Do you need bonds if you're ultra-wealthy?

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boggler
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Do you need bonds if you're ultra-wealthy?

Post by boggler » Fri Aug 02, 2013 7:29 pm

Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?

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Re: Do you need bonds if you're ultra-wealthy?

Post by tludwig23 » Fri Aug 02, 2013 7:36 pm

If you are only spending 0.1% of your portfolio per annum, you would not need bonds. What is the worse case scenario for stocks? 90% loss? You would still have 10 million and only be spending 1% of your portfolio. That being said, few people with $100M would continue to spend only $100K for long, IMHO.
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Re: Do you need bonds if you're ultra-wealthy?

Post by Wagnerjb » Fri Aug 02, 2013 7:41 pm

boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k.
Do you REALLY think people with $100 million are only spending $100k a year???? :D
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Re: Do you need bonds if you're ultra-wealthy?

Post by boggler » Fri Aug 02, 2013 7:47 pm

Wagnerjb wrote:
boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k.
Do you REALLY think people with $100 million are only spending $100k a year???? :D
This question is in the Theory section for a reason :)

My question has more to do with the role of bonds in a portfolio. If you have so much more money than you could ever need, do you care about bonds?

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Re: Do you need bonds if you're ultra-wealthy?

Post by John3754 » Fri Aug 02, 2013 7:53 pm

How would you feel if you put $100M in stocks and the market tanked 80% and you were down $80M?

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Re: Do you need bonds if you're ultra-wealthy?

Post by Higman » Fri Aug 02, 2013 8:06 pm

As Larry Swedroe would say: “Do Not Take More Risk Than You Have the Ability, Willingness, or Need to Take.” If you’ve already won the game then why play. Other than legacy concerns I would assume someone in the financial position described would be all into real estate, government bonds and cash and not in to stocks at all (or perhaps 20% at maximum). So yes – one should have bonds and mostly municipal bonds and TIPS.

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Re: Do you need bonds if you're ultra-wealthy?

Post by nisiprius » Fri Aug 02, 2013 8:06 pm

If you are sufficiently wealthy and you have decreasing relative risk aversion, bonds are no longer needed.

If you are sufficiently wealthy and you have increasing relative risk aversion, stocks are no longer needed.

There's no objectively right or wrong answer to this. The right answer is to "know thyself" and invest according to your personal degree of taste for risk or aversion to risk, and not to let anyone else try to project their personal tastes onto you.

I would hazard a guess that Larry Swedroe's dictum is based on personal observation that his wealthy clients tend to have increasing relative risk aversion.
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Re: Do you need bonds if you're ultra-wealthy?

Post by freebeer » Fri Aug 02, 2013 8:10 pm

No of course you don't need bonds if you have $100M portfolio and only need to spend $100K/year!

Larry Swedroe's writing about reducing risk in a portfolio as need to take risk diminishes is really about the transition from not having quite enough to having enough (my take would be - as the % needed annually for living expenses drops from say 4%... where you'd better have a high % of equities to have a decent chance of that working out... down to 3% or 2%). What your hypothetical example points out is that as a portfolio gets well beyond "enough" that calculation arguably flips around again. Since there's no realistic risk of shortfall due to the higher volatility of equities vs. bonds, and one presumably has at least some bequest motive, one might as well have higher % of equities.

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Re: Do you need bonds if you're ultra-wealthy?

Post by etarini » Fri Aug 02, 2013 8:11 pm

boggler wrote: If you have so much more money than you could ever need, do you care about bonds?
I'd put it another way: if you have so much more money than you could ever need, do you care about STOCKS?

Do you care about ANY asset class?

You often see people here say that you "need" stocks to protect you against inflation. Baloney! You don't need stocks OR bonds!

All you need is a really big pile of money under the mattress! It's only if you don't have a big enough pile of money that you have to start thinking about expected returns and withdrawal rates.

Of course, that covers about 99.9% of us...

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Re: Do you need bonds if you're ultra-wealthy?

Post by JoMoney » Fri Aug 02, 2013 8:15 pm

etarini wrote:Do you care about ANY asset class?

You often see people here say that you "need" stocks to protect you against inflation. Baloney! You don't need stocks OR bonds!

