Investing my first million

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michaeljmroger
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Investing my first million

Post by michaeljmroger » Fri Sep 21, 2018 12:20 pm

Hello there,

I'm new to this forum (and to investing in general) so pardon me in advance for any rookie questions or mistakes!

So, some context first: I recently sold about half of my shares for over $6M. I'm still working for this company and my salary is big enough so that I don't need to spend any of this capital. I'm planning on investing approximately $1M but since I don't have any experience in this (and because having this kind of money is very new to me), I could definitely use your advices :wink:
  1. Some friends recommended me Merrill Lynch‎. I had a meeting with them but my gut feeling is that it's not the kind of relationship I want. I don't need nor want complicated solutions, and I'm generally worried about high fees hidden behind opaque terms and structures. Am I foolish for dismissing them for no rational reason and going for a simpler strategy such as investing in Vanguard's mutual funds?
  2. I was initially considering the LifeStrategy Moderate Growth Fund but it seems like many people here tend to recommend building a three-fund portfolio instead. I'm looking for something simple to use with low maintenance though so, is it worth the hassle of avoiding LifeStrategy just to get Admiral Shares?
  3. I realize it's usually a bad idea to try to time the market but, given the fact that it's a significant first investment and that the markets are historically high right now, would it be wise to wait a few months to get started?
  4. I should probably check that with Vanguard directly but, does anyone happen to know what'd happen if I ever leave the US to live in another country? Can I keep my investments active?
Thank you so much!

jayhawkerbeef
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Re: Investing my first million

Post by jayhawkerbeef » Fri Sep 21, 2018 2:28 pm

Congrats.

Fist off shop around, also suggest giving Vanguard portfolio advisory solutions a call for free consultation, if you’re looking for the hands off approach.

Second, don’t feel you have to do anything right away.

Third, you can do this yourself. Remember that as I’m certain with the size of those assets you’ll be made to think, sometimes by our own fault, you can’t.

Full disclosure I use cuss word cough Merrill Edge (only enough to get BOA platinum rewards status) and Vanguard.

Good luck

pkcrafter
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Re: Investing my first million

Post by pkcrafter » Fri Sep 21, 2018 2:40 pm

michaeljmroger wrote:
Fri Sep 21, 2018 12:20 pm
Hello there,
Welcome to the forum. Best to ramp up on the learning curve before starting out. That way you can do it right the first time. :happy

Getting started:

https://www.bogleheads.org/wiki/Getting_started
I'm new to this forum (and to investing in general) so pardon me in advance for any rookie questions or mistakes!

So, some context first: I recently sold about half of my shares for over $6M.
Taxable or tax-deferred?
I'm still working for this company and my salary is big enough so that I don't need to spend any of this capital. I'm planning on investing approximately $1M but since I don't have any experience in this (and because having this kind of money is very new to me), I could definitely use your advices.
You need a total plan. Investment planning

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

Do you have a tax-deferred company plan--401k, 403b, etc?
  1. Some friends recommended me Merrill Lynch‎. I had a meeting with them but my gut feeling is that it's not the kind of relationship I want.


Your gut feeling is correct.
I don't need nor want complicated solutions, and I'm generally worried about high fees hidden behind opaque terms and structures. Am I foolish for dismissing them for no rational reason and going for a simpler strategy such as investing in Vanguard's mutual funds?
Simple strategy is always better.
[*] I was initially considering the LifeStrategy Moderate Growth Fund but it seems like many people here tend to recommend building a three-fund portfolio instead. I'm looking for something simple to use with low maintenance though so, is it worth the hassle of avoiding LifeStrategy just to get Admiral Shares?
You don't want to use LS funds in taxable, and yes, individual funds are better if in a higher tax bracket.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
[*] I realize it's usually a bad idea to try to time the market but, given the fact that it's a significant first investment and that the markets are historically high right now, would it be wise to wait a few months to get started?

[*] I should probably check that with Vanguard directly but, does anyone happen to know what'd happen if I ever leave the US to live in another country? Can I keep my investments active?[/list]
We have members that can address this better than I can, but here's some info.

https://personal.vanguard.com/us/Litera ... cialnotice

Previous discussion

viewtopic.php?t=110773

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Luke Duke
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Re: Investing my first million

Post by Luke Duke » Fri Sep 21, 2018 2:50 pm

What are you doing with the other 5mil?

