advice on retirement portfolio for a $20m windfall

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spindrift103
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advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Tue Jan 14, 2020 11:29 pm

Hi y’all, I’m 50, married, 2 teens (16 and 19), live in CA. I have a windfall event that is 95% likely (a PE company is buying my private software company, and I own 20% of the shares). After all is said and done, post-tax my total funds will be $21m. $1.5m of that already resides retirement accounts. Let's assume that $1m will go to pay off my house which has a 3.75% loan. (I also own about $1m in additional foreign assets but let's forget about those for now.)

I will have about $10m left in bank/brokerage accounts that I control directly, and $9m will be in a NING trust that has been very carefully constructed by the top NING law firm in NV. (The investment-trustee decides on how to manage the assets, but I determine who the investment trustee is, which is currently my Dad who defers all decisions to me. So I de-facto decide the investment plan for the trust’s funds) I know a GOOD bit about investing and asset allocation. I have a regular trust/will already setup.

My thinking is:

- I will definitely be quitting my job (let’s get that out of the way)

- I plan to avoid the typical 1% in yearly ‘asset mgmt. fees’, as a portfolio is going to be pretty fixed; there's just a rebalance each year, and some tweaks every ~3 years based on the winds of the economy. But I may engage with an hourly advisor to setup my portfolios (I found one, but he’s quite busy, so he even recommended Rick Ferri and Alan Roth as other hourly guys to look into) However, i wanted to see Bogleheads thinking. ;-)

- for the $10m + $1.5m in 401k, basically try and live off the income from those assets, with a VERY low-risk and corresponding low-return portfolio. If I can have just 2.5% income per year, then after itemized health-insurance and other deductions, and assume the income is pretty much al LT cap gains and qualified dividends, I calculate that I will have ~ $200k in post-tax income per year (yes, I know it’s dependent on tax rates and what chunks of income are Fed or CA taxed. Yes,my retirement accounts would hold the first chunk of taxable funds in my asset allocation.) I am pretty sure we can quite nicely off the resulting $17k a month (in today's dollars), average, for next 35 years…remember, home is paid, so no mortgage. Sure, I may dip into the principal a bit here and there if the $17k isn’t enough to do enough killer snowboarding, a few extra biz-class/ritz euro and hawaii vacations, etc.. as I don’t have a goal of dying with all $10m (+ any gains) left in the bank. But the point here is that I basically don’t need much growth for my goals, so I don't need to take on much risk. For this portfolio, I’d love some advice on a conservative income portfolio. My spidey sense tells me that any more than 10% of stocks would not be prudent when it comes to the need to take risk. I assume some balance of total bond fund, corp bonds, some VWITX to reduce taxes, treasuries, etc…

- for the $9m in the NING, after it buys an investment property probably (which will double as a part time vacation home for beneficiaries), and makes some distributions to pay for remaining college years (CA state schools, which are fairly low cost), let's assume that $7m will remain. I would plan to have this in a general all-weather portfolio since this will hopefully ride forever, and be handed to future generations, etc.. I may just take the all-weather portofio from the user called ‘azanon’, as-is. If I ever want to dip into this for more ‘fun’ over the next 35 years (assuming I live to be 85), I can always do so, of course. I might also make distributions to my kids along the way for HEMS (there are certain limits for HEMS distributions).

I appreciate any thoughts or suggestions!

-Spindrift
Last edited by spindrift103 on Wed Jan 15, 2020 1:52 pm, edited 3 times in total.

mhalley
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Re: advice on retirement portfolio for a $20m windfall

Post by mhalley » Wed Jan 15, 2020 1:31 am

Congratulations on your success.
To the contrary, having huge amounts of money means that you can afford to take more risk. (Ie, buffets advice to his wife of a 90% stock portfolio) If you are horribly risk averse, you could pretend you are 80 years old and use a 30% stock allocation, or pretend you are a normal retiree and go 50/50. The typical 3 fund portfolio works just as well with a net worth in the millions as it does with one of thousands. You might use an int term muni or state specific muni instead of total bond.
Hiring Rick would be a great idea.

Katietsu
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Re: advice on retirement portfolio for a $20m windfall

Post by Katietsu » Wed Jan 15, 2020 1:55 am

Alan Roth and Rick Ferri both have extensive websites and publications. Unlike a majority of financial planners, you should be able to have a very good idea of who they are and what type of portfolio they will recommend before you reach out to either of them.

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mrspock
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Re: advice on retirement portfolio for a $20m windfall

Post by mrspock » Wed Jan 15, 2020 2:45 am

Realistically you can do anything from 30/70 to 90/10 and be just fine as long as you keep spending below 50k/month pre-tax.

The big questions here which can lead to “unforced errors” are:

1. How are you with market declines? If you saw 5m or 8m evaporate due to a market correction/crash do you have the discipline to wait it out? Or will you panic?

2. Lifestyle inflation, can you keep it in check? 20m is a bunch of dough ... but this is America, it’s a country who can make anyone feel poor or find reasons to spend. Boats, cars, maybe that HondaJet you’ve had your eye on... need to keep this all in check.

3. Are you fine with 20m? Or will you want to tinker and try to “beat the market”? Growing it via spending below your means is fine, but will you be patient with this approach?

4. Scam radar - How good is yours? Are you able to sniff out too good to be true “opportunities”? You’ll have lots of people coming out to the woodwork to “help” you.

My 2 cents...

evoila
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Re: advice on retirement portfolio for a $20m windfall

Post by evoila » Wed Jan 15, 2020 2:51 am

Nice job. With that much money, you can invest 75-80% in a slew of investments which are safe, among them CA munis and short term paper. The rest you can take some very modest risk imo, and you can probably get to about an average return of about 7% with about 1/3 of the vol you will see out of the s&p. You will have more money than you"ll know what to do with if you only plan on spending $17K a month.

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gordoni2
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Re: advice on retirement portfolio for a $20m windfall

Post by gordoni2 » Wed Jan 15, 2020 2:54 am

I'd encourage you to think broadly, and realize there is always something you might like to spend money on. I too have a reasonably large portfolio. My lifetime spending from it has been home purchase: 12%, personal expenditures: 12%, gifts to friends and family: 15%, charitable causes: 35%, taxes: 25%. It doesn't stop once you have saturated personal expenses. If I had more money, I would spend more money.

Pay off your house. Then decide how much money you would like to spend on yourself, and put that, at least mentally, in the to be conservatively allocated bucket. You don't want to cut back on personal expenditures. Put the rest (gifts/charity/causes) in the high risk bucket. You can cut back on these amounts should the market go south. TIPS, or later on a SPIA, might be suitable for the conservatively allocated bucket. While 100% stocks would be appropriate for the high risk bucket.

If you are charitably minded, you should look into using a donor advised fund. You can make a large donation this year reducing this year's tax bill, but direct how the funds get dispersed to charitable organizations gradually in future years.

msk
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Re: advice on retirement portfolio for a $20m windfall

Post by msk » Wed Jan 15, 2020 3:04 am

I have a portfolio larger than $10m, all in stocks worldwide, all in ETFs similar to VT. I am not tax resident in the US so I bought, e.g. VWRD, VWRA, IWDA+EIMI+WSML (no need to look them up, each lot mirrors 4000 stocks out of the 8000 in VT). I give away 3.5% of my portfolio annually, as monthly stipends to all my heirs, but my own research on Shiller's data from 1871 till present indicates that I can withdraw 5% of balance annually (that's $500k from $10 million) and the 100% stocks portfolio should last forever, in real terms. Since I am 75 years old I do not spend much of the withdrawals on myself. A COLA pension meets my modest needs. I see nil reason why you would want to complicate your investments. $10 million on VT and the dividend alone comes to $200k... Markets (worldwide! really?) collapse by 50% and stay down forever and you are still OK to withdraw $250k annually, real terms, forever. My advice to my heirs is to take all their inheritances and buy VT (or other Vanguard equivalent depending on each one's tax residence). When you have a large enough amount there is no need to be overly anxious about volatility. Just never spend >5% of your portfolio balance in any year and you will be fine. But note mrspock's comments above.

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Re: advice on retirement portfolio for a $20m windfall

Post by fredflinstone » Wed Jan 15, 2020 7:18 am

A 10/90 bond/stock portfolio is not very low risk because it will perform poorly if inflation unexpectedly increases.

If I were you, I'd put the retirement money into 30-year TIPS. Not a fund. I'd buy the TIPS themselves to bypass fund management fees. This will provide you with a risk-free, tax-free positive return for the next 30 years.

I'd put the rest in a modified version of the Permanent Portfolio:
25% in a total market stock index fund
25% in long-term treasury fund
12.5% in a gold fund
12.5% in stocks of gold mining companies
25% in a California tax-exempt money market fund

I'd put half the gold portion into mining stocks because capital gains on gold itself are taxed at a much higher rate than capital gains on equities.

