5 million at 24

[mark]

CyberMike:

You will be a prime target for brokers, financial planners, lawyers, accountants, and life insurance salesmen who want a piece of the pie, and some will not have your best interests in mind.

Maybe a good fee only financial planner is the way to go.

Also, you might consider structuring your finances and estate plan in a way that provides asset protection. You are a deep pocket now. You don't want to be a deep pocket defendant. Unfortunately, that will require the services of a lawyer.

The old saying used to be "He who has the gold, makes the rules."
Now it is "He who has the gold, pays the plaintiff".

 

[wabmester]

Well dex, without slamming what you would do, I must say I am a little
skepical of the whole 24 yrs. old with 5.5 million $ story.  Not saying it has not/
can/not be done.  Just doesn't smell quite right to me.

There are still a bunch of tech millionaires being minted today. The space is much narrower than it was during the bubble, but google's valuation is having both a direct and indirect impact on a *lot* of geeks.

 

[Spanky]

uhmm ... instead of investing .. may be it's more lucrative to start a business.

 

[Cut-Throat]

uhmm ... instead of investing .. may be it's more lucrative to start a business.

Except when you read the odds of failures of business

 

[CybrMike]

RE: Asset Protection
I've got that area as covered as possible. I've been doing that since the business started and have some very good council regarding asset protection.

I'm not new to having cash, as I've made several hundred thousand the last couple years, but I'm trading the income stream for the lump sum of ~$5.5M, and it will be a much different style of investing.
---
There are some folks here in town that I've talked with before that deal with UHNWIs, one guy has like 100M with them. That is probably the first group of people that I will talk to. After that I guess I will just see what other referrals I can get.

 

[Mr._johngalt]

Except when you read the odds of failures of business

So you fail.............start another one. It takes guts and brains,
especially when the first disaster hits (and it will). Most folks aren't cut out for it but it can be a good road to ER. Worked for me.

JG

 

[retire@40]

uhmm ... instead of investing .. may be it's more lucrative to start a business.

I'm a big fan of starting your own business, but in the case, I would rather invest it.

You start your own business as this guy did in order to get to this point, but after you get there, there is no point to having a business.

Invest so you never have to work again and start your own hobbies.

 

[brewer12345]

There are some folks here in town that I've talked with before that deal with UHNWIs, one guy has like 100M with them. That is probably the first group of people that I will talk to. After that I guess I will just see what other referrals I can get.

That's fine, but make sure you check references, pay attention to haw much you are paying, and read up so that you know enough to make sure things are on the up-and-up. If I were you, I would also take $1 or $2MM and just go buy some T-bills or AAA insured short term munis. Tuck it away and forget about it for a year. If things are going well by then, great, depoy it. Otherwise, you have a safety net.

 

[wabmester]

Brew, if you had say $25M, do you think it would change the way you invest?   Would you be doing hedge funds and private placement, for example?   Is there anything out there that really has better risk/reward character that suddenly becomes available to you because of the size of your investment?

Has anybody studied whether institutional investments tend to beat the broader market over the long-term, for example?

Edit: interesting study on VC returns here.   Summary: alpha (returns above expected risk-adjusted returns) is amazingly high, but data is scarce, and you can get similar returns by buying micro-cap NASDAQ stocks.   And, of course, risk is extremely high.

 

[Sheryl]

CyberMike:

You will be a prime target for brokers, financial planners, lawyers, accountants, and life insurance salesmen who want a piece of the pie, and some will not have your best interests in mind.

Don't forget real estate developers scam artists.  I watched a 23 year old with a $500,000 inheritance loose it all to a guy who was his "best friend" for the year or two it took  to rip him off.

 

[Gone4Good]

Brew, if you had say $25M, do you think it would change the way you invest?   

It would for me. With $25 MM I wouldn't need to worry about beating the market or keeping pace with inflation - so why bother. Most of it would get stuck in 4% muni bonds. I wouldn't have too much trouble LBYM on $1 MM per year tax free.

 

[wabmester]

It would for me.  With $25 MM I wouldn't need to worry about beating the market or keeping pace with inflation - so why bother.  Most of it would get stuck in 4% muni bonds.   I wouldn't have too much trouble LBYM on $1 MM per year tax free.

Another tax-avoiding rich bastard, eh?   Swedroe does something similar with his pot.   Only two asset classes: munis + ScV.   I assume his muni's throw off enough tax-free income to support his lifestyle, and the ScV will create a monster nest egg for his kids, which they'll get at a stepped-up basis when he croaks.

 

[brewer12345]

Brew, if you had say $25M, do you think it would change the way you invest?   Would you be doing hedge funds and private placement, for example?   Is there anything out there that really has better risk/reward character that suddenly becomes available to you because of the size of your investment?

It would definately change the way I invest.  Some things become available that weren't before (VC, hedge funds, private placements, life insurance arbitrage, etc.).  Others simply become feasible at high net worth amounts.  For example, with $25MM net worth,I sould commit 1 or 2 MM to help bankroll a community bank start-up.  That wouldn't be too much of my capital to risk in one venture and it would get me (at the least) a seat on the board.  A large portfolio would also make it easier to invest in art and antiques and other illiquid specialty asset classes.