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

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Fri Sep 21, 2018 3:32 pm

Thanks a lot for your responses! I'll read those links later today but, let me already answer some of your questions:
Do you have a tax-deferred company plan--401k, 403b, etc?
I don't. The reason is that I moved to the US fairly recently, and I'm not sure yet if I'll stay here for many more years, so I'm not convinced investing in a 401k is actually a good strategy.
What are you doing with the other 5mil?
You'll presumably dislike my answer but, not much for now. I'll probably put $250k in this CD and the same amount in a savings account like this but, otherwise I want to wait a little bit before I make other investments.

barnaclebob
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Re: Investing my first million

Post by barnaclebob » Fri Sep 21, 2018 3:40 pm

michaeljmroger wrote:
Fri Sep 21, 2018 3:32 pm
Thanks a lot for your responses! I'll read those links later today but, let me already answer some of your questions:
Do you have a tax-deferred company plan--401k, 403b, etc?
I don't. The reason is that I moved to the US fairly recently, and I'm not sure yet if I'll stay here for many more years, so I'm not convinced investing in a 401k is actually a good strategy.
What are you doing with the other 5mil?
You'll presumably dislike my answer but, not much for now. I'll probably put $250k in this CD and the same amount in a savings account like this but, otherwise I want to wait a little bit before I make other investments.
You are in the territory where you will want see if you need to talk to estate and tax planning attorneys as well. A lot of these financial services start getting commingled with investment management, try to avoid that. Investment management is easy for 10k or 10mil, its the vehicles (trusts, IRA's etc) in which the investments reside where complications can arise.

22twain
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Re: Investing my first million

Post by 22twain » Fri Sep 21, 2018 4:33 pm

What do you plan to use this money for, eventually? And what is (are) the approximate time frame(s) for this (these) goal(s)? For example, money that you're investing for retirement perhaps decades from now should probably be invested differently from money that you plan to use for buying a house in the next few years.
My investing princiPLEs do not include absolutely preserving princiPAL.

dkb140
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Re: Investing my first million

Post by dkb140 » Fri Sep 21, 2018 4:42 pm

michaeljmroger wrote:
Fri Sep 21, 2018 3:32 pm
Do you have a tax-deferred company plan--401k, 403b, etc?
I don't. The reason is that I moved to the US fairly recently, and I'm not sure yet if I'll stay here for many more years, so I'm not convinced investing in a 401k is actually a good strategy.
What are you doing with the other 5mil?
I'll probably put $250k in this CD and the same amount in a savings account like this but, otherwise I want to wait a little bit before I make other investments.
If you do decide to stay in the US, you'll want to get started maxing out your tax-advantaged savings plans ASAP. If you decide to leave the country you could probably leave those accounts here to grow, but others may be able to speak to that better than I can.

Here are a couple HYS lists to look through if that's what you decide to do:
https://www.bankrate.com/banking/saving ... -accounts/
https://www.magnifymoney.com/blog/earni ... 275921001/

Ron Scott
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Re: Investing my first million

Post by Ron Scott » Fri Sep 21, 2018 7:11 pm

Congrats. A liquidity event is a sweet path to success and the actual sell should be cheered once and never looked back on.

A couple comments:

1. Luck will not automatically keep following you and developing conservative investing strategies is recommended. Forget ML. They will look to sell you stuff you don't need and extract wealth from you. Forget funds that continually change your asset allocation. Forget sector funds. What does "moderate growth" even mean. (Don't tell me!) You can develop your own plan and execute it yourself. Study AA and asset location. Think LOW fee index funds...VG and Fidelity for example...total market funds.

2. There is NO NEED to adopt an aggressive AA now, at high valuations. If you're concerned place more money in bonds at the outset. Timing per se usually doesn't work and those with $5-$15M should be risk averse IMO.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Fri Sep 21, 2018 7:42 pm

Thanks everyone!

I had a call with Vanguard earlier today and it looks like the LifeStrategy plan won’t be tax efficient in my case as suggested by pkcrafter.

