28yo, New Millionaire, Advice on Wealth Management

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seaside3310
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28yo, New Millionaire, Advice on Wealth Management

Post by seaside3310 »

Hello,

I'm a 28 years old who recently sold my company and became a millionaire (in the 4 - 6mm range). I am not as knowledgeable about investing as I'd hope I'd be given the situation so I'm seeking advice about my next steps. It's funny, endless amounts of books exist to "teach you how to become wealthy" but books guiding you in how to think about what to do with that wealth when it's acquired are scarce. Onto my question(s):

I am not comfortable investing on my own and I think I need a wealth manager. But what type do I pick? RIA vs broker-dealer. I understand the difference and I know Fiduciary responsibilities mean an RIA is doing whats in my best interest, usually taking 1% of AUM, and nothing else, where as a Broker is making commissions and selling me products they have some stake in. But why are all the top 100 wealth managers from broker-dealer firms? Why does everyone I ask who is a multi-millionaire (I only know a few) recommend people who are broker-dealers? Won't that eat away at my growth in the short and long term?

I've spoken to almost a dozen wealth managers now. Some I have a good feeling about, some I felt were just trying to sell me to take my money. I am leaning towards an RIA. I know my risk tolerance is moderate growth, I know I want to keep about 5% in cash, another 10% set aside for real estate investing and the rest in stocks and bonds. In addition to the above, once I find a wealth manager, should I tell them I want to gradually put money in over the next 12 - 18 months (dollar cost averaging I believe) or is it all the same when my horizon is so long?

Thanks.

Edit: Also, I'm keeping all of it in a Vanguard Money Market account. Is this "safe" enough as a place to park my cash? I've spoken to Vanguard and they've assured me it is. But second opinions would be great.
barnaclebob
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by barnaclebob »

I'd suggest getting comfortable managing your money because nobody cares about it more than you. Its understandable to be scared but aside from estate issues and maybe some tax planning, managing 5mm isn't much different from 1mm and managing 1mm isn't much different from managing 100k. I would talk to estate planning and tax professionals not "wealth managers". For example muni bonds might be a better option for you rather than total bond market mutual funds.

99% of wealth managers will just slowly siphon money from you. Even at a relatively low AUM fee of .5% you'd still be paying a wealth manager 25k a year on top of any fees for funds he has you in. They may try to steer you to holding a diversified array of 30 to 50 stocks to create your own little index fund with no fees but that is still sub standard to managing it yourself.

This is one circumstance where dollar cost averaging makes sense in my opinion. Partially missing out on a year or two of decent gains wont hurt you much but loosing 30-50% right after you put it in will sting quite a bit. My suggestion for DCA'ing is to put 25% of whats out of the market into the market every quarter or half year until whats left out doesn't matter much.
Last edited by barnaclebob on Fri Mar 10, 2017 12:19 pm, edited 3 times in total.
robertmcd
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by robertmcd »

Most people who are multi millionaires are paying absurd fees to some advisor who hangs out at the same country club. I would say about 99% of financial/investment advisors have awful performance after their fees. Look at some of the recommendations on this site. I would recommend a Buckingham asset management or a BAM alliance advisor (you would pay around .5% to .9% AUM for these), Rick Ferri's Portfolio Solutions, Cardiff Park Advisors, and Evanson Asset Management.
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slayed
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by slayed »

if you were able to build a company that sold for millions of dollars, then you are certainly capable of managing your own portfolio - many people on this board manage similar amounts just fine on their own. it's not hard!
cdu7
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by cdu7 »

A vanguard money market account is as safe as keeping it in any bank, so you have no reason to worry on that front. Unfortunately, for the most part wealth managers are an unnecessary intermediary whose primary purpose is to siphon off as much of your money as possible while giving substandard returns. If you are insistent on having an advisor, use a fee based (upfront paid) advisor who doesn't manage your money and simply helps you plan an allocation or course of action one time for a flat fee. These guys (and they are usually fiduciaries) will be the only option that isn't skimming away returns and likely to give you non-biased advise.

The good news here is that if you used a standard bogleheads portfolio allocation you should see a substantial amount of growth on your money over the next 30-50 years. Don't let the advisors scare you into feeling like it's impossible to do this, you CAN do this, and it is NOT difficult once you spend a little time learning the basics.
Afty
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Afty »

One of the big problems with choosing a financial advisor is that, in order to identify a good financial advisor who is not trying to rip you off, you have to learn enough to do it yourself. At that point you might as well do it by yourself and consult Bogleheads when you have a question.

That said, I use the Vanguard Personal Advisor Service. It is nice to have someone to bounce ideas off of, and their recommendations are always in line with Boglehead principles -- low cost and highly diversified investments. They keep an eye on things like tax loss harvesting that I would forget to do myself.

I think the bigger question you have to ask yourself is, what do you want to do with the money? Will you continue to work? Do you want to retire? Do you have a family, or want to have one? Charitable work? That will affect how you invest the money and how much additional risk you can afford to take.
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BL
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by BL »

Take your time. Read Windfall page in Wiki.

Take a look at the 3-fund portfolio here in thread and Wiki.

You could do just fine with index funds like total stock market and total international, and muni bonds at a place like Vanguard or Fidelity. ERs (expense ratios) would average under 0.1%.

You could even ask for advice at Vanguard and not be afraid to take it. Not so sure about elsewhere, as they would love to manage and have you in high-ER funds as well.

