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Ask HN: Steady 4-5% on $5 million?
78 points by rumpelstiltskin on Feb 7, 2010 | hide | past | favorite | 106 comments
I recently inherited a little over $5 million. I don't have exorbitant dreams of penthouses or private planes so I'm not looking to turn this amount into $50 million or anything. Instead, I'm looking for ways to generate a steady 4-5% annual return. I have meetings set up with tax/financial advisors later this month, but I wanted to ask the smart people on HN -

What would you do to generate a steady 4-5% annual return from $5 million?




The returns you can get at a given risk are unfortunately not something you can dictate. E.g. I believe safe municipal bonds are now returning around 3% after tax. If you want to get more than that you have to buy bonds with a higher risk of default.

But if you put all your assets in bonds, you risk getting burned by inflation. Over the long term, stocks have higher returns than bonds. But over short periods they can have disastrously lower returns. So experts generally advise you split your assets between stocks and bonds depending on how soon you need the money. The usual advice is to put 100 - your age percent in stocks. E.g. if you're 20, to put 80% of your assets in stocks. But of course you'd have to put more in bonds if you need some of the money to live on.

The one question no one seems to talk about much is what to do when you have to invest a large sum at once, as you do. If your age implies you should put 70% in stocks, does that mean you should put 70% in stocks the next day? What if you're buying at a market peak? So whatever percent you decide to put in stocks, I'd bleed it in over a reasonably long period. Simulations would tell you how long a period; I'd guess years.


That question is addressed A Random Walk Down Wall Street by Burton Malkiel (which the OP should read ASAP). If I remember correctly, he suggests figuring out a decided asset allocation and then buying into it over the course of a time period (say 20 months), on the first day of each month.

In this case, that would mean investing 250k per month. The idea is that if you buy a fixed amount dollars worth of whatever, you get more of it when it's down and less when it's up. The idea is to get at least the average of the market over 20 months and avoid being burned by a crash (of course, you might miss out on a market surge). By doing it in a methodical fashion you avoid the temptation of trying to time the market.


They also have a name for this technique - dollar cost averaging.

http://en.wikipedia.org/wiki/Dollar_cost_averaging


Advising many people to buy on a predictable date smells like an attempt to create a profitable liquidity trade: short on the 1st, cover on the 2nd when prices return to normal demand levels.

Buy on a random day, or a down day. :-)


250k purchase of SPY/QQQQ/any other liquid paper won't move the market a dime.


I agree with all of this.

I'll also chip in my usual recommendation: Bernstein's The Four Pillars of Investing, which will tell you everything you just heard, only in a different and slightly more recent voice. ;)


His newer book "Investors Manifesto" is even better and incorporates the recent recession. As always, it's brilliantly structured and easy to read.

http://www.amazon.com/Investors-Manifesto-Prosperity-Armaged...


I really disagree with this advice. You should always pay attention to the yields when you buy any financial asset. Buying based on rules is silly. If stocks are paying 1.5% yields, and corporate bonds paying 7.5%, as they were in 2000, don't buy stocks! If stocks are paying 5.2% and long term bonds 8% like they were in 1978, go long on stocks (stock dividends will increase as nominal national income increases, usually about 5% a year, if stock prices can be a better buy even if dividends are lower than bond yields).

The market is not rational, not even close. But if you are investing long term, and behave rationally yourself (buying stocks when cheap, buying bonds when stocks are expensive) you can beat the market.

Right now is a really tough time to invest because both stock yields and interest rates are abnormally low. I'd probably maintain a balanced portfolio, but keep the bonds short term in hopes of a rise in interest rates in a few years.


with DCA (dollar cost averaging) let's say right now you started buying at the market bottom. And so you're just averaging up in price each month you buy. In this instance it would've been better to have bought everything all at once in the beginning.

Everyone seems to always hail DCA as the best investment advice ever but fail to realize it's flaws as well.


It's true that one can do worse with DCA. But if stocks go up one makes money, just less. And if they go down one loses money, but less. In other words, one is more likely to get a return closer to the long term average, which is the objective.


It boggles my mind that so many people are complacent with wanting a return close to the average. If the average is negative then is that a good thing? No. People think the market will always go up -- but for the limited data that the stock market has been open there's less than 100 data points (years) to say with a 98% confidence level that the market will always go up.

If you've been averaging starting at the top of 2000 and putting the same amount of money in each month you'd be losing money right now 10 years later. You can say well I'm not retiring in 10 yrs and would be saving for 40 yrs. But that's 20% of the time which is a lost time opportunity of a decade.


The secret of dollar cost averaging is vary simple it let's you buy into the market at below the average price. That big dip at the start of 09 made a lot of money for any using dollar cost averaging not so much for people who where already in the market. As to average returns, investing is not going to make you rich, if you plod along for 35 years you can comfortably retire which is not a bad thing. If you want to get rich you need to do something else, on the other hand if you are rich maintaining that wealth is more valuable than significantly increasing it.


Over the long term, stocks have higher returns than bonds.

What makes you think that is true? We simply do not have enough data to judge. Books like Stocks for the Long Run use incredibly poor methodology, because they left companies that failed out of their indexes ( http://gregmankiw.blogspot.com/2009/07/stocks-for-not-so-lon... ). And when we have reliable data, for the past forty years for instance, stocks have not necessarily had better returns. If you include other countries in the analysis, such as Japan, then the long term superiority of stocks looks even more suspect.

And of course, past data is not predictive of future performance because the nature of investing changes (changes in corporate governance, changes in shareholder accountability, too much "dumb money" entering the market due to 401k plans, etc). Dividend payout rates, for instance, have declined dramatically, and dividends are a major component of returns. So maybe stocks did perform better in the past, but will not in the future because of lower payouts.

Stocks may perform better in the next thirty years or they may not. There is no substitute for studying the market, understanding what is driving the returns, and making a judgement based on the current times.


Stocks are inherently riskier than bonds. Lower on the capital structure of companies (last to have a claim on company assets) and stock cash flows have much greater uncertainty than bonds. The statement that "stocks have higher returns than bonds" should NOT lead one to invest too much in stocks in pursuit of those returns (yes, it has -- the "dumb money" you describe), since there is greater volatility of returns around the average.

Portfolios should be built upon bonds, with stock market risk layered-in only to a degree.


> E.g. I believe safe municipal bonds are now returning around 3% after tax. If you want to get more than that you have to buy bonds with a higher risk of default.