All you need is a really big pile of money under the mattress! It's only if you don't have a big enough pile of money that you have to start thinking about expected returns and withdrawal rates.
Spot on! With 10mil in the bank, I could spend $200k a year for 50 years and not worry about "investing" it... although with that much money sitting around, it's bound to start earning some interest...
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Re: Do you need bonds if you're ultra-wealthy?

Post by tipswatcher » Fri Aug 02, 2013 8:55 pm

If I had $100 million I wouldn't put it all into stocks.

I would buy a major league baseball team, a yacht, three houses in Europe.

I'd invest the rest in a hedge fund with a 12% annual commission.

Pretty soon, I'd be trying to figure out how to live on $1 million the rest of my life.

Actually ... I'd probably put 20% into stock index funds, 40% into bond index funds, and 40% into super safe investments like TIPS, Treasuries and bank CDs.

And I'd force myself (sob) to live on $500,000 a year.

Some charity would get a lot of money when I died.
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Re: Do you need bonds if you're ultra-wealthy?

Post by MN Finance » Fri Aug 02, 2013 9:00 pm

This is why investment allocations are very specific to each investor and while there are rules thumb, they don't mean anything to anybody in particular - they are just good if you're writing an article that will be viewed by millions. To a more normal level - there are lots of people who have a million or two (or less) that draw very little from their portfolios. My parents are a good example. With SS and Pensions they have a 0% withdrawal rate, even if some major expenses come up, it would probably still be 0%. As such, it goes without saying that they have to find a portfolio that matches their risk tolerance - fine - but even more importantly, they have to identify what their other goals are and invest with those in mind. People often think that someone well-off has very little to worry about - ok, maybe compared to someone wondering if they'll need to move in with the kids someday. But really, they have other things to accomplish (like your 100M person), They don't just accumulate wealth and then say, great lets go to the beach. It still needs to be invested in a way that supports the entirety of their life. So equal people on paper could have opposite portfolios. One might say, we *need* to leave at lease a million to the kids, so maybe they literally take no risk to ensure it's at least a million and ladder TIPS. Or they may say, we're only 65 and want to leave the largest possible nest egg to charity - so maybe they invest in an 80/20 portfolio. It's a complex question.

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Re: Do you need bonds if you're ultra-wealthy?

Post by JoMoney » Fri Aug 02, 2013 9:23 pm

What most people do with sudden wealth is just more of what they were doing before they were wealthy.
People who never save or learn to handle money generally never have any, or when they do they destroy it. Read the stories about lottery winners who go broke.
After you have the safety of an "emergency fund" there's no reason to allocate your money any differently no matter how much it is. But if you're accustomed to having a very large income, you should have a very large "emergency fund" to match your expected lifestyle.
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Re: Do you need bonds if you're ultra-wealthy?

Post by Caduceus » Fri Aug 02, 2013 9:46 pm

What about taking a look at the institutional portfolio allocations of really wealthy institutions like Yale (run by David Swensen)? Maybe it would give some food for thought/comparison. I suppose it's a little different because even with Yale, the endowment only provides roughly 30% of the operating budget, so the university cannot draw down funds indefinitely to sustain itself. But if i don't remember incorrectly, Yale has a high proportion of its funds dedicated to real-estate investments and fixed income, and they, like your hypothetical investor, also have an infinite investing lifespan.

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Re: Do you need bonds if you're ultra-wealthy?

Post by avalpert » Fri Aug 02, 2013 10:47 pm

boggler wrote:
Wagnerjb wrote:
boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k.
Do you REALLY think people with $100 million are only spending $100k a year???? :D
This question is in the Theory section for a reason :)

My question has more to do with the role of bonds in a portfolio. If you have so much more money than you could ever need, do you care about bonds?
If you have so much more money than you could ever need, do you care about equities? Do you care about returns at all? You have zero need to take any risk - why do it?

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Re: Do you need bonds if you're ultra-wealthy?

Post by clacy » Fri Aug 02, 2013 11:56 pm

I would only care about pacing inflation if I had that kind of wealth. Something like:

5% US Stocks
5% Foreign Stocks
15% Gold
10% Real Estate
30% Intermediate US Treasuries (nominal and TIPS)
35% Short Term US Treasuries

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Re: Do you need bonds if you're ultra-wealthy?

Post by bertilak » Sat Aug 03, 2013 6:04 am

About that statement: "If you've already won the game, why continue to play?"