This is a very safe, well-diversified, simple, tax-efficient portfolio that will almost certainly last for the rest of your life, assuming you sell off less than 2 percent of the principal per year. If you look at back tests, you will see that this portfolio performed relatively well in the 1970s when stocks and bonds both performed poorly. You mentioned the All-Weather portfolio (which also is good), so I assume you understand the importance of looking at the volatility of a portfolio as a whole rather than its individual parts.

Some Bogleheads, ignoring your explicit wish for a very low-risk portfolio, will tell you "Oh you are rich. You should put 80% of your portfolio in stocks. You can easily weather any downturn." I believe this love affair with stocks is a result of recency bias. Ignoring the experience of Japan and focusing exclusively on the U.S., they wrongly believe that the stock market will never fall by more than 50 percent again and that any bear market will be promptly followed by a robust recovery. These people tout their high risk-tolerance and ability to stay the course, but they will probably be among the first to panic sell when the market falls 40, 50, or 60 percent. Don't let them talk you into taking on risk that you neither want nor need. You worked hard, produced something of value and won the game; there is absolutely no need for you to take on unnecessary risk.

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Re: advice on retirement portfolio for a $20m windfall

Post by aristotelian » Wed Jan 15, 2020 7:22 am

Keep in mind that there is inflation risk as well as market risk. A properly diversified portfolio including stocks is the best protection against all risks.

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Re: advice on retirement portfolio for a $20m windfall

Post by EfficientInvestor » Wed Jan 15, 2020 8:56 am

I'm with fredflinstone on doing something in the realm of Permanent Portfolio/All-Weather. See backtest results below since 1972. This compares a simple all-weather portfolio (25% stock, 65% intermediate treasury, 10% gold) against a standard 60/40 portfolio. Be mindful that the majority of this backtest occurred while bond rates were falling, so you probably can't expect to get the same magnitude of results going forward. However, I think the stability of this type of approach will endure. I'd especially like to point out the rolling returns. The worst 3-year period since 1972 would have been a 3% annualized return. The worst rolling returns of this strategy have actually occurred over the last several years due to low interest rates and the fed raising up off the low interest rates. But, even with the minimum annualized return over a 3-year period, you would still be able to meet your goal of producing $250k in income. You could pull out 3-year's worth of income every few years and put it in a money market. Then, when it is time to replenish, you should have a high level of confidence that your investing funds will be back up to at least $10M. On average, it should be even higher than that.

Image

Image

Source: https://www.portfoliovisualizer.com/bac ... tion3_1=10

muffins14
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Re: advice on retirement portfolio for a $20m windfall

Post by muffins14 » Wed Jan 15, 2020 9:44 am

It would be somewhat sad to invest it at 10% stocks, as you have an opportunity to create generational wealth for your family instead.

Something like 30-50% stocks could be even safer from an inflation perspective, and would likely ensure the nest egg grows over time more than your 10% proposal.

Topic Author
spindrift103
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Re: advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Wed Jan 15, 2020 1:25 pm

(just a quick review of a premise in my original post. I will have a natural partition of my assets if this goes through: ~$11m in my own brokerage account that I would like to view as 'retirement' money to live off for 35 years, and then $9m in a NING trust that should 'ride' forever. I would say I've pretty much decided to keep the NING assets in an all-weather portofilo. So the only focus now is the ~$11m in 'retirement' assets.)

Thx to all for the feedback. fredflintsone, your thinking is along the lines of my general risk:reward comfort and my needs. (And also to EfficientInvestor) Though for the 'retirement' money (the $11m), I would be curious if in addition to TIPS, what if i mixed in some munis, corporate bonds, and maybe 10% equities just to give a BIT more of an upside on income/growth. (maybe I could get 3 or 3.5% income a year) But yes, that's gonna be in exchange for just a bit more risk. How about something like:

10%: Vanguard midcap value etf VOE
40% : TIPS
20%: Vanguard total bond etf BND
15%: Vanguard corp bond etf VTEB
15%: Vanguard muni bond etf VCIT (perhaps I make half of this VCAIX, to reduce a bit more taxes as I'm in CA. It has 93% of it's assets in AAA/AA/A bonds)


fredflinstone wrote:
Wed Jan 15, 2020 7:18 am
A 10/90 bond/stock portfolio is not very low risk because it will perform poorly if inflation unexpectedly increases.

If I were you, I'd put the retirement money into 30-year TIPS. Not a fund. I'd buy the TIPS themselves to bypass fund management fees. This will provide you with a risk-free, tax-free positive return for the next 30 years.

I'd put the rest in a modified version of the Permanent Portfolio:
25% in a total market stock index fund
25% in long-term treasury fund
12.5% in a gold fund
12.5% in stocks of gold mining companies
25% in a California tax-exempt money market fund

I'd put half the gold portion into mining stocks because capital gains on gold itself are taxed at a much higher rate than capital gains on equities.

This is a very safe, well-diversified, simple, tax-efficient portfolio that will almost certainly last for the rest of your life, assuming you sell off less than 2 percent of the principal per year. If you look at back tests, you will see that this portfolio performed relatively well in the 1970s when stocks and bonds both performed poorly. You mentioned the All-Weather portfolio (which also is good), so I assume you understand the importance of looking at the volatility of a portfolio as a whole rather than its individual parts.

Some Bogleheads, ignoring your explicit wish for a very low-risk portfolio, will tell you "Oh you are rich. You should put 80% of your portfolio in stocks. You can easily weather any downturn." I believe this love affair with stocks is a result of recency bias. Ignoring the experience of Japan and focusing exclusively on the U.S., they wrongly believe that the stock market will never fall by more than 50 percent again and that any bear market will be promptly followed by a robust recovery. These people tout their high risk-tolerance and ability to stay the course, but they will probably be among the first to panic sell when the market falls 40, 50, or 60 percent. Don't let them talk you into taking on risk that you neither want nor need. You worked hard, produced something of value and won the game; there is absolutely no need for you to take on unnecessary risk.
Last edited by spindrift103 on Wed Jan 15, 2020 1:40 pm, edited 1 time in total.

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geerhardusvos
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Re: advice on retirement portfolio for a $20m windfall

Post by geerhardusvos » Wed Jan 15, 2020 1:40 pm

spindrift103 wrote:
Tue Jan 14, 2020 11:29 pm
Hi y’all, I’m 50, married, 2 teens (16 and 19), live in Walnut Creek, CA. I have a windfall event that is 95% likely (a PE company is buying my private software company, and I own 20% of the shares). After all is said and done, post-tax my total funds will be $21m. $1.5m of that already resides retirement accounts. Let's assume that $1m will go to pay off my house which has a 3.75% loan. (I also own 50% of a ~$2m-valued lumber farm in Brazil, as well as an apartment there, but let's put them totally aside since Brazil isn't doing great, in case you haven't noticed))

I will have about $10m left in bank/brokerage accounts that I control directly, and $9m will be in a NING trust that has been very carefully constructed by the top NING law firm in NV. (The investment-trustee decides on how to manage the assets, but I determine who the investment trustee is, which is currently my Dad who defers all decisions to me. So I de-facto decide the investment plan for the trust’s funds) I know a GOOD bit about investing and asset allocation. I have a regular trust/will already setup.

My thinking is:

- I will definitely be quitting my job (let’s get that out of the way)

- I plan to avoid the typical 1% in yearly ‘asset mgmt. fees’, as a portfolio is going to be pretty fixed; there's just a rebalance each year, and some tweaks every ~3 years based on the winds of the economy. But I may engage with an hourly advisor to setup my portfolios (I found one, but he’s quite busy, so he even recommended Rick Ferri and Alan Roth as other hourly guys to look into) However, i wanted to see Bogleheads thinking. ;-)

- for the $10m + $1.5m in 401k, basically try and live off the income from those assets, with a VERY low-risk and corresponding low-return portfolio. If I can have just 2.5% income per year, then after itemized health-insurance and other deductions, and assume the income is pretty much al LT cap gains and qualified dividends, I calculate that I will have ~ $200k in post-tax income per year (yes, I know it’s dependent on tax rates and what chunks of income are Fed or CA taxed. Yes,my retirement accounts would hold the first chunk of taxable funds in my asset allocation.) I am pretty sure we can quite nicely off the resulting $17k a month (in today's dollars), average, for next 35 years…remember, home is paid, so no mortgage. Sure, I may dip into the principal a bit here and there if the $17k isn’t enough to do enough killer snowboarding, a few extra biz-class/ritz euro and hawaii vacations, etc.. as I don’t have a goal of dying with all $10m (+ any gains) left in the bank. But the point here is that I basically don’t need much growth for my goals, so I don't need to take on much risk. For this portfolio, I’d love some advice on a conservative income portfolio. My spidey sense tells me that any more than 10% of stocks would not be prudent when it comes to the need to take risk. I assume some balance of total bond fund, corp bonds, some VWITX to reduce taxes, treasuries, etc…

- for the $9m in the NING, after it buys an investment property probably (which will double as a part time vacation home for beneficiaries), and makes some distributions to pay for remaining college years (CA state schools, which are fairly low cost), let's assume that $7m will remain. I would plan to have this in a general all-weather portfolio since this will hopefully ride forever, and be handed to future generations, etc.. I may just take the all-weather portofio from the user called ‘azanon’, as-is. If I ever want to dip into this for more ‘fun’ over the next 35 years (assuming I live to be 85), I can always do so, of course. (that’s a joke, btw) I can also make distributions to my kids, for HEMS (within certain limits).

