Safer investments for 8m over 2-3 years?

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tmbm50
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Safer investments for 8m over 2-3 years?

Post by tmbm50 »

Hi Everyone,

My 401k and Roth investments are with Vanguard. I recently sold my business and have close to 8m in cash and I'm looking for insight about putting this in some lower yield investments for the next few years. In 3-5 years, my plan is to buy another business with this cash and start over. Of course, when that actually happens is flexiable. Not looking for steller returns but hate it sitting doing nothing.

Here are my concerns/questions
1. Should I leave this in a CD/Money market, or can I eek out 1% or 2% in a low risk fund over a CD.
2. I know I can't time the market, but I'd hate to dump in 8m and then have the market bottom out in the next 12 months and lose half my money.
3. Maybe a short term treasury like VFISX? It seems FED rates will be low for the next few years so is this more stable?
4. Finally, if doing a fund like VFISX, whats the advanatge of a ETF over Mutal if I don't need to schedule purchases.

Thanks everyone.
livesoft
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Re: Safer investments for 8m over 2-3 years?

Post by livesoft »

Presumably you don't care about FDIC insurance accounts or not.

You can purchase Treasury securities directly at Vanguard.com. That's probably what I would do with $8M. (Well, I would put a chunk into the stock market myself.)
Last edited by livesoft on Mon Sep 14, 2020 7:42 am, edited 1 time in total.
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Call_Me_Op
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Re: Safer investments for 8m over 2-3 years?

Post by Call_Me_Op »

Unless you are willing to risk principal, US treasuries (preferably purchased as individual securities maturing in less than 2-3 years) are your only option.
Last edited by Call_Me_Op on Mon Sep 14, 2020 7:34 am, edited 1 time in total.
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Gill
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Re: Safer investments for 8m over 2-3 years?

Post by Gill »

I wouldn't invest that amount in anything but US Treasuries for a relatively short term investment.
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Last edited by Gill on Mon Sep 14, 2020 4:38 pm, edited 1 time in total.
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Topic Author
tmbm50
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Re: Safer investments for 8m over 2-3 years?

Post by tmbm50 »

And when you folks say Treasuries, you mean to purchase directly or a mutal/ETF backed by Treasuries?

I am willing to risk a little principle. So I'm not totally risk adverse, just don't want to loose my shirt becuase I got greedy on a short term bet.
Dottie57
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Re: Safer investments for 8m over 2-3 years?

Post by Dottie57 »

Stocks are volatile meaning big swings. Corporate bonds - companies go bankrupt. So to me that means

Keep your principal and go with little yield in this environment.
livesoft
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Re: Safer investments for 8m over 2-3 years?

Post by livesoft »

tmbm50 wrote: Mon Sep 14, 2020 7:46 am And when you folks say Treasuries, you mean to purchase directly or a mutal/ETF backed by Treasuries?

I am willing to risk a little principle. So I'm not totally risk adverse, just don't want to loose my shirt becuase I got greedy on a short term bet.
Directly as I wrote.
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ef11
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Re: Safer investments for 8m over 2-3 years?

Post by ef11 »

You say you may need the money in 3-5 years.

So what about a 3-year MYGA? blueprintincome shows you can get a little over 2% with an A+ rated company.

Over the 3 years, the $8 MM would earn about $500 M in interest.

Doesn't seem to be the worst option for at least a part of the money.
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gougou
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Re: Safer investments for 8m over 2-3 years?

Post by gougou »

Treasury is the safest. CDs are also pretty safe.

Then you can look at municipal bonds. Those are typically exempt from federal & state income tax (so they are good if you are in a high income tax bracket).

Then maybe corporate bonds with high credit rating.
statefan03
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Re: Safer investments for 8m over 2-3 years?

Post by statefan03 »

For 3-5 years, probably a 20% equity / 80% fixed income investment mix would be good. Something like
FIKFX - Fidelity Freedom Index Income Fund
https://fundresearch.fidelity.com/mutua ... /315792150

I'm sure Vanguard has an equivalent.
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Stinky
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Re: Safer investments for 8m over 2-3 years?