For the basics, skim through, and then re-read:
https://www.etf.com/docs/IfYouCan.pdf

After reading and considering, maybe some of the recommended agencies would work. You have to know almost enough to do it yourself to judge how good the advice you will get is. There are a lot of vultures out there, and they are looking for you!

I agree with above that paying Vanguard PAS (0.3%/year) is a reasonable solution. You could drop them later, and not have the usual mess you would be left with from leaving most advisors.

Give Vanguard a call and see what they have to say.

Oh, yes, how about following Asking Portfolio Questions and see what more complete advice you get right here? There are some really experienced folks that would love to help you with no ulterior motives. Anyway, you would have another set of eyes to consider.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Jack FFR1846 »

As another multi-millionaire (cool thing to say, since my investments are in the 7 figures and the first is more than 1), I'll tell you what I've observed since coming into Bogleheads, reading all the wikis, asking a bunch of stupid questions, comparing what I had (active funds) with index funds. There ain't no rocket science in investing. It's dead simple and you can do it.

Suggestions on how to start (this is my own humble opinion).

Look at the various Vanguard target date funds. Look at the asset allocations. Look around the web for tools that ask you questions to determine your risk tolerance and give you suggested asset allocations. Or ask a Vanguard advisor, if you must. 0.3% is better than any of the clowns you've interviewed to steal your money.

You may find a target date fund with an allocation you like. You might instead decide that you want a different percentage. Figure that out and write an IPS (it's in the wiki and it's your letter to yourself, saying what you're doing). Then buy to match the AA in that IPS. You can do a little at a time if you want. A $10k buy to get into a total US stock fund. Then a $10k to get in a bond fund etc. As you're reading more and understanding how this all works, add more in until you're full invested.

Then sit around and do nothing until your birthday, at which point you rebalance.

That's nothing more than doing a few buy-to-sell orders to make your funds match the targets you're looking for. Excel is your friend for this.
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cjcerny
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by cjcerny »

You don't need a wealth manager. You don't want a wealth manager. All a wealth manager is going to do is slowly transfer your hard earned money from your pockets to theirs. You just need to take some time and familiarize yourself with investing in low cost broad market stock and bond index funds. This will not take a lot of time. You can read the relevant section of Warren Buffet's latest letter to shareholders in about 5 minutes.
Grt2bOutdoors
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Grt2bOutdoors »

Avoid and I mean avoid broker-dealers. Why? Because the primary concern for the adviser at the broker-dealer is to bring in assets and bring in revenues. How do you accomplish that? Lots of smiling, a few cards for clients or "marks" birthday, marriage, some wining and dining and a phone call every now and then out of the blue to show the "mark" they really are there to help you accomplish their goals.

Yesterday's WSJ had an insert in it from Barron's - the top 1200 advisers in the U.S. by state and then a blurb by some cherry picked advisers that detailed their investing approach and feelings on the market for 2017. I'd post up some of the comments but then the thread might get locked for not being actionable other than to stay away from advisers who recommend you invest your hard earned dollars using Master Limited Partnerships, dividend growth stocks, junk bonds, privately traded real estate investment trusts ---> that was the common theme to all of these "top 1200 advisers". You could simply put together a 3 and/or 4 fund indexed portfolio and beat the pants off of these advisers on a tax and risk adjusted basis. Feel sorry for all those clients paying for a service that will get them lots of taxable distributions and the K-1's to go with it, but then when you have 3-4 million, what's spending a couple of thousand on a CPA's services? :twisted:
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mckaydw
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by mckaydw »

+1 for all those saying you don't need and shouldn't get a wealth manager. If you built a business like that by age 28, you should easily be able to learn this stuff.

If you have the money parked in a brokerage account at vanguard, holding a money market fund, you are already well on your way.

First step is to do nothing for a little while.

Next step is to skim this forum daily for a few months.
Watch the introduction videos and read a couple of the recommended books.

Create a 1-2 page written personal investing plan. Post it here for comments and feedback.

Once you've learned enough to be comfortable, and have a written plan you're ready to stick to, implement a "3-fund portfolio" in your brokerage account.

Welcome to a level of security that only a tiny fraction of humans ever enjoy.
Jimmie
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Jimmie »

cjcerny wrote:You don't need a wealth manager. You don't want a wealth manager. All a wealth manager is going to do is slowly transfer your hard earned money from your pockets to theirs. You just need to take some time and familiarize yourself with investing in low cost broad market stock and bond index funds. This will not take a lot of time. You can read the relevant section of Warren Buffet's latest letter to shareholders in about 5 minutes.
I fully agree about not needing a "wealth manager".

However, I would think he would need to consult a professional for tax planning. That would be the other way to lose a lot of money, when there were probably options to keep more of it.
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Will do good
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Will do good »

Congrats seaside3310- If you can start a business and sell it for millions, you can learn to invest for yourself. No FA will care about your money more than you. There are many wise people at BH and many of us are managing portfolio about your size and are doing well on our own. Good luck!
2comma
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by 2comma »

Congratulations!

Agree that investing the BH way is pretty simple and only takes a few hours a year to manage once it's setup.