I think the answer is in the word "play." People like to play. Someone who has "already won" is likely good at the game and likes to play hard. So the winners will more than likely keep on playing. They will find ever-more sophisticated ways of playing.

That is, except for the lottery-winner-types who won by playing the wrong game and just lucked into a winning position.
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Re: Do you need bonds if you're ultra-wealthy?

Post by The Wizard » Sat Aug 03, 2013 7:08 am

bertilak wrote:About that statement: "If you've already won the game, why continue to play?"

I think the answer is in the word "play." People like to play. Someone who has "already won" is likely good at the game and likes to play hard. So the winners will more than likely keep on playing. They will find ever-more sophisticated ways of playing.

That is, except for the lottery-winner-types who won by playing the wrong game and just lucked into a winning position.
I tend to agree. People who made $100M by their own hand generally started a company of some sort; they didn't just work as an employee and save 30% of their salary for several decades. So I'd expect they would diversify some percentage of their wealth out of their WalMart or Microsoft investments (to pick two big examples) but they would continue with a major ownership stake in what worked well to begin with. The extremely wealthy are different from you & me...
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Re: Do you need bonds if you're ultra-wealthy?

Post by MnD » Sat Aug 03, 2013 7:16 am

Stocks? Bonds? Ha! That's for the little people.
I would make the big bucks and then invest in condos in Arizona in 2008 with borrowed money and personally guarantee the loans.

An Arizona condominium development in which former Denver Broncos place-kicker David Treadwell invested and later defaulted has ended in a $6.4 million court judgment against him. The Denver District Court judgment in favor of First-Citizens Bank & Trust was the result of a 58-unit condo complex called Sierra Verde Villas in Phoenix that ran into financial problems, forcing Treadwell and his three partners in the venture to file for bankruptcy in 2011.

"We're disappointed," said Dan Scheid, Treadwell's attorney. "We disagree with the court's reading of the contracts."
Treadwell has not decided whether he will appeal, Scheid said.

As Sierra Verde II, Treadwell partnered with Michael Blumenthal and Robert Quinette, along with Blumenthal's self-named enterprise, in a $6.2 million loan originally with United Western Bank to build the complex in 2008. Treadwell, a member of the Broncos from 1989 to 1992 before retiring with the New York Giants in 1994, personally guaranteed the note, which was later split into two notes, one of $4 million and the second for the remainder. The notes came due in March 2011.

United Western failed in January 2011, and First-Citizens acquired its assets. With interest and penalties, the notes ballooned to more than $9 million, but the amount was lowered when the 2.5-acre development was sold this year for $3.2 million. Treadwell, who graduated from the University of Denver Sturm College of Law after his football career, unsuccessfully argued that the bankruptcy plan to sell the property cleared his personal obligation.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Call_Me_Op » Sat Aug 03, 2013 7:41 am

If I had that kind of money, I'd be asking the exact opposite question - do need any stocks? The answer, of course, is "no", but I'd probably keep 10%-20% in stocks to maintain puchasing power.
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Re: Do you need bonds if you're ultra-wealthy?

Post by thx1138 » Sat Aug 03, 2013 7:47 am

Set a floor of 100K in real income for life. Annuities (EDIT: no, not annuities), TIPS ladders and that sort of thing. It would be silly not to create a rock solid floor - this is the "don't play the game if you've won" portion of your portfolio. Anyone not doing this doesn't understand risk, how to mitigate it or what the point of having an investment portfolio is for retirement. Not doing this when having $100M with $100K of expenses would be ridiculous, there is no other sane option.

Now, after that has been setup you will still have a ridiculously large pot of money left to invest somewhere. What you do with that completely depends on your goals for yourself, your heirs, charities and the like. For your heirs you might invest it a particular way to protect them and have the best tax treatment keeping an investment horizon focuses on your death and the date of their likely need. If you setup some sort of foundation or endowment you might setup what is essentially an infinite horizon. Really no way to say what is "best" as it completely depends.

That said, only a fool with no understanding of what risk actually is would not create an extremely low risk floor of income. The nice thing is that in a portfolio this large with such a small spend rate such a floor is created "automatically" with almost any diversification of asset classes. Even a tiny fraction in US Treasuries (both nominal and inflation protected) would create such a floor. So while one should really think a bit about allocation in the context of a LMP the reality is almost any measurable bond allocation will probably give you that even in a fixed percentage AA. Essentially the liability is so small that the choices one makes in an LMP approach aren't particularly relevant.