Post by Stinky »

ef11 wrote: Mon Sep 14, 2020 1:41 pm You say you may need the money in 3-5 years.

So what about a 3-year MYGA? blueprintincome shows you can get a little over 2% with an A+ rated company.

Over the 3 years, the $8 MM would earn about $500 M in interest.

Doesn't seem to be the worst option for at least a part of the money.
While I’m a fan of MYGAs and own some myself, I’d be hard pressed to suggest a MYGA for this person. Several reasons-

—- Many states have guaranty fund protection only up to $250k. So OP would need to purchase MYGAs from many companies to get fully covered.

—- If OP is under age 59.5 when he cashed out of the MYGA, he will owe an additional 10% penalty tax, on top of regular federal income tax.

—- if OP wants to get at his money before the three year term is up, he would face a punishing surrender charge. It could be in the range of 7-9%, and could cause OP to pass on an otherwise promising business investment that happens to come in before 3 years has run.
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terran
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Re: Safer investments for 8m over 2-3 years?

Post by terran »

I could be totally off base, so feel free to ignore, but I wonder if you're asking the right question?

With an $8M portfolio you could never work another day in your life and still spend $280k/year at a conservative withdrawal rate. No one needs (though some might want) more than that, so what's driving you to keep going?

Do you want to go from quite rich to filthy rich despite a risk of ending up back at square one? Or do you want to make a dent in the world? Then with a proven track record in entrepreneurship and $8M to spare, doing as you plan and buying a business with the whole amount to try to go big probably makes sense.

Do you enjoy owning and managing a small business? Then maybe investing enough to live off of in a 60/40 stock/bond portfolio and buying a less expensive small business/hobby might make sense?

Do you like the risk/reward of small business investing, but you've been there done that on the long hours and hard work? Then investing enough to live off of in a 60/40 stock/bond portfolio and becoming an angel investor with the rest so you can be involved in lots of small companies without going all in on one personally? might be the way to go?

You might (probably) have already thought through your options for the next stage of your life, but this is life changing money multiple times over, so you certainly don't have to "start over" as you say if that's not what you want to do, and the only time the consensus opinion in this thread of investing everything in treasuries would really make sense is if you really do want to "spend" all of this money within the next few years.
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Re: Safer investments for 8m over 2-3 years?

Post by willthrill81 »

CDs have a much higher yield than bonds of equivalent maturity. You can get a 12 month CD paying .75%.

OP, if you're open to some volatility, I'd suggest that you consider a 20% stock / 80% CD allocation for the funds. By doing so, you'd at least have a good chance of matching inflation. No fixed income instrument is likely to even match inflation over the next 2-3 years.
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ef11
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Re: Safer investments for 8m over 2-3 years?

Post by ef11 »

Stinky wrote: Mon Sep 14, 2020 2:28 pm
ef11 wrote: Mon Sep 14, 2020 1:41 pm You say you may need the money in 3-5 years.

So what about a 3-year MYGA? blueprintincome shows you can get a little over 2% with an A+ rated company.

Over the 3 years, the $8 MM would earn about $500 M in interest.

Doesn't seem to be the worst option for at least a part of the money.
While I’m a fan of MYGAs and own some myself, I’d be hard pressed to suggest a MYGA for this person. Several reasons-

—- Many states have guaranty fund protection only up to $250k. So OP would need to purchase MYGAs from many companies to get fully covered.

—- If OP is under age 59.5 when he cashed out of the MYGA, he will owe an additional 10% penalty tax, on top of regular federal income tax.

—- if OP wants to get at his money before the three year term is up, he would face a punishing surrender charge. It could be in the range of 7-9%, and could cause OP to pass on an otherwise promising business investment that happens to come in before 3 years has run.
All valid points. I was thinking he could purchase 4 and at least get $1 MM of it earning a better yield.
Even after taxes and the 10% penalty, the yield would be better than other 3 year products I believe.
And with only a small part locked up, he wouldn't likely have to surrender.