I appreciate any thoughts or suggestions!

-Spindrift
Congrats on your success. don’t get scammed and lay low. Anything in the green is good. Whether you have 2 million, 20 million, or 200 million, stay in the green:
https://imgur.com/sUUCdsV

I personally would do a 60/40 3fund portfolio. Explore what bond fund is best for your tax situation
VTSAX and chill

Living Free
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Re: advice on retirement portfolio for a $20m windfall

Post by Living Free » Wed Jan 15, 2020 1:49 pm

I'd add some international stocks too. There's some ongoing debate on this forum about how much international, but I'd add some (presently I hold 33% of my stocks as international stock)

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Re: advice on retirement portfolio for a $20m windfall

Post by Jack FFR1846 » Wed Jan 15, 2020 1:54 pm

Allocating 0% equity to 100% equity could be justified.

0% equity: You'll never need all of the $20M. If it doesn't keep up with inflation....who cares? So all in with bonds.

100% equity: If the market super crashed and equity went to 10% overnight, who cares. You can live on a $2M portfolio. So all in with equity.

Based on the above 2 arguments, anything in between is fair game. Unless your plans are to buy a major league baseball team or something, you'll never actually need that $20M.
Bogle: Smart Beta is stupid

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fredflinstone
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Re: advice on retirement portfolio for a $20m windfall

Post by fredflinstone » Wed Jan 15, 2020 2:44 pm

spindrift103 wrote:
Wed Jan 15, 2020 1:25 pm
(just a quick review of a premise in my original post. I will have a natural partition of my assets if this goes through: ~$11m in my own brokerage account that I would like to view as 'retirement' money to live off for 35 years, and then $9m in a NING trust that should 'ride' forever. I would say I've pretty much decided to keep the NING assets in an all-weather portofilo. So the only focus now is the ~$11m in 'retirement' assets.)

Thx to all for the feedback. fredflintsone, your thinking is along the lines of my general risk:reward comfort and my needs. (And also to EfficientInvestor) Though for the 'retirement' money (the $11m), I would be curious if in addition to TIPS, what if i mixed in some munis, corporate bonds, and maybe 10% equities just to give a BIT more of an upside on income/growth. (maybe I could get 3 or 3.5% income a year) But yes, that's gonna be in exchange for just a bit more risk. How about something like:

10%: Vanguard midcap value etf VOE
40% : TIPS
20%: Vanguard total bond etf BND
15%: Vanguard corp bond etf VTEB
15%: Vanguard muni bond etf VCIT (perhaps I make half of this VCAIX, to reduce a bit more taxes as I'm in CA. It has 93% of it's assets in AAA/AA/A bonds)
Again, 90% bonds is not low risk because your portfolio will perform poorly if inflation unexpectedly rises. I'm not sure how TIPS would perform in a taxable account in times of inflation. Perhaps some of the experts here can comment. In any case, I would give that careful thought.

CascadiaSoonish
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Re: advice on retirement portfolio for a $20m windfall

Post by CascadiaSoonish » Wed Jan 15, 2020 3:01 pm

Congrats on the sale of your company. Not to derail the conversation here, but I'd be curious to hear what resources were useful to you during the transaction, such as advisory firms or brokers or books. Or to hear how you and your partners learned to navigate a complex transaction. TIA...

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Re: advice on retirement portfolio for a $20m windfall

Post by EfficientInvestor » Wed Jan 15, 2020 3:27 pm

spindrift103 wrote:
Wed Jan 15, 2020 1:25 pm
How about something like:

10%: Vanguard midcap value etf VOE
40% : TIPS
20%: Vanguard total bond etf BND
15%: Vanguard corp bond etf VTEB
15%: Vanguard muni bond etf VCIT (perhaps I make half of this VCAIX, to reduce a bit more taxes as I'm in CA. It has 93% of it's assets in AAA/AA/A bonds)
As others have stated, this proposed 10/90 allocation probably has too much bond exposure. During periods of better than expected economic activity or higher than expected inflation, you will wish you were holding more equities. Consider the rolling returns of the 3 portfolios shown below. For now, I won't say what the allocations are (you can see the full results at the link). Just tell me which of these seems least risky.

Image
https://www.portfoliovisualizer.com/bac ... tion3_3=10

FrugalConservative
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Re: advice on retirement portfolio for a $20m windfall

Post by FrugalConservative » Wed Jan 15, 2020 3:29 pm

60/40 done.

Congrats!

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Re: advice on retirement portfolio for a $20m windfall

Post by Royal Blue » Wed Jan 15, 2020 3:43 pm

CascadiaSoonish wrote:
Wed Jan 15, 2020 3:01 pm
Congrats on the sale of your company. Not to derail the conversation here, but I'd be curious to hear what resources were useful to you during the transaction, such as advisory firms or brokers or books. Or to hear how you and your partners learned to navigate a complex transaction. TIA...

I know you asked the OP on his deal, but I am more than happy to chime in and give you my experience. I too sold a software/tech company for 100+ Mil. We used a mid-market investment bank to do a staged auction. They invite PE firms which do deals in our space to look at the deal and bid, it was three rounds, each time giving the PE firm deeper insight into the firm and due-diligence. At the end of the auction there were two firms competing to get the deal done. Always better when you have a horse race. It was also helpful to have a board of directors who had significant experience in selling firms. You have to keep the bankers honest even when they represent you. At the end of the day they're like realtors, they don't get paid unless a deal gets done, so they'd rather have you take a deal than no deal and at times they play both sides of the table.

Spindrift - Congrats man! I know the journey you're going through (I was the founder of my company), it's tough but rewarding. I'm 3 years post exit from my last transaction, 45 now with 4 kids. Of course I started another company (on company 6), because I tried early retirement in my late 30's and hated it. I haven't needed to work since I was 38, and also had a 8 figure windfall in my early 40's. I am going to keep going until I am 55, then revisit retirement again. But for the next 120 months, I want to build something else that's meaningful, not for the money, it will all go to a family foundation (We have hit our number and everything else above benefits society), but because it's what I'm built to do! I'd be curious if you head back into the game in a few years.
Last edited by Royal Blue on Wed Jan 15, 2020 3:59 pm, edited 1 time in total.

beehivehave
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Re: advice on retirement portfolio for a $20m windfall

Post by beehivehave » Wed Jan 15, 2020 3:47 pm

At $20M, you can afford to hire a fee only CFP/CPA for some advice.
If they only review your plans one time, it will probably be money well spent.
Also, an estate planner.

EfficientInvestor
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Re: advice on retirement portfolio for a $20m windfall

Post by EfficientInvestor » Wed Jan 15, 2020 3:56 pm

BocaEli wrote:
Wed Jan 15, 2020 3:43 pm
CascadiaSoonish wrote:
Wed Jan 15, 2020 3:01 pm
Congrats on the sale of your company. Not to derail the conversation here, but I'd be curious to hear what resources were useful to you during the transaction, such as advisory firms or brokers or books. Or to hear how you and your partners learned to navigate a complex transaction. TIA...
But for the next 120 months, I want to build something else that's meaningful, not for the money, it will all go to a family foundation (We have hit our number and everything else above benefits society), but because it's what I'm built to do! I'd be curious if you head back into the game in a few years.
Congrats on your success! If you don't mind me asking, how do you invest your portfolio? It is one thing to invest in a way that meets your family's needs. If only looking at that, you would probably tend to be more conservative to make sure the fund never has a big drawdown and you can always cover any need your family may have. However, when you look beyond that and start to consider, "how can I grow this money to do the most good," you probably start to be a little less conservative and have more of an eye towards growth and not just preservation. I'd be curious to hear about your experience.

