High net worth individual seeks portfolio advice

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
Putontheglasses
Posts: 7
Joined: Wed Jun 12, 2019 12:38 pm

High net worth individual seeks portfolio advice

Post by Putontheglasses » Wed Jun 12, 2019 1:59 pm

Hello follow Bogleheads,

I'm a successful business owner (and high net worth individual) who has had my head buried so deep in my business for the past eight years, with so much rapid growth, that I haven't had the time or energy to focus on investments until recently. I'm here to graciously ask for portfolio advice from any who would be kind enough to point me in the right direction.

I've read the "Asking Portfolio Questions" page on the site, and will provide all of the recommended info suggested.

My current total net worth is 10.5 million, with 9 million in cash spread out across high yield savings accounts for maximum FDIC coverage, currently earning 2.5%. My income is about 2 million per year before taxes, but I'm hoping to sell my business in the next 6 months for somewhere in the 5-9 million range. I'm not sure if I will get cashed out or get a payment. After that sale I plan to retire early. I am married with no children. The 10.5m net worth above does not include the business valuation. Here are my other particulars:

Debt: zero
Tax status: married filing jointly with zero dependents
Tax rate: Federal: 33.52% (37% tax bracket), State: 5.5%
State of residence: NC
Age: 47 (wife is 45)
Risk tolerance: medium
Desired asset allocation: Currently 0-10% stocks / 60-70% bonds / 30% CDs or cash. At the bottom of the next recession I would likely shift to 50% stocks / 35% bonds / 15% cash. See below for details on my thinking.

Current retirement assets:
Not much, just an HSA with $43,000 sitting in cash making very low interest. No IRAs, 401Ks, or the like.

Other investments:
$110,000 in peer to peer lending making about 4% which I've been unwinding and not reinvesting as I see peer to peer loans suffering during the next recession.

I also own $10,000 in silver that I bought back in 2012 when it cost me $20,000 :(

I own my home valued at about 700k, two cars worth about 30k each, and no other major assets.

Investing mindset:
I am not adverse to investing in US equities, but would prefer to wait for the next recession to get in given how far along we are in this record bull run, when the PE ratios return to something closer to historical averages. I have recently found the time to devote many hours to research as much as I can on the state of the economy via podcasts and youtube video series like RealVision. Everything I've learned about, from the coming pension/retirement crisis, to the amount of corporate stock buybacks in the last ten years, to the Fed being afraid to raise rates even a .25 more with a supposedly robust economy, has left me quite cautious on investing.

So, currently my risk tolerance is quite low in regard to equities, and I'm wanting to focus on low risk bond funds and the like, but should the market drop 40% or more like it did in 2008, I would of course be ready to "buy while there's blood in the streets". Until that time comes, I'm not sure how to invest though, especially with the possibility of a corporate bond market crash that I've read about, which I don't understand the risks fully. I know the basics about bonds, but not enough to invest confidently.

I'm hearing word that the Fed might end up cutting rates later this year with some economists predicting as much as .75% total cut, so if that were to happen, my high yield savings account yields would drop that much, and I probably would have wished I would have invested in CDs at the very least ahead of that cut, but maybe bonds are the better option overall.

Thank you ahead of time to any willing to provide their insight and give me some pointers.

Kind regards,

Putontheglasses

bloom2708
Posts: 6369
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: High net worth individual seeks portfolio advice

Post by bloom2708 » Wed Jun 12, 2019 2:37 pm

With $10 million, any strategy you pick will be fine if you aren't spending $500k per year.

This might not be the best place to get confirmation for your "wait for the big drop and then I'll add stocks" strategy.

Your risk with all cash is you are losing out to inflation daily.

Most here would suggest you pick a reasonable allocation (50/50 or 40/60) and get there with low cost, tax efficient, broad market index funds.

Total US and Total International or Total World. A mix of tax-exempt (fed or state depending on your state of residence) municipal bond index and perhaps some treasuries.

With most retire early threads. Know your expenses. Understand healthcare costs. Know your tax liabilities. Get estimates for your Social Security at 67 and 70.

The Boglehead type plans will work perfectly well for $10 million+. You just have to work hard at not outsmarting yourself. All the youtube videos will likely hurt, not help. There are plans for every scenario/salesman you can shake a stick at.

Spend time here for 90 days learning and reading and you will be better off. Even if you pick a more complicated plan. Vanguard Personal Advisory service is .3% per year. Even that is $30k per year of fees. Compound that for 40 years. That is skimming a lot of spending off your portfolio. Now do 1%+ for an advisor. Whew. Astronomical amounts over 30+ years.

Welcome to Bogleheads. Hopefully you get a lot of good advice.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

magicrat
Posts: 688
Joined: Sat Nov 29, 2014 7:04 pm

Re: High net worth individual seeks portfolio advice

Post by magicrat » Wed Jun 12, 2019 2:44 pm

Congrats on your success. In addition to the previous poster's advice, I suggest you also consult an excellent tax and estate attorney.

welsie
Posts: 88
Joined: Tue Feb 12, 2019 6:11 pm

Re: High net worth individual seeks portfolio advice

Post by welsie » Wed Jun 12, 2019 2:50 pm

Just as a high level comment.

Good, boring news doesn't sell. If someone says, "Global economic growth will keep chugging along, through ups and downs, at about 5%-7% in real terms; so invest based on your risk tolerance and enjoy the ride." Well very few people will read that article, watch that show or buy that book.

If I tell you the sky is falling, markets are about the crash, the world is ending...well, that sells. If I tell you I have the inside beat on an investment opportunity that will double your money in 2 years...well, that sells.

I would just caution skepticism when "market analysts" start predicting the future, it is usually to their benefit and not yours.

Topic Author
Putontheglasses
Posts: 7
Joined: Wed Jun 12, 2019 12:38 pm

Re: High net worth individual seeks portfolio advice

Post by Putontheglasses » Wed Jun 12, 2019 3:00 pm

bloom2708 wrote:
Wed Jun 12, 2019 2:37 pm
With $10 million, any strategy you pick will be fine if you aren't spending $500k per year.

This might not be the best place to get confirmation for your "wait for the big drop and then I'll add stocks" strategy.
Thanks for the reply and advice. Our spending is only at $80k per year, and that could go up to $90k per year as we start to have time to take vacations, so retirement calculators show me based on 3% average inflation and only 2.5% returns to end up with a heck of a lot more money at age 95 than I have now, so I'm not really worried about running out (barring hyperinflation or catastrophic health issue requiring in home care). I'm still wanting to of course make the most of my money without too much risk.

I understand the old advice "don't try to time the market" in general, but there are certain times where that would seem to be the exception such as when you're in the longest running bull market in history. Being that the average bull market has historically only lasted 4.5 years, statistically speaking, it would seem to me to be insane for me to get hard into US equities at this stage of the game, especially with the Schiller PE being so damned high, and so many other issues at play such as massive government debt, corporate debt, student loan debt, etc, and as I mentioned, a FED is who afraid to raise rates even .25% higher toward the historical norm of 5%.

Maybe I'm missing something, but I just can't figure out for the life of me why anyone would get in US stocks now, or not get mostly out for that matter. Of course in theory the market could go up another 10-20% and keep making history, but given that the average bear market results in cumulative 41% loss, and being that we're long overdue, wouldn't you be betting way against the historical odds by buying now?

I'm asking sincerely as I'm assuming I must be missing something.

Thanks!

Putontheglasses

User avatar
FelixTheCat
Posts: 1614
Joined: Sat Sep 24, 2011 12:39 am

Re: High net worth individual seeks portfolio advice

Post by FelixTheCat » Wed Jun 12, 2019 3:11 pm

In addition to this forum, Bogleheads provide a wiki that will assist you in your financial education. Start reading at https://www.bogleheads.org/wiki/Getting_started

Based on your assets, I suggest calling Vanguard to see if you can get a free plan from a certified financial advisor.
Felix is a wonderful, wonderful cat.

welsie
Posts: 88
Joined: Tue Feb 12, 2019 6:11 pm

Re: High net worth individual seeks portfolio advice

Post by welsie » Wed Jun 12, 2019 3:14 pm

Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm
bloom2708 wrote:
Wed Jun 12, 2019 2:37 pm
With $10 million, any strategy you pick will be fine if you aren't spending $500k per year.

