10 million dollar dilemma

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PowderDay9
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Joined: Fri Oct 12, 2018 12:29 pm

Re: 10 million dollar dilemma

Post by PowderDay9 »

powercherry5 wrote: Mon May 17, 2021 6:16 pm This leaves me with ~2 million in liquid accounts like high yield MM and treasury funds. I plan on keeping this on hand. It will be used as my lifestyle funding source for the first few years. So I won’t have to start my withdrawls from my retirement portfolio for a while, which only bolsters gains there. The other comforting part is that if there is a crash after I’m done funding the retirement portfolio, I will use a majority of whats left of my liquid funds to put into the market at lows. Not in a “I’m counting on this money to retire” type of way, but as a separate “gambling” fund that I will also feel OK with withdrawing when I believe the "time is right" (once a fool, always a fool!). Maybe it will win, maybe it won’t. But that’s why I have my retirement portfolio right? Seems like I can "irresponsibly" keep this 2 million back without any setbacks to my retirement goals as long as I have the retirement portfolio. What do you guy think?
I think you're still trying to time the market. Some of your words used are very concerning for maintaining one's confidence to stay the (investment plan) course for decades. "Gambling", "time is right", "irresponsibly", and "fool" are not a part of a reasonable and long-term investment plan.

I'd suggest more education to build strong confidence in managing this portfolio. Have you read Bill Bernstein's If You Can article and the books he recommends? I think it's worth spending a year further educating yourself on investing (including history, behavioral pitfalls, etc) while you dollar cost average at $100k a week. You should treat this as a part-time job because you have a lot on the line. Behavioral mistakes could cost you millions. You're in a great position and I hope you give it the time it deserves to maintain your financial security.
fyre4ce
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Re: 10 million dollar dilemma

Post by fyre4ce »

Eight figures in your 30's is pretty good, even by Bogleheads standards. Do you mind sharing any details of the business you sold? Just curious...
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mrspock
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Re: 10 million dollar dilemma

Post by mrspock »

powercherry5 wrote: Mon May 17, 2021 6:12 pm I appreciate everyones input, even if I didn't get to replying to it in this post. Some of the posts were getting at the same thing, so I cut down to only replying to one.
mrspock wrote: Thu May 13, 2021 1:09 am Here's the deal. This what the math says: you stick your money in the market today, at whatever AA you think you can sleep at night with. 50/50, 60/40, 75/25 ...whatever. Since you are young, use a SWR between 3-3.5%, confirm with various Firecalc like tools, and then just spend that money each year. That's it. Done. Finished. It really doesn't matter if a Great Depression happens, or a 2008 happens....it doesn't. It's irrelevant unless you do something foolish like mess with your portfolio during such events -- see my original points. All of these tools take these events into account.
...........
Again, and I can't stress this enough. This is an easy call, take door #2, have equities in your portfolio. It's completely irrelevant what the market does after you begin withdrawing money per your SWR. If you are a bit worried in the moment, just cut back on some spending, but you don't really need to do this.
I'm now with you. I do have a few questions for you though.

1. If you believe in the cold hard data and thats it, why are you in any bonds at all? 100% stock allocation always ends up better in all circumstances according to history. There is more volatility, but since we are only taking out the SWR at any one time, volatility shouldn't matter as long as it comes back. Unless I am missing something, it sounds like it's diversifications for the purpose of something novel happening in an unpredictable way. Which isn't too far from some of the feelings I was suggesting.
The main reason is purely behavioral, consider these points:
1. Great Depression Redux: It's there to provide a rock solid foundation, and "optionality" (aka liquidity) in times of financial stress of volatility. For me it's good for more than 10 years of spending and well beyond this with dividends before I'd need to spend down a dime of my equity holdings in the case of a deep market collapse (say over 50%). History tells me I won't need to wait nearly this long before the bulk of my equity losses would well on their way to recovery in this scenario. Not enough? No problem, I have a 2nd Vacay home I can jettison, or rent buy myself another ten years.

Having bonds in these situations completely changes your mindset from that of panic or duress, to a more constructive mindset of: "About damn time...now what can I do here to maybe make a dollar or two" maybe buying some assets for cheap (upgrading your house or 2nd home), or in the context of your portfolio buying equities on the cheap via rebalancing.

2. Rebalancing & Overbalancing - Instead of twiddling my thumbs during a correction, I'm calculating when my rebalance bands hit. Again, more to mindset: I'm looking forward to when they hit, as I will mechanically sell my bonds to buy up cheap equities. Will I get the market at the absolute bottom? Nope, but I'm buying it all the way down as my bands hit and re-hit, last year I bought around -20% and again at around -32%. You won't time it perfectly -- but gosh -- you'll get a really healthy chunk of the correction. I then do what's called "overbalancing" letting my shiny new equities ride until the market gets to even before I return back to my normal AA.

3. Volatility Control - Bonds ballast my portfolio, at 100% stock I'd have to stomach 43+% swings in my portfolio, at 70/30 it's just -30% -- that makes a big difference mentally. You can even zoom out and track your net worth, adding in the value of your real estate assets, and even a 30-40% equity crash will be even more muted (depending on the value of your other assets).