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Re: advice on retirement portfolio for a $20m windfall

Post by Royal Blue » Wed Jan 15, 2020 4:29 pm

EfficientInvestor wrote:
Wed Jan 15, 2020 3:56 pm
BocaEli wrote:
Wed Jan 15, 2020 3:43 pm
CascadiaSoonish wrote:
Wed Jan 15, 2020 3:01 pm
Congrats on the sale of your company. Not to derail the conversation here, but I'd be curious to hear what resources were useful to you during the transaction, such as advisory firms or brokers or books. Or to hear how you and your partners learned to navigate a complex transaction. TIA...
But for the next 120 months, I want to build something else that's meaningful, not for the money, it will all go to a family foundation (We have hit our number and everything else above benefits society), but because it's what I'm built to do! I'd be curious if you head back into the game in a few years.
Congrats on your success! If you don't mind me asking, how do you invest your portfolio? It is one thing to invest in a way that meets your family's needs. If only looking at that, you would probably tend to be more conservative to make sure the fund never has a big drawdown and you can always cover any need your family may have. However, when you look beyond that and start to consider, "how can I grow this money to do the most good," you probably start to be a little less conservative and have more of an eye towards growth and not just preservation. I'd be curious to hear about your experience.


Efficient Investor -

Firstly we carry no debt. We live on cash-flow from R.E. holdings (Self-storage), donate 33% of cash flow to charity each year, and reinvest the balance. Our expenses are 9% of cash flow, allowing us to be generous, live a good life - but well below our means, and reinvest significantly.

Market Portfolio is simple:

70% VTI
20% BDN
10% GLD. (I know a lot of BH's hate gold, but I bought in fall of 18 when it dipped below 1,200. Central banks have artificially suppressed inflation, and I believe it will be a solid hedge. I can afford it as insurance and it doesn't need to have a yield for me to achieve my goals)

We do not draw from portfolio, I don't have a plan as to when we will.

When I turn 55 in 10 years I'll be at 60/40 and plan on shifting towards a 50/50 portfolio by time I'm 65.

I have 40% of NW in Real Estate of which 80% is self-storage (From Downtown Denver to Hackensack NJ and Orlando), and stakes in a few shopping plaza's with blue chip anchors.

I also keep a highly liquid bucket with 5 yrs of expenses. So if the sh*t hits the fan, I can take advantage of a down-turn not cut my losses and run.

I have 10% of our NW in private venture deals (Growth Equity and Early Stage Technology), risky, but I am picky in who I invest in and what, I only invest in deals I can help move the needle on. I don't want to count my chickens on those deals yet, but 60% are performing above expectations, and one deal out of 12 is looking like a write off.
Last edited by Royal Blue on Wed Jan 15, 2020 4:36 pm, edited 1 time in total.

Topic Author
spindrift103
Posts: 11
Joined: Fri Jan 10, 2020 7:28 pm

Re: advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Wed Jan 15, 2020 4:36 pm

Thx for the thoughs. Portofilo 3 seems least risky. And yes, I see why: because it's more diverse. I think the penny finally dropped for me -> i've had it stuck in my head that if i want 'lower risk' (and am ok with the lower returns) then just 'stick more to bonds'. But that's wrong, because being all in bonds is NOT diverse (duh, obvious now). So, something like an all-weather portfolio for ALL my holdings would be a better way to go over long term (again, 35+ years). Again, here was azanon's:


20% Vanguard U.S. Value Factor ETF (VFVA) 0.13%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.30%
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
35% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI) 0.25%
7.5% Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) 0.17%
Composite ER = 0.17%




EfficientInvestor wrote:
Wed Jan 15, 2020 3:27 pm
spindrift103 wrote:
Wed Jan 15, 2020 1:25 pm
How about something like:

10%: Vanguard midcap value etf VOE
40% : TIPS
20%: Vanguard total bond etf BND
15%: Vanguard corp bond etf VTEB
15%: Vanguard muni bond etf VCIT (perhaps I make half of this VCAIX, to reduce a bit more taxes as I'm in CA. It has 93% of it's assets in AAA/AA/A bonds)
As others have stated, this proposed 10/90 allocation probably has too much bond exposure. During periods of better than expected economic activity or higher than expected inflation, you will wish you were holding more equities. Consider the rolling returns of the 3 portfolios shown below. For now, I won't say what the allocations are (you can see the full results at the link). Just tell me which of these seems least risky.

Image
https://www.portfoliovisualizer.com/bac ... tion3_3=10

Topic Author
spindrift103
Posts: 11
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Re: advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Wed Jan 15, 2020 4:50 pm

yep, that's all about right. (though after interviewing a few investment brokers...who call themselves 'bankers' which is totally inaccurate), we got an LOI from a PE firm and went right with them (cut out the brokers...yes, that meant no bidding war, but it's working thus far and is close to a done deal. But I'll believe it when I see it...heh)

BocaEli, you have a nice spread of NW. I also have 25% in a Real Estate LLC that holds 3 office building (these are office buildings where our SW company is the primary tenant) I also own half of a 600 acre lumber farm in Brazil. Yes, you read that correctly. ;-) Super risky and long term, but it's coming around now.

So you're investing in private equity yourself? Bold. I'll never do that! (of course, maybe it's just because I don't have 'enough'. If I was looking at 40m instead of the 20m, yeah, maybe I'd get into that. But I still think I'd instead be doing netjets, more homes, and heli-boarding 40 days a year instead of 20. LOL)
BocaEli wrote:
Wed Jan 15, 2020 3:43 pm
CascadiaSoonish wrote:
Wed Jan 15, 2020 3:01 pm
Congrats on the sale of your company. Not to derail the conversation here, but I'd be curious to hear what resources were useful to you during the transaction, such as advisory firms or brokers or books. Or to hear how you and your partners learned to navigate a complex transaction. TIA...

I know you asked the OP on his deal, but I am more than happy to chime in and give you my experience. I too sold a software/tech company for 100+ Mil. We used a mid-market investment bank to do a staged auction. They invite PE firms which do deals in our space to look at the deal and bid, it was three rounds, each time giving the PE firm deeper insight into the firm and due-diligence. At the end of the auction there were two firms competing to get the deal done. Always better when you have a horse race. It was also helpful to have a board of directors who had significant experience in selling firms. You have to keep the bankers honest even when they represent you. At the end of the day they're like realtors, they don't get paid unless a deal gets done, so they'd rather have you take a deal than no deal and at times they play both sides of the table.

Spindrift - Congrats man! I know the journey you're going through (I was the founder of my company), it's tough but rewarding. I'm 3 years post exit from my last transaction, 45 now with 4 kids. Of course I started another company (on company 6), because I tried early retirement in my late 30's and hated it. I haven't needed to work since I was 38, and also had a 8 figure windfall in my early 40's. I am going to keep going until I am 55, then revisit retirement again. But for the next 120 months, I want to build something else that's meaningful, not for the money, it will all go to a family foundation (We have hit our number and everything else above benefits society), but because it's what I'm built to do! I'd be curious if you head back into the game in a few years.

orhkaf
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Re: advice on retirement portfolio for a $20m windfall

Post by orhkaf » Wed Jan 15, 2020 5:03 pm

Congrats!

I would consider establishing primary residence in a state that doesn’t charge state tax. A portfolio with a sum of money that large is going to be throwing off some serious dividends.

Royal Blue
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Re: advice on retirement portfolio for a $20m windfall

Post by Royal Blue » Wed Jan 15, 2020 5:07 pm

Spindrift -

The private equity side is mostly growth-capital with private companies that are growing but aren't EBITA positive so they're between stages of Seed and Venture. As you know Venture Capital has moved way up stream they don't want deals unless positive EBITA (at least here on the East Coast!). All deals in preferred debt instruments and usually in first position. I don't do a deal without 12% cash coupon and penny warrants for equity that convert into 1-2% of equity that's non-dilutive. Deal flow comes via my network, and do a deep dive into founders first. (Character, commitment, contribution, skills.). I have to like the business because if they default I would basically own it.

The Venture side is more like Super-Angel hybrid, where I take larger stakes than typical Angel and help incubate them. Typically take 5-30% stake depending on capital, how close they're to revenue, or almost functioning business model/product. Always in convertible notes with preferred bells and whistles.

No private aviation or boats or second homes here. My mantra is "Don't Eat the Seed".

SuzBanyan
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Re: advice on retirement portfolio for a $20m windfall

Post by SuzBanyan » Wed Jan 15, 2020 7:26 pm

OP: In your initial post, you wrote “- for the $9m in the NING, after it buys an investment property probably (which will double as a part time vacation home for beneficiaries ....”

What is the thought on buying investment real property through the NING? Won’t the state income taxes of such an investment be based on the state in which the property is located, so only taxed under Nevada law if located in Nevada? And won’t use by the beneficiaries as a vacation home require the beneficiaries paying non-taxable deductible rent to the NING?

