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2nd Million
Old 03-28-2005, 10:51 AM   #1
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2nd Million

I was wondering if anything changes investment wise once you hit the $1M mark (not including house), or do you just keep doing the same things? Do new asset classes open up? Are there any different strategies that might be employed? I would think that you would maybe become more conservative once you reach this goal (albeit pretty arbitrary), but I think I would just hold the course and keep things pretty much the same.

This all assumes that RE doesn't happen in the meantime.

Would be curious to hear what you think...

--Biker
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Re: 2nd Million
Old 03-28-2005, 11:11 AM   #2
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Re: 2nd Million

Biker: That's primarily an age related decision, and also based on other income, (pension), Soc. Sec. etc.)
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Re: 2nd Million
Old 03-28-2005, 11:20 AM   #3
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Re: 2nd Million

I'm not there yet, but a few things come to mind:

1. Lower investment costs. Vanguard, at least, has lower costs for people who have large amounts of assets with them. I think other fund firms have these kinds of breakpoints as well. In Vanguard's case, I have to "apply" when my assets hit the appropriate level.

2. Self insuring for more. As your assets approach such large values, my theory is that I am able to self insure against some things that I have to buy outside insurance for. For example, I am reducing the amount of life insurance that I hold on myself as I get older and as my net worth and savings for the kids' college funds go up. I'm also self insuring on my collision insurance for my cars.

On the other hand, new insurance considerations might arise. Some people think (not me) that the amount of liability/umbrella coverage a person has should be somehow tied to their net worth, so if you get into the million(s) range one might consider increasing their liability coverage.

As far as changing strategies or anything like that though, my plan doesn't change based on net worth; it changes on how close I am to RE (which is based on net worth, spending, and a few other minor variables).

malakito.
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Re: 2nd Million
Old 03-29-2005, 09:14 AM   #4
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Re: 2nd Million

One of the things that I have seen come up is the availability of new types of investments. Some venture capital funds and hedge funds require a minimum net worth that is often at $1M for example. Also, with more liquid assets, there is more of an opportunity to invest in more asset classes without being spread to thin and getting hit by to many fees and trading costs.

However, just because they become available doesn't mean they are desireable. I wonder if anybody is having success with these types of investments? Its hard to determine risk since there is not a lot of historical data or there might be some derivatives and other stuff in there that is harder to gauge for risk.

I guess I am curious as to whether you just stay the course and continue on investing they way you always have, or start exploring more esoteric asset classes and investment methods as those opportunities open up for you because you are at a higher net worth or have more investable money?

Finally, I am basing this question on having an investment profile that allows for a moderate amount of risk. Even though there are some interesting fixed income investments that come up as your net worth increases. For example, I recently looked into a Large Equipment Leasing Fund (closed and acts like a REIT) which is somewhat like a fixed income asset.

Hopefully this question makes some sense.

Thanks,
--Biker

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Re: 2nd Million
Old 03-29-2005, 09:48 AM   #5
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Re: 2nd Million

Why second million when you should be thinking about billions? The bottom line is how much do you need to support your financial goal. If you are there and almost there, why risk it?
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Re: 2nd Million
Old 03-29-2005, 03:46 PM   #6
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Re: 2nd Million

When I passed $500k I adjusted towards more safety - and again when passing 1M. I also increased diversification with foreign bonds, commodities Etc. The base portfolio I have now I will probably hold (40-50% globally diversified equities only) even if hit 2M.

Cheers!
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Everything changes.
Old 03-29-2005, 04:40 PM   #7
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Everything changes.

Fidelity decides that you're much more respectable when your account hits seven figures, so their highly respectable staff gives you a special phone number and shorter wait times. They also realize that you're a brilliant investor so they only charge you $8/trade, presumably because they're also profiting by following your coattails. (That's how I see it.) And when your assets exceed $500K they decide to let you buy the IPOs that they can't sell to anyone else.

As others have mentioned, you can self-insure with higher deductibles. If your cars are older you can drop the collision/comprehensive. You'll need to maintain umbrella liability for your gross worth, not your net worth (the court won't consider your mortgage when they assess your liability!).

If your income is your reason for your $1M net worth, then you'd best be thinking about disability insurance.

At $1M you also enter decision territory for long-term care expenses. You can probably pay for your own and your spouse's without additional coverage. Probably.

If news of your status becomes public, your friends will be amazed that you can handle large sums of money while simultaneously griping about picking up the lunch check.

You become an "accredited investor". You can read about enhanced investing techniques and be invited to join many different hedge funds & other unique opportunities requiring all of your high net worth. The odd thing is that you've become stupid-- you're no longer assumed to be capable of understanding it or of doing it by yourself and you're expected to hand over at least 1%/year to have people show you how to do it. (For as long as your money lasts, anyway.)

Women approach you in the street and-- no, wait, that's a different fantasy.

As you can see, I've studied the club's facilities quite extensively. Now all I have to do is wait for the membership invitation... if you want a closer look at the thinking that goes on behind high net worth investing, read Bloomberg's Wealth magazine.

As for becoming more conservative, why would your strategy stop working? If it got you there and you can sleep with it, then it's probably worth staying the course. It always concerns me to think about drifting to the slow lane on the investing highway, only to get run over by the inflation 18-wheeler. And if large equipment leasing wasn't such a hot idea when you had a $10K net worth, then it's not such a hot idea now-- otherwise Vanguard would have sliced it up into a mutual fund with a 0.05% ER.

$1M will be enough for us. We'll let our kid take care of the rest.
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Re: 2nd Million
Old 03-31-2005, 06:48 AM   #8
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Re: 2nd Million

Thanks to everyone for the responses, especially the one from Nords, entertaining and sensible. However, I would like to hear more about the women approaching you in the street

To summarize it sounds like getting more money doesn't mean its time to get more creative or more conservative. It just means you have some more options with regard to lower expenses and insurance and maybe some more concern about asset protection. Makes sense.

Thanks,
Biker
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Re: 2nd Million
Old 03-31-2005, 08:08 AM   #9
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Re: 2nd Million

Agree Biker.
One thing I tought of though; it does make sense to consider safety when one reach FI - on base budget. For some that will mean 1M, for others maybe $400k.
Cheers!
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