way the market should keep going. I would say we are already past the last highs. Then I would miss the ROAR of the tech boom.
snailderby wrote: Thu May 13, 2021 5:31 am With the understanding that the past doesn't always predict the future, check out the heat maps and safe withdrawal rates for different portfolios at https://portfoliocharts.com/. You certainly don't have to be 100% stocks if a lower stock allocation will generate enough growth for your needs. Some investors also use TIPS, gold, and/or commodities to hedge against inflation, although there are mixed views on this forum about the latter two asset classes.
This was a massively helpful link. Thank you
smitcat wrote: Thu May 13, 2021 8:34 am Please confirm a few important data points for future planning....
- you desire a budget for expenses of $220K per year
- does that budget already include growing health care costs for the family?
- when you model your current fed and state taxes what draw amount do you need to support $220K after taxes?
barneycat wrote: Thu May 13, 2021 1:04 pm You've received some great advice here. The only thing I can offer is to think carefully and honestly about your spending. Coming from personal experience, it's much easier to say, "ah I can cut back if I need to" than to actually follow through with doing so. Lifestyle creep is very real. And actually cutting back spending is likely much harder when you have $10 million (maybe $7 million after a market fall) sitting the in the bank and your family questions why you need to cut back on things they are used to.

You say your current spend is $160-220k per year with a planned increase to a maximum of $250k for kids' private schools. I live in a MCOL area and private schools range from $8k to $22k per kid for elementary school. Private school isn't the only cost to plan for as your kids age: activities, camps, family vacations with four or five plane tickets versus two. Kids are expensive, but totally worth it. You've presumably worked hard for your money and should feel total joy for providing for them. But that goes back to my first point of "cutting back." Are you really going to cut back on these things?

Just be honest with yourself. Great work and keep us informed of what you decide to do!
I am looking at my expenses and still modeling my exact spend. It's hard to pin point because of the crazy times (pandemic lifestyle changes). I'm also young-ish and with that comes alot of life changing events one after another (new houses, new kids, etc)

I think it is safe to say that I spend between 140k-220k a year POST-tax. At current tax rates that would 160k-240k pre-tax. My budget already includes paying for health insurance. I could see how on a small budget, planning for rising costs with age is important .But with maximum out of pocket being 10-15k range, additional healthcare isn't really something I have to think about based on my budget. Again, I can adjust my spend accordingly.

BarneyCat, I definitely understand what you are saying. I don't think anyone likes to cut down on spending and your comment about family questioning the cuts with so much in assets sitting there is DEAD ON. That is definitely my wife :greedy . The only good thing I got going for me in this regard is that we are both from middle class frugal families, so outside of a few upgrades that have creeped into our lives, we aren't too accustomed to upper class luxuries (first class flying, etc..)
Independent George wrote: Thu May 13, 2021 8:36 am 1. It is mathematically sub-optimal, but dollar cost averaging your stock allocation over the course of the year offers some emotional protection from a bear market. I think this is perfectly justifiable with the large amount you are working with.
2. If you maintain a conservative allocation (40/60), a bear market will not come close to wiping you out, and rebalancing will likely benefit you in the long run.
3. A market crash followed by Japan-like lost decade is a small (but real) possibility; inflation is a certainty. At least some equity exposure is needed.
I will be DCA'ing for the reason you specified. I am just concerned that Bonds aren't giving the same hedge as they used to and also that #3 is a real possibility and can lead to a long time of me looking at a poor portfolio.
Eat33 wrote: Thu May 13, 2021 12:25 pm You are a young, bright, successful man with 30 years of traditional working life to go. If you try to live off your nest egg you will be bored and stressed.

You enjoy a nice life style: nice home, car, spending money without a second thought. This is a great feeling.

Do your homework and invest in a manner which makes you feel comfortable. Three fund portfolio is easy. Real estate is not easy. You achieved success by being good at a particular discipline. Don't turn your back on that knowledge going forward. Being good at your field makes you feel comfortable so why turn your back on it? It gives you security and you probably enjoy many aspects of your work.

Find another job. Not necessarily start another business but a challenging job. Something that allows you to take off for awhile if you want.

Embrace happiness!
Thank you for your point of view. I am right back at it and already thinking of things I can do to build. I don't think this last business will be the last dollars I ever make, I just like to have the plan setup for the worst case scenario of if it is. Planning accordingly also allows me more room to maybe get into things that I find more enjoyable, even if they are less lucrative.
patrick013 wrote: Thu May 13, 2021 12:29 pm Monte Carlo Simulation


The Monte Carlo will take inputs and calc results based on stat data. This one
has come up with estimates that have 4605 portfolios out of 5000 simulated
portfolios (92.10%) survived all withdrawals.