This might not be the best place to get confirmation for your "wait for the big drop and then I'll add stocks" strategy.
Thanks for the reply and advice. Our spending is only at $80k per year, and that could go up to $90k per year as we start to have time to take vacations, so retirement calculators show me based on 3% average inflation and only 2.5% returns to end up with a heck of a lot more money at age 95 than I have now, so I'm not really worried about running out (barring hyperinflation or catastrophic health issue requiring in home care). I'm still wanting to of course make the most of my money without too much risk.

I understand the old advice "don't try to time the market" in general, but there are certain times where that would seem to be the exception such as when you're in the longest running bull market in history. Being that the average bull market has historically only lasted 4.5 years, statistically speaking, it would seem to me to be insane for me to get hard into US equities at this stage of the game, especially with the Schiller PE being so damned high, and so many other issues at play such as massive government debt, corporate debt, student loan debt, etc, and as I mentioned, a FED is who afraid to raise rates even .25% higher toward the historical norm of 5%.

Maybe I'm missing something, but I just can't figure out for the life of me why anyone would get in US stocks now, or not get mostly out for that matter. Of course in theory the market could go up another 10-20% and keep making history, but given that the average bear market results in cumulative 41% loss, and being that we're long overdue, wouldn't you be betting way against the historical odds by buying now?

I'm asking sincerely as I'm assuming I must be missing something.

Thanks!

Putontheglasses
Yeah, but what difference does a recession make in your context. Ok, the market takes a bath, equities drop 50% in value, then a year later, a few years later they recover, how are you any worse off? It is only a loss if you sell. If you plan on remaining in the market for decades, these are blips.

User avatar
FelixTheCat
Posts: 1614
Joined: Sat Sep 24, 2011 12:39 am

Re: High net worth individual seeks portfolio advice

Post by FelixTheCat » Wed Jun 12, 2019 3:17 pm

Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm

Maybe I'm missing something, but I just can't figure out for the life of me why anyone would get in US stocks now, or not get mostly out for that matter. Of course in theory the market could go up another 10-20% and keep making history, but given that the average bear market results in cumulative 41% loss, and being that we're long overdue, wouldn't you be betting way against the historical odds by buying now?

I'm asking sincerely as I'm assuming I must be missing something.
Most people are caught up in the day-to-day market noise and nobody knows how the market will act over a period of time. This is why Bogleheads suggest broad based market funds using an asset allocation that makes you comfortable. Here are examples of portfolio allocation models and their average annual returns https://personal.vanguard.com/us/insigh ... llocations

Based on your comment, you could start out on a more conservative asset allocation and see how it works out for you.
Felix is a wonderful, wonderful cat.

HomeStretch
Posts: 772
Joined: Thu Dec 27, 2018 3:06 pm

Re: High net worth individual seeks portfolio advice

Post by HomeStretch » Wed Jun 12, 2019 3:23 pm

Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm
Maybe I'm missing something, but I just can't figure out for the life of me why anyone would get in US stocks now, or not get mostly out for that matter.
I keep a portion of my portfolio in equities as a hedge against inflation. As we move closer to retirement, we have decreased our equity allocation %.

In your case, with $90k spend and a portfolio/assets > $10 million, there is no need to hold any equities investments if you are not comfortable. 100% fixed income in CDs, treasuries and bond funds will likely generate returns well in excess of your spending needs.

michaeljmroger
Posts: 466
Joined: Fri Sep 21, 2018 10:54 am

Re: High net worth individual seeks portfolio advice

Post by michaeljmroger » Wed Jun 12, 2019 3:27 pm

My net worth is comparable to yours, and my strategy was similar as well when I started investing (i.e. wait for a big drop). I was reading every single article about the stock market every single day. I finally pulled the trigger when I was confident the market couldn't go lower. Result: I lost over $100,000 in less than a week.

Every new investor reads about not trying to time the market and does it anyway. I did it. You'll probably do it as well and you'll learn. But I'll still try to convince you it's not a good idea :wink:

You can try dollar cost averaging if that makes you more comfortable, but I wouldn't wait. Instead, pick a conservative allocation as you don't need to take much equity risk, and then just stay the course. I'm personally at 30% stocks / 70% bonds, which I think would make a lot of sense in your situation as well.

I'd also recommend keeping it simple and low cost; fees really compound over time. For example, the following diversified and tax-efficient portfolio would cost you less than 0.06% per year at Schwab:
  • 20% SCHB
  • 10% SCHF
  • 20% SCHP
  • 50% MUB
Good luck!
Last edited by michaeljmroger on Wed Jun 12, 2019 3:42 pm, edited 1 time in total.

Presintense
Posts: 192
Joined: Thu Nov 06, 2014 1:58 pm
Location: "Somewhere in the middle of America"

Re: High net worth individual seeks portfolio advice

Post by Presintense » Wed Jun 12, 2019 3:29 pm

Putontheglasses wrote:
Wed Jun 12, 2019 1:59 pm
Hello follow Bogleheads,

I'm a successful business owner (and high net worth individual) who has had my head buried so deep in my business for the past eight years, with so much rapid growth, that I haven't had the time or energy to focus on investments until recently. I'm here to graciously ask for portfolio advice from any who would be kind enough to point me in the right direction.

I've read the "Asking Portfolio Questions" page on the site, and will provide all of the recommended info suggested.

My current total net worth is 10.5 million, with 9 million in cash spread out across high yield savings accounts for maximum FDIC coverage, currently earning 2.5%. My income is about 2 million per year before taxes, but I'm hoping to sell my business in the next 6 months for somewhere in the 5-9 million range. I'm not sure if I will get cashed out or get a payment. After that sale I plan to retire early. I am married with no children. The 10.5m net worth above does not include the business valuation. Here are my other particulars:

Debt: zero
Tax status: married filing jointly with zero dependents
Tax rate: Federal: 33.52% (37% tax bracket), State: 5.5%
State of residence: NC
Age: 47 (wife is 45)
Risk tolerance: medium
Desired asset allocation: Currently 0-10% stocks / 60-70% bonds / 30% CDs or cash. At the bottom of the next recession I would likely shift to 50% stocks / 35% bonds / 15% cash. See below for details on my thinking.

Current retirement assets:
Not much, just an HSA with $43,000 sitting in cash making very low interest. No IRAs, 401Ks, or the like.

Other investments:
$110,000 in peer to peer lending making about 4% which I've been unwinding and not reinvesting as I see peer to peer loans suffering during the next recession.

I also own $10,000 in silver that I bought back in 2012 when it cost me $20,000 :(

I own my home valued at about 700k, two cars worth about 30k each, and no other major assets.

Investing mindset:
I am not adverse to investing in US equities, but would prefer to wait for the next recession to get in given how far along we are in this record bull run, when the PE ratios return to something closer to historical averages. I have recently found the time to devote many hours to research as much as I can on the state of the economy via podcasts and youtube video series like RealVision. Everything I've learned about, from the coming pension/retirement crisis, to the amount of corporate stock buybacks in the last ten years, to the Fed being afraid to raise rates even a .25 more with a supposedly robust economy, has left me quite cautious on investing.

So, currently my risk tolerance is quite low in regard to equities, and I'm wanting to focus on low risk bond funds and the like, but should the market drop 40% or more like it did in 2008, I would of course be ready to "buy while there's blood in the streets". Until that time comes, I'm not sure how to invest though, especially with the possibility of a corporate bond market crash that I've read about, which I don't understand the risks fully. I know the basics about bonds, but not enough to invest confidently.

I'm hearing word that the Fed might end up cutting rates later this year with some economists predicting as much as .75% total cut, so if that were to happen, my high yield savings account yields would drop that much, and I probably would have wished I would have invested in CDs at the very least ahead of that cut, but maybe bonds are the better option overall.

Thank you ahead of time to any willing to provide their insight and give me some pointers.

Kind regards,

Putontheglasses
There are several reasons I think we should be getting advice from you instead of the other way around. The greatest of which is that you imply an ability to identify the bottom of the next recession. That's something pretty much every Boglehead has admitted failure in their ability to do so.
Last edited by Presintense on Wed Jun 12, 2019 3:44 pm, edited 1 time in total.
Performance = Potential - Distraction

nimo956
Posts: 754
Joined: Mon Feb 15, 2010 6:07 pm

Re: High net worth individual seeks portfolio advice

Post by nimo956 » Wed Jun 12, 2019 3:42 pm

Develop a workable plan you'd be comfortable with in all market conditions. This is better than a plan for now, and a plan for when things are "normal" that you'll transition to over some period of time at some unspecified moment in the future.