Why not just use funds from the other side of the portfolio for such an investment?

averagedude
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Re: advice on retirement portfolio for a $20m windfall

Post by averagedude » Wed Jan 15, 2020 7:44 pm

beehivehave wrote:
Wed Jan 15, 2020 3:47 pm
At $20M, you can afford to hire a fee only CFP/CPA for some advice.
If they only review your plans one time, it will probably be money well spent.
Also, an estate planner.
+1. Also I would stick with traditional investments instead of commodities or all weather portfolios. Just because you have $20M doesn't mean you have to invest any different than someone who only has $1M.

Dovahkiin
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Re: advice on retirement portfolio for a $20m windfall

Post by Dovahkiin » Wed Jan 15, 2020 8:07 pm

I'm not sure if I'm a fan of the NING trust. I'm not a lawyer but you'll likely need a corporate trustee for it to really make sure CA can't reach it. You'll likely be paying a 0.5% to 1% asset under management fee for it, $45k to $90k for the $9m you intend on putting in there. Then distributions from the trust will be subject to state taxes at the time of distribution. Also investment property pays state tax in the state it's in so the NING won't be as helpful to avoid out of state taxes.

Then you also fee shift to more aggressive trust brackets (with no deductions for the trust):

Using 2019 brackets as I haven't updated software for 2020 yet:

LTCG/Qualified Dividends:
$0 $2,650
15% $12,950
20% $12,950+

Ordinary Income:
10% $0-$2,600
24% $2,600-$9,300
35% $9,300-$12,750
37% $12,750+

Married/Filing jointly is these brackets
LTCG/Qualified Dividends:
0% $0-$78,750
15% $78,750-$488,850
20% $488,850+

Ordinary Income:
10% $0-$19,400
12% $19,400-$78,950
22% $78,950-$168,400
24% 168,400-$321,450
32% $321,450-$408,200
35% $408,200-$612,350
37% $612,350+

I'll assume the standard deduction for your situation and I'll run total taxes due under these assumptions and portfolios:
  • Not withdrawing any capital gains/extra distributions other than dividends/income, as you pointed out you want a 2.5% withdrawal rate.
  • Stock market fund has a 2.2% qualified dividend rate, almost 100% qualified dividends.
  • Bond market yields 3%.
  • Three portfolios: 100% stocks, 100% bonds, 50% stocks/50% bonds
  • $9m in NING trust and $10m in in taxable vs $19m in taxable
  • Ignoring Munis as alternative minimum tax may apply and typically the yields are competitive only at the top 37% bracket which you're not hitting unless you're at 100% bonds. There is a lot of tax arbitrage in munis. BTW munis aren't subject to state taxes at all.
  • Filing married & filing jointly.
  • Taking the standard deduction.
First the easy analysis, $19m in taxable:
  • 100% stocks total taxes: $79,565 (fed: $47,198 state: $32,367)
  • 50% stocks/50% bonds total taxes: $121,678 (fed: $82,243, state: $39,435)
  • 100% bonds total taxes: $187,850(fed: $141,347 state: $46,503)
Now $10m in taxable, 9m NING trust:
  • 100% stocks total taxes: $80,978 (fed: $17,498 state: $13,953 trust fed taxes: $49,563 LTCG)
  • 50% stocks/50% bonds total taxes: $131,593 (fed: $35,849 state: $17,673 trust fed taxes: $29,763 LTCG + $48,308 ordinary income)
  • 100% bonds total taxes: $174,144 (fed: $54,493 state: $21,393 trust fed taxes: $98,258 ordinary income)
Ouch, at 100% stocks and 50% stocks you've LOST money with the trust BEFORE even counting trustee fees if you want to make it ironclad. You pulled ahead on 100% bonds but is the trust worth the hassle of netting $13k a year?

I think doing this exercise highlights that not only with your large portfolio in that you can take a lot more risks but it will greatly be more tax efficient as well. You save an estimated $108,285 of taxes at 100% stocks vs 100% bonds. $108k on a $19m is a .50% tax drag! It's pretty substantial! You wanted to avoid 1-2% AUM fees (well at a $20m portfolio they'd be 0.5% - 0.25% unless they're actively trading the account.), and well being at 100% bonds just means you are paying an AUM fee to Uncle Sam instead for safety.

What I feel a good compromise is say do ~75% stocks, ~25% bonds. At a 3% yield $5m~ in bonds will bring in a reliable $12,500 a month without having to touch principal at all. $14m stocks at a 2.2% dividend yield will be $313,500 a year, or $26k a month, a lot more than your desired $17k a month. 75% stocks/25% bonds historically has the lowest sequence of returns risk under a 4% SWR portfolio as if you sell off bond principal when stocks are in a low year the longest peak to peak in a sell off was about 5 years, so after 5 years of selling bonds your pre-crash equity component would remain intact. With your withdrawal needs I doubt you'd need to touch principal even in the most extreme crashes.

As far as getting a more specific asset allocation you'd probably want a good mix of bonds - REITs, high yield (corporate "junk" bonds), investment grade corporate, munis, etc. At your asset level you can probably take some extra risk if you want to build a legacy - LEAP options, private equity (PE is a broad term - there is real estate PE, hedge funds PE, venture capital, leveraged buyout PE), angel investing, etc. I'd limit it to no more than a speculative 10-20% of your portfolio that you don't need to touch for 5-10 years. It's it's own asset class as you earn a liquidity premium.

I disagree with investing in TIPS right now. The real yields are pretty terrible. Stocks & REITs track inflation pretty well. Ibonds are better, but at $10k max per SSN that'd be a rounding error on your account. You'd need to go out 20 years on TIPS for a yield to be higher than ibond's 0.20% real yield, and that's a long time to hold a bond. If you hold a EE bond for exactly 20 years you'll get a guaranteed nominal 3.53% APR yield as they double in value at that time. With the Fed's low 1-2% inflation target these are likely a 1.53% real yield, of course assuming things stay the course.

You don't have much inflation risk having a paid off home and a substantial portfolio. I suppose you could hedge with a 20 year EE bond ladder of your $18k/mo expenses, that'd be $216k a year invested in EE bonds, or 1.1% of your portfolio. In 20 years they'll double and you can redeem them. Then 20 years from now you'll have a nice, hopefully beating or matching inflation, very safe income stream you can look forward to for the next 20 years. If inflation starts to jump then you could buy tips/ibonds at that time. 20 years from now that'd probably become a 20% bond allocation with a nice increasing and decreasing glide path.

I wish you the best of luck!

EfficientInvestor
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Re: advice on retirement portfolio for a $20m windfall

Post by EfficientInvestor » Thu Jan 16, 2020 7:59 am

Royal Blue wrote:
Wed Jan 15, 2020 4:29 pm
Market Portfolio is simple:

70% VTI
20% BDN
10% GLD. (I know a lot of BH's hate gold, but I bought in fall of 18 when it dipped below 1,200. Central banks have artificially suppressed inflation, and I believe it will be a solid hedge. I can afford it as insurance and it doesn't need to have a yield for me to achieve my goals)

We do not draw from portfolio, I don't have a plan as to when we will.

When I turn 55 in 10 years I'll be at 60/40 and plan on shifting towards a 50/50 portfolio by time I'm 65.
I have similar views on gold. I like to maintain something in the portfolio to hedge against inflation and I have more confidence that gold will provide better insurance for my whole portfolio than tips. I also hold a small allocation of bitcoin, but that's a whole other conversation.

For your market portfolio, have you considered taking more of a risk parity approach in order to not be so dependent on stocks? Consider the backtest below that shows your current portfolio (Portfolio 1) vs a risk parity portfolio (Portfolio 2) that has had less volatility (standard deviation) and better returns. No guarantee that these results will continue, but this shows that your current portfolio has the capacity (because it has happened before) of having only a 1.78% annualized return over a 10-year period. A risk parity approach has fared much better, at least during the extent of this backtest. Also, check out the "Portfolio Risk Decomposition" table in the "Assets" tab in the backtest. It shows that even though you have 70% stock allocation, it is contributing 96% of your risk.

Backtest - https://www.portfoliovisualizer.com/bac ... on5_2=-320

Image
Image

Royal Blue
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Re: advice on retirement portfolio for a $20m windfall

Post by Royal Blue » Thu Jan 16, 2020 8:32 am

EfficientInvestor wrote:
Thu Jan 16, 2020 7:59 am
risk parity portfolio (Portfolio 2) that has had less volatility (standard deviation) and better returns.
EfficientInvestor - Thank you for taking time to present me with this portfolio, a few questions arise.

1. 360% allocation in VFISX? Is this 40%?? How do you get 360%? Is it leveraged?
2. -320% cash??? That sounds scary! :wink: Can you explain the portfolio deeper?