I have another call planned with them next week but, right now I’m leaning towards approximately 85% VTMFX and 15% VTIAX which seems to follow the three-fund portfolio recommendation while being more tax-efficient than LifeStrategy. Any strong opinion on this? Will I need to rebalance occasionally with that setup?

radiowave
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Re: Investing my first million

Post by radiowave » Fri Sep 21, 2018 7:50 pm

for taxable, use VTSAX (total stock) which is the Admiral share.

VWIUX ($50k minimum) is tax exempt bonds and a prime recommendation on the forum for bonds in a taxable account (federal tax exempt). If you are not going to stay in the US, perhaps use a combination of CDs and treasury bills/notes for your bond portion in taxable.

Set your asset allocation for about 60% equity (includes US and international) and 40% bonds to mimic moderate growth.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Fri Sep 21, 2018 7:59 pm

radiowave wrote:
Fri Sep 21, 2018 7:50 pm
for taxable, use VTSAX (total stock) which is the Admiral share.

VWIUX ($50k minimum) is tax exempt bonds and a prime recommendation on the forum for bonds in a taxable account (federal tax exempt).
Aside from the fact that it’d allow me to fine tune the allocations, isn’t VTMFX pretty much the same as VTSAX + VWIUX ?

radiowave
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Re: Investing my first million

Post by radiowave » Fri Sep 21, 2018 9:58 pm

michaeljmroger wrote:
Fri Sep 21, 2018 7:59 pm
radiowave wrote:
Fri Sep 21, 2018 7:50 pm
for taxable, use VTSAX (total stock) which is the Admiral share.

VWIUX ($50k minimum) is tax exempt bonds and a prime recommendation on the forum for bonds in a taxable account (federal tax exempt).
Aside from the fact that it’d allow me to fine tune the allocations, isn’t VTMFX pretty much the same as VTSAX + VWIUX ?
Yes and no . . . if you combine both in VTMFX, it will be difficult to rebalance your asset allocation as you'll be selling both equity and tax exempt bonds. Consider separating them into separate funds and you'll get a lot more flexibility and possibly lower costs.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

sambb
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Re: Investing my first million

Post by sambb » Fri Sep 21, 2018 10:02 pm

People are going to try to convince of solutions that are complicated for you. You need to place it into tax managed balanced fund, and not touch it, not look at it, and you will be fine for life. Learn here for years before touching it. Whether it goes up or down. Youve won the game, and keep saving part of your salary too. If you cant do this for a few years, you arent ready.

Do not go near a broker like merril etc. They will slowly rob you.

3 fund isnt necessary also at this level of understanding and wealth. it is a tweak.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sat Sep 22, 2018 12:23 am

Thanks again everyone, this forum really is goldmine (pun unintended).

Would it be reasonable to also open multiple high-yield savings accounts (avg. 1.8% APY) and put $250k in each for some of the money I don’t plan to invest in the short term?

johnra
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Re: Investing my first million

Post by johnra » Sat Sep 22, 2018 12:25 am

My worst financial decision ever was transferring assets to Merrill Lynch, and my wisest financial decision ever was getting out!

student
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Re: Investing my first million

Post by student » Sat Sep 22, 2018 7:44 am

Congratulations. If you are smart enough to work at a such a place to make this kind of money, I think you are smart enough to manage your portfolio. I would suggest to start with a 3-fund portfolio using ETF's at a brokerage firm but pick one that gives you bonus for transferring the money. viewtopic.php?t=196884 For psychological reason, I will invest it over a 12 month period although past data suggests lump sum investment is usually better.

Ron Scott
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Re: Investing my first million

Post by Ron Scott » Sat Sep 22, 2018 8:11 am

michaeljmroger wrote:
Fri Sep 21, 2018 7:42 pm
I’m leaning towards approximately 85% VTMFX and 15% VTIAX
I do not understand the rationale for VTMFX and I am interested in your approach. Can you verbalize why you believe that is a better choice than VTI or VTSAX?
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

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TomatoTomahto
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Re: Investing my first million

Post by TomatoTomahto » Sat Sep 22, 2018 8:23 am

michaeljmroger wrote:
Sat Sep 22, 2018 12:23 am
Thanks again everyone, this forum really is goldmine (pun unintended).