There's always something to be fearful of, or some reason to believe that things were normal once, but aren't anymore. When in the past has investing ever felt safe?
Taylor Larimore wrote: Hi Bogleheads:

At age 87, I have the advantage of looking back to when I started investing at the age of 26 in 1950.

Listed below is the price of the S&P 500 Index at the end of the year when events occurred that caused many investors to abandon stocks:

YEAR..S&P........CRISIS..........
1950.....20....Korean War (1950-1953)
1953.....25....President Eisenhower's heart attack
1955.....45....Start of Vietnam War
1956.....47....Suez Crisis
1962.....63....Cuban Missile Crisis
1963.....75....John Kennedy Assassination
1967.....96....Detroit Race Riots
1970.....92....Kent State shootings
1971.....102...Wage-Price Freeze
1973.....97....Arab Oil Embargo
1974.....69....President Nixon Resigns
1975.....90....End of Vietnam War
1979.....108...Iran takes U.S. hostages.
1980.....136...Inflation hits 15%. Hunt Silver Crisis.
1982.....141...Falkland Islands War
1983.....165...U.S. Invades Grenada
1986.....242...U.S. Bombs Libia
1987.....247...Dow plunges -22.6% on one day (10-19)
1989.....353...U.S. invades Panama
1990.....330...Start of Persian Gulf War
1991.....417...End of Persian Gulf War
1992.....436...Los Angeles Riots
1993.....466...Bombing of World Trade Center
1994.....459...First of seven interest rate hikes
1995.....616...Oklahoma City Bombing
1998.....1229..Russian default & LTCM bailout.
2000.....1320..Y2K internet scare
2001.....1148..Start of Afghanistan War
2003.....1112..Start of Iraq War
2005.....1248..Hurricane Katrina devastates New Orleans
2010.....1258..Deepwater Horizon Oil Spill

Despite many events that discouraged stock market investors, I have seen the S&P 500 index increase from 20 to 1258 (not including dividends).

A Boglehead investor designs a suitable low-cost, diversified, asset-allocation plan--then STAYS THE COURSE.
50% VTI / 50% VXUS

blackholescion
Posts: 119
Joined: Fri Mar 22, 2019 6:41 pm

Re: High net worth individual seeks portfolio advice

Post by blackholescion » Wed Jun 12, 2019 4:03 pm

michaeljmroger wrote:
Wed Jun 12, 2019 3:27 pm
My net worth is comparable to yours, and my strategy was similar as well when I started investing (i.e. wait for a big drop). I was reading every single article about the stock market every single day. I finally pulled the trigger when I was confident the market couldn't go lower. Result: I lost over $100,000 in less than a week.

Every new investor reads about not trying to time the market and does it anyway. I did it. You'll probably do it as well and you'll learn. But I'll still try to convince you it's not a good idea :wink:

You can try dollar cost averaging if that makes you more comfortable, but I wouldn't wait. Instead, pick a conservative allocation as you don't need to take much equity risk, and then just stay the course. I'm personally at 30% stocks / 70% bonds, which I think would make a lot of sense in your situation as well.

Good luck!
I'll echo this.

There is zero chance you, I, or Warren Buffet can predict the bottom. Take 2008 as an example. The market dropped 14% between May 2008 and September 2008. Then it dropped 20% between September 2008 and October 2008. would you have thought 34% was the bottom? Well it dropped 9% more between October and November 2008. Okay cool, 43% is the bottom. Stocks are leveling off between November and January. What's that? In February we had another 10% drop? Now what? Buy more? Oh geez, there goes another 6% between February and March.

When would you have bought the bottom? If your answer was not March, you would have lost anywhere from 6-25%. If you kept waiting, between March 2009 and April, markets rebounded 15%. Would you have bought back in then or would you have been afraid out of your mind due to banks failing? Oh must be just a rebound, it'll drop again. And then it never did. the S&P would gain 50% of it's March low by the end of the year.

The point is, you need to figure out your asset allocation that fits your risk profile. At your expenses, you don't even need to touch the market. You can buy TIPS and keep up with inflation, and never worry about money. Since you don't have kids, who is going to inherit your money? a 2% withdrawal rate gives you 300,000 a year @15 million. 2% is below any and all perpetual withdrawal rates, meaning you will never dip into your principal, ever. Since your expenses are 90k, that gives you somewhere around 130k in discretionary, fun money a year, at the 15% capital gains tax rate (+ state tax, + ACA).

30/70 will keep you up with inflation more than likely. Your 70 can be in TIPS to hedge against inflation. As has been pointed out, however, Your losses are only realized when you sell. At something like 60/40, you have 9 million in equities and 6 million in fixed income. a 50% drop represents 4.5 million dollars. However, you have that 6 million to pull from until the market recovers. That's 18 years at 300k a year before you even need to think about equities. Will the market recover by then? Probably. Will we have a Japan scenario starting today? doubtful (for many reasons) but possible. Therefore, you need to think about your risk tolerance and adjust accordingly. Start by filling out your Investment Policy Statement and go from there.

You can also look into dollar cost averaging. Maybe you put all your money in a TIPS ladder right now and as it matures, invest it in the market at your desired asset allocation. That way you put in like 1-2 million a year until it's all invested. If the market continues going up, you're doing well. If it dips, you've bought at some of the lows.

KingRiggs
Posts: 176
Joined: Wed Dec 12, 2018 12:19 pm
Location: Indiana

Re: High net worth individual seeks portfolio advice

Post by KingRiggs » Wed Jun 12, 2019 4:32 pm

With 9M cash and an additional 5-9M pending the sale of your business AND only $80k/year expenses, you can keep that in cash under the mattress and be fine.

Congratulations, you have won the game.

:moneybag

barnaclebob
Posts: 3701
Joined: Thu Aug 09, 2012 10:54 am

Re: High net worth individual seeks portfolio advice

Post by barnaclebob » Wed Jun 12, 2019 5:16 pm

welsie wrote:
Wed Jun 12, 2019 3:14 pm
It is only a loss if you sell.
I wish people would stop spouting this nonsense as its serves to make people feel better with no basis in reality. Just because you don't realize a loss doesn't mean its not there. Your portfolio is worth what someone is willing to pay for it right now. Nothing more, nothing less.

OP, you'll never see articles written by everyone that sold in January to avoid the massive crash which they thought was in its infancy. They are all too busy licking their wounds.
Last edited by barnaclebob on Wed Jun 12, 2019 5:23 pm, edited 1 time in total.

chicagoan23
Posts: 347
Joined: Thu Jan 29, 2015 4:34 pm

Re: High net worth individual seeks portfolio advice

Post by chicagoan23 » Wed Jun 12, 2019 5:19 pm

Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm

I understand the old advice "don't try to time the market" in general, but there are certain times where that would seem to be the exception such as when you're in the longest running bull market in history. Being that the average bull market has historically only lasted 4.5 years, statistically speaking, it would seem to me to be insane for me to get hard into US equities at this stage of the game, especially with the Schiller PE being so damned high, and so many other issues at play such as massive government debt, corporate debt, student loan debt, etc, and as I mentioned, a FED is who afraid to raise rates even .25% higher toward the historical norm of 5%.

Maybe I'm missing something, but I just can't figure out for the life of me why anyone would get in US stocks now, or not get mostly out for that matter. Of course in theory the market could go up another 10-20% and keep making history, but given that the average bear market results in cumulative 41% loss, and being that we're long overdue, wouldn't you be betting way against the historical odds by buying now?

I'm asking sincerely as I'm assuming I must be missing something.

Thanks!

Putontheglasses
Hey, you are probably right.....I’d take $5 million of that cash stockpile and buy SPXS. After the inevitable 40% drop that is just around the corner—after all, just look at the “Schiller” CAPE ratio and consider the comments from the YouTube videos you have recently watched—you will more than double your money while all those ignorant stock market investors (including those who have 1,000 times your wealth and armies of analysis who examine the market every minute of every day) take a bath. Then you can clean up when there is blood in the streets. So easy!

I don’t mean to be overly glib but all of your “analysis” can be countered by dozens of other points. You have no idea what the stock market is going to do over the next one, ten, thirty or fifty years. Neither does anyone else although it’s a good bet that it will be higher in the future than it is today.

I’d suggest that you stop watching videos, focus on your incredible business (where you actually do know more than anyone else) and ignore market commentary. Accept the fact that you have far more money than you will ever need, and thus have no good reason to take outsized risks.