EDIT: Silly me saying annuities at first, this portfolio has no longevity risk at all and the death credits of an annuity are expensive. This is a case for "self insurance" in the sense of longevity risk.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Dandy » Sat Aug 03, 2013 8:11 am

I believe that studies have indicated that something like 80% equities would be the allocation that would grow better. There are several periods where bonds return more than stocks. I guess my question is why would a person who had $100 million and only $100k in yearly expenses want growth vs capital preservation. I guess they could be growing the assets for heirs or charity. If I were an heir I would like to have a smaller sum now. If I were a charity probably the same.

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Re: Do you need bonds if you're ultra-wealthy?

Post by lhl12 » Sat Aug 03, 2013 8:26 am

In the hypothetical given, the real question is who gets the money when you die. There will obviously be a giant amount of money that will go to someone - your kids (or grandkids) or some sort of charity - when you're gone. During your lifetime you are managing nearly all of that $100 million on behalf of your heirs, not yourself, so your asset allocation should be configured with that in mind. You could certainly put 100% into equities, but that would mean that your heirs would have 100% in equities. How appropriate would that allocation be for them?

A related question is what percentage equity allocation should a perpetual life charity have for its endowment? Some Trustees might argue that 100% equities are appropriate. To the extent that the charity has a non-zero draw percentage, however, then 100% is probably imprudent.

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Re: Do you need bonds if you're ultra-wealthy?

Post by FafnerMorell » Sat Aug 03, 2013 8:31 am

Purely in theory, if you've got $100 million and only spend $100k a year then you can live for 1,000 years and not worry about this whole stock vs bond vs anything. It wouldn't work for Mel Brook's 2000 year old man, but for anyone else - no worries!

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 8:38 am

JoMoney wrote:
etarini wrote:Do you care about ANY asset class?

You often see people here say that you "need" stocks to protect you against inflation. Baloney! You don't need stocks OR bonds!

All you need is a really big pile of money under the mattress! It's only if you don't have a big enough pile of money that you have to start thinking about expected returns and withdrawal rates.
Spot on! With 10mil in the bank, I could spend $200k a year for 50 years and not worry about "investing" it... although with that much money sitting around, it's bound to start earning some interest...
Not spot on. Look at Wiemar Germany. And there is a whole group of economic thinkers who think the end result of what's been happening the last 5 years will be that. I AM NOT ONE OF THEM NOR PREDICTING. Just pointing out that this risk cannot be ignored.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 8:39 am

lhl12 wrote:In the hypothetical given, the real question is who gets the money when you die. There will obviously be a giant amount of money that will go to someone - your kids (or grandkids) or some sort of charity - when you're gone. During your lifetime you are managing nearly all of that $100 million on behalf of your heirs, not yourself, so your asset allocation should be configured with that in mind. You could certainly put 100% into equities, but that would mean that your heirs would have 100% in equities. How appropriate would that allocation be for them?

A related question is what percentage equity allocation should a perpetual life charity have for its endowment? Some Trustees might argue that 100% equities are appropriate. To the extent that the charity has a non-zero draw percentage, however, then 100% is probably imprudent.
Charities commonly distribute 5%. The difference between them and a retired wealthy person is their ability to attract new donations.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 8:40 am

thx1138 wrote:Set a floor of 100K in real income for life. Annuities (EDIT: no, not annuities), TIPS ladders and that sort of thing. It would be silly not to create a rock solid floor - this is the "don't play the game if you've won" portion of your portfolio. Anyone not doing this doesn't understand risk, how to mitigate it or what the point of having an investment portfolio is for retirement. Not doing this when having $100M with $100K of expenses would be ridiculous, there is no other sane option.

Now, after that has been setup you will still have a ridiculously large pot of money left to invest somewhere. What you do with that completely depends on your goals for yourself, your heirs, charities and the like. For your heirs you might invest it a particular way to protect them and have the best tax treatment keeping an investment horizon focuses on your death and the date of their likely need. If you setup some sort of foundation or endowment you might setup what is essentially an infinite horizon. Really no way to say what is "best" as it completely depends.