I heard California bonds had jumped because of debt/credit problems, and recently mentioned the option of buying such bonds to my parents who asked a similar money management question. They both cracked up laughing. I told them their reaction illustrated why our state had such borrowing problems. I would not have seriously advised getting the bonds but apparently they yielded annualized tax-free 4.7%. (http://latimesblogs.latimes.com/money_co/2009/06/californias...)


The interest rate is high because of perceived risk. Just be aware that states have defaulted: http://www.publicbonds.org/public_fin/default.htm

The largest default in the history of the municipal bond market was the Washington Public Power Supply System's (WPPSS) default on $2.25 billion in bonds. WPPSS launched a risky program to build five nuclear power plants in the 1970s to supply electricity to the Pacific Northwest. Only one of the five planned nuclear plants was ever completed. The WPPSS fiasco gave a lot more credibility to concerns that tax-exempt bonds were not a completely safe bet.


It is in the california state constitution that bonds be paid first, then payroll, then everything else.


I wrote the default study referenced in publicbonds.com and was pleased to see the assumptions still hold up. I have started a blog to cover some of these issues again: http://www.thepublicpurse.com


While I agree that increasing your stock to fixed income ratio as you grow older is a good idea, the 1% more each year seems to be based on a shorter lifespan. At 60 there is a reasonable chance you will be alive in 35 years so you still need to be fairly aggressive or inflation eat your nest egg. Also a major issue with bonds is taxes which can significantly impact returns.

The other major investment issue is fees which can dramatically reduce ROI over your lifetime. Do the math on what 1/2 of 1% will cost you ~13% of your returns over 30 years. 1-((x-.005)^30)/(x^30)) It works out to around 13% for most reasonable ROI.


Investing over a period of time instead of all-at-once, in order to diminish the effect of market peaks and make sure you hit some of the valleys, is called Dollar Cost Averaging. I think the reason no one seems to talk about it much is because it's a relatively rare occurrence that someone suddenly has a large lump sum to invest. Most financial talk is about more common personal finance scenarios. That said, there's lots of discussion on dollar cost averaging, which, like most things, is easier to find once you know its name.


I think Dollar Cost Averaging is also fairly common in discussions about regular savings plans - eg, establishing an automatic savings plans that deducts $x from each salary and invests in a fund has the benefits of slowly building savings without you missing it, and dollar cost averaging into a market.

Perhaps it's more common here in Australia, where compulsory superannuation (currently at 9%) means almost all of the workforce are investing in shares in some form.


I'd use Harry Browne's "Permanent Portfolio" allocation - it performs as well or better than other passive portfolios while experiencing far less volatility. Here's a detailed analysis of historical returns: http://crawlingroad.com/blog/2008/12/22/permanent-portfolio-...

It's also simple enough that you don't have to pay a tax/financial advisor exorbitant fees to manage your money - you can do it yourself, saving a lot of money in "wealth management services" you don't really need. Remember, you're a financial advisor's dream come true, and they'll try to sell you everything they can.

Here's a review I wrote of "Fail Safe Investing," Browne's book: http://personalmba.com/review/fail-safe-investing/

Here's more solid supporting information: http://crawlingroad.com/blog/2010/02/06/permanent-portfolio-...

Hope this helps!


Thanks for posting this, hadn't heard about it before and looks like a good fit.


Everybody should use the Permanent Portfolio. It's a testament to human and market irrationality that most people aren't doing this. Fortunately, most people never will, so the stability and returns of this approach should extrapolate forward.

http://www.scribd.com/doc/26525858/Fail-Safe-Investing


I'm working as an analyst at a HF, here are some thoughts:

1. First, be aware that most financial advisors make their money by charging you fees. These can come in a variety of ways, some will take a simple 1% off the top, others will try to persuade you to invest in CDs and other products like mutual funds -- the actual returns on these vehicles may be mediocre and the advisor may earn fees for selling you the products.

So just be aware that their incentives may not be aligned with your goals of wealth protection.

2. Decide if you want to be a passive or active investor.

Passive investing means putting your money into index funds. John Bogle of the Vanguard Group has a series of books out on the topic, there is a slim one called The Little Book of Common Sense Investing. -I'd recommend reading some of his work.

Active investing is more difficult. To be honest, most people simply lack the time and effort necessary to invest intelligently in the market. They wont know how to read a balance sheet yet will buy the stocks of companies that they are familiar with. This is sort of like driving blind and it is not something I recommend. -If you want some I'll suggest some books for this area, but like I said, it is something that requires a big commitment from yourself.


If you want some I'll suggest some books for this area

Please do. Thank you.


Let me preface by saying I don't subscribe to EMH. With the people I work with, everything is fundamental analysis. I don't have much by way of suggestions for learning technical analysis.

I recommend basically reading books by:

Peter Lynch, Phil Fischer, and then chapters 8 and 20 of the Intelligent Investor. The book, Applied Value Investing, is also a pretty good place to start that actually does a lot of things well, combining both theory with practical case studies. -Reading the Buffett Partnership letters (not the Berkshire letters) is very helpful for someone managing small sums of capital, say below $10M

In addition, you need to read and learn about financial accounting and valuation. John Tracy's How to Read a Financial Report is a good starter... for valuation Aswath Damodaran has a pretty good book that can be combined with McKinsey's book on the subject. Beyond that, some more advanced accounting books, especially forensic stuff is great to know. Financial Shenanigans and Creative Cash Flow Reporting are where I'd start with that.

To be really good you also need to read quite a bit about psychology/mental models. Look for speeches/lectures by Charlie Munger. Books like Stock Market Wizards/anything that contains a ton of interviews with investors are also great. Reminisces of a Stock Operator is pretty good for giving you an account of the ups and downs that come with investing -- the guy the book is based off of blew his brains out. Studying financial history is also a must, especially with learning about prior bubbles.

Finally, you just have to commit to reading a whole lot, every day, and becoming a learning machine.


I've read the books you listed, and whole heartedly agree with the Graham/Dodd/Buffet crowds with respect to fundamental analysis. However, I don't think this philosophy is mutually exclusive with the Efficient Market Hypothesis. I personally believe in a loose form of EMH, since it actually makes intuitive sense to me. A loose form doesn't mean that investors are SOL in terms of finding good investments; they just need to work much harder (doing all the things you outlined: reading and learning, constantly) to build a high margin of safety and refrain from speculating on high risk securities.

To add to your insightful comments, I'd also recommend subscribing to The Economist to get excellent worldly news about business, finance, and economics.


Yeah, I agree with the loose interpretation of EMH. The market has to be somewhat efficient in order to eventually realize a security's true value.

Personally, my favorite stuff is where there are clear inefficiencies.