With no need to take risk and with a fear of the stock market, I’d suggest you put 30% in VTI and then keep the rest in municipal bonds and TIPs. You will sleep soundly and have far more free time without any of that supposed analysis to steer you wrong.

RAchip
Posts: 319
Joined: Sat May 07, 2016 7:31 pm

Re: High net worth individual seeks portfolio advice

Post by RAchip » Wed Jun 12, 2019 5:20 pm

I assume most of your $2mm income is coming from your business? If so, why is a business that produces that much income only worth $5-9mm?

I think keeping dozens of different bank accounts to hold cash to get FDIC insurance isnt worth the trouble. Are you serious that you have “9 million in cash spread out across high yield savings accounts for maximum FDIC coverage, currently earning 2.5%”? That would be accounts at 30+ banks. Are there even that many yielding 2.5? I try to keep at least $5mm cash on hand and I just put it all in VG prime MM. Over $5mm in that fund gets you admiral shares and a higher rate. I consider it totally safe. In your tax bracket a tax free MM may be better.
Last edited by RAchip on Wed Jun 12, 2019 6:08 pm, edited 1 time in total.

User avatar
Watty
Posts: 16487
Joined: Wed Oct 10, 2007 3:55 pm

Re: High net worth individual seeks portfolio advice

Post by Watty » Wed Jun 12, 2019 5:55 pm

Putontheglasses wrote:
Wed Jun 12, 2019 1:59 pm
My current total net worth is 10.5 million, with 9 million in cash.....
With that high of a net worth you are not in a good position to do DIY investing since your taxes and estate taxes will be critical. One of the issues is that your money could be invested for another 40 years before you die and double several times with even a moderate investment return so you could leave a huge estate some day. You really need a team of people to at least get your investments in order and come up with a long term plan. These people would be;

1) An estate planning lawyer.
2) A tax accountant
3) A financial planner.

Occasionally a person may do more than one these rolls and they may work for the same firm and be used to working with each other.

You you have been following these boards you have likely seen many posts but people that have been using a financial advisor and getting taken advantage of. The problem is that probably 99%+ of the advisors are really sales people who are looking to make money off their clients by getting commissions on their investments so they have a conflict of interest and they will often do what is in their best interest and not their clients best interest. There are a very small percentage financial advisors who are "fee only" and have a fiduciary interest to you which is a legal term that says that have to do what is in your best interest. Finding a good one will take a lot of research an you will likely have to interview a number of them before you find one that you are comfortable with.

This does not need to be contrary to the "Boglehead Philosophy" since a good financial advisor will be willing to use that as a guideline. You should also use them to help teach you what they are doing and why they are doing it.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

Once you get your accounts in order and have a good long term plan you may find that you don't need the ongoing help of a financial planner and you may then be able to do that part yourself with your accountant and estate lawyers help.

One thing to ask your account about is setting up retirement accounts that you can contribute to. Often you you run your own business you can set it up so that you can put over $50K a year into tax advantaged accounts.

michaeljmroger
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Re: High net worth individual seeks portfolio advice

Post by michaeljmroger » Wed Jun 12, 2019 6:11 pm

Watty wrote:
Wed Jun 12, 2019 5:55 pm
With that high of a net worth you are not in a good position to do DIY investing
It shouldn't, but this statement annoys me quite a bit. Bogleheads often praise the fact that the 3-fund portfolio scales extremely well no matter your level of wealth, but then in practice, the tone radically changes when someone talks about implementing it for a large portfolio.

For context: I personally manage about half of my funds, and I have Morgan Stanley manage the other half. I've been hesitating for a while to take the plunge and manage all of it by myself, but your comment makes me want to do the exact opposite.

OP: I don't want to hijack your thread, only to surface the fact that opinons seem to drastically differ on what's the right approach in terms of doing it by yourself at low cost or going with typical financial advisors. Do what resonates with you the most!

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goodenyou
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Re: High net worth individual seeks portfolio advice

Post by goodenyou » Wed Jun 12, 2019 6:44 pm

I would first re-think the notion that you have some insight on when to buy into the market. Go back and read some of the posts during late 2007-2009. I can't imagine someone with 9 million in cash today would be inclined to buy into a crashing market.

As others have posted, at your burn rate you could do a lot of unorthodox and quite frankly dumb things with your money and have your money outlive you by a long shot. Many successful people suffer from this problem I see it everyday in my profession. The belief that average return index funds is for boring and below average people. It's sexy to talk about your "ability" to know when the stock market is overvalued or which stocks to pick. Or when gold or silver is a good buy.

My portfolio advice from another HNW individual is to accept the investing advice of very successful people on this forum. Don't overthink your investing because you are a successful businessman. Pick an AA such as 50/50 or 40/60 and you will be handsomely rewarded. You could afford to keep a significant amount in cash at 2.2%+ in a money market and call it a day.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

Globalviewer58
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Re: High net worth individual seeks portfolio advice

Post by Globalviewer58 » Wed Jun 12, 2019 7:34 pm

This may be a great time to learn about maximizing the tax benefits of a Donor Advised Fund while you are in the top bracket. In short, you contribute appreciated securities (like the shares of your business) and enjoy a deduction in the year of the donation for the full market value. There are more details but if the idea of donating $1.00 that cost you only $.58 is of interest, check it out.

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Re: High net worth individual seeks portfolio advice

Post by LFS1234 » Wed Jun 12, 2019 8:36 pm

michaeljmroger wrote:
Wed Jun 12, 2019 6:11 pm
Watty wrote:
Wed Jun 12, 2019 5:55 pm
With that high of a net worth you are not in a good position to do DIY investing
It shouldn't, but this statement annoys me quite a bit. Bogleheads often praise the fact that the 3-fund portfolio scales extremely well no matter your level of wealth, but then in practice, the tone radically changes when someone talks about implementing it for a large portfolio.

For context: I personally manage about half of my funds, and I have Morgan Stanley manage the other half. I've been hesitating for a while to take the plunge and manage all of it by myself, but your comment makes me want to do the exact opposite.
The 3-fund portfolio does scale extremely well no matter what your level of wealth.

If you feel comfortable that you know what you're doing, there is no need for an investment advisor. If you are uncomfortable, you can hire one to manage at least a portion of your assets. According to credible posts on this site, high quality asset management from very reputable institutions should not cost more than 1% of assets/year and almost all of the top firms will accept accounts exceeding $5M. It has been mentioned that Vanguard PAS is available for a whole lot less than that.

The situation the OP describes is so out-of-the-ordinary that it strains credulity. Income of $2M/year including $225K in interest income. Spending (presumably not including taxes) of $80K/year which might increase to $90K/year in the future. Business presumably yielding $1.8M/year; this business might be sold within 6 months for between 3x earnings and 5x earnings. None of this makes sense to me other than under extraordinary circumstances - this is not an ordinary business, and the OP and his wife certainly aren't ordinary people.

The OP's course of action will depend on what he plans to do, both with his time and with his money, for the rest of his life after the business has been sold.

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Re: High net worth individual seeks portfolio advice

Post by RAchip » Wed Jun 12, 2019 8:47 pm

“The situation the OP describes is so out-of-the-ordinary that it strains credulity. Income of $2M/year including $225K in interest income. Spending (presumably not including taxes) of $80K/year which might increase to $90K/year in the future. Business presumably yielding $1.8M/year; this business might be sold within 6 months for between 3x earnings and 5x earnings. None of this makes sense to me other than under extraordinary circumstances - this is not an ordinary business, and the OP and his wife certainly aren't ordinary people.”


I agree. Plus he has $9mm spread out in literally DOZENS of banks to get FDIC insurance? I dont even think there are that many banks that have 2.5% savings accounts. In the real world, HNW people understand that FDIC insurance simply does not apply to our situation. Its perfectly safe and normal for HNW people to hold a lot of cash and just keep it in a vanguard or fidelity or whatever MM.

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Re: High net worth individual seeks portfolio advice

Post by willthrill81 » Wed Jun 12, 2019 8:54 pm

OP, it seems to me that you would be well served with a 25% allocation to stocks and 75% allocation to tax-free (e.g. municipal) bonds via a fund. Even if stocks dropped by 50%, your portfolio would only decline by 12.5%, and that's assuming that your bonds didn't gain value, which they likely would. At this point, it sounds like your goal is wealth preservation, and a 25/75 allocation is solid in that regard.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Watty
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Re: High net worth individual seeks portfolio advice

Post by Watty » Wed Jun 12, 2019 9:09 pm

LFS1234 wrote:
Wed Jun 12, 2019 8:36 pm
The 3-fund portfolio does scale extremely well no matter what your level of wealth.