If you adjusted your spending to $200,000/year 4952 portfolios out of 5000
simulated portfolios (99.04%) survived all withdrawals.

If you're more comfortable with less stock and less risk just adjust those figures
and your withdrawal amount downward and see where the Monte Carlo leads.
That website doesn't seem to be working right. It gives different numbers than other similar websites. It also only goes back to 1970s I think.

One immediately easy way to see something funky is going on is by just using a 100% cash allocation and it shows your money as growing :oops:
aj76er wrote: Thu May 13, 2021 6:25 pm You could take an approach inspired by William Bernstein:
  • Keep 20 years of base expenses in safe, fixed income
  • The rest put in a riskier market portfolio
He further says you can assume 50% of dividends (from diversified equities) as "safe". So, let's say 1% yield from a mixture of VTI and VXUS.

If you assume 220k/year as base living expenses, then 20X is 4.4mil. However, assume some dividends from equities (~50k), and you only need to draw 170k per year from the fixed income, which is 3.4mil @ 20X. So, this would leave your liquid portfolio of 8.4mil split as follows:

Fixed Income: 3.4mil
Equities (VTI+VXUS): 5mil

The 3.4 mil could be any combination of FDIC savings, money markets, Treasury bond ladder (STRIPS perhaps), CD ladder, TIPs ladder, etc. Personally, I'd put 2 years worth in FDIC savings and then do a Treasury and/or CD ladder for the rest.

Using this scheme, if equities have an amazing year, take all your living expenses from the equities and roll the rung of the ladder to extend it out, and maybe even add to the fixed-income pile. If equities take a dump one year, harvest living expenses for that year from fixed income. With so many years in fixed income, you can ride out a prolonged equity bear with no problem.
What interested is I was already thinking about having a similarly tiered approach as this before reading your reply. The problem with so much in Fixed Income is that right now all those things give almost literally no return. So the money is literally just being devoured away by inflation. 20 years is simultaneous too much (inflation eating away at alot of money) and too little (being young,20 only puts me into my 50s). The next post I make in this thread shows my idea for allocations.
Last edited by powercherry5 on Mon May 17, 2021 6:32 pm, edited 1 time in total.
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powercherry5
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Re: 10 million dollar dilemma

Post by powercherry5 »

OK guys. I spent a few days really taking in all your advice and trying to break down any mental blocks I had. I think for the most part you guys were right. I was in fact trying to time the market and that is a fools errand. So I have decided I need to start ramping up my investments by a large amount and ASAP. The only part I’m not sure about is the exact asset allocations that are right for my family’s circumstance. I decided that I am ok being down 2-3 million at any one time. Especially if I have money that is also not in the market at the time. I think my generous savings allows me to do this.

I think having 6 million in my "retirement portfolio" will check all the boxes. A conservative 3.0% - 3.5% withdrawal rate puts me at 180k-210k a year. I already have ~1 million in the market, so I will be putting in around 100k a week for a year between stocks/bonds. On the one hand, it’s not historically efficient as putting it all in at once. On the other, it makes me feel better that I can “wait and see” through some big unknowns (how housing does post eviction moratorium, market reactions to CG tax raising legislation, it’s the first quarters post vaccine and investors having been counting on things rebounding, etc…).

This leaves me with ~2 million in liquid accounts like high yield MM and treasury funds. I plan on keeping this on hand. It will be used as my lifestyle funding source for the first few years. So I won’t have to start my withdrawls from my retirement portfolio for a while, which only bolsters gains there. The other comforting part is that if there is a crash after I’m done funding the retirement portfolio, I will use a majority of whats left of my liquid funds to put into the market at lows. Not in a “I’m counting on this money to retire” type of way, but as a separate “gambling” fund that I will also feel OK with withdrawing when I believe the "time is right" (once a fool, always a fool!). Maybe it will win, maybe it won’t. But that’s why I have my retirement portfolio right? Seems like I can "irresponsibly" keep this 2 million back without any setbacks to my retirement goals as long as I have the retirement portfolio. What do you guy think?