Investing in orphan spinoffs is an example-- a company is spun off from its parent but is too small to be included in the S&P 500 or some key index, where its parent exists. Since it wont be part of the major indices, fund managers are forced to sell, creating the kind of inefficiency that an investor can profit from.


The best and most useful books I've read on trading and investing (= slow trading if done right) are these:

Mastering the Trade - John Carter

How to Make Money in Stocks / How to Make Money Selling Short - William o'Niel

Anything by Brett Steenbarger


Can't find the Anything book, can you please give a link?


his blog:

http://traderfeed.blogspot.com/


Read The Millionaire Next Door. Then read it again.


I'm in a similar situation as the original poster, but with less money. I have been thinking about passive investment, but I live in Switzerland, so I wouldn't want to have all my money in Dollars or even Euros. So if I want passive investment, I first have to take the active decision of what part of my money I invest in which currency. It's probably not a good idea to have everything in a swiss franc index, this would mean a big exposure to very few big swiss companies.

Do you have any idea if there is a 'passive' way to choose between currencies?


A lot of passive strategies involve allocating some of your capital in areas like emerging markets, which would potentially be beneficial in that you'd be gaining exposure to businesses that earn money in currencies besides dollars/francs.


With all due respect, I think you're asking the wrong question.

(a) Think of investments like a function with two inputs: risk and return. You've picked a desired level of return but haven't identified a desired level of risk, so by definition nobody can recommend an investment strategy.

(b) There's no such thing as a "steady 4-5% annual return from $5 million" for any meaningful definition of "steady".

(c) Where did 4-5% come from? Without understanding the thought process that went into those figures, it's hard to make any suggestions.

If you want to get the most out of free advice on HN, I think you should rephrase the question along the following lines:

"I recently inherited a little over $5 million. I am Y years old. I plan on working until I am R years old and expect to live until L years old. My current monthly expenses are M1 and I expect those to grow to M2 over the next 10 years. I want to use my inheritance to ______. What would you do with the money?"


I think this is nit-picky and unnecessary.

He is saying he wants the appropriate level of risk that would come with 4-5% return. There isn't anything unclear about it.


mos1 did a much better job than I did of indicating why the question is unclear.

http://news.ycombinator.com/item?id=1109031


I disagree with portman. Investment is a function of one input - risk OR return. If you follow the diversification strategy of portfolio theory, then you will generally be choosing a multiple of the market beta http://en.wikipedia.org/wiki/Beta_(finance) Your risk tolerance dictates an expected rate of return OR your desired rate of return dictates a variance of return. Of course these are averages and YMMV, but over a 30 year period there IS something approaching "steady".

I think your question is perfectly stated, and gives an investment advisor all the information they need to choose an asset allocation.


portman makes a good point.

Usually, targeting returns is kind of a sucker's game. That's not to say that it is impossible to achieve the kinds of returns you are looking for, but rather that it creates a mindset that ignores risk.

The poster should first try to think of his $5M as money that stands to decline in value as the frictional forces of inflation approach.

The goal here should not be so much targeting 5% returns but at least initially, preserving that $5M. It's not as simple as parking money into gold either, because gold itself fluctuates based on when you buy it. Yes, people have lost money by purchasing gold in the past, at the wrong times.

TIPS aren't great either, because the calculations used by the government often understate inflation.

So to me, when I see questions like this I often advocate scrutinizing the individual's current personal finances and then doing like portman says with projecting goals and expenses. Then, you look at investing and target how to invest with the appropriate time horizon.


Good quote from Warren Buffett: > You only have to do a very few things right in your life so long > as you don't do too many things wrong.

I agree. You don't have to be too bright to be a good investor. In the long haul, you'll be ok if you don't do something stupid. So aim for loss MINIMIZATION rather than profit maximation.

Also, the markets are very, very tumultuous now and I believe it will get worse. The federal reserve just pumped a massive amount of US dollars in the system and the long term effects of this will be a staggering amount of inflation. So in my opinion, you should invest in assets that are not denominated in US dollars, such as gold bullion and other commodities.

Beware of commodities that are traded fractionally. Meaning they sell you more of the commodity than they actually have.

Finally, diversify, diversify, diversify. Don't put all your eggs in one basket. Beware of mutual funds that are diversified but charge exorbitant rates. Index funds have the same amount of diversification but at rock bottom prices.

- Stever

PS If you are worried about a major market crash (as am I), you might want to check out the Black Swan fund: http://online.wsj.com/article/SB124380234786770027.html .


Quite frankly I am surprised by the tone of some of the advice here. I see the point for informing yourself, but following it should undoubtedly teach you to never try to beat the market and "do it yourself" - unless you plan to make this your life.

Instead, I would shift the advice slightly to: inform yourself, find someone who knows this kind of stuff and give them your business, trusting but also verifying them. Far too many people think they can build that one model which guarantees success only to be burned. Granted, using a professional can still get you burned (uncertainty is a fundamental principle of our life and universe) but you at least increase your odds.


The problem with using a professional is that you have less information available for choosing professionals than you do for choosing stocks. If you pick one and he gets good returns, was it because of luck or skill? If he gets poor returns for the first 5 years, is it because he's investing in good values that are overlooked by the rest of the market (a long-term winning strategy) or because he's investing in the hot stock of the month that gets dumped soon after (a long-term losing strategy)? It's really hard to "verify" performance when that performance depends upon so many factors outside of the professional's control.

With individual stocks, companies are at least required to give a detailed report to the market every quarter. It's a lot of work to keep up on all the information that may be relevant to a company's performance (some would probably say it's impossible), but at least the information is out there. That's not the case when you're looking for information about a financial professional's performance.

If you really don't have time to spend on this yourself, I'd recommend passive investments. Index funds, treasuries, munis. When you buy an index fund, you're basically hiring the services of all financial professionals, everywhere, to do your research for you. And paying a significantly lower fee than if you'd actually hired one.


I agree, I think this is perhaps a better question: how can I find a competent money manager?

As many other posters (correctly) pointed out, typical money managers may not have your interests at heart.


If someone promises to beat the market for you, don't hire them. Go with someone who applies academic theory. I spent last summer interning with a firm in Maryland. I learned a ton about the academics behind it and am writing my senior thesis on portfolio theory right now. He takes clients by referral only but here is his Web site: http://www.marylandcapitaladvisors.com with lots of interesting articles.


Just wanted to point out the fact that most of the advice here will be biased (not negatively). Most if not everyone here has one financial goal in mind asset growth.

You on the other hand, shouldn't have that as your only goal. You have a huge sum of money and you should be thinking about capital conservation. What happens if hyper-inflation kicks in? What happens if the American economy spirals into depression?