That said, only a fool with no understanding of what risk actually is would not create an extremely low risk floor of income. The nice thing is that in a portfolio this large with such a small spend rate such a floor is created "automatically" with almost any diversification of asset classes. Even a tiny fraction in US Treasuries (both nominal and inflation protected) would create such a floor. So while one should really think a bit about allocation in the context of a LMP the reality is almost any measurable bond allocation will probably give you that even in a fixed percentage AA. Essentially the liability is so small that the choices one makes in an LMP approach aren't particularly relevant.

EDIT: Silly me saying annuities at first, this portfolio has no longevity risk at all and the death credits of an annuity are expensive. This is a case for "self insurance" in the sense of longevity risk.

The amount of TIPS required to generate $100,000 in income would get badly whacked by taxes if big inflation ever returns. And anyone with a portfolio that large will probably have the money in a taxable account.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 8:43 am

I've been studying (and doing) financial markets and investing for almost 30 years. The more I learn, the more I'm convinced Ben Graham had it right (for large portfolios well into the accumulation stage and beyond): Half equities and half fixed income. There are basically two risks (inflation and deflation) and we have no way to ever know which will happen when.

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Re: Do you need bonds if you're ultra-wealthy?

Post by TheTimeLord » Sat Aug 03, 2013 8:44 am

boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?
Actually would the question be do you need stocks. In your scenario it would seem TIPS would be the play.
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Re: Do you need bonds if you're ultra-wealthy?

Post by lhl12 » Sat Aug 03, 2013 8:46 am

Leesbro63 wrote:
Charities commonly distribute 5%. The difference between them and a retired wealthy person is their ability to attract new donations.
Operating charities (e.g. schools, museums, social service organizations, etc.) have the ability to attract new donations but most private foundations get funded from the estate of the person who created the foundation and never receive another dollar after that. The asset allocation question is more interesting (and better defined) for private foundations. Operating charities need to consider the question as well, but it's a different question.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 8:46 am

StarbuxInvestor wrote:
boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?
Actually would the question be do you need stocks. In your scenario it would seem TIPS would be the play.
IMHO this would be foolish. $100million would surely be in a taxable account. Consider the taxes due on phantom gains (due to inflation) if inflation hit 10% for 4 years or something like that. Or worse.

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Re: Do you need bonds if you're ultra-wealthy?

Post by TheTimeLord » Sat Aug 03, 2013 9:07 am

Leesbro63 wrote:
StarbuxInvestor wrote:
boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?
Actually would the question be do you need stocks. In your scenario it would seem TIPS would be the play.
IMHO this would be foolish. $100million would surely be in a taxable account. Consider the taxes due on phantom gains (due to inflation) if inflation hit 10% for 4 years or something like that. Or worse.
Explain how they would be phantom gains. I must be under a very incorrect impression on how Treasury Inflation-Protected Securities work.
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Re: Do you need bonds if you're ultra-wealthy?

Post by rec7 » Sat Aug 03, 2013 9:10 am

I would put it in CD's but that would take 400 banks or credit unions. So bonds would be a lot easier but I would rather CD's.

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Re: Do you need bonds if you're ultra-wealthy?

Post by supersharpie » Sat Aug 03, 2013 9:16 am

boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?
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Re: Do you need bonds if you're ultra-wealthy?

Post by wander » Sat Aug 03, 2013 9:26 am

boggler wrote:Is there a wealth level at which bonds are no longer needed?
I don't see why ultra-wealthy doesn't need bonds. Just ask Suze Orman.

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Re: Do you need bonds if you're ultra-wealthy?

Post by KyleAAA » Sat Aug 03, 2013 9:31 am

The ultra-wealthy of the kind you describe could literally invest anyway they wanted to and still come out fine. They could probably even invest in lottery tickets and be alright.

Personally, I'd probably just go 50/50 in that scenario, not because I think it's correct or optimal or anything like that, but just because 50/50 is easier to conceptualize.

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Re: Do you need bonds if you're ultra-wealthy?

Post by z3r0c00l » Sat Aug 03, 2013 9:37 am

tipswatcher wrote:If I had $100 million I wouldn't put it all into stocks.