On that amount of money for your investment horizon having a guy is going to cost you something like 4 million dollars. Do you think they can add that much value? Here is an investment fee calculator that will give you a better idea of the true long term costs of fees http://buyupside.com/calculators/feesdec07.htm
If I am stupid I will pay.
Grt2bOutdoors
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Grt2bOutdoors »

There is another term for someone with your kind of wealth. You are not only a "mark", you are what they call a "whale". Don't make any rash moves that result in you becoming a beached whale. A happy whale gets to swim about at his own leisure, a beached whale is stuck or dependent on leaches. Read Bill Bernstein's Four Pillars of Investing book - pay special attention to Chapter 9 - Your Broker is Not Your Buddy. I'm not kidding.
Read Larry Swedroe's - The Only Guide to a Winning Investment Strategy You'll Ever Need

Those two books if you can find them will set you back about $30. That's an expense ratio of 0.000006%. Everything after that will be gravy to you.
Don't pay for your wealth manager's vacation to Bali, Tahiti, a diamond necklace for his girlfriend, his Porsche lease. Get it?, the more money you save, the more you keep in your pocket. :wink:

BTW, welcome to the forum!
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chicagoan23
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by chicagoan23 »

seaside3310 wrote: I am not comfortable investing on my own and I think I need a wealth manager.
There is nothing wrong with this way of thinking. $4-6 million (I'll just call it $5 million) is a large amount of money and it may help you to have an advisor to start. You don't have to keep him/her forever.

The general recommendation is not to pay a wealth manager who charges based on a percentage of assets. Those fees take up far too much money that compounds over time. For example, a 1% AUM fee will result in you paying half a million to someone over the next 10 years (or potentially much more than that as your portfolio grows). The advice that they give will not be much different from what you could get for free here, or for a fixed fee from a different advisor.

I would try to find an advisor that charges a fixed fee to establish a long-term portfolio. Spend a few thousand dollars on meetings with that advisor and explain your goals, risk tolerance, and what you would do if the market declines. Establish a long-term plan (30+ years) and stick to it. Keep enough in short-term investments to get you through any five year period without selling, in case the markets go haywire.

And you asked about wealth managers, but obviously you need to take steps now to minimize your future taxes and ensure that your holdings are maximized for asset protection and estate tax planning purposes. Under basic "Rule of 72" thinking, your $5 million now should grow to $75 million or more by the time you are retirement age. Proper planning now is critical.
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aristotelian
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by aristotelian »

The ONLY type of advisor you should consider talking to is someone who will charge a set hourly rate. They will not manage your portfolio for you, but they can review your portfolio, give you some advice on how to diversify, and alert you to potential tax issues. That is worth it, in my opinion, if you really don't have the commitment to do it yourself. These people can be hard to find so you will need to ask around. My mom meets with a guy like this and it gives her some peace of mind.

Vanguard has advisers that will give you some free advice for a portfolio your size. You might see what they have to say. They also have more hands-on advisors for 0.30% annual fee which would be better than 1%. https://investor.vanguard.com/financial ... ial-advice

I would also join others in recommending against anyone charging a 1% AUM fee. With your portfolio, that is $50K per year, every year, that they are draining from your account.
t3chiman
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by t3chiman »

seaside3310 wrote:... keeping all of it in a Vanguard Money Market account. Is this "safe" enough as a place to park my cash?....
First, let me offer my congratulations! Accomplishment of a lifetime; you should be proud.

Sure, Vanguard MM is fine. Not much of a return, but safe enough. And for the moment, you don't have to do anything; you will still live pretty well.

There are lots of two- or three-fund sample portfolios referenced on Bogleheads. All are predicated on a Keep It Simple, Stay Diversified, philosophy. It might be hard at first for you to get into such a frame of mind--you didn't get rich by playing it safe and diversifying your assets--but it's actually a sensible long term strategy. Betting long on energy stocks, for example, leaves you vulnerable to financial and political forces that can cost you dearly.

For the moment, take it easy. Enjoy the comfort of a financial cushion most folks never achieve. And reward that special someone with a memorable vacation. Buenos Aires is nice this time of year. Rent an apartment in an upscale neighborhood, enjoy the sights, drink the fine wines. Travel a bit: glaciers, waterfalls abound. Come back refreshed and ready for investing (or the next entrepreneurial effort).

Hope this helps.
cp73
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by cp73 »

I agree with what some others have suggested. To get yourself started use the Vanguard Personal Advisor. You could get everything set up and then after a few months when you feel more comfortable drop that service and just keep everything the same and tweek as needed. We sold our company over a year ago and I was the CFO. We had many employees that received nice amounts of retirement funds (ESOP). I had recommended this approach to a few inexperience employees and it worked out very nice.

Another suggestion would be to find a fee only financial advisor who can help you set up your plan. You pay them one time and your done. Just tell them you want to keep all your money at Vanguard or Fidelity or both.
betablocker
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by betablocker »

seaside3310 wrote:Hello,

I'm a 28 years old who recently sold my company and became a millionaire (in the 4 - 6mm range). I am not as knowledgeable about investing as I'd hope I'd be given the situation so I'm seeking advice about my next steps. It's funny, endless amounts of books exist to "teach you how to become wealthy" but books guiding you in how to think about what to do with that wealth when it's acquired are scarce. Onto my question(s):

I am not comfortable investing on my own and I think I need a wealth manager. But what type do I pick? RIA vs broker-dealer. I understand the difference and I know Fiduciary responsibilities mean an RIA is doing whats in my best interest, usually taking 1% of AUM, and nothing else, where as a Broker is making commissions and selling me products they have some stake in. But why are all the top 100 wealth managers from broker-dealer firms? Why does everyone I ask who is a multi-millionaire (I only know a few) recommend people who are broker-dealers? Won't that eat away at my growth in the short and long term?