Would it be reasonable to also open multiple high-yield savings accounts (avg. 1.8% APY) and put $250k in each for some of the money I don’t plan to invest in the short term?
You could put some of your emergency funds into savings accounts. Digital dust.

What we have done, and we are probably considerably older than you, is what I loosely call a Liability Matching Portfolio (LMP). We have "sufficient" funds in fixed income, mostly in tax-deferred space. For us, that number was $3M. The remainder of our funds, and all new investments, get split between Total Stock Market (TSM) and Total International Stock Market (TISM) in a ratio that suits us. There are other odds and sods, but that's the basic story; simple, tax efficient, and we don't spend much time sharpening our pencils to compute our asset allocation.
Zero Net Carbon by 2019.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sat Sep 22, 2018 1:28 pm

Ron Scott wrote:
Sat Sep 22, 2018 8:11 am
I do not understand the rationale for VTMFX and I am interested in your approach. Can you verbalize why you believe that is a better choice than VTI or VTSAX?
I was initially interested in VBIAX but the Vanguard advisor recommended me to have a look at VTMFX instead for tax efficiency. I understand it’s basically the same as combining VTSAX with VWIUX (which, I think, is the combination I’m looking for) but I’ll clarify that next week with Vanguard.

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vineviz
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Re: Investing my first million

Post by vineviz » Sat Sep 22, 2018 2:42 pm

michaeljmroger wrote:
Sat Sep 22, 2018 12:23 am
Thanks again everyone, this forum really is goldmine (pun unintended).

Would it be reasonable to also open multiple high-yield savings accounts (avg. 1.8% APY) and put $250k in each for some of the money I don’t plan to invest in the short term?
No, I don't think that's reasonable at least unless you intend to spend that money soon.

Savings accounts are for a) emergency cash or b) money you expect to spend in the next year or two.

I'd suggest allocating any money you don't want to spend soon (that money goes into savings) or invest soon (that money goes into your investment portfolio) into a short-term tax-exempt bond fund like Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX).

Then, whatever is left is your long-term investment portfolio. I happen to think that VTMFX is a fine choice for that money: simple and easy to manage. It's maybe a little conservative in its allocation and lacks international, so if you feel up for a slightly more complicated solution you could maybe attempt something like this:

25.00% Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)
15.00% Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
40.00% Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX)
5.00% Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)
15.00% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sat Sep 22, 2018 3:14 pm

vineviz wrote:
Sat Sep 22, 2018 2:42 pm
No, I don't think that's reasonable at least unless you intend to spend that money soon.

Savings accounts are for a) emergency cash or b) money you expect to spend in the next year or two.

I'd suggest allocating any money you don't want to spend soon (that money goes into savings) or invest soon (that money goes into your investment portfolio) into a short-term tax-exempt bond fund like Vanguard Short-Term Tax-Exempt Fund Admiral Shares (VWSUX).

Then, whatever is left is your long-term investment portfolio. I happen to think that VTMFX is a fine choice for that money: simple and easy to manage. It's maybe a little conservative in its allocation and lacks international, so if you feel up for a slightly more complicated solution you could maybe attempt something like this:

25.00% Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)
15.00% Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
40.00% Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX)
5.00% Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)
15.00% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Thanks, I will definitely look into VWSUX!

As for the rest, the structure you’re suggesting is indeed a bit too involved for me, so I think I’ll just stick with 85% VTMFX and 15% VTIAX which seems to roughly meet the same goal as far as I can tell. What do you think?

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vineviz
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Re: Investing my first million

Post by vineviz » Sat Sep 22, 2018 4:15 pm

michaeljmroger wrote:
Sat Sep 22, 2018 3:14 pm

As for the rest, the structure you’re suggesting is indeed a bit too involved for me, so I think I’ll just stick with 85% VTMFX and 15% VTIAX which seems to roughly meet the same goal as far as I can tell. What do you think?
I think the 85/15 idea is a great one.

Possibly my only concern with VTMFX, compared to a traditional balanced fund, is the lack of small cap stocks. Especially since Vanguard has an excellent tax-managed small cap fund in VTMSX. If you can handle three funds instead of just two, maybe this?
  • 65% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)
  • 20% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
  • 15% Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: Investing my first million

Post by vineviz » Sat Sep 22, 2018 4:19 pm

By the way, here's what Morningstar's analyst has to say about VTMFX (emphasis mine):
Vanguard Tax-Managed Balanced's effective tax-management, low fees, and seasoned managers justify its Morningstar Analyst Rating of Gold.