I have created the vast majority of my wealth via private companies. When I set up the stock portfolio I just decided to go with something that seemed low cost and simple. Closer to the Bogle two portfolio strategy. I came to BH's to learn more.

Thank you.

EfficientInvestor
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Re: advice on retirement portfolio for a $20m windfall

Post by EfficientInvestor » Thu Jan 16, 2020 8:59 am

Royal Blue wrote:
Thu Jan 16, 2020 8:32 am
EfficientInvestor wrote:
Thu Jan 16, 2020 7:59 am
risk parity portfolio (Portfolio 2) that has had less volatility (standard deviation) and better returns.
EfficientInvestor - Thank you for taking time to present me with this portfolio, a few questions arise.

1. 360% allocation in VFISX? Is this 40%?? How do you get 360%? Is it leveraged?
2. -320% cash??? That sounds scary! :wink: Can you explain the portfolio deeper?

I have created the vast majority of my wealth via private companies. When I set up the stock portfolio I just decided to go with something that seemed low cost and simple. Closer to the Bogle two portfolio strategy. I came to BH's to learn more.

Thank you.
Yes, this represents the use of leveraged treasury bonds. Let me start by directing you to another thread I started a few months ago that discusses the risk parity concept and the idea of using leveraged treasury bonds at a basic level - viewtopic.php?f=10&t=289049&start=100#p4718045

In that thread, I establish a case for equally spreading your risk across stocks and bonds. However, in order to achieve an allocation to bonds that has an equal return and risk profile to stocks, you need to apply leverage. The 360% VFISX represents the use of leveraged 2-year treasury bonds via futures contracts. The contract that you would use to do this is /ZT. With a futures contract, there is an implied borrowing cost that is approximately the risk-free rate (3-month LIBOR). Being long VFISX and short CASHX (risk-free rate) is a close approximation for actual performance of the 2-year futures contract. You could also implement this concept with smaller amounts of leverage on longer duration bonds. However, I have found that larger amounts of leverage on shorter duration bonds has historically been the most efficient implementation.

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Watty
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Re: advice on retirement portfolio for a $20m windfall

Post by Watty » Thu Jan 16, 2020 9:25 am

Just a couple of things to add;

1) When looking at your future spending be sure to consider that it will be different at different ages. I have seen relatives get into their mid 70s and they naturally slowed down even though their health was relatively good. At that point they didn't want to travel much and they were more interested in downsizing than buying more stuff. Even though they could have afforded to spend more there were often months when they did not even spend their entire Social Security check. In your case your spending might actually go down if you had to move into a nursing home.

2) Going with a low percentage of stocks and holding a high percent of bonds is a big bet on the US dollar, which is pretty high right now compared to other currencies.

3) Your financial planning may be more about estate tax planning than investing. Right now the federal estate tax exemption is around $11 million, $22 million for a couple, so it does not sound like a big problem for you now. The risk is that it is not only likely that your investments will grow a lot but that estate tax exemption might change. The estate tax exemption amount has changed a lot in the last 15 years and when you eventually die it might be a lot lower. A quick Google search found this history of the estate tax exemption changes. You cannot assume that it will still be high when you die.

https://www.thebalance.com/exemption-fr ... es-3505630

4) A lot of lottery winners and star athletes have had a lot more than you have had but been in financial trouble 10 or 20 years later. You did not say much about the purpose of the trust but you should also consider if it could be used to protect you from yourself. Jessie Livermore was a famous (and infamous) stock speculator in the roaring 1920s who made and lost several fortunes speculating and manipulating the stock market. One thing he did right though was to set up money in a trust that he could not get to because he knew that he was likely to blow the money if he could get to it. When he lost his final fortune there was still plenty of money in the trust to pay for his family to have a very nice lifestyle.

3funder
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Re: advice on retirement portfolio for a $20m windfall

Post by 3funder » Thu Jan 16, 2020 10:19 am

Make this easy on yourself. 50/50 forever.

randomguy
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Re: advice on retirement portfolio for a $20m windfall

Post by randomguy » Thu Jan 16, 2020 11:22 am

mhalley wrote:
Wed Jan 15, 2020 1:31 am
Congratulations on your success.
To the contrary, having huge amounts of money means that you can afford to take more risk. (Ie, buffets advice to his wife of a 90% stock portfolio) If you are horribly risk averse, you could pretend you are 80 years old and use a 30% stock allocation, or pretend you are a normal retiree and go 50/50. The typical 3 fund portfolio works just as well with a net worth in the millions as it does with one of thousands. You might use an int term muni or state specific muni instead of total bond.
Hiring Rick would be a great idea.
You can sort of go either way. The OP is looking at very conservative income numbers ( 300k/20 million bucks =1.5%) if I am reading it right. You could stick it all into bonds and have money for well past any reasonable human lifespan. You could also 100% stocks and basically live off the dividends (even when they are cut like 30%, you can still pay your bills.). The only way the OP runs into real trouble if he loses like 50% of the money (angel investing, sketchy real estate deals,....) or the expense numbers are way off.

Realistically somewhere in the middle makes the most sense. You can be a conservative 30/70 or an aggressive 70/30 depending on your desire to build generation wealth for your grand kids and great grandkids versus having to put up with market fluctuations.

The thing you really need to think about is estate planning. With 22+ million today, low spending, 30+ years, you are a very good candidate for paying a ton of tax (i.e your net worth being 100+ million in real dollars in 30 years isn't that absurd if you invest 50/50). You might want to talk to someone about the value of removing assets from your estate now so they can grow for 30 years outside of it.

illumination
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Re: advice on retirement portfolio for a $20m windfall

Post by illumination » Thu Jan 16, 2020 1:29 pm

It's your money, but I would go with a much heavier stock allocation. The way equities shield taxes (and when they are taxed, at the lower cap gain rate) just can't be ignored when there is a portfolio this size.

Also, most fixed income barely keeps pace with inflation (especially after taxes). Unless you want to take more risk with it in which case you might as well be in equities.

I would probably be closer to something like 70% equities, which would give you $6+ million in fixed income. Plenty to weather long bear markets.

Financologist
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Re: advice on retirement portfolio for a $20m windfall

Post by Financologist » Sat Jan 18, 2020 1:21 am

Have you considered...

1. going to school to study something unrelated to your field.. perspective, knowledge and network diversification if you will?

2. A 3-month retreat to India, China or Tibet (for example) for an eastern philosophy immersion?

3. Pursuing an adjunct professorship at a nearby (or far away) business school. Your experiences are invaluable to business students.

These are the types of investments I would consider if I were in your shoes (in addition to a tax efficient, simple portfolio consisting of global stocks, TIPS, gov. bonds, REITS, cash and perhaps a self sufficient farm property in case a new world order renders conventional investments worthless).

Luck be with you

Royal Blue
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Re: advice on retirement portfolio for a $20m windfall

Post by Royal Blue » Sat Jan 18, 2020 3:53 pm

Yes, this represents the use of leveraged treasury bonds. Let me start by directing you to another thread I started a few months ago that discusses the risk parity concept and the idea of using leveraged treasury bonds at a basic level - viewtopic.php?f=10&t=289049&start=100#p4718045

Thank you EfficientInvestor for taking time for such a thoughtful response, you represent the best of what a Bogleheads member could be. Helpful, encouraging as well as thoughtful... I am going to look deeper into this. I just ordered a few of Bernstein's books as well. Cracking The Intelligent Asset Allocator tonight!

Warm regards,

RB

johnanglemen
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Re: advice on retirement portfolio for a $20m windfall

Post by johnanglemen » Sat Jan 18, 2020 11:53 pm

spindrift103 wrote:
Tue Jan 14, 2020 11:29 pm
I will have about $10m left in bank/brokerage accounts that I control directly, and $9m will be in a NING trust that has been very carefully constructed by the top NING law firm in NV.
Can you share the name of this firm? I am also in California and looked into establishing a NING trust, but the firm I spoke to was unwilling to do it. Did your having kids affect their decision at all? (I don't have them.)

bsteiner
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Re: advice on retirement portfolio for a $20m windfall

Post by bsteiner » Sun Jan 19, 2020 9:05 am

Dovahkiin wrote:
Wed Jan 15, 2020 8:07 pm
I'm not sure if I'm a fan of the NING trust. I'm not a lawyer but you'll likely need a corporate trustee for it to really make sure CA can't reach it. You'll likely be paying a 0.5% to 1% asset under management fee for it ...
For the benefit of those not familiar with the acronym, an incomplete gift trust (ING) (sometimes called DING in Delaware, NING in Nevada, SING in South Dakota, and awaiting an acronym in Alaska) is a trust that's not a completed gift for gift tax purposes, is still in your estate for estate tax purposes, but is a separate taxpayer for income tax purposes. The goal is to avoid state income taxes, usually on a large one-time capital gain on the sale of stock of a C corporation, though occasionally on a large investment portfolio.