I've spoken to almost a dozen wealth managers now. Some I have a good feeling about, some I felt were just trying to sell me to take my money. I am leaning towards an RIA. I know my risk tolerance is moderate growth, I know I want to keep about 5% in cash, another 10% set aside for real estate investing and the rest in stocks and bonds. In addition to the above, once I find a wealth manager, should I tell them I want to gradually put money in over the next 12 - 18 months (dollar cost averaging I believe) or is it all the same when my horizon is so long?

Thanks.

Edit: Also, I'm keeping all of it in a Vanguard Money Market account. Is this "safe" enough as a place to park my cash? I've spoken to Vanguard and they've assured me it is. But second opinions would be great.
I'd really recommend that you read a few books before deciding on Vanguard. They will take you down the 3 fund route most likely. Not that that's bad but there are other options that many on this board support. I'd recommend reading Larry Swedroe's The Only Guide You'll Ever Need to a Winning Investment Strategy (or Paul Merriman's books or Rick Ferri's All About Asset Allocation), Larry's book about Reducing the Risk of Black Swans, and The Factor Investing Guide. Larry is 100% fact based and a frequent contributor to this board. That will give the full range of options from 3 funds to a slice and dice portfolio (including value, small, etc.) and a low beta/high tilt portfolio like the Larry Portfolio (from Reducing the Risk of Black Swans). You have essentially won the game so you might want to focus on wealth preservation rather than simply maximum accumulation. I'm a business owner and I use a modified version of the Larry Portfolio.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Sandtrap »

https://www.bogleheads.org/wiki/Managing_a_windfall
Link to Bogleheads wiki "Managing A Windfall".
Strategize.
Caution.
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Pajamas
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Pajamas »

You should educate yourself first even if you do plan on getting a fiduciary advisor, and don't even consider any other kind other than a fiduciary. Otherwise, you might as well have "SUCKER" tattooed on your forehead. Even if they mean well, the majority of advisors you would end up talking to will not offer advice that is close to optimal.

With a $5 million or so windfall, it might be worth paying for professional advice on tax planning and inheritance, whether you direct your own investments or not.

You should also be discrete about your wealth because it will change the way other people perceive you and interact with you.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Sandtrap »

Pajamas wrote:You should educate yourself first even if you do plan on getting a fiduciary advisor, and don't even consider any other kind other than a fiduciary. Otherwise, you might as well have "SUCKER" tattooed on your forehead. Even if they mean well, the majority of advisors you would end up talking to will not offer advice that is close to optimal.

With a $5 million or so windfall, it might be worth paying for professional advice on tax planning and inheritance, whether you direct your own investments or not.

You should also be discrete about your wealth because it will change the way other people perceive you and interact with you.
At 28, if not at any age, a windfall this size is like honey to bees. You will often get the feeling like those around you are donning plastic bibs and drooling and looking at you. Be careful not to be the only lobster on the table. IMHO, AFAIK, $4-5 plus Million is the magic number. Like "Frodo Baggins" with the "Precious". Tell nobody that needs to know.
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BL
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by BL »

"Advisors" will love to have you as an accredited or qualified investor so they can sell you stuff that makes them even more money without worrying about suitability requirements. It will appeal to your vanity to be able to buy these products.
An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience.
Luke Duke
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Luke Duke »

Buy this book and read it, then re-read it.
http://www.amazon.com/Bogleheads-Guide- ... 118921283/
grandmacassie
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by grandmacassie »

You can do this on your own. Hang around on this site, take some time to develop an investment policy for yourself (read the wiki), look at and consider Taylor's three fund portfolio. Will you continue working? If so, you have the financial means never to work at a job unless you want to. Congrats and best wishes. You've won the game at a very young age!
Artisan
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Artisan »

I am going to jump on the bandwagon of good advice you are getting.

If you are wise enough at 28 to net 5M, then you can manage your own investments.

Leave the money where it is for the moment.

Spend the next month or two learning. Read the wiki and how to get started here.

Then select a few books like

The Bogleheads Guide to Investing,

Rick Ferri's "All ABout Asset Allocation"

Burton Malkiel's "A random Walk down Wall Street"


I think after that you will realize you are more then capable of doing it yourself and in fact you are better off.

If you have concerns later about estate planning then you can pick to an expert in that field.

You don't need to pay someone $50,000 +/year to do this for you.

Then when you are wise and comfortable with your choices you can speak to you other millionaire friends and educate them and save them some money.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by VictoriaF »

Let me join 25 people who have stated that you do NOT need a wealth manager, a financial adviser, a financial planner, or anyone else to manage your money.

Here is what you can do instead:
1. At the very least, you can split your money among several credit union and bank accounts and keep just under $250k in each institution in CDs. You can find the best current CD rates at the Deposit Accounts site, https://www.depositaccounts.com/cd/ .

2. If you want to do better than #1 above, you can decide on your asset allocation and split your assets between equities and fixed income accordingly. To decide on your asset allocation, you can read the Bogleheads Wiki, read the Bogleheads Forum, and post any specific questions you may have.

3. You need to manage your taxes, and you can learn some techniques by following various discussions and asking specific questions in the Forum.

4. Some of the best personal finance books are written by Bogleheads authors. If you attend a Bogleheads annual conference you'll have a chance to discuss your questions with distinguished authors including Jack Bogle, Bill Bernstein, Mel Lindauer, Taylor Larimore, Laura Dogu, Mike Piper, Rick Ferri, and Bill Schultheis.