 

[lazyday]

With 25M (and probably even with 5M) I would be sure to have some money in various offshore accounts. Like a little in a Swiss bank, for example. All fully, legally reported.
At 25M, also might have a few houses around the world, and more than one means of getting there in case of political instability or natural or manmade disaster.

Risks per year of such things might be low, but add up over a decades long retirement. Would hate to have my $25M fortune repatriated by my country, especially if my country became the evil aggressor of the planet.

(That would be a concern not just in my country, but most anywhere in the world.)

 

[just_hatched]

With 25M (and probably even with 5M) I would be sure to have some money in various offshore accounts. Like a little in a Swiss bank, for example. All fully, legally reported.
At 25M, also might have a few houses around the world, and more than one means of getting there in case of political instability or natural or manmade disaster.

Risks per year of such things might be low, but add up over a decades long retirement. Would hate to have my $25M fortune repatriated by my country, especially if my country became the evil aggressor of the planet.

(That would be a concern not just in my country, but most anywhere in the world.)

Since everyone puts money in Swiss bank accounts anyway, may as well move there. I think it's nice scenery.
Also, they will probably not become the evil aggressor of the planet.

It seems Saddam left that part out of his calculation for political instability even though he had more than $25 million.

 

[wabmester]

It would definately change the way I invest.  Some things become available that weren't before (VC, hedge funds, private placements, life insurance arbitrage, etc.).  Others simply become feasible at high net worth amounts.  For example, with $25MM net worth,I sould commit 1 or 2 MM to help bankroll a community bank start-up.  That wouldn't be too much of my capital to risk in one venture and it would get me (at the least) a seat on the board.  A large portfolio would also make it easier to invest in art and antiques and other illiquid specialty asset classes.

Wow, it sounds like you'd be working full-time if you amassed that much money.   I think you should quit when you make your first million, then you won't need to buy the mansion to hold the antiques and art.    Personally, I don't think I would bother with any of those trappings.    Certainly not private placements, which would require a lot of vetting.   Maybe a bit of a hedge fund, and perhaps even a VC fund that had diversified holdings.

So, the question remains: do any of these new-and-improved investments that would open up to you have better risk-adjusted returns than those investments available to Joe Investor?    The article I linked above does seem to indicate that VC funds have a high alpha.

 

[Monty Burns]

Hiya Mike, I'm a lump-summer myself.

Here's an all Vanguard portfolio for you. It's 40/60 stocks and bonds, which is pretty conservative:

30% Vanguard Intermediate-Term Tax-Exempt (depending on what state you're in)
30% Vanguard Inflation-Protected Securities
20% Vanguard Total Stock Market
15% Vanguard Tax-Managed International
5% Vanguard Emerging Markets ETF


I'm curious, what kind of asset protection do you have going?

 

[brewer12345]

Wow, it sounds like you'd be working full-time if you amassed that much money.   I think you should quit when you make your first million, then you won't need to buy the mansion to hold the antiques and art.    Personally, I don't think I would bother with any of those trappings.    Certainly not private placements, which would require a lot of vetting.   Maybe a bit of a hedge fund, and perhaps even a VC fund that had diversified holdings.

So, the question remains: do any of these new-and-improved investments that would open up to you have better risk-adjusted returns than those investments available to Joe Investor?    The article I linked above does seem to indicate that VC funds have a high alpha.

Eh, nothing I mentioned would require that much time. If you have a couple million to invest in art, you hire someone to do it for you. And I said I would want a board seat in my bank: that means I get to tell people when they are doing it wrong, not that I have to do it myself. All fantasy anyway; I'd quit long before I had that kind of money.

The studies on VC and hedge fund investments all have the same weakness: it is very hard to measure these asset classes. NAV is generally self reported and typically involves a lot of subjectivity. For example, how do you get fair market value of a $10 million piece of a one-off CCC-rated $100 million deal that rarely trades? You want that weekly or monthly? In contrast, even the most illiquid stocks can be valued with a pretty firm bid, ask or last trade. This sort of thing pretty much makes the studies I have seen next to worthless. Are there individual VCs and hedge fund managers taht add a lot of alpha? Sure. Can we tell if these "asset classes" add alpha? Not with any real degree of confidence.

 

[CybrMike]

I'm curious, what kind of asset protection do you have going?

LLC holding company (for cash), LLC real estate company (for rental properties). Jointly owned real estate (my house) and SEP IRA (supposedly creditors cannot touch this).

From what I understand, the LLC holding company makes any claims against me very difficult to collect, because they cannot get the assets in the LLC, and they get taxed on any gains that occur in the LLC, meaning I invest my money and they pay the taxes on it. Usually this leads to settlements of pennies on the dollar, or so i've been advised by council.

 

[CybrMike]

Hiya Mike, I'm a lump-summer myself.