But, at the end of the day all of that work to get 1/8th of it with a slightly higher yield, yes likely not worth it.
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Leesbro63
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Re: Safer investments for 8m over 2-3 years?

Post by Leesbro63 »

I'm curious why the 2-3 year wait to do something else with the money?
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Re: Safer investments for 8m over 2-3 years?

Post by Gill »

ef11 wrote: Mon Sep 14, 2020 1:41 pm You say you may need the money in 3-5 years.

So what about a 3-year MYGA? blueprintincome shows you can get a little over 2% with an A+ rated company.

Over the 3 years, the $8 MM would earn about $500 M in interest.

Doesn't seem to be the worst option for at least a part of the money.
Lending that much money to an insurance company? Why take that risk?
Gill
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Re: Safer investments for 8m over 2-3 years?

Post by 000 »

I certainly wouldn't put it all in treasuries.

Inflation risk is real.

I would prefer to add in some TIPS, highly rated corporates, and a dash of stocks and precious metals.
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Re: Safer investments for 8m over 2-3 years?

Post by 000 »

There is also such a thing as CDARS you can read up on.
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tmbm50
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Re: Safer investments for 8m over 2-3 years?

Post by tmbm50 »

Thanks for the good feedback everyone. I thought I replied earlier but don't see it in the thread.

To answer some of the questions, I am decades from retiring and need to work because of its part of what drives me. So having cash to invest in a new startup is true goal. The 2-3 years are because I promised the significant others a bit of relaxation before diving back into it (and I need time to find the right opportunity)

I think I'm leaning towards a good mix of CDs,Tresuries and 10%-20% stocks etc. Though a few of the suggestions here are new to me so I'll research them and add to the mix...maybe.
Last edited by tmbm50 on Mon Sep 14, 2020 6:16 pm, edited 1 time in total.
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Re: Safer investments for 8m over 2-3 years?

Post by Gill »

tmbm50 wrote: Mon Sep 14, 2020 5:54 pm Thanks for the good feedback everyone. I thought I replied earlier but don't see it in the thread.

To answer some of the questions, I am decades from retiring and need to work because of its part of what drives me. So having cash to invest in a new startup is true goal. The 2-3 years are because I promised the significant others a bit of relaxation before diving back into it (and I need time to find the right opportunity)

I think I leaning towards a good mix of CDs,Tresuries and 10-20 stocks etc. Though a few of the suggestions here are new to me so I'll research them and add to the mix...maybe.
10-20 stocks? That opens up a whole new discussion. Probably not a move most of us would suggest.
Gill
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Re: Safer investments for 8m over 2-3 years?

Post by rkhusky »

tmbm50 wrote: Mon Sep 14, 2020 5:54 pm
I think I leaning towards a good mix of CDs,Tresuries and 10-20 stocks etc.
Hopefully you meant 10-20% in stocks, ie Total Stock Market and/or Total International Stock Market.
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tmbm50
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Re: Safer investments for 8m over 2-3 years?

Post by tmbm50 »

Yeah, sorry...meant to a % in there.
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Re: Safer investments for 8m over 2-3 years?

Post by vineviz »

tmbm50 wrote: Mon Sep 14, 2020 5:54 pm Thanks for the good feedback everyone. I thought I replied earlier but don't see it in the thread.

To answer some of the questions, I am decades from retiring and need to work because of its part of what drives me. So having cash to invest in a new startup is true goal. The 2-3 years are because I promised the significant others a bit of relaxation before diving back into it (and I need time to find the right opportunity)

I think I'm leaning towards a good mix of CDs,Tresuries and 10%-20% stocks etc. Though a few of the suggestions here are new to me so I'll research them and add to the mix...maybe.
I think there is a reasonable (though slightly unconventional) argument to be made that stocks are the LEAST risky investment you could make given your goal.

The idea is that the cost of whatever business you might want to start/buy in three to five years is MORE correlated with stocks (which, after all, are simply the PV of future cash flows for a bunch of OTHER businesses that could be started/bought).