This balanced fund is composed of Silver-rated muni fund Vanguard Intermediate Tax-Exempt and Gold-rated equity fund Vanguard Tax-Managed Capital Appreciation. The managers for these are the named managers for this balanced fund. In order for this fund to maintain tax-advantage pass-through, the managers need to maintain at least 50% in the muni strategy, and generally keep the allocations close to 50:50 by using flows. Within the sleeves, the managers seek to minimize gains and opportunistically harvest losses. Since inception in 1994, the fund has not distributed a capital gain and its 10-year tax-cost ratio of 0.58% is significantly below the allocation--30% to 50% equity category average of 1.20%. An investor attempting to replicate this strategy by holding the equity and muni-bond funds is more likely to realize capital gains during rebalances.
http://analysisreport.morningstar.com/f ... ture=en-US
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Ron Scott
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Re: Investing my first million

Post by Ron Scott » Sat Sep 22, 2018 4:52 pm

michaeljmroger wrote:
Sat Sep 22, 2018 1:28 pm
Ron Scott wrote:
Sat Sep 22, 2018 8:11 am
I do not understand the rationale for VTMFX and I am interested in your approach. Can you verbalize why you believe that is a better choice than VTI or VTSAX?
I was initially interested in VBIAX but the Vanguard advisor recommended me to have a look at VTMFX instead for tax efficiency. I understand it’s basically the same as combining VTSAX with VWIUX (which, I think, is the combination I’m looking for) but I’ll clarify that next week with Vanguard.
I would press the issue of tax efficiency as VTSAX is pretty damn efficient..and at half the price...
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sat Sep 22, 2018 6:13 pm

vineviz wrote:
Sat Sep 22, 2018 4:15 pm
I think the 85/15 idea is a great one.

Possibly my only concern with VTMFX, compared to a traditional balanced fund, is the lack of small cap stocks. Especially since Vanguard has an excellent tax-managed small cap fund in VTMSX. If you can handle three funds instead of just two, maybe this?
  • 65% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)
  • 20% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
  • 15% Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
Unless I’m misunderstanding something, the structure above would have a much higher stock allocation than my 85/15 setup. Ideally, I’d like to allocate at least 40% in bounds.

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vineviz
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Re: Investing my first million

Post by vineviz » Sat Sep 22, 2018 7:11 pm

michaeljmroger wrote:
Sat Sep 22, 2018 6:13 pm
vineviz wrote:
Sat Sep 22, 2018 4:15 pm
I think the 85/15 idea is a great one.

Possibly my only concern with VTMFX, compared to a traditional balanced fund, is the lack of small cap stocks. Especially since Vanguard has an excellent tax-managed small cap fund in VTMSX. If you can handle three funds instead of just two, maybe this?
  • 65% Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX)
  • 20% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
  • 15% Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
Unless I’m misunderstanding something, the structure above would have a much higher stock allocation than my 85/15 setup. Ideally, I’d like to allocate at least 40% in bounds.
That's true, and it would be a little bit more volatile as a result.

Here's what the last 18 years would have hypothetically looked like (portfolio 1 is my 65/20/15 suggestion and portfolio 2 is your original 85/15/0 allocation) .

Image

The image at the top is the hypothetical growth of $10,000 and the image at the bottom has the returns for each year for both portfolios.

My portfolio probably would feel slightly more volatile (the worst year for portfolio 1 was a loss of 25% while for portfolio 2 lost only 22%) but as a result has a slightly higher expected return. Portfolio 1 is slightly more diversified, spreading the risk more evenly among the funds.

I certainly don't want to talk you into taking more risk than you can handle. That's not my goal, I just wanted to suggest that you consider adding in some small cap exposure. You could start at 75/15/10 and see how it feels, or just stick with your perfectly good plan of 85/15/0.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

MotoTrojan
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Re: Investing my first million

Post by MotoTrojan » Sat Sep 22, 2018 7:19 pm

3-fund with a tax-free bond fund is my vote. Congrats. Balanced fund plus international is a bad idea. Harder to tax-loss harvest.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sat Sep 22, 2018 8:31 pm

vineviz wrote:
Sat Sep 22, 2018 7:11 pm
That's true, and it would be a little bit more volatile as a result.