The remaining question I have is how to divide up the 6 million portfolio. My current thoughts are 60% Total Stock Market, 10% Total International Stock Market, & 30% Total Bond Market. Is the international allocation too large? Is the Bond allocation too large considering my age and the current state of bonds?

I do plan on continuing to "work" at a leisurely pace. I am optimistic that something will come of it, but as business is always a risk, I just don't want to count on it for my "retirement" plans.

The last tid bit I was going to add is that I do still have 250k of income a year coming in from the sale for 3 years..... It's not 100% guaranteed since technically anything could happen and they can go under before fulfilling their obligations to me. But thats a slim chance. So these first 3 years I also wouldn't have to take out from my retirement portfolio or cash reserves. :sharebeer

I appreciate you guys giving me a kick in the rear end and pushing me to see past some clouded thinking. I know alot of the answers to the questions I posed are opinion or value based, but I still love to hear your point of views.
Ferdinand2014
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Re: 10 million dollar dilemma

Post by Ferdinand2014 »

50% in total stock market index fund and 50% in short or intermediate term U.S. treasury index fund. Stay below 4% yearly withdrawal. Use your withdrawals to rebalance.

If you like Vanguard and international, go with VTWAX and VSBSX.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
WhyNotUs
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Re: 10 million dollar dilemma

Post by WhyNotUs »

powercherry5 wrote: Mon May 17, 2021 6:16 pm What do you guy think?
I think you are showing the analysis and decision making skills that led you to success in business.

The remaining question I have is how to divide up the 6 million portfolio. My current thoughts are 60% Total Stock Market, 10% Total International Stock Market, & 30% Total Bond Market. Is the international allocation too large? Is the Bond allocation too large considering my age and the current state of bonds?

It is fine. 70% is somewhat growth oriented so you are accepting more risk than, say 50/50, but you seem like you have the plan and strength to ride that out if things go down for a while.

The last tid bit I was going to add is that I do still have 250k of income a year coming in from the sale for 3 years..... It's not 100% guaranteed since technically anything could happen and they can go under before fulfilling their obligations to me. But thats a slim chance. So these first 3 years I also wouldn't have to take out from my retirement portfolio or cash reserves. :sharebeer
Another plus for your plan :sharebeer

I appreciate you guys giving me a kick in the rear end and pushing me to see past some clouded thinking. I know alot of the answers to the questions I posed are opinion or value based, but I still love to hear your point of views.
You have some tax issues that I do not have to consider, given that you are going to have substantial funds in taxable accounts you might want to run the plan past your CPA for tax considerations (not investing advice :happy
I own the next hot stock- VTSAX
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patrick013
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Re: 10 million dollar dilemma

Post by patrick013 »

powercherry5 wrote: Mon May 17, 2021 6:12 pm
patrick013 wrote: Thu May 13, 2021 12:29 pm Monte Carlo Simulation


The Monte Carlo will take inputs and calc results based on stat data. This one
has come up with estimates that have 4605 portfolios out of 5000 simulated
portfolios (92.10%) survived all withdrawals.

If you adjusted your spending to $200,000/year 4952 portfolios out of 5000
simulated portfolios (99.04%) survived all withdrawals.

If you're more comfortable with less stock and less risk just adjust those figures
and your withdrawal amount downward and see where the Monte Carlo leads.
That website doesn't seem to be working right. It gives different numbers than other similar websites. It also only goes back to 1970s I think.

One immediately easy way to see something funky is going on is by just using a 100% cash allocation and it shows your money as growing :oops:
The Monte Carlo I did for you showed you increased assets overall.
You withdrew 2.5% to start but the portfolio averaged 4.25% overall
for it's annual returns thru time. You earned more than you spent
per the Monte Carlo inputs.

portfoliovisualizer.com is generally respected and used around here.
It doesn't need to go back forever to do it's historical carryforwards,
just a few decades.

I can see you don't understand Monte Carlo but it does give statistically
significant answers.

Apart from that you want a low stock AA it looks like to me. But the market
is at super low interest rates presently. So stay with CD's and treasury's
in a ladder or a treasury index fund short to intermediate term, and the
usual total bond market. If you don't lower you expenditures you will
spend more money than will be earned. So keep your stock AA low pending
a market crash and later increase it to 25% or possibly a bit higher and
put those inputs into Monte Carlo.

Otherwise just lower your expenses and live within your means whatever
interest rate the market ends up at and that's your budget.

Check out the two-fund portfolio thread when you have the time.
age in bonds, buy-and-hold, 10 year business cycle
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