How to Confidently Invest 10 Million Dollars
Today we’re going to discuss how to confidently invest 10 million dollars. We won’t get into how you got this money – whether by inheritance, lottery winnings, or cashing in a successful investment. We’re just going to explore how we would invest this level of capital for a client with confidence and get the most out of it. I think you’ll be surprised on a couple of our recommendations because we’re going to take an entire lifestyle approach on how to use this money and not just the dollars and cents of putting the money to work.
Goals and Objectives
Let’s outline our goals and objectives first and then line up our investments to match it. First and foremost we don’t want to work for money any longer. We want our money to work for us and provide a level of income such that we can pursue our passions and embrace the freedom that this affords us. Second we want assurances our wealth will not evaporate or be wasted so we will be reasonable with our income expectations and we will buy some real assets that we can actually hold and touch. Third, we want to create and build something that we otherwise could not because of prior work commitments.
Income Allocation
First of all, unless you love your current job and the people you work with, the first step is to resign your occupation. You no longer work for money; but don’t worry – we will still keep you busy and engaged with a purpose!
Second we need to allocate some of that 10M in capital towards generating an income. We are going to take $8,000,000 and use it to generate an income of $240,000 a year or roughly 3% annually. Now this will be in a taxable investment account and you’re going to have to pay taxes on the money you get each month so you can’t spend all of that $20K a month! Now, you just pay taxes on the interest, capital gains and dividends you receive so the taxes shouldn’t be all that bad.
We execute this cashflow every month by withdrawing 0.25% of the portfolio value and deposit it into our bank account to meet our monthly expenses.
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Asset Class Breakdown for Our Income Generator
Performance
How has this portfolio performed? Well after 10 years the portfolio value has grown to $11,760,468 and still maintained the target annual cashflow. In fact in 2019 we were able to pull $323,000 or $26,000 a month. We can grow our asset base and get our income too! In this simulation we rebalance once every 6 months and keep our allocations on target.
We used Portfolio Visualizer to run these scenarios. Check them out here.
Why no Dividend ETF’s?
Dividend ETFs don’t provide any benefit over a total return ETF on the long term. A total return ETF such as VTI or ITOT is inherently more diversified as it includes growth oriented stocks and all sectors of the economy. Just look at the following comparison between VTI vs DVY:
| DVY | VTI | |
|---|---|---|
| Segment | Equity: U.S. – High Dividend Yield | Equity: U.S. – Total Market |
| Issuer | BlackRock | Vanguard |
| Net Assets | $12.1B | $128.53B |
| Expense Ratio | 0.39% | 0.03% |
| Management Style | passive (index-based) | passive (index-based) |
| Dividend Yield | 3.91% | 1.88% |
| Underlying Index | Dow Jones U.S. Select Dividend | CRSP US Total Market Index |
| YTD Return | -18.07% | 4.29% |
| 1-Year Return | -14.27% | 12.28% |
| 3-Year Return | 0.14% | 11.55% |
| 5-Year Return | 6.57% | 12.83% |
| 10-Year Return | 9.94% | 13.56% |
Remember the returns and performance reports of ETFs always assume you reinvest the dividend and don’t pay any taxes. If in any year the yield is greater than the return, even if the return is positive, the total return is negative unless you reinvest that dividend. See that 3 year return for DVY? If you’re keeping and spending the dividend you’re eroding the asset base: (0.14% minus 3.91% equals -3.77%).
We must consume the dividend or cash we generate from the portfolio so we can meet our monthly expenses. If you read our article about how we love to generate cashflow you can see how a diversified portfolio geared for total return can grow and still provide a 4% monthly cash flow better than 3 dividend ETFs which all decreased in value. Don’t be fooled by high yielding ETFs which erode the asset base if you keep and spend the distribution. With our approach we are in control of how much cashflow is generated and how the asset base is treated.
Hard Assets
Another critical component of knowing how to confidently invest 10 million dollars is getting some real hard assets. Let’s grab another million from our pot and ear mark it for some hard assets. In the previous section we recommended you buy some real physical gold along with a gold ETF. The ETF assists with rebalancing. Selling and buying physical gold is more effort than just clicking a buy and sell order online; plus the bid/ask spread on the physical doesn’t favor buying and selling 2-4 times a year as we rebalance. The next hard asset we want is property.
Vacation Property / Land / Real Estate / Rentals
Okay lets take the next million and split it 50/50. The first $500,000 we want to put towards one or two vacation properties. We want the true physical asset – no time share or variant of any type. Buy them in places you want to visit at least once a year and you know you can really unwind and spend quality time with those you love. Resist the urge to leverage yourself too far with a big mortgage. Yes you’re super wealthy but just be smart about this. It’s easy to buy a money pit.
Problem with vacation properties is they take money out of your pocket; they are a bit of a drag. Which is where the next $500,000 comes into play. Sum up the costs to hold the vacation property for a year: taxes, utilities, HOA fees, maintenance, and any other costs to run the place for a year. We are going to buy a rental property that will cash flow these expenses for us. Hire a property management firm if you don’t want to bother with the hassle of finding and vetting tenants. What we are trying to do is buy as much real estate for $1,000,000 that doesn’t cost us anything to run and operate them.
Create and Build a Business
With our last million we are going to put it 100% into cash while we go looking and hunting for a new business idea or opportunity. It’s okay if this takes a bit of time but we want to set a goal that within the next 5 years we have a profitable business that we own and run. Here are some ideas:
- If you want a turn-key out of the box business consider buying a franchise. There will be many opportunities in your area – just google “buy a franchise” or “franchise opportunities”
- If you have a passion or hobby pursue it hard for a year or two and keep an eye out for how you could convert your hobby into a business. What problem can you solve?
- Start an online business, blog or amazon retail business. There has never been a better time to get selling online and provide a service online. The internet is saturated with all sorts of service providers that can assist you with the website, taking payments and drop shipping.
- Building on 2 and 3; is there a product your hobby or passion could make use of? try building it and getting a low-cost manufacturer to make the product and then you sell it online through a Shopify website for a hefty margin.
A Passionate Purpose
Creating and building your own business can fill you with a purpose as you see something you’re passionate about come to fruition and have people pay you for the product or service you provide. This is the secret sauce of our approach – we want to set you up so you can pursue your passions and see if you can’t make a profitable business out of it. Because you don’t need the money, if the business fails you’re still sitting pretty and cashing your $20K a month income!
Summary
While few, if any of us, will ever have the “challenge” or “problem” of how to confidently invest 10 million dollars, hopefully this article can motivate us to get out of the rat race sooner and pursue a higher level of lifestyle and afford the time to pursue our passions and convert them into a functional profitable business. Hopefully it shows us as well that whether we have $1,000,000 or $1,000 to invest the principles for asset allocation hold true and still work.
We need an asset base to provide us an endless income stream followed by some hard assets like gold and real estate that we can hold and enjoy and then we pursue our passion and convert it into a profitable business. We’ve set ourselves up in such a way that even if we fail at creating our business we still have a solid safety net to fall back on and we’re not going to blow our original 10 million.
Get Wealthy, Stay Wealthy, Get On Board!