While having faith in the data & numbers is important, it's also important to set yourself up to minimize the chances that emotions take hold during periods of volatility. Read through the threads, people really second guess themselves. The best advice I ever got was "Keep your mistakes small", and that's what I do with investing. Is 60/40 the best portfolio for the next 30 years? 70/30? 80/20? 90/10? No idea, so I'll pick something in the middle, and whatever "mistake" I make it will be small. Being an "average" index investor can make you filthy rich, I'm ok with that, I don't need obscenely rich -- filthy is fine.

Add all this up, and some new money added in, from the bottom of last year's crash, the size of my portfolio more than doubled from there in 12 months. It's just insane. And it's exactly what all the books said would happen: big drops are always followed by huge run ups/rebounds -- it can just take time so you need to be patient. Even the fact that the rebound was as fast as it was, was by the book, the speed of recoveries highly correlate with the speed of a market decline. 2008 was a slow winding hot mess to the bottom (similar to 1929), so too was the recovery. 2020 was a elevator down to the basement in a couple weeks, the recovery was swift -- months not years.
powercherry5 wrote: Mon May 17, 2021 6:12 pm 2. I am attempting to decide allocations and I am having a tough time coming to terms with if bonds are really the "lower risk" asset class right now. When you combine their reward (low) with the fact that there isn't much room for govt interest rates to go down (consequentially raising bond value), it seems like a bad deal. I was thinking 30%, but not sure that is even right.
This is a hard call and I feel your pain. I used to be 70/30, the way I squared this circle in my mind was by following the advice of Burton Gordon Malkiel (A Random Walk Down Wall Street fame) and a few other well known authors (I think William J. Bernstein too maybe). I tilted slightly more to equities....not much but a little -- to 75/25. This basically took my 0/100 "bond portfolio" to 15/85 and put a bit of wind at it's back with the equities. It should keep the overall "bond portfolio" within a % or two of inflation at the cost of an unnoticeable amount of extra overall portfolio volatility. Another way to look at it, is with yields as low as they are, the thinking is that 80/20 or 75/25 might have returns at current yields as 70/30 did back in the old days (but with more volatility, sorry no free lunch). It's anyone's guess whether this turns out to be the case or now, but it's a reasonable thesis.

As for the actual AA you should pick? Well that's really a behavioral & personal question IMO. How well do you do with risk? How well did you weather downturns in your businesses? (keep in mind with equity investing you won't feel you have nearly as much control as you did running a business on the "outcome") My thinking is go 5-10% more bonds than you really think you can handle in a big downturn, wait for a reasonable correction (10%+) and see how you do. If you start getting nervous, or being unable to execute your investment plan (e.g. being unable to TLH or rebalance are behavioral red flags IMO) then you are probably taking too much risk and need more bonds. On the other hand, if you TLH'd and rebalanced per the plan, and sort of enjoyed the process of buying up equities on the cheap with your shiny bonds, collecting your TLH "tax coupon", then consider adding in 5% more equities (by not rebalancing on the way back up), or just sticking with what you have.
cableguy
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Joined: Thu May 09, 2019 3:34 pm

Re: 10 million dollar dilemma

Post by cableguy »

My suggestion:
50% in Stocks (VOO / VTI / A few individual stocks if that interests you but keep that at $250k or less)
25% in CD's or Multi-Year Guaranteed Annuities (do $200k CD's expiring every 6 months going out a few years at different institutions)
25% in Short Term Bond Fund (BIV / FBND)

You'll do very well with the above...and you'll sleep well at night.
NativeTxn
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Joined: Mon May 20, 2019 9:32 pm

Re: 10 million dollar dilemma

Post by NativeTxn »

If I had that much I'd honestly take 1/3 to 1/2 and put it in municipal bonds (not a muni bond fund), but actual municipal bonds. Can be fairly conservative (but diversified) and yield 3-4% federally tax free. I personally live in Texas so state tax is no issue for me. That rate would be enough for me to live on on an annual basis and let the other 1/2 - 2/3 grow in stocks over the next 20-30 years. And the yield on the munis will eventually go up as they mature and get replaced (at least in theory since we'll have to start raising rates at some point in the future).

Again, this is just what I would do if someone cut me a check for $10 million after tax tomorrow.
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abuss368
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Re: 10 million dollar dilemma

Post by abuss368 »

8 figures at your age is amazing!

Congrats!

Tony
John C. Bogle: “Simplicity is the master key to financial success."
mathwhiz
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Joined: Tue Jul 01, 2008 7:58 pm

Re: 10 million dollar dilemma

Post by mathwhiz »

This isn't recommended because people like a holistic view of one's portfolio here but psychologically for you perhaps it is wise to divide your $10M into buckets based on time horizon.

Perhaps $5M go into the long term 30 year bucket, invest it and forget about it and never look at it in down markets. This is money for retirement in your 60's so you have 30 years to make up for recessions and drops and any horrible terrible events that bothers your psychology.

Then get a mid term bucket 10-15 years you can put in bonds that is much less risky.

Then a short term bucket in money market funds in case there's another black swan event in the world that causes market mayhem.
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