People with high networth have to plan for these things. That is where a financial advisor is actually useful. They might not be able to make you alot of money (because if they could they would be already rich by doing it with their own money) but they can help you preserve the wealth you already have.

I would recommend that is a line of questioning that you should definitely go over with anyone that is going to advise you on your new found wealth. It would be best that they bring it up with you without you having to mention it.


I run the site listed below on the Permanent Portfolio approach and saw all the hits coming in from this page. First let me say that if you want 4-5% a year you need to earn probably 8-9% a year. That's because you'll lose 4% or so just to inflation and taxes.

Next, with that much money you will have many people that may want to take it from you. So go out and get an umbrella insurance policy that covers your net worth to protect against ambulance chasers.

Also, you're going to have relatives and long lost friends coming and asking your for money for all sorts of things. I suggest you harden your heart and learn to tell them "NO" right now before you get burned. If you want to give them money, then make it a gift and not a "loan." Those types of loans are never repaid and if you are expecting them to be re-paid and they aren't it will ruin your relationship.

Now for actual investing advice.

First, you don't want to do anything stupid and lose that money. So be VERY conservative in your investment decisions. You do not need to risk 10-15% a year returns because you already are in the top 1% of net worth in the country at this point.

Second, most financial advisors do not have your best interests at heart. They will sell you expensive products that generate fees for them and probably underperform the market. So your best choice if you want exposure to stocks is to just buy a low cost index fund and not get into the stock market trading game.

Third, you will want bonds to work as fixed income and I'd only buy Treasury bonds as they have no credit or call risk. You don't save enough in taxes usually to make the risks of munis worth the price of admission. IMO. During the credit crisis in 2008 Munis went DOWN in value, but Treasury Bonds were up almost 30%. That tax savings people thought they had went out the window when the market panicked.

Fourth, you should have some hard assets for inflation shock insurance in your portfolio. Gold works best. IMO. It doesn't produce interest or dividends, but it can go up like a rocket when stocks and bonds are suffering.

Finally, you should keep a slug of cash sitting around to help you ride out market storms and support yourself so you don't have to sell assets out of desperation when they are down in price.

So I do think the Permanent Portfolio allocation would be a good choice. It gives you growth with an average CAGR of 9-10% the past 40 years. It gives you protection with the worst loss being in 1981 when it lost about -4-6%. It gives you stability because it won't have crazy swings in value. Lastly, it gives you control over your finances so you don't need to use a money manager and pay exorbitant fees.

For now, you may want to park that money in a very safe Treasury Money Market fund while you make your decision. They pay almost no interest, but it's better than jumping into something and losing your shirt. Don't let the financial advisors you're going to meet pressure you into expensive and dumb investment products. And, BTW, that's mostly what they're going to offer you.

If this sounds like too much to handle, then just go to www.vanguard.com and contact their money managers. They charge a small fee each year but will not do anything dumb with your money and their index funds are well run and cheap.


This seems like some of the better advice here.

In general, most common investment advice is bad because it understates risk (e.g. telling people that the stock market will perform well over the long term). The truth is that it's difficult to get reasonable returns with low risk, but that's not what anybody wants to hear because they "need" higher returns.


BTW. In case I wasn't clear the site I run focuses on on passive investing strategies relating to the Permanent Portfolio asset allocation. You can read more about it here:

http://crawlingroad.com/blog/2010/02/06/permanent-portfolio-...


You don't save enough in taxes usually to make the risks of munis worth the price of admission. IMO. During the credit crisis in 2008 Munis went DOWN in value, but Treasury Bonds were up almost 30%. That tax savings people thought they had went out the window when the market panicked.

If you're investing for the long term, you don't care about temporary panics, the price will just come back up again ( which is what happened: https://personal.vanguard.com/us/funds/snapshot?FundId=0043&... ). Coming out of the worst financial crisis in many decades, corporate funds and tax free funds have performed pretty close to Treasuries over the last ten years. ( Compare https://personal.vanguard.com/us/funds/snapshot?FundId=0043&... to https://personal.vanguard.com/us/funds/snapshot?FundId=0083&... to https://personal.vanguard.com/us/funds/snapshot?FundId=0028&... ). If you figure the worst of the defaults is over, then corporates and munis are probably a better buy now. Of course, since interest rates are so abnormally low, buying any kind of long term bond or bond fund may not be a very good idea right now.


> If you're investing for the long term, you don't care about temporary panics, the price will just come back up again

  "The market can stay irrational longer than you can stay solvent."
                                    -Keynes


No, that is not true for a smart long term investor. Keynes quote applies to someone making a short term, highly levered play.


The problem with working in Gold or other commodities is that you can only prove a correlation based on past performance. Stocks and bonds on the other hand are inherently negatively correlated because of what they are. Gold is a highly volatile commodity and there is no guarantee that it will continue to be a useful inflation hedge.


All correlations are based on past performance. In general, I think correlation data between asset classes is misleading and investors should never rely on it.

The only thing investors should be concerned with is how the assets they own correlate to the economy and not each other. Stocks for prosperity. Gold for inflation. Bonds for deflation (and prosperity). Cash to ride out recessions.

Stocks and bonds are not negatively correlated all the time. During the 1970s stocks and bonds both did horribly in real terms because inflation was so bad. The correlation of them to each other didn't matter, only how they correlated to the economy did.

Prior to 2008 investment gurus said that stocks and long term bonds were actually positively correlated and that both would suffer at the same time. I guess that's maybe true in mild recession or inflation, but not true in a deflation. They reached their conclusions because we hadn't seen deflation since the 1930s and they were just looking at the past few decades. Their data and economic analysis was incomplete and they were unpleasantly surprised by the outcome when stocks lost over 30% in value and long term Treasury bonds went up 30% in value. Prior to 2008, many investment gurus poo-poo'd treasuries and encouraged investors to take on credit risk in lower quality bonds for more return. That was also a bad bet. Junk bond funds for instance dove almost as much as stocks. Corporate bonds also did not fare as well as Treasuries. All the correlation data they had proved to be incorrect because they were looking at the wrong things.

Gold is a volatile commodity because there is so little of it in relation to dollars in circulation. If there is no serious inflation expected in the dollar (say 5% or less per year), then gold will not perform well. But if it gets over 5% a year (or it is anticipated to do so) investors will start thinking that gold is looking pretty good compared to holding dollars and will buy it running up the price.

But we should also remember that asset allocation strategy should avoid looking at any one asset in isolation. Only how all the assets perform in the entire package matters.