Here's what the last 18 years would have hypothetically looked like (portfolio 1 is my 65/20/15 suggestion and portfolio 2 is your original 85/15/0 allocation) .

Image

The image at the top is the hypothetical growth of $10,000 and the image at the bottom has the returns for each year for both portfolios.

My portfolio probably would feel slightly more volatile (the worst year for portfolio 1 was a loss of 25% while for portfolio 2 lost only 22%) but as a result has a slightly higher expected return. Portfolio 1 is slightly more diversified, spreading the risk more evenly among the funds.

I certainly don't want to talk you into taking more risk than you can handle. That's not my goal, I just wanted to suggest that you consider adding in some small cap exposure. You could start at 75/15/10 and see how it feels, or just stick with your perfectly good plan of 85/15/0.
Wow, thanks for your detailed answer! I’m definitely interested in adding VTMSX to my portfolio so, your 75/15/10 (or even 80/10/10) sounds good to me!
MotoTrojan wrote:
Sat Sep 22, 2018 7:19 pm
3-fund with a tax-free bond fund is my vote. Congrats. Balanced fund plus international is a bad idea. Harder to tax-loss harvest.
Can you clarify why adding international assets would be counter-productive in terms of tax-efficiency?

MotoTrojan
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Re: Investing my first million

Post by MotoTrojan » Sun Sep 23, 2018 2:29 am

michaeljmroger wrote:
Sat Sep 22, 2018 8:31 pm
vineviz wrote:
Sat Sep 22, 2018 7:11 pm
That's true, and it would be a little bit more volatile as a result.

Here's what the last 18 years would have hypothetically looked like (portfolio 1 is my 65/20/15 suggestion and portfolio 2 is your original 85/15/0 allocation) .

Image

The image at the top is the hypothetical growth of $10,000 and the image at the bottom has the returns for each year for both portfolios.

My portfolio probably would feel slightly more volatile (the worst year for portfolio 1 was a loss of 25% while for portfolio 2 lost only 22%) but as a result has a slightly higher expected return. Portfolio 1 is slightly more diversified, spreading the risk more evenly among the funds.

I certainly don't want to talk you into taking more risk than you can handle. That's not my goal, I just wanted to suggest that you consider adding in some small cap exposure. You could start at 75/15/10 and see how it feels, or just stick with your perfectly good plan of 85/15/0.
Wow, thanks for your detailed answer! I’m definitely interested in adding VTMSX to my portfolio so, your 75/15/10 (or even 80/10/10) sounds good to me!
MotoTrojan wrote:
Sat Sep 22, 2018 7:19 pm
3-fund with a tax-free bond fund is my vote. Congrats. Balanced fund plus international is a bad idea. Harder to tax-loss harvest.
Can you clarify why adding international assets would be counter-productive in terms of tax-efficiency?
I was focusing on the balanced fund. If already taking the trouble to have 2 funds and maintain AA why not go with 3. If US stocks plunge you can’t harvest the loss with the balanced fund.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sun Sep 23, 2018 5:35 pm

vineviz wrote:
Sat Sep 22, 2018 2:42 pm
25.00% Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)
15.00% Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)
40.00% Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX)
5.00% Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX)
15.00% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)
Out of curiosity, why do you recommend VTCLX over VTSAX ?

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Sun Sep 23, 2018 11:55 pm

I forgot to ask about international. I just assumed VTIAX was the right thing to do but, now I look at it a bit more, it seems like VTMGX could be a better alternative. Both funds look very similar, but VTMGX is a tad cheaper. Would you still stick with VTIAX in order to reach emerging markets?

MotoTrojan
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Re: Investing my first million

Post by MotoTrojan » Mon Sep 24, 2018 12:08 am

michaeljmroger wrote:
Sun Sep 23, 2018 11:55 pm
I forgot to ask about international. I just assumed VTIAX was the right thing to do but, now I look at it a bit more, it seems like VTMGX could be a better alternative. Both funds look very similar, but VTMGX is a tad cheaper. Would you still stick with VTIAX in order to reach emerging markets?
I would, yes. I use VTMGX as a tax-loss harvest partner though.