Again, stay away from advisers! Of all DIYs, managing your own money is the most rewarding.

ADDED a few minutes later:
People with substantial wealth face two main dangers:
1) Advisers who rip them off in numerous ways
2) Pursuit of saving taxes that leads them to horrible investment options

I, and the others, have addressed danger-1. Please be cognizant of danger-2, too. You have some leeway in reducing your taxes, but you can't avoid paying them. That's the price of financial success. There will be people recommending you various tax avoidance schemes that may look good in their presentation but will end up in you losing the bulk of your investments. A better approach is to follow tax-related Bogleheads discussions, e.g., taxation of equities (in comparison to fixed income), tax advantages of investing in low-turnover funds, tax-loss harvesting, buying I Bonds, establishing IRA and 401(k) accounts, and getting an HSA account if you can.

Victoria
Last edited by VictoriaF on Fri Mar 10, 2017 5:37 pm, edited 2 times in total.
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aqan
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by aqan »

congratulations on your success at this young age.
Wouldn't you want to keep some money aside for your next venture?
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seaside3310
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by seaside3310 »

Wow what an awesome community! I wasn't expecting anyone to respond. Thank you for all the sound advice. I have now read the windfall chapter and plan on reading all the books recommended. I feel silly now, thinking I had to put everything to work immediately. But putting X aside for expenses over the next 12 months while I learn and plan, what a (simple) amazing weight off my shoulders!

One question-- and again, this might be stupid. The proceeds are already being wired into Vanguard abd I read multiple people mention putting the funds into various FDIC insured accounts being "safer." Do I have to literally go and open up 20 bank accounts at $250k each? Or can I leave it parked in Vanguard Money Market. Someone told me to buy Treasury notes, but they also think the Apocolypse is coming so that might be over the top,

Thanks again. I am going to learn a lot from all of you over the years.
GMT-8
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by GMT-8 »

Congratulations.

I agree you don't need a money manager. But you do need a tax person on your side. Someone who will do your tax prep and who can answer (stupid) questions that will pop into your head now and then. Maybe someone who knows the company you sold? Or referred to you by someone wealthier?

Like having the cheapest house in the nicest neighborhood, I'd rather be the poorest client of a brilliant CPA than the richest one of a struggling CPA. You want someone who knows the issues you face inside and out, and has developed a tax philosophy that matches yours.

So keep your money parked safely, read those books and this wiki, and once April 15 goes by, see if you can find the kind of tax help you will want for the next 20 years. Then think about rolling money into the market.

(and mum's the word on the good fortune)

Cheers,

GMT-8
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GerryL
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by GerryL »

Here is another congratulations ... with a bit of advice.

Many of the resources that have been recommended will tell you this, but I want to call it out: Figure out what are your goals, and what are your goals for your money. No wealth manager can answer those questions for you. And you can't create a roadmap for your investments until you have an idea where you want to go.

Good luck.
BanditKing
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by BanditKing »

First, realize this. YOU WON THE GAME!

That is, you are basically set to live comfortably for the rest of your life. WAY TO GO!

That said, you can have that victory taken away from you by hungry "investment advisers". You are who they love - someone with a lot of liquidity and no idea what they are doing.

First, read the windfall page just like everyone else here mentions. Park your money somewhere, minus a little bit to play with, and LEAVE IT THERE for a while. It doesn't have to be cash. A short or limited term municipal bond fund has mostly tax-free returns, and are reasonably non-volatile. A capital-preservation fund is also an option.

Second, read the Bogleheads book. https://smile.amazon.com/Bogleheads-Gui ... 1118921283. When you are done reading it - read it again. Keep re-reading until you understand the terminology and are comfortable with the ideas.

Then get a fee-only fiduciary to help you with moving your windfall from its parking locations into other places.

The most important thing - take your time and don't go hog wild.

Whatever you do, don't invest in anything "great idea" that someone comes to you with. You're everybody's favorite uncle now. Just tell them your investment isn't available at this time - as your money is all tied up in other things (ie, calmly sitting there post-windfall earning a very safe return while you figure out how money works).

Also, watch this a couple times, in conjunction with reading the Bogleheads book: https://youtu.be/gvZSpET11ZY

Congrats on winning, though!
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Grt2bOutdoors »

seaside3310 wrote:Wow what an awesome community! I wasn't expecting anyone to respond. Thank you for all the sound advice. I have now read the windfall chapter and plan on reading all the books recommended. I feel silly now, thinking I had to put everything to work immediately. But putting X aside for expenses over the next 12 months while I learn and plan, what a (simple) amazing weight off my shoulders!

One question-- and again, this might be stupid. The proceeds are already being wired into Vanguard abd I read multiple people mention putting the funds into various FDIC insured accounts being "safer." Do I have to literally go and open up 20 bank accounts at $250k each? Or can I leave it parked in Vanguard Money Market. Someone told me to buy Treasury notes, but they also think the Apocolypse is coming so that might be over the top,

Thanks again. I am going to learn a lot from all of you over the years.
The absolute nominally safe but not highest yielding short term assets you can buy at original issue using Vanguard brokerage are 90 day, 180 day U.S. Treasury Bills. For more information on these instruments go to http://www.treasurydirect.gov. Hold to maturity.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by VictoriaF »

seaside3310 wrote:Wow what an awesome community! I wasn't expecting anyone to respond. Thank you for all the sound advice. I have now read the windfall chapter and plan on reading all the books recommended. I feel silly now, thinking I had to put everything to work immediately. But putting X aside for expenses over the next 12 months while I learn and plan, what a (simple) amazing weight off my shoulders!