I can make a case that any asset is horrible to own. Stocks the last 10 years have been real stinkers but I still own them because the next 10 years they could be great. In the 1990s nobody wanted gold but by the time the tech bubble popped gold was poised to go on a tear the next 10 years to today. In the late 1970s nobody wanted bonds because inflation had killed them the prior decade. But once inflation came under control bond prices went through the roof and continued to turn in excellent performance the next 30 years!

So I strongly encourage investors to step away from the mindset of correlations and guessing what assets will do best and just spread your money around. It is counterintuitive, but by owning four major assets of stocks, bonds, cash and gold you are actually far safer risk-wise than concentrating your investments.

This question of which asset class will do best and whether to own Asset X or Asset Y comes up a lot. I wrote a post about it that includes a snippet from Browne explaining his experience in this as well that readers may enjoy:

http://crawlingroad.com/blog/2010/01/12/what-asset-will-do-b...


Another way of saying this: read this article from the New York Times: http://www.nytimes.com/2010/02/06/your-money/stocks-and-bond... .


This is the best advice in this thread, and what I would do.

Particularly the advice to park it in a Money Market fund until you are confident you know what you want to do.


> Treasury bonds as they have no credit or call risk

Arguably not 100% true anymore. Some people are buying insurance on treasuries these days.


The US Govt. can always print money to pay off creditors. Yes, this would be highly inflationary. But, it means the bonds can always be paid. More likely, they will simply raise taxes to cover the debt load.

But compared to other bonds, the US Treasuries are probably the safest. Even the Euro bonds are less safe. IMO. They are having big problems that will only get worse.

However if this all goes to hell, then you have an allocation to gold to cover the inflation fallout from the mess.

But in 2008 everyone thought inflation was coming when gas was $4 a gallon and climbing. But by the end of the year we had a deflation situation and Treasury bonds went up 30%. Nobody saw that one coming which is why portfolios should hold a wide variety of assets at all times and not try to use market timing.


> More likely, they will simply raise taxes to cover the debt load.

Historically unlikely. Democracies favor inflation, at the expense of mostly foreign creditors, over higher taxes, at the expense of the average voter.


The U.S. is in an unusual position, though, in that more than half its government bonds are held domestically, so screwing the bondholders is politically much harder. I agree that inflating out of a debt is probably still relatively likely, though, since as long as it isn't done in a precipitous fashion (i.e. Italy-style overnight devaluation), the small domestic bondholders aren't likely to revolt. An actual default seems unlikely though, given how many Americans own treasury bonds.


The US Govt. can always print money to pay off creditors. Yes, this would be highly inflationary.

Actually, it would be anti-deflationary. The fact that U.S. Govt can print money to pay off creditors is already priced into the price of the bonds ( if it wasn't, U.S. bonds would already be worthless, as there is simply not enough dollars in the world to come close to paying off the debt). T-Bills are inflationary at the time of issuance.


The US is one of the only nations in the world to never, ever default, in any way.


Actually the US defaulted twice in the past 100 years IMO:

In 1933 they broke the gold standard and confiscated citizen's gold. After the gold was converted to paper money they took the official price from around $20 an ounce to $35 an ounce thereby reducing the purchasing power of the paper (you needed $35 to buy what once cost you $20 just a few months earlier). Since Treasury notes then were essentially gold certificates promising to pay the bearer in the dollar value of gold, the US defaulted because they wouldn't honor the conversion. US Citizens were not allowed to own gold outside of jewelry again until 1974.

In 1971 Nixon closed the gold window for international holders of dollars. Foreign countries with dollars would no longer be allowed to convert their dollars for gold at the agreed to rate of $35 per ounce. So this too is a default as the terms of the agreement were not followed and we left foreign holders with dollars that were declining in value rapidly due to our inflation.

I'm not expecting the US to default any time soon, but there are ways for it to happen that technically aren't a "default" but achieve the same outcome. High inflation is the most likely way they'd do this if it came down to it.


Several interesting facts emerge from the table. First, any countries and regions even some that received substantial debt inflows never defaulted. This includes the United States at the federal level, Canada, Australia, South Africa (except for an episode related to sanctions in 1985), most Asian countries, and most Arab countries.

http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf


Here's the problem: anybody who is actually professionally qualified to help you will be ethically obligated not to do so in this forum.

As an example, I am a CFA Charterholder, and off the top of my head, I cannot give you advice for the following reasons:

1) I'm not familiar with your investment experience.

2) Your return objectives are unclear. Do you really just want a 4-5% return (and perhaps a 1-2% draw?) or are you looking to withdraw 4-5%?

3) Your risk tolerance and your understanding of various risks is unclear.

4) I have no understanding of any other financial goals you may have, such as intent to protect wealth in case of divorce, or intent to transfer wealth to children, etc.

5) I have no understanding of what your full financial situation is, and what your current portfolio looks like. Is this $5m all you have, or do you already have a variety of assets?

6) I have no understanding of what level of liquidity is required of your investments.

7) I do not know if you have any specific objectives, mandates or constraints. These could range from a desire to move to a particular country, to engage in a particular business, or to weight a particular sector more heavily when possible.

8) I do not have the ability to accurately and clearly communicate investment information via an internet forum comment. Doing so requires presenting you with the information in a manner that is clear, easy to understand, and where you have the opportunity to ask questions and allow both of us to be sure that you understand what is being said as well as what is not being said.

9) Any over-simplified recommendation I made for you would fail a test for diligence and adequate basis.

To be frank, I can see NUMEROUS problems with much of the advice given here (in particular, a lot of people are advocating strategies that carry serious risk, but are NOT disclosing that risk, nor accurately explaining how to hedge against it. there is also a lot of misrepresentation about the performance of various investment vehicles on this page), but I cannot be more specific without breaking my professional code of ethics.

I hope you take my warning seriously, that the advice in this forum comes, almost necessarily, from people who are not qualified or experienced with these matters. I do not want your business, and I am not soliciting it. I just don't want you ending up in a bad situation because you mistook a well-composed and well-intentioned internet comment for advice that is right for you.

I've seen way too many people lose way too much money because they didn't fully understand the ramifications of an idea.

----

edit: I want to give you some advice, so let it be this: educate yourself. Treat it as a serious, full-time job. Don't think that reading a few books (or a few blogs) aimed at a lay audience is adequate. You might consider taking the CFA examinations, just so you can competently audit any advisors or managers that you hire to assist you.

You are in a situation that can make not only your life better, but to also improve the lives of your loved ones. Real education will help you determine if your advisors are doing what's best for you, and long-term, will make it easier to confident that you have outsourced the handling of your investments wisely... or if you decide to do it yourself, that you are doing so with a reasonable understanding of investment.

