Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

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Bluce
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Bluce »

With index funds often in the tens of billions of AUM, I don't know why a person's portfolio size (not net worth) would make any difference.

Percent gain/loss works the same no matter what the dollar number is. My two lunch buddies, self-proclaimed investing experts, do not understand this, lol. I asked them a couple of years ago if they passed grade-school math, where percentages were taught. One of these guys has a college degree.

Yet *I'm* the dummy. :oops: There are so many fundamentals, aside from percentages, that they simply don't know. I think the one guy has given up; he doesn't talk about investing (speculating, actually) any more.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by ruud »

nisiprius wrote: Mon Apr 19, 2021 8:25 am
Thomas93 wrote: Mon Apr 19, 2021 7:14 am What is the liquidity / transaction cost of VTI and VXUS such that a $20 million or $200 million portfolio no longer makes sense? $50 million 3-fund portfolio entirely in vti/vxus/bnd?

I think the mutual fund forms of the Vanguard etfs have daily limits. Is there a wealth level at which a holding in VTI or VXUS becomes too large? Or is it the opposite in that a higher wealth level would argue for the 3-fund approach?
I'm pretty sure the institutional classes like VITNX (Total Stock Market, Institutional class, $5 million minimum) and VIPNX (Institutional plus class, $100 million minimum) have a pretty high daily limit.
The limits are documented on this page.

For the fund you mentioned, VITNX and VITPX, it is $5M.

Interestingly, VITNX and VITPX are share classes of the "Institutional Total Stock Market Index Fund", which appears to be an entirely separate fund from "Total Stock Market Index Fund", which has Admiral (VTSAX) but also various Institutional share classes (VITSX,VSMPX, VSTSX). The larget transaction limit for this fund is $10M.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mmcmonster »

Vanguard Fan 1367 wrote: Sun Apr 18, 2021 10:08 pm When in professional school I heard the advice that you should get an investment advisor if your wealth became significant as in more than a million or so.
That's nothing. I learned that you should get two unrelated investment advisors and split your money between them, having them compete with each other indefinitely for who should get a higher percentage of your business for the next year. :oops:

Thank God for Mr. Bogle, and thank you all for your guidance and assistance in staying the course!
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mikejuss »

TomatoTomahto wrote: Sun Apr 18, 2021 9:13 amI don’t know if $200M is where alternative investments begin to play a part, but $20M is too low IMO (unless perhaps if you’re relatively young).
What is considered an "alternative investment"? And do we have any data on the return associated with such investments and the return of, say, VTSAX? I'm curious...
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by alfaspider »

A significant portion of the ultra wealthy got that way due to extra-normal appreciation of a business they started or an usually successful investment. That means the are likely to have some significant portion of their net worth tied up in an illiquid asset or one with a significant amount of untaxed capital gain. As such, may don't really have the luxury of a simple index fund portfolio. Jeff Bezos couldn't just sell his Amazon stock and put it all in VTI and BND. Even if he could sell without restriction, he owns so much that significant sales would move the price downwards to a large decree, and would be a show of lack of confidence in the company. While Bezos is an extreme outlier, there are similar considerations for smaller businesses.

And, as mentioned elsewhere, they have to worry about estate tax and legacy planning in a way others don't.

Also, while the basic concept of a 2 or 3 fund portfolio works at any wealth level, goals may change for the high net worth. Most BH types are saving for retirement or are retired after having saved for retirement. When you have many tens of millions of dollars (or more), you aren't saving for retirement anymore. You may have some other goal in mind for the money such that "normal" investment returns are no longer that important to me. You may instead prioritize extra-normal returns (for empire building) or you may prioritize capital preservation, or you may prioritize liquidity and capital structure concerns.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by TomatoTomahto »

mikejuss wrote: Mon Apr 19, 2021 9:39 am
TomatoTomahto wrote: Sun Apr 18, 2021 9:13 amI don’t know if $200M is where alternative investments begin to play a part, but $20M is too low IMO (unless perhaps if you’re relatively young).
What is considered an "alternative investment"? And do we have any data on the return associated with such investments and the return of, say, VTSAX? I'm curious...
I might be the wrong person to ask since I don’t have $200M. I think rental properties (passively managed), oil and mineral rights, private equity, etc. are the kinds of things I was thinking about.

If I did have $200M, I’d buy timber land but mostly for conservation and not income.