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Re: Investing my first million

Post by michaeljmroger » Mon Sep 24, 2018 12:32 am

Thank you! I have a call planned on Tuesday with Vanguard but, unless the advisor enlightens me with a radically different structure, I might go with the following:
  • 80% VTMFX
  • 10% VTMSX
  • 10% VTIAX
Now, even though I realize it’s a bad idea to try to time the market, I must admit I’m a bit anxious about investing $1M when the markets are so high :? Should I consider a SIP to mitigate the risks?

exoilman
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Re: Investing my first million

Post by exoilman » Mon Sep 24, 2018 6:23 am

Ron Scott wrote:
Fri Sep 21, 2018 7:11 pm
Congrats. A liquidity event is a sweet path to success and the actual sell should be cheered once and never looked back on.

A couple comments:

1. Luck will not automatically keep following you and developing conservative investing strategies is recommended. Forget ML. They will look to sell you stuff you don't need and extract wealth from you. Forget funds that continually change your asset allocation. Forget sector funds. What does "moderate growth" even mean. (Don't tell me!) You can develop your own plan and execute it yourself. Study AA and asset location. Think LOW fee index funds...VG and Fidelity for example...total market funds.

2. There is NO NEED to adopt an aggressive AA now, at high valuations. If you're concerned place more money in bonds at the outset. Timing per se usually doesn't work and those with $5-$15M should be risk averse IMO.
+1 and look at CDAR's for now https://www.cdars.com/?gclid=EAIaIQobCh ... gKn5fD_BwE

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Re: Investing my first million

Post by michaeljmroger » Tue Sep 25, 2018 3:12 pm

Keeping this thread up to date in case it helps someone in the future in a similar situation: I had another call with Vanguard and they recommended a different structure than I anticipated. To my surprise, they advised against VTMFX as its tax efficiency is mostly applicable to bonds, which means I could go with VTSAX for stocks. Here's their recommendation:
  • 36% VTSAX
  • 24% VTIAX
  • 16% VWIUX
  • 12% VMLUX
  • 12% VWLUX
I might go slightly higher for VTSAX and VWIUX but other than that, I'm very satisfied with this portfolio setup. Now, given the fact that the markets are historically high right now, the question is obviously to wait or not to make this significant lump-sum investment...

harmoniousmonk
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Re: Investing my first million

Post by harmoniousmonk » Tue Sep 25, 2018 4:14 pm

Get it all in. But wait for a few days for the dividends to get paid out.
In efficient markets, mediocrity is the norm. | Never confuse genius for luck and a bull market.

mervinj7
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Re: Investing my first million

Post by mervinj7 » Tue Sep 25, 2018 5:43 pm

michaeljmroger wrote:
Tue Sep 25, 2018 3:12 pm
  • 36% VTSAX
  • 24% VTIAX
  • 16% VWIUX
  • 12% VMLUX
  • 12% VWLUX
I wish people would write fund names after tickers for those of us who don't have them all memorized. :twisted:

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Re: Investing my first million

Post by michaeljmroger » Tue Sep 25, 2018 5:47 pm

mervinj7 wrote:
Tue Sep 25, 2018 5:43 pm
I wish people would write fund names after tickers for those of us who don't have them all memorized. :twisted:
Sorry about that! There you go:
  • 36% Total Stock Market Index Fund Admiral Shares
  • 24% Total International Stock Index Fund Admiral Shares
  • 16% Intermediate-Term Tax-Exempt Fund Admiral Shares
  • 12% Limited-Term Tax-Exempt Fund Admiral Shares
  • 12% Long-Term Tax-Exempt Fund Admiral Shares

mervinj7
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Re: Investing my first million

Post by mervinj7 » Tue Sep 25, 2018 6:11 pm

michaeljmroger wrote:
Tue Sep 25, 2018 5:47 pm
Sorry about that! There you go:
  • 36% Total Stock Market Index Fund Admiral Shares
  • 24% Total International Stock Index Fund Admiral Shares
  • 16% Intermediate-Term Tax-Exempt Fund Admiral Shares
  • 12% Limited-Term Tax-Exempt Fund Admiral Shares
  • 12% Long-Term Tax-Exempt Fund Admiral Shares
Looks good. It's a 60/40 stock/bond split with a 60/40 US/Intl split. Personally, I would prefer something closer to 70/30 US/Intl split and a 85/15 Stock/bond split since you have another $5M that's still uninvested and sitting on the sidelines. :sharebeer

On a side note, did the advisor mention why the bonds were split up into three different duration funds?