Please be careful.


Without realizing the dreams of a penthouse or private planes in the immediate future, I would suggest you act like a 20 year old making their initial 401k contributions. Invest aggressively. Investments regularly hit 10-15% annual return. The downside is your investments are almost entirely tied to the unpredictable stock market. But in 10-15 years, you can cash out larger portions without touching the principle.

If you want to play it safer with the 4-5% return, there are safer mutual funds to invest with. Less risk and less returns. But for arguments sake, will 4-5% cover the inflation you experience as you grow older?


1) What about buying property and renting it out? It requires maintenance and oversight, but it will most likely generate much more than 4-5%.

2) You can lend money on sites like prosper.com. If you spread your money of hundreds/thousands loans, it's pretty safe. I've seen some numbers somewhere, people were sharing their success/default rates, it's not that bad.


You may want to compare notes with this guy:

http://www.reddit.com/r/IAmA/comments/9li9n/i_won_a_30_milli...

He won $30M in the lottery and was determined to manage the money wisely in order to live a modest and free life.


A few comments on the Permanent Portfolio (25% Gold, 25% Stocks, 25% Bonds, 25% Cash):

1) Cash is simply a bond - very short-term, but a bond. So, since the 25% that is in bonds is, presumably, a fund, they usually have a duration (interest-rate sensitivity) of around 5.0-6.0 (roughly equivalent to years). Add-in the same 25% allocation to cash (duration around zero), and you have a 50% bond allocation that is of duration around 3.0 - that is reasonable and happens to be the duration I target. However, 1) since I use individual bonds, I do not have the problem of realizing losses during rising interest-rates (laddered maturities, held to maturity), and 2) I manage the bond portfolio to capitalize on changing yield compensation for risk along the three dimensions of bond risk: credit, interest-rate (duration), and timing-of-cash-flow (ex. mortgage-backed securities) to achieve better fixed-income portfolios.

2) Gold of 25% is quite risky. A brief look at the historical volatility of Gold returns will show you that having such a large allocation to an investment class with such a high standard deviation increases portfolio volatility too much. Secondly, it is very difficult to determine when Gold is relatively "rich" or "cheap", because, unlike all other non-commodity investments that we all invest in, we cannot apply simple discounting math to either a) measure the market’s yield compensation for the risk (as with bonds), or b) measure the price relative to expected earnings/cash-flow (as with stocks) - Commodities have NO cash flows.

Last thought: What has been a better risk-adjusted hedge against inflation, Gold or 3-Month US Treasury Bills? Check it out. When inflation actually happens (not just inflation expectations), interest-rates rise -- that is not spurious correlation, that is just rational market behavior.


Secondly, it is very difficult to determine when Gold is relatively "rich" or "cheap", because, unlike all other non-commodity investments that we all invest in, we cannot apply simple discounting math to either

Gold is a natural currency. Going long on gold is a bet on the collapse of the U.S. dollar as reserve currency and a fall back to some sort of international gold standard. In such a case, it's price will go up by 10-100X. If the U.S. tightens the money supply and returns to more responsible fiscal and monetary management, the price will drop dramatically.

The 25% in cash seems really high, especially for someone trying to live off $5 million. Such a person might want $50K in a savings account, but no need to have much more.

What has been a better risk-adjusted hedge against inflation, Gold or 3-Month US Treasury Bills? Check it out. When inflation actually happens (not just inflation expectations), interest-rates rise -- that is not spurious correlation, that is just rational market behavior.

In many cases (not always) inflation happens because of government subsidized credit expansion. Because loans are subsidized, you can get high inflation but low interest rates. This was the case from 2003-2008.


I say the following with great respect. I do not know much about you or your circumstances, but I do share the same opinion of inherited wealth as a lot of great American business men. For example:

“The idea that you get a lifetime of privately funded food stamps based on coming out of the right womb strikes at my idea of fairness.”

- Warren Buffett

And more importantly. “Great sums bequeathed often work more for the injury than the good of the recipients.”

-Andrew Carnegie

In The Millionaire Next Door (1996), researchers Thomas Stanley and William Danko conclude that lifetime and testamentary family gifts are both a disincentive to work as well as a disincentive to save. Their findings show that the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.

While you may just be looking to "keep the nest egg safe" with a 4-5% return. I urge you not to drift into a life where you play it safe and do not contribute to society.

While you should protect your money and not do anything foolish with it, don't let it ruin your opportunity you have. You are one of the luckiest people to ever live. You have been given a lifetime of wealth at one of the most exciting times ever to be alive. While 5 million may not be a lot compared to Paris Hilton, I assure you it can be good enough to fund something truly worthwhile. Take Darwin for an example, or look at what Bill Gates is trying to do.

So while I doubt one comment on HackerNews could ever change your mind if you are already "spoiled", I urge you to stay apart of the HN community (and other communities of ambitious "doers") and find a way to contribute to a project that could really help the world.


These are unusual and unstable times. There are no easy low risk strategies that require little thought any more. Even being in cash bears unknown risks nowadays. So talk to the usual sources advised by other people, and find the place to park your capital that makes you happy. For now.

Then put aside $50k. Use that $50k to learn to trade the market, and learn to read the market. Accept that you're going to lose it, and be happy that you have enough money to play with to trigger all the fight or flight reactions that you have to learn to overcome. It'll take you three years to wrap your head around it. It's a challenge. Aim to find a mix of the known low-risk trading strategies that can work for $5 million and for which 20%/year is more than reasonable. e.g. trading the ES opening gap.

Everything else is either (a) trusting people and pot luck, or (b) not much better than a high interest back account, or (c) a lot riskier than it used to be given present geopolitics.

If you want something done, you have to do it yourself.


1. Don't expect to be able to "bank" money and get a 5% annual return; in 2010, 5% is too high of an expectation for an autopilot. But check out TIPS http://www.treasurydirect.gov/indiv/products/prod_tips_glanc...

2. Get a financial education, really, because nobody cares more about your money than you. In fact, few really care very much at all, and 80% of money managers under-perform the S&P 500 index. So invest in YOURSELF first. Be very picky about your professor; make her or him someone who has successfully managed money before, not just an dime nerd. One of mine is Bernie Schaeffer, whose writing on expectational (sentiment) analysis was groundbreaking. http://SchaeffersResearch.com/

3. Capital preservation must always preclude capital appreciation; always look to how NOT to lose money and the making thereof will happen.

4. Making a return on investment requires you to have the vision of an assessor, who finds people, companies, commodities, or currencies who are undervalued. So find something in which you have uncommon insight, and invest there. Don't EVER risk money on things you don't understand.