I would buy a major league baseball team, a yacht, three houses in Europe.
The yacht and three houses will take up a solid chunk of your 100 mil, baseball teams will cost you in the billions.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 10:16 am

StarbuxInvestor wrote:
Leesbro63 wrote:
StarbuxInvestor wrote:
boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?
Actually would the question be do you need stocks. In your scenario it would seem TIPS would be the play.
IMHO this would be foolish. $100million would surely be in a taxable account. Consider the taxes due on phantom gains (due to inflation) if inflation hit 10% for 4 years or something like that. Or worse.
Explain how they would be phantom gains. I must be under a very incorrect impression on how Treasury Inflation-Protected Securities work.
OK. You have $100M in TIPS. Inflation is 10%....or worse. You now have $10M of taxable income...probably taking $5M in taxes. Yet since you bot the TIPS in 2012 or 2013, the REAL yield is zero or even negative. So that 10% inflation kicker is all you got. At the end of all that you have $105M but inflation requires that it be $110M to keep. Lather, rinse and repeat for 5-10 years like we had in the 1970s. There is even some thinking that we COULD have Wiemar inflation (I am not one of them...but it cannot be ruled out). Your $100M has dwindled to a real value of only half that. Still $50M, sure, but the point is that no TIPS investor, who is concerned about inflation (hence investing in TIPS), wants to see large real losses like that.

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Re: Do you need bonds if you're ultra-wealthy?

Post by DaleMaley » Sat Aug 03, 2013 12:45 pm

Some interesting observations from someone who works with the super-wealthy......

http://www2.ucsc.edu/whorulesamerica/po ... nager.html

...although not a lot of data where they invest their money after they sell out their businesses.
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Re: Do you need bonds if you're ultra-wealthy?

Post by leonard » Sat Aug 03, 2013 1:16 pm

boggler wrote:Let's say you have $100 million, and your annual living expenses do not exceed $100k. Thus, you can live on a miniscule fraction of your portfolio's income/dividends. Presumably as long as the world doesn't end as we know it, you'd be incredibly set for life. If you also wanted to grow your portfolio, would it be ill-advised to invest 100% in a diversified world portfolio of stocks? If so, why?

Is there a wealth level at which bonds are no longer needed?
Why would one invest sub optimally - just cause they are wealthy? Bonds provide diversification benefits.
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Re: Do you need bonds if you're ultra-wealthy?

Post by AndrewJackson » Sat Aug 03, 2013 1:16 pm

Generally speaking, the higher level of wealth you attain, the more risk you can take. This level of wealth is different for everybody and you can't just state a blanket $ value where one can permanently be in 100% stocks. If you have a $100 million but spend $10 million a year, you are going to run into problems. If you spend $1-2 million a year, have at it and swing for the fences with 100% stocks. I personally would like to reach a withdrawal ratio of around 1%-1.5% where I am ok being in 100% stocks, even at 60+ years old.

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 2:04 pm

AndrewJackson wrote:Generally speaking, the higher level of wealth you attain, the more risk you can take. This level of wealth is different for everybody and you can't just state a blanket $ value where one can permanently be in 100% stocks. If you have a $100 million but spend $10 million a year, you are going to run into problems. If you spend $1-2 million a year, have at it and swing for the fences with 100% stocks. I personally would like to reach a withdrawal ratio of around 1%-1.5% where I am ok being in 100% stocks, even at 60+ years old.
Excellent point. The dollar amount is much less important that the spending-to-wealth ratio (similar to SWR). I've sort of figured that 2% is where someone is "golden".

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Re: Do you need bonds if you're ultra-wealthy?

Post by Leesbro63 » Sat Aug 03, 2013 2:07 pm

DaleMaley wrote:Some interesting observations from someone who works with the super-wealthy......

http://www2.ucsc.edu/whorulesamerica/po ... nager.html

...although not a lot of data where they invest their money after they sell out their businesses.
I think the author of the article is "spot on" the way he separates the top half of the 1% versus the bottom half of the 1%. It's two totally different worlds...albeit I understand to someone with little to nothing it appears to be the same. (And once you have food, shelter, health care heat and maybe A/C and internet, the difference is mostly psychological anyway).

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Re: Do you need bonds if you're ultra-wealthy?

Post by LadyGeek » Sat Aug 03, 2013 2:08 pm

This thread has run its course and is locked. It is a hypothetical situation in which no definitive conclusions can be made from the information available. Continually guessing what one "might do" is not productive. See: Forum Policy
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