One question-- and again, this might be stupid. The proceeds are already being wired into Vanguard abd I read multiple people mention putting the funds into various FDIC insured accounts being "safer." Do I have to literally go and open up 20 bank accounts at $250k each? Or can I leave it parked in Vanguard Money Market. Someone told me to buy Treasury notes, but they also think the Apocolypse is coming so that might be over the top,

Thanks again. I am going to learn a lot from all of you over the years.
If you want assurance that your money are safe at Vanguard you can keep the bulk of your assets in the Federal Money Market fund rather than in the Money Market Prime. The earnings will be minuscule, but the principal value of your assets will be safe while you are learning and coming up to speed.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Sandtrap »

Also consider your career moving forward. Remaining in the same field. Becoming a "landlord" and owning an apartment complex (5 mil is not much in that field if a prime area) and painting vacant apartments in your free time. Branching in out into other endeavors besides having a portfolio of investments for multiple income streams. And so forth. As others advise, wait, learn, as you have more to lose than to gain by jumping into anything, including portfolio investments.

If it makes you feel safer, "not all eggs in 1 basket", you can link accounts to a Schwab checking account, then have "x" amount at Vanguard MM account, Schwab checking/MM account, and perhaps a local bank (chase, BOA, etc), and perhaps CD's as you get more comfortable. 5 mil does not have to be in one place. Once you setup the account links you can ACH transfer between them.

VictoriaF, Pajamas, and others here have taken you under their protective wings.
Relax.
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VictoriaF
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by VictoriaF »

Sandtrap wrote:Also consider your career moving forward. Remaining in the same field. Becoming a "landlord" and owning an apartment complex (5 mil is not much in that field if a prime area) and painting vacant apartments in your free time.
I have never been involved in apartment management--and never would be--but I've seen many stories of doctors losing their assets in real estate management while trying to save taxes. It makes no sense for me to advise someone with a 7-digit portfolio to paint apartments. I hope that OP has better hobbies and plans for his free time.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
BlackStrat
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by BlackStrat »

Watch a couple of related movies/shows:

'The Wolf of Wall Street' (warning: very vulgar)
'Billions' (a Showtime series now in its' second season and available in OnDemand)

These are the kind of people who will want to 'manage' your earnings (and it's good for you to look on ANY advisor in this light). Paranoia is healthy when everyone is, indeed, out to get ya! :D

I can't improve on what's been stated here except to reinforce the warnings; the less number of people who know about your windfall the better for you. You don't want to be the guy who is always expected to pay or develop an entourage of hangers-on.

Don't get greedy with investments - earning the market return with minimum fees and low transaction costs in tax-optimized index funds will come out ahead of most other investment strategies over time (especially considering your young age and investing horizon). Around here, it's described akin to a golfer shooting par every time - who among us wouldn't want to do that? Only a relatively few worldwide can regularly do better and it's not guaranteed that talent will last (look at Tiger!).

I didn't catch what kind of business you were so successful in, but is it also possible you'll start another business and perhaps need some of this cash to seed a new one with? This could be a consideration when you decide investment options.

Don't overlook the simplicity of a 3-fund (all index) portfolio; diversification, low costs, and optimum tax efficiency.

The beautiful thing about this site is that you can anonymously ask anything you want and nobody will charge you for the answers - you're among friends.

Good luck and welcome!
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by VictoriaF »

BlackStrat wrote:Watch a couple of related movies/shows:

'The Wolf of Wall Street' (warning: very vulgar)
'Billions' (a Showtime series now in its' second season and available in OnDemand)

These are the kind of people who will want to 'manage' your earnings (and it's good for you to look on ANY advisor in this light). Paranoia is healthy when everyone is, indeed, out to get ya! :D
Let me add one more film recommendation:
Glengarry Glen

You'll get a full spectrum of hard and soft sales, fake friendships, and other tactics to make you buy whatever they are selling. As BlackStrat says, these are the kinds of people you are dealing with.

Victoria
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Sandtrap »

VictoriaF wrote:
Sandtrap wrote:Also consider your career moving forward. Remaining in the same field. Becoming a "landlord" and owning an apartment complex (5 mil is not much in that field if a prime area) and painting vacant apartments in your free time.
I have never been involved in apartment management--and never would be--but I've seen many stories of doctors losing their assets in real estate management while trying to save taxes. It makes no sense for me to advise someone with a 7-digit portfolio to paint apartments. I hope that OP has better hobbies and plans for his free time.

Victoria
Very True. R/E development is a full time profession in and of itself. Actionably, I suggested it as a way to introduce the idea that there is a variety of paths available as a "career moving forward" once the initial settling down period is over and there's some comfort zone and financial security moving forward. A wonderful time to consider so many options.
The OP's lucky to have your protective wings.
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VictoriaF
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by VictoriaF »

Sandtrap wrote:
VictoriaF wrote:
Sandtrap wrote:Also consider your career moving forward. Remaining in the same field. Becoming a "landlord" and owning an apartment complex (5 mil is not much in that field if a prime area) and painting vacant apartments in your free time.
I have never been involved in apartment management--and never would be--but I've seen many stories of doctors losing their assets in real estate management while trying to save taxes. It makes no sense for me to advise someone with a 7-digit portfolio to paint apartments. I hope that OP has better hobbies and plans for his free time.