Here's an all Vanguard portfolio for you. It's 40/60 stocks and bonds, which is pretty conservative:

30% Vanguard Intermediate-Term Tax-Exempt (depending on what state you're in)
30% Vanguard Inflation-Protected Securities
20% Vanguard Total Stock Market
15% Vanguard Tax-Managed International
5% Vanguard Emerging Markets ETF


I'm curious, what kind of asset protection do you have going?

So you are able to live from the returns of this portfolio? I havent pulled up these funds, curious as to the return (minus the stocks).

 

[Monty Burns]

Let's see:

3.6% * 30% Vanguard Intermediate-Term Tax-Exempt
4.2% * 30% Vanguard Inflation-Protected Securities
1.5% * 20% Vanguard Total Stock Market
1.5% * 15% Vanguard Tax-Managed International
1.5% * 5% Vanguard Emerging Markets ETF

= 3%

$5,000,000*3% is $150,000, which ain't bad. The income from the stocks is qualified dividends, so it's taxed at 15%. The IPS fund is taxed at regular income tax rate, and Tax-exempt is tax-exempt.

3% is really just treading water with inflation. Your actual portfolio growth is coming from stocks. There's a global flood of capital between China's currency manipulation and the petroldollar boom. There's no free lunch, so don't go reaching for yield with weird stuff like ADVDX.

Nearly all of that high net worth stuff is total BS designed to steal your money. Hedge funds are a scam. Active management doesn't work. Even separately managed accounts don't work as well as promised (they claim that you can sell your losing stocks to tax-managed your portfolio so you don't have to pay taxes, but in the real world there aren't enough losers in your portfolio for that to work for very long, and the trading costs and commissions are a lot higher than a plain old index fund, and your portfolio is going to be a lot less diversified than with index funds). Brokers will even rip you off on hidden fees when you buy munis and treasuries.

 

[Gonzo]

Alpine Dynamic Dividend Fund Announces a $0.26 Dividend Distribution for September
2005 and a Total Payout of $0.38 for the Quarter Ended September 30, 2005
News Release
September 29, 2005
NEW YORK- Alpine Management and Research, LLC announced today the declaration of the quarter-end dividend
distribution of ordinary income for the Alpine Dynamic Dividend Fund (Symbol ADVDX; CUSIP 020875209) which will be
paid as follows:
Ordinary Dividend Income: __________________________ $0.26
Record Date: _____________________________________September 28, 2005
Ex-Date, Reinvestment Date, Payable Date: ____________ September 29, 2005
The September dividend distribution represents the regular monthly dividend of $0.06 per share plus the variable quarter-end
payout of additional dividend income accumulated during the quarter ended September 30, 2005.
ADVDX paid a total ordinary dividend of $0.38 for the quarter ended September 30, 2005, representing a 52% increase over
the $0.25 paid in the quarter ended September 30, 2004.
Beginning in April 2005, ADVDX increased its regular monthly minimum dividend by $0.01, from $0.05 to $0.06 per share. In
addition, in the third month of each quarter the Fund will distribute any excess dividend income that has been accumulated
during the quarter.
For the twelve months ended September 29, 2005, ADVDX paid out $1.50 in ordinary dividend income, with most of the
distribution being qualified for the maximum taxable rate of 15%. Based on a closing NAV price of $12.57 on September 28,
2005, the $1.50 dividend payout represents a trailing twelve-month dividend yield of 11.93% for the Fund.
The Alpine Dynamic Dividend Fund was designed specifically to maximize the amount of distributed income that is qualified
for the new 15% tax rate, while also employing a research driven approach to identifying companies with the potential for a
dividend increases and capital appreciation.

 

[Jane_Doe]

Hey, Mike!

Congratulations! There is a lot of good advice here -

My small input:
educate yourself (well!)
don't just "dump" a huge sum into an index (etc.) all at once - dollar cost average it out just in case the market drops right after you invest (happened to me- well not a huge sum thank goodness- and took years to come back up- ugh!)
go very conservative in beginning to learn the ropes
watch out for "advisors" who simply want your money
keep reading and asking questions here

You must be pretty smart if you have come this far - don't do something stupid now! This is a great opportunity for you to sit back and decide where you want to go next. - Take your time and use your common sense. Wishing you the best of luck!

Jane

 

[SLC Tortfeasor]

CyberMike:

You will be a prime target for brokers, financial planners, lawyers, accountants, and life insurance salesmen who want a piece of the pie, and some will not have your best interests in mind.

Maybe a good fee only financial planner is the way to go.

Yes, this is good advice. 

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[daveh]

Well dex, without slamming what you would do, I must say I am a little
skepical of the whole 24 yrs. old with 5.5 million $ story.  Not saying it has not/
can/not be done.  Just doesn't smell quite right to me.

Elvis has left the building................

JG

I can validate his position. I owned a lower % of the deal and also interested in learning more from everyone. I like the idea of investing in Vangaurd/CDs/& a Ranch. My wife is scared to live in the woods though Smiley


Dave- 23 | 2MM (post-gov share) for ER