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Re: Investing my first million

Post by michaeljmroger » Tue Sep 25, 2018 7:37 pm

mervinj7 wrote:
Tue Sep 25, 2018 6:11 pm
On a side note, did the advisor mention why the bonds were split up into three different duration funds?
I asked him the same question actually. Apparently it’s to have both a safer and a riskier portion of bonds instead of relying exclusively on the intermediate fund. I’m not entirely sure it’s absolutely necessary to be honest...

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Re: Investing my first million

Post by michaeljmroger » Sun Sep 30, 2018 10:18 am

As I’m searching for a new bank (Bank of America is awful), I’m considering a few options including Charles Schwab. I was initially only looking for regular checking and savings account, but then I realized Schwab could actually be a great alternative to Vanguard for the investment I described in this thread. I’m not sure why I never considered them before and directly assumed Vanguard was unquestionably the best choice, but I’m now interested in hearing your thoughts about it. I could go for a structure like this: There a few obvious differences with the Vanguard funds: SWISX isn’t truly international like VTIAX, SWNTX is substantially more expensive than VWIUX, and I’m not sure SWTSX is just as tax-efficient as VTSAX. What are your opinions on it?

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Re: Investing my first million

Post by stimulacra » Sun Sep 30, 2018 10:49 am

Congrats.

The Vanguard allocations look pretty sensible, the Schwab one tests pretty similarly too. It is a conservative enough allocation that you might consider adding the bulk of your windfall to it.

Image

I would consider maxing out all of your tax-advantaged accounts (401k, IRA, Roth, etc), just because you might end up living somewhere else you can still keep a foothold in the U.S., you effectively have 50 different tax regimes here in the U.S. you can establish residency in.

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Re: Investing my first million

Post by michaeljmroger » Tue Oct 02, 2018 12:04 am

I had a meeting today with Schwab. They recommended a portfolio based on ETFs, which would indeed be very cheap: My only concern is the tax efficiency of SCHZ. As far as I can tell, VWIUX would be a better option given my high tax bracket. What are your opinions on this?

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Strayshot
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Re: Investing my first million

Post by Strayshot » Tue Oct 02, 2018 6:45 am

After reading this thread, I feel like you are entering the point of over-analysis and decision paralysis. You need to:
- Pick a brokerage (Vanguard, Charles Schwab, Fidelity are all fine choices)
- Get your money invested.

For someone with $6M and who is only putting $1M into investments at this time, agonizing over optimal tax efficiency for your bond component is something that can be done over the next year once you are in. You are better off getting in and putting your money to work for you and fine tuning as you go.

On a side note, bringing that level of funds into a brokerage would usually entitle you to a bonus. Whatever firm you choose, make sure you ask about a bonus. Probably an easy $2500 for bringing in $1M.

michaeljmroger
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Re: Investing my first million

Post by michaeljmroger » Tue Oct 02, 2018 8:59 am

Strayshot wrote:
Tue Oct 02, 2018 6:45 am
I feel like you are entering the point of over-analysis and decision paralysis.
You’re absolutely right, I’m pretty much the exact opposite of an impulse buyer. That being said, I feel like I’m finally getting a good understanding of the different options. Basically the only last thing I’d like to clarify is the tax efficiency of SCHZ, as it might make a significant difference with what I’d get from VWIUX.

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Strayshot
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Re: Investing my first million

Post by Strayshot » Thu Oct 04, 2018 7:54 am

If by tax efficiency you mean one is a tax exempt bond fund and one is not, then yes you will owe a federal taxes on the interest from the Schwab ETF holdings. The reality is that municipal bonds and corporate bonds are different assets with different risk and returns, so you need to decide if the tax implications offset the risk/returns for your bond component.

If you want to use Schwab and want a tax exempt etf just pick a non-Schwab run etf.

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