Since it's the opposite of an intentionally defective grantor trust (IDGT), which is a completed gift for gift tax purposes, out of your estate, but a grantor trust for income tax purposes (in other words, you pay the tax on the trust's income and gains), I called it an accidentally perfect nongrantor trust. But the term incomplete gift trust caught on.

I wrote about it in the September 2005 issue of Trusts & Estates: https://www.kkwc.com/wp-content/uploads ... rantor.pdf,

We've done these for people in high tax states such as California (top rate 13.3%), New York (top rate in NYC about 12.7%) and New Jersey (top rate 10.75%). It no longer works for people in New York.

It can only work if you create the trust in an asset protection state (a state where you can create a trust and be a discretionary beneficiary without the trust being subject to your creditors), and in a state that either doesn't have a state income tax or doesn't tax a trust based on where the trustees are located or where the trust is administered. The states typically used for this are Alaska, Delaware, Nevada and South Dakota. There are trust companies in these states that will act as trustee for $3,000 to $10,000 a year as long as they're not responsible for the investments.

California taxes discretionary trusts based on the residence of the trustees. New Jersey taxes trusts based on the residence of the grantor but won't tax a trust if there's no trustee in New Jersey, no real or tangible property in New Jersey, and no New Jersey source income. Some states tax trusts created by their residents, though the courts in some states (e.g., New York, New Jersey, Pennsylvania, Illinois) have held, at least for trusts created during lifetime, that they can't tax such trusts if there's no trustee in the state, no real or tangible property in the state, and no income from in-state sources.

Since the alternative is often an intentionally defective grantor trust, which gets more wealth out of your estate, the incomplete gift trust was more common (though never very common for various reasons) before 2013 when the Federal tax rate on qualified dividends and long-term capital gains was 15%, and when New York taxpayers could still do this.

The original poster should consider turning this into an intentionally defective grantor trust (completed gift) in 2025 to use the $11,580,000 (indexed) estate tax exclusion amount before it reverts to half of that amount in 2026.

Leesbro63
Posts: 6093
Joined: Mon Nov 08, 2010 4:36 pm

Re: advice on retirement portfolio for a $20m windfall

Post by Leesbro63 » Sun Jan 19, 2020 9:37 am

msk wrote:
Wed Jan 15, 2020 3:04 am
I have a portfolio larger than $10m, all in stocks worldwide, all in ETFs similar to VT. I am not tax resident in the US so I bought, e.g. VWRD, VWRA, IWDA+EIMI+WSML (no need to look them up, each lot mirrors 4000 stocks out of the 8000 in VT). I give away 3.5% of my portfolio annually, as monthly stipends to all my heirs, but my own research on Shiller's data from 1871 till present indicates that I can withdraw 5% of balance annually (that's $500k from $10 million) and the 100% stocks portfolio should last forever, in real terms. Since I am 75 years old I do not spend much of the withdrawals on myself. A COLA pension meets my modest needs. I see nil reason why you would want to complicate your investments. $10 million on VT and the dividend alone comes to $200k... Markets (worldwide! really?) collapse by 50% and stay down forever and you are still OK to withdraw $250k annually, real terms, forever. My advice to my heirs is to take all their inheritances and buy VT (or other Vanguard equivalent depending on each one's tax residence). When you have a large enough amount there is no need to be overly anxious about volatility. Just never spend >5% of your portfolio balance in any year and you will be fine. But note mrspock's comments above.
+1 This is a great post, MSK

petulant
Posts: 878
Joined: Thu Sep 22, 2016 1:09 pm

Re: advice on retirement portfolio for a $20m windfall

Post by petulant » Sun Jan 19, 2020 10:06 am

bsteiner wrote:
Sun Jan 19, 2020 9:05 am
Dovahkiin wrote:
Wed Jan 15, 2020 8:07 pm
I'm not sure if I'm a fan of the NING trust. I'm not a lawyer but you'll likely need a corporate trustee for it to really make sure CA can't reach it. You'll likely be paying a 0.5% to 1% asset under management fee for it ...
For the benefit of those not familiar with the acronym, an incomplete gift trust (ING) (sometimes called DING in Delaware, NING in Nevada, SING in South Dakota, and awaiting an acronym in Alaska) is a trust that's not a completed gift for gift tax purposes, is still in your estate for estate tax purposes, but is a separate taxpayer for income tax purposes. The goal is to avoid state income taxes, usually on a large one-time capital gain on the sale of stock of a C corporation, though occasionally on a large investment portfolio.

Since it's the opposite of an intentionally defective grantor trust (IDGT), which is a completed gift for gift tax purposes, out of your estate, but a grantor trust for income tax purposes (in other words, you pay the tax on the trust's income and gains), I called it an accidentally perfect nongrantor trust. But the term incomplete gift trust caught on.

I wrote about it in the September 2005 issue of Trusts & Estates: https://www.kkwc.com/wp-content/uploads ... rantor.pdf,

We've done these for people in high tax states such as California (top rate 13.3%), New York (top rate in NYC about 12.7%) and New Jersey (top rate 10.75%). It no longer works for people in New York.

It can only work if you create the trust in an asset protection state (a state where you can create a trust and be a discretionary beneficiary without the trust being subject to your creditors), and in a state that either doesn't have a state income tax or doesn't tax a trust based on where the trustees are located or where the trust is administered. The states typically used for this are Alaska, Delaware, Nevada and South Dakota. There are trust companies in these states that will act as trustee for $3,000 to $10,000 a year as long as they're not responsible for the investments.

California taxes discretionary trusts based on the residence of the trustees. New Jersey taxes trusts based on the residence of the grantor but won't tax a trust if there's no trustee in New Jersey, no real or tangible property in New Jersey, and no New Jersey source income. Some states tax trusts created by their residents, though the courts in some states (e.g., New York, New Jersey, Pennsylvania, Illinois) have held, at least for trusts created during lifetime, that they can't tax such trusts if there's no trustee in the state, no real or tangible property in the state, and no income from in-state sources.

Since the alternative is often an intentionally defective grantor trust, which gets more wealth out of your estate, the incomplete gift trust was more common (though never very common for various reasons) before 2013 when the Federal tax rate on qualified dividends and long-term capital gains was 15%, and when New York taxpayers could still do this.

The original poster should consider turning this into an intentionally defective grantor trust (completed gift) in 2025 to use the $11,580,000 (indexed) estate tax exclusion amount before it reverts to half of that amount in 2026.
Do you think OP should also at least consider or run the numbers on a CRT and private placement life insurance to hold the business equity before sale?

Nowizard
Posts: 2447
Joined: Tue Oct 23, 2007 5:33 pm

Re: advice on retirement portfolio for a $20m windfall

Post by Nowizard » Sun Jan 19, 2020 10:32 am

If investing for yourself, then you can go extremely conservative, as others have said. If investing for charity or heirs, then a more-t0-much-more aggressive approach is appropriate. Decide on your goals and the specifics will follow.

Tim

bsteiner
Posts: 4530
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: advice on retirement portfolio for a $20m windfall

Post by bsteiner » Sun Jan 19, 2020 11:04 am

petulant wrote:
Sun Jan 19, 2020 10:06 am
...
Do you think OP should also at least consider or run the numbers on a CRT and private placement life insurance to hold the business equity before sale?
A charitable remainder trust could be a possibility for a portion of the stock.

Private placement life insurance is complicated (and comes with some costs) but could be a possibility for a portion of the stock.

Is any or all of the stock qualified small business stock that would be partially or entirely exempt from capital gains tax on sale?

Topic Author
spindrift103
Posts: 11
Joined: Fri Jan 10, 2020 7:28 pm

Re: advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Tue Jan 21, 2020 3:33 pm

NING was setup for all the purposes below. In summary, the NING alone allows me to save 3m in taxes on my windfall event. (partly because the trust is a separate entity which also qualify for a Section 1202 QSBS exclusion on another 10m in gain, and partly because there is no state tax on the funds that go into the NING...it holds shares, so when it sells those shares...no NV state tax)

The above tax-saving massively outweighs the fact that the NING trust is taxed at more aggressive rates when it comes to it's dividends/lt-gains/income ( versus if I held the funds myself. I'm referring to the fact that a trust has no 'tax brackets' )



Yep, my attorneys are on top of all the future considerations when it comes to estate taxes.
bsteiner wrote:
Sun Jan 19, 2020 9:05 am
Dovahkiin wrote:
Wed Jan 15, 2020 8:07 pm
I'm not sure if I'm a fan of the NING trust. I'm not a lawyer but you'll likely need a corporate trustee for it to really make sure CA can't reach it. You'll likely be paying a 0.5% to 1% asset under management fee for it ...
For the benefit of those not familiar with the acronym, an incomplete gift trust (ING) (sometimes called DING in Delaware, NING in Nevada, SING in South Dakota, and awaiting an acronym in Alaska) is a trust that's not a completed gift for gift tax purposes, is still in your estate for estate tax purposes, but is a separate taxpayer for income tax purposes. The goal is to avoid state income taxes, usually on a large one-time capital gain on the sale of stock of a C corporation, though occasionally on a large investment portfolio.