Victoria
Very True. R/E development is a full time profession in and of itself. I suggested it as a way to introduce the idea that there is a variety of paths available as a "career moving forward" once the initial settling down period is over and there's some comfort zone and financial security moving forward. A wonderful time to consider so many options.
The OP's lucky to have your protective wings.
I agree with you that the OP needs to decide what he wants to do moving forward.

Financially, I think the OP will be fine. He is getting good advice here, and he is reading and responding to it. I hope that there will be lurkers and future Forum members in a similar to OP's situation who will also benefit from this discussion.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by chicagoan23 »

seaside3310 wrote:Wow what an awesome community! I wasn't expecting anyone to respond.
Nothing draws BH responses like young millionaires wondering what to do with a giant pot of money.....
seaside3310 wrote:Thank you for all the sound advice. I have now read the windfall chapter and plan on reading all the books recommended. I feel silly now, thinking I had to put everything to work immediately. But putting X aside for expenses over the next 12 months while I learn and plan, what a (simple) amazing weight off my shoulders!
That sounds like a great plan. Of course, the BH philosophy is just one way of doing things. You may want to explore other options too. I would suggest you do so; just don't pay someone 1% of your $5 million while you explore.
seaside3310 wrote:One question-- and again, this might be stupid. The proceeds are already being wired into Vanguard abd I read multiple people mention putting the funds into various FDIC insured accounts being "safer." Do I have to literally go and open up 20 bank accounts at $250k each? Or can I leave it parked in Vanguard Money Market. Someone told me to buy Treasury notes, but they also think the Apocolypse is coming so that might be over the top,
If your concern is having your accounts hacked, you can always put a freeze on any withdrawals/distributions without second- or third-level verification. That ensures that you won't wake up one day and log on to see a big transfer out of your accounts thanks to identity theft, etc.

If you are worried about solvency, keeping it in Vanguard is probably your best bet. They have $4+ trillion under management--or about 1 million times more than your assets. I certainly wouldn't worry about opening any bank accounts, let alone 20. It seems like you'd be at higher risk for fraud if you tried that. Vanguard offers SIPC coverage and I think it would pretty much cover all of your assets.

A complete financial system breakdown would be bad, but the system will eventually right itself. No sense in worrying about it. As you noted in your original post, putting a small portion of this money into hard assets (like real estate) may give you a sense of additional security. Sometimes that is better then just seeing numbers on a computer screen.
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ktwalrus
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by ktwalrus »

I would put half the money with Vanguard and the other half at Schwab. Schwab will give you other banking services that Vanguard doesn't offer, but still with very low fees.

With over $2M at Vanguard and $2M at Schwab, they should assign you an advisor to help you decide how best to manage your money you have invested with them. I have accounts at both Vanguard and Schwab and I have been very pleased with both these companies. When I initially moved money into Schwab, they added a couple thousand to the account for choosing them. You might ask before opening your account to see if they won't do the same for you.

As for where to put your money, I would recommend you stick with index ETFs/funds and decide how much money you are going to want to take out of those accounts each year. You will be paying taxes on the dividends and capital gains which should be around 2.5% of so a year, so $4M invested will give you around $100,000 a year you will be paying taxes on. You should decide how much you will want to withdrawal each year.

Personally, I spread my money amongst 10 or so (5 with Vanguard, 5 with Schwab) stock index ETFs (total market, s&p500, mid-cap, small-cap, dividend payers, etc.). I don't like investing in bond funds since they pay low interest and have low expected future returns. But, you should decide in consulting with your Schwab and Vanguard advisors what allocation strategy is best for you. Realize though that these advisors really push an allocation that is recommended by the companies they work for and not necessarily the allocation that is right for you. You are ultimately responsible for the allocation of your investments into which ETFs (or mutual funds). When I first started with Vanguard, they really didn't recommend a high percentage to international stocks and international bonds. Vanguard didn't really have many international options, but as they have grown in the last few years, they are recommending a higher and higher percentage in international. So, their recommendations seem to follow the products that they offer. Just realize this when listening to their advice and make your own decisions.

I also stick to Vanguard mutual funds at Vanguard and Schwab ETFs at Schwab so there are no fees for buying/selling. Realize that when you sell part of an ETF (or mutual fund), you will likely be adding to your capital gains taxes for the year. As my ETFs have large unrealized capital gains, I no longer bother to sell them just to move money around. My portfolios have become buy and hold portfolios and I rarely even think about them now. I do plan my yearly withdrawals so I can do a little rebalancing and understand the tax implications of any selling I need to do well before I execute the trades.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by WildBill »

Howdy

Congratulations!

There is one thing you do need to do immediately. You need an umbrella insurance policy that will cover and protect the $4 million is assets from litigation and claims.

There are a bunch of threads on the subject, but it is basically pretty simple. One way is to go see the guy you have your homeowners/car insurance with and tell him you want $4 million in umbrella coverage. It will cost something like $900 per year on top of your homeowners.

If you don't have an insurance guy get some recommendations for insurance guys from someone you have some confidence in and get some quotes and get the coverage in place. You can worry about optimizing everything and saving $100 bucks a year on coverage later.