If stocks rise significantly over the next 3-5 years, it will presumably be because business and economic conditions (i.e. employment, cost of capital, GDP growth, global trade situation, etc.) are such that the cost of buying or starting a new business is likely to be significantly higher as well.

On the other hand, if stocks fall significantly over the next 3-5 years, it will presumably be due to gloomier business and/or economic conditions. Which will, in turn, reduce the cost to start up or buy a new business for you.

In short, the asset that (theoretically) most closely matches your liability (the PV of some future business startup or acquisition) is a broad US stock market index. More specifically, probably a small cap index.

Personally, I wouldn't be comfortable doing 100% stock if I were in your shoes but I think you could make a strong case for something more than 10-20% stocks.

Honestly something like 1/3 each in US stocks, long-term US Treasury bonds, and short-term US investment grade corporate bonds would possibly be a good mix between matching the characteristics of your investment goal while reducing portfolio volatility.
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Re: Safer investments for 8m over 2-3 years?

Post by 000 »

vineviz wrote: Mon Sep 14, 2020 6:43 pm I think there is a reasonable (though slightly unconventional) argument to be made that stocks are the LEAST risky investment you could make given your goal.

The idea is that the cost of whatever business you might want to start/buy in three to five years is MORE correlated with stocks (which, after all, are simply the PV of future cash flows for a bunch of OTHER businesses that could be started/bought).

If stocks rise significantly over the next 3-5 years, it will presumably be because business and economic conditions (i.e. employment, cost of capital, GDP growth, global trade situation, etc.) are such that the cost of buying or starting a new business is likely to be significantly higher as well.

On the other hand, if stocks fall significantly over the next 3-5 years, it will presumably be due to gloomier business and/or economic conditions. Which will, in turn, reduce the cost to start up or buy a new business for you.

In short, the asset that (theoretically) most closely matches your liability (the PV of some future business startup or acquisition) is a broad US stock market index. More specifically, probably a small cap index.
I just want to say I agree with this.
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Re: Safer investments for 8m over 2-3 years?

Post by cncm »

I would put the amount you'd like to invest in the new start-up in Treasuries...specifically Treasury bonds maturing in the time frame when you'd need the money (bonds are not riskless investments...they can have price volatility between now and maturity...but if you hold it to maturity, you're guaranteed to get your principle back).

I would not put in corporate bonds, given the prospect of high defaults/prolonged recession in the next few years.
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Re: Safer investments for 8m over 2-3 years?

Post by 000 »

One other possibility for the startup money is to put the vast majority in various fixed income investments and a very small portion in LEAP call options on major equity indices as insurance for the case where you decide not to do the startup and equity markets have moved up significantly since.
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Re: Safer investments for 8m over 2-3 years?

Post by DSBH »

Imho, Vanguard Target Retirement Income (VTINX) for 2 to 3 yrs / as long as you like.
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Re: Safer investments for 8m over 2-3 years?

Post by inbox788 »

000 wrote: Mon Sep 14, 2020 7:43 pm One other possibility for the startup money is to put the vast majority in various fixed income investments and a very small portion in LEAP call options on major equity indices as insurance for the case where you decide not to do the startup and equity markets have moved up significantly since.
I don't like LEAPS for this. Price too high and low probability of exceeding profit threshold. I'm not that optimistic on the market, yet not that gloomy that I'd want all bonds. A lot of questions that popped in my mind were well addressed and I learned a lot (why MYGA might be good and why not in this case). With a low percentage in equities, I though 20/80 or 30/70 was appropriate for 3 years taking some risk with modest limit to downside. The answer really depends on what risk one is trying to protect most from and how greedy one gets. Is there a minimum cash level needed in 3 years? The more flexible that bottom number the more risk one can take. I'd be looking more to limit the downside than extend the upside.
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Re: Safer investments for 8m over 2-3 years?

Post by JonnyDVM »

2-3 years you want treasuries or maybe high grade corporate bonds.

I get it. If you’re the type of person driven enough to start a business and build it up to the point where you can sell it for 8 million, you aren’t going to want to take your money and sit quietly on a beach for the rest of your life. Not all of us hate working. Bravo OP
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