Since it's the opposite of an intentionally defective grantor trust (IDGT), which is a completed gift for gift tax purposes, out of your estate, but a grantor trust for income tax purposes (in other words, you pay the tax on the trust's income and gains), I called it an accidentally perfect nongrantor trust. But the term incomplete gift trust caught on.

I wrote about it in the September 2005 issue of Trusts & Estates: https://www.kkwc.com/wp-content/uploads ... rantor.pdf,

We've done these for people in high tax states such as California (top rate 13.3%), New York (top rate in NYC about 12.7%) and New Jersey (top rate 10.75%). It no longer works for people in New York.

It can only work if you create the trust in an asset protection state (a state where you can create a trust and be a discretionary beneficiary without the trust being subject to your creditors), and in a state that either doesn't have a state income tax or doesn't tax a trust based on where the trustees are located or where the trust is administered. The states typically used for this are Alaska, Delaware, Nevada and South Dakota. There are trust companies in these states that will act as trustee for $3,000 to $10,000 a year as long as they're not responsible for the investments.

California taxes discretionary trusts based on the residence of the trustees. New Jersey taxes trusts based on the residence of the grantor but won't tax a trust if there's no trustee in New Jersey, no real or tangible property in New Jersey, and no New Jersey source income. Some states tax trusts created by their residents, though the courts in some states (e.g., New York, New Jersey, Pennsylvania, Illinois) have held, at least for trusts created during lifetime, that they can't tax such trusts if there's no trustee in the state, no real or tangible property in the state, and no income from in-state sources.

Since the alternative is often an intentionally defective grantor trust, which gets more wealth out of your estate, the incomplete gift trust was more common (though never very common for various reasons) before 2013 when the Federal tax rate on qualified dividends and long-term capital gains was 15%, and when New York taxpayers could still do this.

The original poster should consider turning this into an intentionally defective grantor trust (completed gift) in 2025 to use the $11,580,000 (indexed) estate tax exclusion amount before it reverts to half of that amount in 2026.
Last edited by spindrift103 on Tue Jan 21, 2020 3:41 pm, edited 1 time in total.

Topic Author
spindrift103
Posts: 11
Joined: Fri Jan 10, 2020 7:28 pm

Re: advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Tue Jan 21, 2020 3:39 pm

Right. Though I would note that it's about risk:reward, and the fact is that I simply have no need (based on my income wants/needs, or what I want to 'hand over' to my estate), to take on very much risk. This I am leaning heavily towards a 30% stock allocation at most. Perhaps the easiest and most 'middle of the road' is to go with something close to the all-weather-portfolio for the entire windfall. (though I will acquire a bit more real estate along the way, via a vacation home)

I greatly appreciate everybody's feedback, btw!!!!
randomguy wrote:
Thu Jan 16, 2020 11:22 am
mhalley wrote:
Wed Jan 15, 2020 1:31 am
Congratulations on your success.
To the contrary, having huge amounts of money means that you can afford to take more risk. (Ie, buffets advice to his wife of a 90% stock portfolio) If you are horribly risk averse, you could pretend you are 80 years old and use a 30% stock allocation, or pretend you are a normal retiree and go 50/50. The typical 3 fund portfolio works just as well with a net worth in the millions as it does with one of thousands. You might use an int term muni or state specific muni instead of total bond.
Hiring Rick would be a great idea.
You can sort of go either way. The OP is looking at very conservative income numbers ( 300k/20 million bucks =1.5%) if I am reading it right. You could stick it all into bonds and have money for well past any reasonable human lifespan. You could also 100% stocks and basically live off the dividends (even when they are cut like 30%, you can still pay your bills.). The only way the OP runs into real trouble if he loses like 50% of the money (angel investing, sketchy real estate deals,....) or the expense numbers are way off.

Realistically somewhere in the middle makes the most sense. You can be a conservative 30/70 or an aggressive 70/30 depending on your desire to build generation wealth for your grand kids and great grandkids versus having to put up with market fluctuations.

The thing you really need to think about is estate planning. With 22+ million today, low spending, 30+ years, you are a very good candidate for paying a ton of tax (i.e your net worth being 100+ million in real dollars in 30 years isn't that absurd if you invest 50/50). You might want to talk to someone about the value of removing assets from your estate now so they can grow for 30 years outside of it.
Last edited by spindrift103 on Tue Jan 21, 2020 4:20 pm, edited 1 time in total.

Theseus
Posts: 652
Joined: Sat Jan 23, 2016 9:40 am

Re: advice on retirement portfolio for a $20m windfall

Post by Theseus » Tue Jan 21, 2020 4:05 pm

spindrift103 wrote:
Tue Jan 14, 2020 11:29 pm

- I will definitely be quitting my job (let’s get that out of the way)
Congratulations !!

Not the question you asked. But if you are not planning to work for money in the future and want to do something worthwhile, see if you would want to become a SCORE mentor for small business owners (www.score.org). After an exit of my business (I owned 100%) about 2.5 years ago I became a SCORE mentor. And I am absolutely loving it. You can make a huge difference in a business owner's life and help small businesses that power a significant portion of US economy !!

Topic Author
spindrift103
Posts: 11
Joined: Fri Jan 10, 2020 7:28 pm

Re: advice on retirement portfolio for a $20m windfall

Post by spindrift103 » Tue Jan 21, 2020 4:22 pm

I was not aware of that, thx for the advice! Funny you mention that, I was just the other day hit for the first time with this weird (and almost depressing) feeling of 'ok, what the heck I'm I gonna do for the next X years?' (spending more time on my hobbies is great and all, but it's proven that what motivates men in particular is being 'relevant and having responsibilities')
Theseus wrote:
Tue Jan 21, 2020 4:05 pm
spindrift103 wrote:
Tue Jan 14, 2020 11:29 pm

- I will definitely be quitting my job (let’s get that out of the way)
Congratulations !!

Not the question you asked. But if you are not planning to work for money in the future and want to do something worthwhile, see if you would want to become a SCORE mentor for small business owners (www.score.org). After an exit of my business (I owned 100%) about 2.5 years ago I became a SCORE mentor. And I am absolutely loving it. You can make a huge difference in a business owner's life and help small businesses that power a significant portion of US economy !!

Theseus
Posts: 652
Joined: Sat Jan 23, 2016 9:40 am

Re: advice on retirement portfolio for a $20m windfall

Post by Theseus » Tue Jan 21, 2020 4:55 pm

spindrift103 wrote:
Tue Jan 21, 2020 4:22 pm
I was not aware of that, thx for the advice! Funny you mention that, I was just the other day hit for the first time with this weird (and almost depressing) feeling of 'ok, what the heck I'm I gonna do for the next X years?' (spending more time on my hobbies is great and all, but it's proven that what motivates men in particular is being 'relevant and having responsibilities')
Theseus wrote:
Tue Jan 21, 2020 4:05 pm
spindrift103 wrote:
Tue Jan 14, 2020 11:29 pm

- I will definitely be quitting my job (let’s get that out of the way)
Congratulations !!

Not the question you asked. But if you are not planning to work for money in the future and want to do something worthwhile, see if you would want to become a SCORE mentor for small business owners (www.score.org). After an exit of my business (I owned 100%) about 2.5 years ago I became a SCORE mentor. And I am absolutely loving it. You can make a huge difference in a business owner's life and help small businesses that power a significant portion of US economy !!
I chose (forced) not to have an earn out (despite it cause a lower valuation). I just didn't want to witness someone else managing my baby :). So I went from super busy to absolutely nothing to do. Big adjustment!! I was 50 - I still had least 35 years or perhaps another 50 to go. What am I going to do? :). One thing I knew for sure was that I couldn't bring myself to work just for money again. And it took a few months to realize how much stress I was carrying when I ran my business. So unless I come across something that I will choose to burn the midnight oil, I am not working. So volunteering is a good option to keep busy.

Anyways, it took some time to ramp up and get certified to become a score mentor. Initially I wasn't sure I was going to be helpful as my background is narrow and deep in IT. Clients at score have needs that I have no experience in (reprinting confederate books, mobile ultrasound veterinarian, video producer, several different Apps that can scale to be $100 million plus businesses, bakery....and everything you can imagine). But I learned to rely on my experience and more importantly the reach back of my local chapter and national mentors (total 13,000+ mentors nationally). And even that is now rarely needed.

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