Like everybody says, managing the money is actually pretty much a no brainer. Once you have it figured out the key is keeping it simple and avoiding doing anything really stupid to avoid taxes or getting involved with some crooks get rich scheme.

Ask for the prospectus on all of these get rich deals to show your " attorney" or "CPA". You won't get one :twisted:

Good luck.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
ktwalrus
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by ktwalrus »

ktwalrus wrote:I would put half the money with Vanguard and the other half at Schwab.
BTW, I split my money between the 2 brokers just in case I get hacked (or the broker goes broke). If I lose access to half my money, it wouldn't be nearly as bad as losing it all. I also run the Vanguard and Schwab apps on my iphone and make sure I am immediately notified to any activity in my accounts.

Even if the broker goes broke, you should still eventually get access to your funds, but it can be real inconvenient if you can't withdrawal money when you want it. If you are hacked, there may be nothing you can do about it. Make sure you take advantage of any security measures the broker offers to keep your account secure from anonymous hackers.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by JMacDonald »

WildBill wrote: Like everybody says, managing the money is actually pretty much a no brainer. Once you have it figured out the key is keeping it simple and avoiding doing anything really stupid to avoid taxes or getting involved with some crooks get rich scheme.
I agree not to try a get rich scheme. You are already rich. No end of get rich quick people have lost all of their money and end up in the poor house.

Since this is taxable money, there are Vanguard funds that are more tax efficient than others funds. Depending what state you live in, Vanguard has Muni funds that have tax-exempt interest income for both federal and state. A couple of the Muni funds are federal only tax-exempt interest income.

While you have a good nest egg, it is not an endless pot. Manage it well and it will last you a life time. Best wishes.
Best Wishes, | Joe
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Nate79 »

Investing is not difficult. One, two, or three funds are all you need depending on how complex you want to make it. Vanguard target funds, Lifestyle funds, or 2 or 3 fund portfolio. It's all you need.
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seaside3310
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by seaside3310 »

Thanks again everyone. This feedback has been invaluable. It's great to know there's a community of people to talk to about this. I started feeling very lost with all of these wealth managers.

I bought the BH book and will read it first thing, followed by the other books mentioned. I plan on using the other forums to discuss what I come up with in terms of portfolio allocation. I still run another business, in the online space, which does very well. It won't lead to a "windfall" but generates the revenue that's been keeping a comfortable lifestyle going until now.

Probably the wrong forum board to discuss this but I'll mention it just as a stream of thought and will go into it more detailed on the appropriate board. Just gathering all my thoughts based on what I'm reading. In terms of short-term goals, I think it makes sense to:

1. Educate myself on as much as possible over the next 6-12 months or however long that takes.
- Some have mentioned paying an hourly-rate fee for AA advice from a fiduciary, which would only cost a few thousand dollars. I think I will do this regardless because I think it makes sense. I will also get the expert free version here (I hope)! All of this will only come after I've educated myself enough to know what I'm talking about.

2. I need to figure out if I should pay off my student loans, which total $169k (ugh).
- These loans vary from fixed to variable rates as low as 2% and high as 6.5%. I make monthly payments on them and have no trouble doing that, but maybe it's better to pay them down. I'm sure I'll find out more on this as I read.

3. As I mentioned above, I still work in my second business. I love what I do, but as a service (digital) business, the revenue month-to-month can vary, and my need to maintain my current comfort level keeps me from taking business risks that could lead to bigger things.
- I don't ever want to touch my principle in those investments (aside from the first 6-12 months while i'm getting going!) but I think it would be smart if I tried to allocate some of my investments to ease the burden of needing to generate a certain amount of revenue from my business. More stable income would mean I can take bigger (calculated) risks and probably grow the business 10x if I really tried. If I can substitute business income with investment income, I'd then be able to reinvest the majority of my business income. We will see how that works out. I'd need roughly $100k to be totally comfortable, but $75k is more than enough (keep in mind I'm in Manhattan so I'm not splurging, the cost of living here is high).

Lastly, thanks for everyone looking out! I have only told my immediate family and my business partner (in the other company) who I can trust with the news. Very few people outside of that circle will find out about this.

Thanks again.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by Artisan »

You sound like you have a good plan going forward.

I would encourage you to read and educate yourself PRIOR to hiring an investment professional who has a fiduciary responsibility.

The reason I say that is because after the education you may decide you don't need one.

Pay off the 6.5% student loan. There is no other current investment that will give you a guaranteed no risk return on your money like paying off a high interest student loan. Perhaps hold off on the 2% loans although there is a big psychological benefit to be debt free. The loan seems like it was money well spent.
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Re: 28yo, New Millionaire, Advice on Wealth Management

Post by LarryAllen »

You have gotten a lot of good advice and a lot of marginal advice here in my opinion.

Best advice given so far is to tell no one. I mean NO one. Your CPA will figure it out when he sees your dividends/income but nobody else needs to know. Do not get drunk and tell your best friend. Live below your means and try to not let people know what you have. This will pay dividends long term in many ways.

Worst advice given is people suggesting you have won the game. Like you are done earning. You have a nice nest egg but you might get used to a higher standard of living and that's ok. You apparently have a good touch so do it again! Put your money away and pile some more on top!

Mixed advice on finances. A lot of people are really happy doing everything themselves and that's fine. There are many other people who are very happy with a wealth manager and that's ok too. You are good at what you do so focus on what you do. You'll make more money focusing on your day job. When you retire you can fire the wealth manager.

Good luck with your next adventure.
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