5. Sow where you go; invest in yourself (if/when you're a good investment) and in causes or persons around you whom you TRUST to succeed. At the end of the day, creating value or enhancing worth is all about FAITH.


I think the best approach is to read up on asset allocation (other posters have discussed various books and resources), recognize the amount of risk you're willing to take on depending on your timeline, and make a plan for periodic allocations starting now. If you properly allocate your capital amongst different asset classes like stocks, bonds, real estate, commodities, and cash equivalents, you'll probably find a sweet spot for good returns balanced with reduced risk. The plethora of ETFs and index funds out there these days will definitely help with making this simple.

Another consideration is to become a direct investor in some sound businesses. Start looking through your networks. Being an angel investor may not be your cup of tea, but maybe you have friends or families that are running great small businesses. If you have good confidence in a business, there's no reason not to invest. There's a personal connection there, and you're likely to get the boost of great returns as well.


Are you saying you want to live off the generated income forever? Do you have anything you are passionate about that you might want to build? Might you one day soon?

I think you have to expound on what you want to do with yourself before deciding what to do with this boon. Until you answer that, stick to highly liquid very low risk assets and forget about a target return.


My personal planned allocation: 15% hand picked dividend stocks ( stuff like SXL, BPL ) 40% dividend stock mutual fund ( DVY) 30% long term bond fund 10% gold 5% treasury money market fund or CD's

DVY pays out a 3.9% dividend yield. Dividends will rise as nominal national income rises. The "general price level" will rise with national income minus productivity growth. In other words, if you put 100% in DVY you will be able to get an annual return of 3.9% that will rise with inflation. If productivity grows at 1% a year, then you will effectively get a return of 4.9% a year in terms of purchasing power.

You might wait on buying any long term bonds though, until interest rates return to any sort of normalcy.

(disclaimer: I'm not a professional, use at own risk, etc. etc.)


Recommended reading: The Intelligent Asset Allocator (Bernstein). My implementation of an asset allocation strategy includes a well-constructed bond portfolio using primarily individual bonds. see www.marylandcapitaladvisors.com, for example.


Head over to the bogleheads forum, they give excellent advice:

http://www.bogleheads.org/forum/viewforum.php?f=1


Move to Australia. Most of our banks offer 12mth term-deposit returns of 6% or greater on deposits >$50,000. For deposits >$1mil the rates are negotiable.


You don't need to move to Australia. I opened an Australian bank account precisely for this purpose. All I had to do was travel to their branch in London to identify myself.

Apart from high interest rates, there are other advantages to AUD: low government debt, and a commodity-rich country that is likely to thrive if things get tough for the world.

I also bought AUD from USD when it was 10% undervalued according to PPP, so that's already a 40% gain in USD terms:

http://fx.sauder.ubc.ca/PPP.html


What are your tax rates on interest?


Does that matter? The poster is ostensibly going to have to pay at least the US tax rate.


Rumpel Wise thinking.

I think you have a couple of issues you need to bear in mind. The world is fundamentally broken. And most models you will read about were built for a different world.

I suggested you read John Mauldin (a lot) his newsletter is at http://www.johnmauldin.com/outside_the_box.html You need to now learn and understand about finance, what is wrong with the models and how to read the global environment. As an HNer you shd be able to do this. (You, for example, need to think about the liquidity you need)

So rather than looking at a model, build up a picture of the world.

That picture might probably be: * 10-15 yrs of misery in the US with choppy equity markets and an ever weaker dollar. Assume a deflation type scenario * Growth in China & Brazil but the danger of overeating * Climate change play: climate change play is clearly a good 20-30yr trend but there is reason to believe that with the PDO we will see global temperature anomalies drop for then next 10-12 yrs, so over that time frame there may be a contrarian play * Gold may be valuable but only to a point * And will successive US governments try to eviscerate the dollar, there isn;t much choice for other central bankers but to hold the dollar * Sovreign debt in Europe looks risky.

With $5m you should aim for around 20-25 individual positions. Much of this can be done via ETFs with the right degree of portfolio balancing, and there are several services (which I can't vouch for) like alphaclone, which will help you do this.

I would absolutely not follow the traditional route of the bulk of your assets follow US stock indicies--that worked in the post-baby boom years, don't think it would work now.

However, I wouldn't understate the value of being able to get into a really good macro-oriented or special situations hedge fund. John Paulson's funds are a great example of this. They have returned 16-17% pretty consistently with a few bad years for 20 yrs or so. Allocating $500k into something like that is probably not a bad idea.

It is abosolutely worth you find a good financial advisor (Sanford Bernstein or similiar) and put some of your assets with them to get access to their research & network. Your test should be: can they get me into a few reliable hedge funds, etc and do I get extra benefits. Yes: you pay 2% to get into a hedge fund, but if you get into a half decent one, you'll add a lot to your portfolio.

In your position, my book would look like this: $1.5 - $2m into a variety of hedge funds and / or private equity positions (at least 7-8 very reputable ones $2m into a variety of ETFs ensuring you have good coverage of BRIC and non-US markets $1m in liquids (USD, NOK, other strong currencies)

You should plan to spend at least 1.5 days a month reviewing your portfolio, some of which will be daily reading of good business websites (NOT MARKETWATCH! or CRAMER). Plan on rebalancing no more than half-of your positions a quarted, any more than that and the markets are nuts or you have a trigger finger.

Because ETFs are liquid you can get in and out when you like, with some price risk. So if you need to hire a private jet and take your friends to Ibiza, you can.

Above all: trust no-one. Equip yourself to make your own decisions.


I personally agree with much of your picture of the world, but I'd like to point out that building up a single picture of the world and investing based on that exposes you to a lot of risk that your model is wrong. And over a 20-30 year timespan, virtually all models of the world are wrong. The world is just too complex to model effectively: you're at the mercy of black swan events that completely invalidate all of your assumptions.

I'd also take issue with your advice to put your money into hedge funds or private equity. There is little reason to believe that the average hedge fund manager will outperform the market, because they are the market. By definition, the average fund manager gets average performance (actually slightly less than average, because investing returns are a skew distribution where the best hedge funds get outsize returns and there's a long tail of slightly-below-average funds to compensate). The best fund managers will outperform the market by a large margin, but you have no reason to believe that you'll be able to pick the best funds. You have less information available in choosing a fund manager than you do in choosing individual stocks. Past performance doesn't cut it - you might be looking at the particular fund simply because they have randomly beaten the market over 20 years.

And you'll get eaten alive by the fees, which are the one predictable part of the financial industry.