If you feel comfortable that you know what you're doing, there is no need for an investment advisor. If you are uncomfortable, you can hire one to manage at least a portion of your assets. According to credible posts on this site, high quality asset management from very reputable institutions should not cost more than 1% of assets/year and almost all of the top firms will accept accounts exceeding $5M. It has been mentioned that Vanguard PAS is available for a whole lot less than that.
The challenge is that all the tax and estate planning issues can dwarf the actual investing issues and those can be very complex.

Once the portfolio is setup and mostly on automatic pilot there might be less need for assistance.

LFS1234
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Re: High net worth individual seeks portfolio advice

Post by LFS1234 » Wed Jun 12, 2019 9:52 pm

Watty wrote:
Wed Jun 12, 2019 9:09 pm
LFS1234 wrote:
Wed Jun 12, 2019 8:36 pm
The 3-fund portfolio does scale extremely well no matter what your level of wealth.

If you feel comfortable that you know what you're doing, there is no need for an investment advisor. If you are uncomfortable, you can hire one to manage at least a portion of your assets. According to credible posts on this site, high quality asset management from very reputable institutions should not cost more than 1% of assets/year and almost all of the top firms will accept accounts exceeding $5M. It has been mentioned that Vanguard PAS is available for a whole lot less than that.
The challenge is that all the tax and estate planning issues can dwarf the actual investing issues and those can be very complex.

Once the portfolio is setup and mostly on automatic pilot there might be less need for assistance.
Tax planning for a 3-fund portfolio with $30M in it should be just as simple as tax planning for a 3-fund portfolio with $30K in it.

There is generally no need for most passive investors to get involved with complicated structures, but those who decide to do so can hire a CPA to do their taxes. There is no need for a financial advisor other than a competent CPA.

I have the impression that the circumstances that make estate planning complicated generally relate more to people than to assets - if you've got several families with underage kids, things get complicated. OP has no dependents, therefore at least no underage kids. It makes sense to do estate planning in any case, but even if they do none, the potential for disaster is likely to be quite limited. A relationship with an asset management company is not required for estate planning.

I am sure that a lot of wealthy people, for whatever reason, end up getting ridiculously complicated portfolios that require a lot of professional assistance and provides lots of job security for their advisors, but there is no reason why anyone has to do this. Unless there is good reason to do otherwise, simpler is better.

bgf
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Re: High net worth individual seeks portfolio advice

Post by bgf » Wed Jun 12, 2019 9:53 pm

i just want to reiterate that whatever got into your head to make you think you can beat the market based on youtube videos and half cocked assumptions about bull/bear market durations needs to be killed immediately, with extreme prejudice.

buy stocks or dont. but for the love of BHs everywhere, dont delude yourself that you have an edge.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

kcxie
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Re: High net worth individual seeks portfolio advice

Post by kcxie » Wed Jun 12, 2019 11:28 pm

50% Vanguards total stock
50%. Municipal bond
Then enjoy your life.

l1am
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Re: High net worth individual seeks portfolio advice

Post by l1am » Thu Jun 13, 2019 1:03 am

Putontheglasses wrote:
Wed Jun 12, 2019 1:59 pm
I have recently found the time to devote many hours to research as much as I can on the state of the economy via podcasts and youtube video series like RealVision. Everything I've learned about, from the coming pension/retirement crisis, to the amount of corporate stock buybacks in the last ten years, to the Fed being afraid to raise rates even a .25 more with a supposedly robust economy, has left me quite cautious on investing.
Looks at some videos and posts from years ago. The impending crash has been predicted to happen every year for many years now.

It probably will happen again, but how do you know the market won't move +50% by then, and correct -40%.

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Re: High net worth individual seeks portfolio advice

Post by rossington » Thu Jun 13, 2019 1:43 am

barnaclebob wrote:
Wed Jun 12, 2019 5:16 pm
welsie wrote:
Wed Jun 12, 2019 3:14 pm
It is only a loss if you sell.
I wish people would stop spouting this nonsense as its serves to make people feel better with no basis in reality. Just because you don't realize a loss doesn't mean its not there. Your portfolio is worth what someone is willing to pay for it right now. Nothing more, nothing less.

OP, you'll never see articles written by everyone that sold in January to avoid the massive crash which they thought was in its infancy. They are all too busy licking their wounds.
Seriously?? What about all of us that didn't sell in January?? Welsie is correct no panic/no sell/no loss....investing 101.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

rossington
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Re: High net worth individual seeks portfolio advice

Post by rossington » Thu Jun 13, 2019 2:17 am

kcxie wrote:
Wed Jun 12, 2019 11:28 pm
50% Vanguards total stock
50%. Municipal bond
Then enjoy your life.
+1.... We're 61 and bought VTSAX today in our accounts to add to our holdings.....equities have been very good to our families portfolios for DECADES during all types of market swings...think long term. (You still have plenty of long term left!!)...maximize your tax advantages...and keep coming back here because you will learn a hell of a lot of good advice.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Carol88888
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Re: High net worth individual seeks portfolio advice

Post by Carol88888 » Thu Jun 13, 2019 4:17 am

For what it is worth Peter Lynch said that if he spent 5 minutes thinking about the economy it was five minutes wasted. That isn't necessary to get good returns in the market.

I do understand your hesitation - not wanting to look foolish by buying at the top but when the top can only be known after the fact how can you be a fool for buying today?

A lot of smart people on seekingalpha.com are calling for a top years from now. Around 3500-4000 in the S&P. I am not saying they are correct. Who knows. Only trying to get you to see the opposite of what you currently believe.

A month ago Warren Buffett said that stocks were very attractively priced relative to bonds. (He did say it depended on what happened going forward with interest rates but if the FED cuts then presumably stocks are an even better buy.)

Still, I don't believe it pays to argue with someone's ability to tolerate risk.

You could move very slowly. Say, $300,000 today into an index fund with the committed idea to add $100,000 every month. If the market starts down - wonderful! You get an even better buy the next month.

Congratulations. You've come to the right place for advice.

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TomatoTomahto
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Re: High net worth individual seeks portfolio advice

Post by TomatoTomahto » Thu Jun 13, 2019 5:51 am

OP, we don't have a business and spend a lot more annually than you do, but otherwise we are similar.

I understand your thinking about the markets. A reasonable person looking at the political goat rodeo can't imagine that there won't be a day of reckoning. Where we differ is that I don't take market timing actions based on it.

You have gotten a lot of advice about asset allocation. What I have found that works, for us, is much simpler. We put a certain amount of money in cash and fixed income; we felt comfortable with $3M; maybe the number is $6M for you; heck, you seem comfortable with $9M. Every other dollar that comes in, after our expenses, goes to equities. We use a combination of US and World equities. No muss, no fuss.

To Watty's post: We have a CPA and recently hired an estate attorney to put together some trusts for the kids. You might not need an estate attorney. You might not need a CPA, but I find that they're worth the cost. A financial planner, to me, seems unnecessary. A $10M portfolio isn't 10 times as difficult as a $1M portfolio; it is easier to make the case that it's 1/10 as difficult.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: High net worth individual seeks portfolio advice

Post by jb1 » Thu Jun 13, 2019 6:27 am

Do you plan on kids? I’d keep it simple with the AA.

Also are you in wilmington and hiring?? :p

welsie
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Re: High net worth individual seeks portfolio advice

Post by welsie » Thu Jun 13, 2019 10:04 am

barnaclebob wrote:
Wed Jun 12, 2019 5:16 pm
welsie wrote:
Wed Jun 12, 2019 3:14 pm
It is only a loss if you sell.
I wish people would stop spouting this nonsense as its serves to make people feel better with no basis in reality. Just because you don't realize a loss doesn't mean its not there. Your portfolio is worth what someone is willing to pay for it right now. Nothing more, nothing less.

OP, you'll never see articles written by everyone that sold in January to avoid the massive crash which they thought was in its infancy. They are all too busy licking their wounds.
Recessions are cyclical phenomena on a quasi random walk. A long term investor is trying to capture GDP/productivity growth over time, not time the market to make gains on cyclical movements.

OP seemed to be concerned about "getting in at the wrong time", but expressed the intent to be invested over a long time horizon (he mentioned being 95, so 50 years), well, if you are invested for decades these cyclical movements in asset prices are not particularly meaningful in the long run. So of course it has a basis in reality, your paper losses (or gains) in the short run are not particularly material.

If, however, OP's current strategy is to remain in bank CDs, OP then decides to invest in equities and their value decreases significantly, OP then sells and reinvests the proceeds in CDs...well yeah, that is a loss, a real loss because the strategy was (in retrospect) to time the market.

Saying "you only lose money if you sell" is a colloquial way of also saying "don't change your investment strategy based on market movements". I strongly disagree that that is "spouting nonsense".

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Re: High net worth individual seeks portfolio advice

Post by BigMoneyNoWhammies » Thu Jun 13, 2019 10:16 am

If I was your age and in your financial situation, I don't know that I would see a need to get into the stock market at all. With a low 8 figure net worth and potentially a doubling of that valuation forthcoming, I'm not sure you need to risk investing in stocks. This is especially true if you already live within your means. Think about it: let's say for argument's sake that you get a payout on the business within a year, your net worth doubles to approximately 20 million, and you keep half that in safe assets like high yield savings accounts and other instruments that have FDIC coverage. Even just half your net worth earning 2.5% is yielding you 250k a year in interest. With no children to pay for the next couple decades and no heirs to worry about, I think you're in a pretty solid position to not even need to mess with the market.

One other thing. you made this comment:
At the bottom of the next recession I would likely shift to 50% stocks / 35% bonds / 15% cash
If you've been following this board, you should know that there is no way to time the bottom of a recession/depression.

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Re: High net worth individual seeks portfolio advice

Post by MotoTrojan » Thu Jun 13, 2019 10:21 am

All those professional economists working for investment banks and hedge funds must be idiots...

Pick a conservative AA and take the plunge. Perhaps go 40/60 into global equities and US treasuries (intermediate term). If we do go into recession your bonds will pop.

barnaclebob
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Re: High net worth individual seeks portfolio advice

Post by barnaclebob » Thu Jun 13, 2019 10:37 am

Watty wrote:
Wed Jun 12, 2019 9:09 pm
LFS1234 wrote:
Wed Jun 12, 2019 8:36 pm
The 3-fund portfolio does scale extremely well no matter what your level of wealth.

If you feel comfortable that you know what you're doing, there is no need for an investment advisor. If you are uncomfortable, you can hire one to manage at least a portion of your assets. According to credible posts on this site, high quality asset management from very reputable institutions should not cost more than 1% of assets/year and almost all of the top firms will accept accounts exceeding $5M. It has been mentioned that Vanguard PAS is available for a whole lot less than that.
The challenge is that all the tax and estate planning issues can dwarf the actual investing issues and those can be very complex.

Once the portfolio is setup and mostly on automatic pilot there might be less need for assistance.
What matters is the accounts or trusts in which the money is held, after that the 3 fund portfolio should work in all of them. The tax planners and estate lawyers can take care of the accounts. Now I'd imagine many firms which handle this also do financial planning and investment advice but if they want an AUM fee of more than a couple tenths of a % that would be a dealbreaker.

I think the 3 fund portfolio only becomes less desirable when you hit family office rich. And I don't think 20mil is enough to need family office services.

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Putontheglasses
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Re: High net worth individual seeks portfolio advice

Post by Putontheglasses » Thu Jun 13, 2019 10:48 am

First of all, thank you for all of the thoughtful replies. As I said in my post, I assumed that in my current understanding "I must be missing something", so I was not coming here thinking I had it all figured out as some of the snarkier replies seemed to imply.

I want to clarify on some of the points and questions that were raised to try to help better educate myself. I definitely realize that I have no way to know when the bottom of the next bear market will be. My thinking and is more along the lines of "Based on how far we are into a record bull market run, if the market doesn't correct by at least 5% less than the average of historical bear market contractions (38% is the average, so let's say 33%), and correspondingly PE ratios don't return to something closer to historical averages, then I'm not going to buy equities until that occurs." As several people pointed out, I technically don't need the higher returns from equities given my net worth, and so I only want the risk if I believe I'm getting a pretty good deal.

So, let's rewind this decision back to 2007, and say I decided to wait until the market corrected by 33% to get in, and I did so, and bought in 2009 at a 33% drop from the high. The market ended up dropping further to around 50% losses. If I would have waited I could have in theory saved some money, but I'm happy to save 33% off the highs and know that I'm seeing reasonable PE ratios when I buy. Then of course the market eventually came back to where it is now. I could have got in in theory at the high and paid 38% more. Because I am high risk adverse, my choice is only to buy equities when I believe I'm likely getting a "good deal" based on historical data and PE ratios.

How is my thinking off here? Seriously I am wanting to be corrected to help refine my understanding.

Could the market keep going up and up and up into infinity and beyond and defy all global, historical boom/bust cycles? Sure, that's possible, but in that case, well I missed out on some great returns, but I'm also still set financially and can sleep at night. :)

Now, let's say instead it's 2012 and I'm making the same decision. That would have complicated the decision as we were only 3 years into a bull market and had recovered nearly to the highs of 2007. I would probably choose to only put about 20-30% of my portfolio into an stock index fund, as opposed to the 40-50% I would have in 2009 at the 33% drop. Hindsight being 20/20, again I would have missed out on additional returns, but I'm a very conservative investor all around so that's fine.

To answer a few of the questions, my business is valued lower than normal because of regulatory issues. One of the reasons I'm able to get near full FDIC coverage on high yield savings is that WealthFront has an account with 2 million coverage instead of the normal 500k (for joint account). There has been some time when I had to have more in certain accounts than FDIC covers, but as the banks are all 4-5 star rated on bankrate, I'm not too worried about failure. Maybe I should be?

I'm worried that the Fed might be announcing a rate hike as early as July, so if that is the case, I might want to buy some 1 year CDs at the very least to lock in the rate, and that would also solve the FDIC issue longer term since CDs get their own coverage.

One person said something about "incredulity" about the numbers I provided. I'm not sure what that was in reference to. Maybe the 80-90k per year spending with such a high net worth?

We do have a top notch CPA, and have long ago had an estate attorney help with our will. Without kids, we haven't found a good reason to mess with having a trust or anything like that, but we might in the future if the need arises.

I've done some reading about the Bogle 3 fund philosophy and although I do think it basically makes sense for the last 50-60 years, the major flaw that I see is that it only goes back to the 70s to prove true, and it also assumes that something unprecedented doesn't happen that disrupts the growth we've seen since the 50s which in large part has been carried by the massive baby boom generation. Given what I've learned about the looming retirement crisis (how the baby boomers retiring and then dying will affect growth) I don't have confidence that we are going to keep seeing the same growth over the next 20-40 years that we saw from the end of WW2 until now.

Again, I don't think I've got it all figured out. If I did, I wouldn't spend the time to post here. :)
Last edited by Putontheglasses on Thu Jun 13, 2019 11:01 am, edited 5 times in total.

Leesbro63
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Re: High net worth individual seeks portfolio advice

Post by Leesbro63 » Thu Jun 13, 2019 10:53 am

Putontheglasses wrote:
Thu Jun 13, 2019 10:48 am
First of all, thank you for all of the thoughtful replies. As I said in my post, I assumed that in my current understanding "I must be missing something", so I was not coming here thinking I had it all figured out as some of the snarkier replies seemed to imply.

I want to clarify on some of the points and questions that were raised to try to help better educate myself. I definitely realize that I have no way to know when the bottom of the next bear market will be. My thinking is more along the lines of "Based on how far we are into a record bull market run, if the market doesn't correct by at least 5% less than the average of historical bear market contractions (38% is the average, so let's say 33%), and correspondingly PE ratios don't return to something closer to historical averages, then I'm not going to buy equities until that occurs.

So, let's rewind this decision back to 2007, and say I decided to wait until the market corrected by 33% to get it, and I did so, and bought in 2009 at a 33% drop from the high. The market ended up dropping further to around 50% losses. If I would have waited I could have in theory saved some money, but I'm happy to save 33% off the highs and know that I'm seeing reasonable PE ratios when I buy. Then of course the market eventually came back to where it is now. I could have got in in theory at the high and paid 38% more. Because I am high risk adverse, my choice is only to buy equities when I believe I'm likely getting a "good deal" based on historical data and PE ratios.

How is my thinking off here? Seriously I am wanting to be corrected to help refine my understanding.