Agree about hedge funds.

To the OP, listen: The markets, all of them, are damn close to being efficient, and that means that nobody can really predict the future, unless they have the inside on some market defect. Think of financial advisers as psychics, who can be refuted with one question: "So, why aren't you rich from betting on the market?" Why do they work 9-to-5 for other people? Because they really don't know.

Also, people are being a bit too negative about targeting an interest rate. Right here, I think this is the largest bond fund in the world,

http://finance.yahoo.com/q/bc?s=PTTAX&t=2y&l=on&...

...a little over 5 percent (yahoo is out of date), and notice that even during the financial crisis it was in pretty good shape. Keep in mind that such funds already have better advisers than you could ever afford, and they know how to vet. Just divide your money into 10 or so such funds, put a few 100K of physical gold in a swiss vault if you're paranoid. Ta da.

If you want to be more active, research actually buying bonds yourself, as you won't lose that 1 percent to the managers. Most brokerages have this.


Good points. I ought to clarify: back to the idea of rebalancing. It is really about checking your assumptions and trimming your sails a few times a year.

As to fund managers: i think that is the case with mutual fund managers. But it certainly isn't the case with hedge funds or VC. VC for example guarantees you will lose money uness you chose a handful of funds whose identity you know a priori. As for hedge funds--they cover a broad church--of which two remain specially interesting: Special situations/global macro -- where you need to know and understand a manager (who is essentially a business man) and find someone who has decent risk management in place as well as a really good investment process.I like Paulson for this. The second interesting area is the the high frequency systematic trading if highly liquid instruments (CTAs, if you will) which have a very different risk/return profile especially in chop markets and actually have a distribution benefit.

Eaten alive isn't very precise--you can actually model your fees and work out how much of you will be eaten.


Definitely don't put it in the hands of third parties, keep an eye on people charging you for 'maintaining' your funds.

Diversify.

Be very careful, don't follow any advice, including any of this without triple checking.

And remember that what 5 million today will buy you is a significant multiple of what it will buy you in 20 years.

Inflation is hard on money that you've got, simply maintaining purchasing power is already an issue.


I understand people's fear of having other people in charge of your money but maintaining a portfolio and keeping allocations at a certain level (like 30% stocks, 70% bonds) on a daily basis requires some help. Some investment advisors manage many portfolios and can therefore buy bonds in larger quantities at better prices.

Saying that you shouldn't hire a professional to create a suitable strategy for you and maintain your wealth doesn't sound right.


Hiring the wrong professional is a great way to lose your money though.

It all depends on which professional and there are plenty of shysters in that world. A fool and his money are soon parted, and there are people that have turned that sort of thing in to a career.

Case in point, a friend of mine did pretty good, had a good sized IT business and a sizeable nest egg. Enter the investment advisor. 15 years later, and a lot of bullshit stories he's down to roughly 15% of what it was when he started out.

Finding people you can trust with your dough is very hard, learning how to do so yourself is not easy but if you fall you hopefully won't fall too far.

Coming in to some money without having earned it is harder still, it means that you don't have money managing skills that would have gotten you to that height in the first place.

It's a very tricky position to be in, best described as a goldfish landing in a shark tank.


Too late for me to edit my reply to you but:

> Saying that you shouldn't hire a professional to create a suitable strategy for you and maintain your wealth doesn't sound right.

Is a strawman, I didn't say that you shouldn't hire someone to create a suitable strategy, I said 'Definitely don't put it in the hands of third parties', in other words, maintain control of your funds at all times.

Advise is fine, but a third party managing your funds for you in a 'hands off' mode is most likely not. It's your money, when it gets moved you should be the one to make the call, not some broker. Their interests are not aligned with yours.


Advisors use brokerage accounts at places like Schwab, which give both you and the advisor access to the account.

And brokers are not investment advisors. They are in the business of selling stuff to you. So if you are saying don't give money to brokers to manage then I agree :). When you hire an advisor you agree on a strategy beforehand and the advisor makes trades to keep certain averages in your account. This industry is pretty regulated and advisors know they are liable if they divert from an agreed-upon strategy.


With any reasonably sizable amount of money (and 5 mil definitely fits that), you should have multiple investment advisors and accounts with each of them (and they should not know about one another or the rest of your investments).


that's terrible advice. An investment advisor needs to know about your overall wealth to tailor a strategy to your situation. And 5 million is not that much. Managing 5 million or 10 million is pretty much the same amount of work. It actually gets easier when you're dealing with bigger sums because some bonds only trade in larger amounts.


You're not separating it due to work load.

You're isolating yourself from a bad egg. The point is to insure yourself against utter crooks/total screwups.


I got a financial advisor after winning and selling a car, and the funds he recommend I invest in (Fidelity) ended up, over 7 years, to just about double in value. So a financial advisor can be good - you just state the level of risk you're willing to take. Mine was 3 out of 5 (risky ish).


Buy and read 'the long and the short of it' by John Kay, it will give you a decent amount of knowledge of your different options.

That said, any advice on a strategy is going to be mostly guess work (ie predictions of the future based on an incomplete model) because we're living in interesting times.


Call Vanguard :) Or find a fee only financial planner. Do not use commission based financail planners.


what risk does someone with $5m confront of not seeing 2% ($100,000) annual return (before tax, adjusting for inflation) for the next 40 years?

i ask because i'm going to spend the next hour or so fantasizing about being in the ops position.


Take a look at goldbasis.org. It's a very simple way of taking advantage of overall economic growth, while alternatively protecting yourself against inflation and instability. Nothing fancy.


congrats on the inheritance. Look into government TIPS: http://www.treasurydirect.gov/RI/OFNtebnd

However, I would suggest taking 1% of the inheritance and work on trying to increase this amount consistently more than 5%. Prove yourself with a small amount and gradually grow larger. Don't bury your talents http://en.wikipedia.org/wiki/Parable_of_the_talents_or_minas


I'm a big fan of the Motley Fool investment newsletters/forums. In your case I would have a look at the "Income Investor" and "Rule Your Retirement" newsletters.


put x% (10<x<50) of it into counter moving assets like gold, oil, energy, etc. this acts as a safety valve for major calamities. a financial adviser probably won't help you with this too much. you have to decide how paranoid you are.

split the rest between investments of various risk depending on how much risk you are comfortable with. a financial adviser will help with this.


Try investing in BRIC markets

http://en.wikipedia.org/wiki/BRIC


Poker and blackjack (50/50).


Buy GOOG.


Why not 4M on safe 1% fund and 1M on riskier investment like stocks from Bluechips?




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