Now, let's say instead it's 2012 and I'm making the same decision. That would have complicated the decision as we were only 3 years into a bull market and had recovered nearly to the highs of 2007. I would probably choose to only put about 20-30% of my portfolio into an stock index fund, as opposed to the 40-50% I would have in 2009 at the 33% drop.

To answer a few of the questions, my business is valued lower than normal because of regulatory issues. One of the reasons I'm able to get near full FDIC coverage on high yield savings is that WealthFront has an account with 2 million coverage instead of the normal 500k (for joint account). There has been some time when I had to have more in certain accounts than FDIC covers, but as the banks are all 4-5 star rated on bankrate, I'm not too worried about failure. Maybe I should be?

I'm worried that the Fed might be announcing a rate hike as early as July, so if that is the case, I might want to buy some 1 year CDs at the very least to lock in the rate, and that would also solve the FDIC issue longer term since CDs get their own coverage.

One person said something about "incredulity" about the numbers I provided. I'm not sure what that was in reference to. Maybe the 80-90k per year spending with such a high net worth?

We do have a top notch CPA, and have long ago had an estate attorney help with our will. Without kids, we haven't found a good reason to mess with having a trust or anything like that, but we might in the future if the need arises.

I've done some reading about the Bogle 3 fund philosophy and although I do think it basically makes sense for the last 50-60 years, the major flaw that I see is that it only goes back to the 70s to prove true, and it also assumes that something unprecedented doesn't happen that disrupts the growth we've seen since the 50s. Given what I've learned about the looming retirement crisis, and the how the baby boomers retiring and then dying will affect growth, I don't have confidence that we are going to keep seeing the same growth over the next 20 years that we saw from the end of WW2 until now. I'm not even convinced that if the stock market crashed 50% again that it would bounce back the way it did from 2009 onward.

Again, I don't think I've got it all figured out. If I did, I wouldn't spend the time to post here. :)
You're making this too complicated because you are scared. I get that. But in the end, some sort of conservative but not too conservative portfolio is what you probably should end up with. Someone suggested 50% Vanguard Total Market and 50% muni bond funds (perhaps state specific depending on your state). I'd do that. It's scary getting there, though, because of the fear that the stock and/or bond market will tank just after you invest. But invest you must. You're too young to let inflation erode your principal in taxable bank CDs. Maybe dollar cost average in over the next few years.

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Re: High net worth individual seeks portfolio advice

Post by bloom2708 » Thu Jun 13, 2019 11:06 am

Putontheglasses wrote:
Thu Jun 13, 2019 10:48 am
Again, I don't think I've got it all figured out. If I did, I wouldn't spend the time to post here. :)
Another way to think about your situation: You can't figure it out. It is not possible.

Many of us are "problem solvers". You dig in, research, research, research. Analyze. Analyze. Look back and see how things went.

That doesn't work going forward.

I'll refer again to finding a "good enough" strategy. Low cost, simple to implement, a few select funds, the correct mix of stocks and bonds (30% to 50% still seems optimal for you), tax efficient, stay the course, broad market.

If that is not interesting, then stay cash/CDs. When the light bulb pops on, you will realize you can't figure "it" out and you will understand investing should be boring. Make it boring and go figure out how to spend your pile. Do what you enjoy. I would start spending more. Travel more. Start some new hobbies.

Good luck!
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
Putontheglasses
Posts: 7
Joined: Wed Jun 12, 2019 12:38 pm

Re: High net worth individual seeks portfolio advice

Post by Putontheglasses » Thu Jun 13, 2019 11:07 am

[/quote]

You're making this too complicated because you are scared.
[/quote]

I dunno, from my perspective, it's being thoughtful, calculated, and careful. There's little unfounded emotion in my decision making on this, so I don't know if scared is really accurate. The reason I have a net worth of 10.5m now is because I've been thoughtful, calculated, and careful in all of my business decisions. My business was debt free since day one and was built with zero loans, and I was able to do this because I took this approach.

I understand that it's possible to be TOO careful. I'm definitely not going to leave all of my money in cash forever, that's for sure, but I want to make a fully educated decision before I pull the trigger.

I wish I could trust a financial advisor and go that route, and there might be some good ones out there, but as has been mentioned, by and large they can't be trusted. They're gambling with someone else's money, so, enough said.

Jack FFR1846
Posts: 9492
Joined: Tue Dec 31, 2013 7:05 am

Re: High net worth individual seeks portfolio advice

Post by Jack FFR1846 » Thu Jun 13, 2019 11:08 am

Putontheglasses wrote:
Thu Jun 13, 2019 10:48 am
How is my thinking off here? Seriously I am wanting to be corrected to help refine my understanding.
Your thinking is off because you think you know something about where the market is going. If you hold out for a drop of 5% and that doesn't happen until the market doubles, you're going to catch the dip but still have lost a boatload of opportunity. My humble suggestions:

1: Decide what AA you want.
2: The minute your AA decision is settled, buy the funds to create this AA.
3: Ignore your investments for a very long time.

Does that sound too simple? It's pretty boring, eh? It works, though.
Bogle: Smart Beta is stupid

bernoulli
Posts: 100
Joined: Sat Feb 02, 2019 1:13 pm

Re: High net worth individual seeks portfolio advice

Post by bernoulli » Thu Jun 13, 2019 11:12 am

Please consider reading some of the classics in investing:

Start with:

"The Intelligent Investor" by Benjamin Graham

"The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns" by Jack Bogle

These books back their advice and conclusion with time-tested data and answer most, if not all of your questions. Better than any piece from Market Watch or Jim Cramer, this I can promise you.

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Stinky
Posts: 1240
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: High net worth individual seeks portfolio advice

Post by Stinky » Thu Jun 13, 2019 11:23 am

Globalviewer58 wrote:
Wed Jun 12, 2019 7:34 pm
This may be a great time to learn about maximizing the tax benefits of a Donor Advised Fund while you are in the top bracket. In short, you contribute appreciated securities (like the shares of your business) and enjoy a deduction in the year of the donation for the full market value. There are more details but if the idea of donating $1.00 that cost you only $.58 is of interest, check it out.
Please think about a DAF if you’re charitably inclined. I expect that your business stock is “highly appreciated”, and you’ll be able to save a ton of capital gains taxes by donating stock before you sell the business. And get the tax deduction when the donation happens.

You could prefund charitable donations very efficiently for many, many years into the future if you choose to.
It's a GREAT day to be alive - Travis Tritt

glock19
Posts: 122
Joined: Thu May 03, 2012 9:49 pm

Re: High net worth individual seeks portfolio advice

Post by glock19 » Thu Jun 13, 2019 11:31 am

I completely agree with you on your investing plan. I enjoy this forum very much but feel sometimes the same advice is given to someone just beginning the investment journey in their twenties that is given to a high net worth individual such as yourself.

It is a definite than none of us can predict the direction of the equities market or interest rates. We also know market timing does not work, but I feel than applies more in general to the frequent buying and selling concept. The bottom line is that you need to trust your gut, and accept the results.

As many have said, you have won the game. Why subject yourself to risk you really don't want to take. If it were me I would want a reasonably small amount of my net worth in equities. There will be a time, and maybe even in the near future that equities will drop to the point you feel comfortable in getting in. At that point you might consider averaging in.

User avatar
Mullins
Posts: 32
Joined: Wed May 08, 2019 4:38 pm

Re: High net worth individual seeks portfolio advice

Post by Mullins » Thu Jun 13, 2019 11:42 am

Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm
I understand the old advice "don't try to time the market" in general, but there are certain times where that would seem to be the exception such as when you're in the longest running bull market in history. Being that the average bull market has historically only lasted 4.5 years
Everything you said in the first sentence up to "but" is what you should focus on.

Consider how many during that "longest running bull market in history" made fatal decisions thinking similarly on how "the average bull market has historically only lasted 4.5 years."
Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm
Maybe I'm missing something, but I just can't figure out for the life of me why anyone would get in US stocks now, or not get mostly out for that matter.
A short story. Something I noticed over the decades was that local real estate here was always expensive for whatever time you might have considered buying in. If there were deals they were in run down areas, high crime areas, where most people would not wish to purchase let alone set foot, and many were leaving. And if they did buy in, they additionally typically faced more expenses in refurbishing the property. Yet, these are the ones who a few decades of hanging in there and making peace with their decisions by good chance saw economic development happen and realized huge increases in their property values. They were fortunate in that way.

The moral of the story as it relates to stocks, someone would get into positions today to be in the market, in position to capture any possible benefits down the road. That's why people would get into stocks today.

The difference between you and them might be, that for many, investing is the vehicle they need to grow their fortunes where they can realize their dreams, because wages alone isn't going to get them there. Their dream would be to amass the amount you already have (and will also acquire). So given that you're already there, I don't see why you'd want to take on an iota more of risk than you really need to. Which leads me to...
Putontheglasses wrote:
Wed Jun 12, 2019 3:00 pm
Our spending is only at $80k per year, and that could go up to $90k per year as we start to have time to take vacations, so retirement calculators show me based on 3% average inflation and only 2.5% returns to end up with a heck of a lot more money at age 95 than I have now
Well, there you go, there's your plan. Simple as that.

chicagoan23
Posts: 347
Joined: Thu Jan 29, 2015 4:34 pm

Re: High net worth individual seeks portfolio advice

Post by chicagoan23 » Thu Jun 13, 2019 11:50 am

Putontheglasses wrote:
Thu Jun 13, 2019 10:48 am
First of all, thank you for all of the thoughtful replies. As I said in my post, I assumed that in my current understanding "I must be missing something", so I was not coming here thinking I had it all figured out as some of the snarkier replies seemed to imply.

I want to clarify on some of the points and questions that were raised to try to help better educate myself. I definitely realize that I have no way to know when the bottom of the next bear market will be. My thinking and is more along the lines of "Based on how far we are into a record bull market run, if the market doesn't correct by at least 5% less than the average of historical bear market contractions (38% is the average, so let's say 33%), and correspondingly PE ratios don't return to something closer to historical averages, then I'm not going to buy equities until that occurs." As several people pointed out, I technically don't need the higher returns from equities given my net worth, and so I only want the risk if I believe I'm getting a pretty good deal.

So, let's rewind this decision back to 2007, and say I decided to wait until the market corrected by 33% to get in, and I did so, and bought in 2009 at a 33% drop from the high. The market ended up dropping further to around 50% losses. If I would have waited I could have in theory saved some money, but I'm happy to save 33% off the highs and know that I'm seeing reasonable PE ratios when I buy. Then of course the market eventually came back to where it is now. I could have got in in theory at the high and paid 38% more. Because I am high risk adverse, my choice is only to buy equities when I believe I'm likely getting a "good deal" based on historical data and PE ratios.

How is my thinking off here? Seriously I am wanting to be corrected to help refine my understanding.

Could the market keep going up and up and up into infinity and beyond and defy all global, historical boom/bust cycles? Sure, that's possible, but in that case, well I missed out on some great returns, but I'm also still set financially and can sleep at night. :)

Now, let's say instead it's 2012 and I'm making the same decision. That would have complicated the decision as we were only 3 years into a bull market and had recovered nearly to the highs of 2007. I would probably choose to only put about 20-30% of my portfolio into an stock index fund, as opposed to the 40-50% I would have in 2009 at the 33% drop. Hindsight being 20/20, again I would have missed out on additional returns, but I'm a very conservative investor all around so that's fine.

To answer a few of the questions, my business is valued lower than normal because of regulatory issues. One of the reasons I'm able to get near full FDIC coverage on high yield savings is that WealthFront has an account with 2 million coverage instead of the normal 500k (for joint account). There has been some time when I had to have more in certain accounts than FDIC covers, but as the banks are all 4-5 star rated on bankrate, I'm not too worried about failure. Maybe I should be?

I'm worried that the Fed might be announcing a rate hike as early as July, so if that is the case, I might want to buy some 1 year CDs at the very least to lock in the rate, and that would also solve the FDIC issue longer term since CDs get their own coverage.

One person said something about "incredulity" about the numbers I provided. I'm not sure what that was in reference to. Maybe the 80-90k per year spending with such a high net worth?

We do have a top notch CPA, and have long ago had an estate attorney help with our will. Without kids, we haven't found a good reason to mess with having a trust or anything like that, but we might in the future if the need arises.

I've done some reading about the Bogle 3 fund philosophy and although I do think it basically makes sense for the last 50-60 years, the major flaw that I see is that it only goes back to the 70s to prove true, and it also assumes that something unprecedented doesn't happen that disrupts the growth we've seen since the 50s which in large part has been carried by the massive baby boom generation. Given what I've learned about the looming retirement crisis (how the baby boomers retiring and then dying will affect growth) I don't have confidence that we are going to keep seeing the same growth over the next 20-40 years that we saw from the end of WW2 until now.

Again, I don't think I've got it all figured out. If I did, I wouldn't spend the time to post here. :)
Some of the metrics that you are using, such as Shiller CAPE, have been wrong for years. Even Shiller himself will tell you that it is a horrible way to time the market. On July 1, 2015, Shiller said on CNBC that his CAPE ratio was higher than than it's ever been, except 1929, 2000 and 2007. I'm sure some very smart, careful, thoughtful investor out there said "Ah ha! I know that there were big crashes after 1929, 2000 and 2007. I'm moving to cash, and I will buy when I can get a 'good deal.' I'm so smart and thoughtful!" And in the four years since, that smart person has missed out on 50% gains compared to a simple S&P 500 index fund.

For every careful, considered, thoughtful reason why you are just SURE that the market is overvalued, I can give you 10 to say you are completely, 100% wrong, and that today--June 13, 2019--is the single best day that you will have to buy stocks over the next ten years. Which of us is correct? I don't know, and neither do you. So the best advice is to not try to guess.

You also seem to be confusing some of the concepts here. You think the Fed is going to announce a rate hike, but then you say that you want to lock in CD rates now? Why would you want to buy CDs when the rates are going up?

Being risk averse, it is totally fine to go to a 30% or even 20% allocation to stocks--or zero! You don't need to take the risk, so don't. But if you play around with market timing, you almost certainly will lose. Keep making your millions of dollars, set a reasonable asset allocation, and enjoy your amazing life.

Topic Author
Putontheglasses
Posts: 7
Joined: Wed Jun 12, 2019 12:38 pm

Re: High net worth individual seeks portfolio advice

Post by Putontheglasses » Thu Jun 13, 2019 12:03 pm

glock19 wrote:
Thu Jun 13, 2019 11:31 am
I completely agree with you on your investing plan. I enjoy this forum very much but feel sometimes the same advice is given to someone just beginning the investment journey in their twenties that is given to a high net worth individual such as yourself.

It is a definite than none of us can predict the direction of the equities market or interest rates. We also know market timing does not work, but I feel than applies more in general to the frequent buying and selling concept. The bottom line is that you need to trust your gut, and accept the results.

As many have said, you have won the game. Why subject yourself to risk you really don't want to take. If it were me I would want a reasonably small amount of my net worth in equities. There will be a time, and maybe even in the near future that equities will drop to the point you feel comfortable in getting in. At that point you might consider averaging in.
Well, at least one person here sees eye to eye with me. ;) I would not buy into equities right now unless I came to some epiphany from advice on this forum or elsewhere.

I'm mainly trying to decide what else to move into in the short term in regard to bond funds or CDs if I believe that the Fed is going to cut rates from .25-.75 this year, possibly as early as July. A tax free muni bond fund seems like a good enough option as long as it on average has been beating 2.86% (best 1 year CD rate right now). If rates are cut, it would seem like a good idea to make the move into CDs or Bonds before that happens right?

I considered international equities, but my research shows most markets tanking right in line with US equities in 2009.

It is true that we have effectively "won the game", and that's why I don't want to screw that up. :) Ten years ago we were $300,000 in debt from medical bills with minimal income, so our success is a true testament that the American Dream is not completely dead.

Topic Author
Putontheglasses
Posts: 7
Joined: Wed Jun 12, 2019 12:38 pm

Re: High net worth individual seeks portfolio advice

Post by Putontheglasses » Thu Jun 13, 2019 12:05 pm

chicagoan23 wrote:
Thu Jun 13, 2019 11:50 am
You also seem to be confusing some of the concepts here. You think the Fed is going to announce a rate hike, but then you say that you want to lock in CD rates now? Why would you want to buy CDs when the rates are going up?
That was a mistype, I meant that I expected the Fed to cut rates between .25 and .75 this year. I'm definitely not getting advice from Jim Cramer or Marketwatch. I'm trying to go what I consider more authoritative, less sensastionalistic (non click bait) sources like RealVision interviews with experts, and then compare the info I'm getting there with other sources like prediction announcements from major banks.

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