My main point was that $20M, while a lot of money, doesn’t IMO swing the needle away from VTSAX and such.
I get the FI part but not the RE part of FIRE.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mikejuss »

ruud wrote: Mon Apr 19, 2021 9:21 am
nisiprius wrote: Mon Apr 19, 2021 8:25 am
Thomas93 wrote: Mon Apr 19, 2021 7:14 am What is the liquidity / transaction cost of VTI and VXUS such that a $20 million or $200 million portfolio no longer makes sense? $50 million 3-fund portfolio entirely in vti/vxus/bnd?

I think the mutual fund forms of the Vanguard etfs have daily limits. Is there a wealth level at which a holding in VTI or VXUS becomes too large? Or is it the opposite in that a higher wealth level would argue for the 3-fund approach?
I'm pretty sure the institutional classes like VITNX (Total Stock Market, Institutional class, $5 million minimum) and VIPNX (Institutional plus class, $100 million minimum) have a pretty high daily limit.
The limits are documented on this page.

For the fund you mentioned, VITNX and VITPX, it is $5M.

Interestingly, VITNX and VITPX are share classes of the "Institutional Total Stock Market Index Fund", which appears to be an entirely separate fund from "Total Stock Market Index Fund", which has Admiral (VTSAX) but also various Institutional share classes (VITSX,VSMPX, VSTSX). The larget transaction limit for this fund is $10M.
Do the institutional funds with really high minimums perform better than the admiral class of everyday funds such as VTSAX?
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Scooter57 »

zaboomafoozarg wrote: Mon Apr 19, 2021 9:07 am
Scooter57 wrote: Mon Apr 19, 2021 8:33 am I am scratching my head at the number of posters in this thread who dismiss $20 Million in investable assets as "not really rich."
I'm guessing the average net worth of posters on this forum is probably around $5M - it was close to $3M for people in their 50s and 60s back in the 2015 net worth survey, and the market has gone up a lot since then.

So $20M likely wouldn't feel like a large number to many. It's not some 100x or 1000x multiple of what they have, it might be closer to 3 or 4 times as much. We have people here posting about buying $2-3M houses frequently.

And many people here also seem to know someone with hundreds of millions, or billions, of dollars.
Years ago, a friend of mine was a lawyer practicing in an upscale Connecticut suburb. She told me you would be surprised at how many of her clients who were people who lived in very expensive houses and driving Audis and Porsches were living from paycheck to paycheck because they were spending every cent on the mortgage and payments.

Buying a $2M house doesn't mean you are wealthy. It means only that you can put $100,000 down, much of it possibly from gains from the sale of a previous home that has surged in a real estate boom, and that your salary is high enough to cover an enormous monthly payment.

But that said, it is not mentally healthy for people who have $20 Million in assets to compare themselves with the 614 people in the US who in 2020 were reported to have $1 Billion dollars or more. Nor is it healthy for people with $5 Million dollars to dismiss $20 Million as "not all that much." That kind of thinking leads to an irrational, life-limiting attitude of "I don't have enough" which is, sadly, what drives a lot of the most exploitative, destructive behavior we see among our fellow humans.

I do know a billionaire, as it happens. He spends most of his time figuring out the best places to deploy his money and has helped fund research that has made significant progress against several terrible illnesses. He discovered he had enough when he got cancer at a relatively young age. He doesn't strike me as any happier than I am. He certainly isn't any healthier. He has his name on more buildings than I do, but late at night when a person is alone with their thoughts, I doubt the number of buildings with your name on them matters that much.

If you can't be content with having more money than 99 out of every 100 other Americans (the case for people with $5,000,000) I doubt having more will improve your life.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mikejuss »

TomatoTomahto wrote: Mon Apr 19, 2021 9:45 am
mikejuss wrote: Mon Apr 19, 2021 9:39 am
TomatoTomahto wrote: Sun Apr 18, 2021 9:13 amI don’t know if $200M is where alternative investments begin to play a part, but $20M is too low IMO (unless perhaps if you’re relatively young).
What is considered an "alternative investment"? And do we have any data on the return associated with such investments and the return of, say, VTSAX? I'm curious...
I might be the wrong person to ask since I don’t have $200M. I think rental properties (passively managed), oil and mineral rights, private equity, etc. are the kinds of things I was thinking about.

If I did have $200M, I’d buy timber land but mostly for conservation and not income.

My main point was that $20M, while a lot of money, doesn’t IMO swing the needle away from VTSAX and such.
Fair enough. I ask because I sometimes hear people with a few million dollars in net worth talk about making ground-floor investments in new companies. I guess the consensus here is that even at that wealth level index funds continue to be your best bet.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mikejuss »

Scooter57 wrote: Mon Apr 19, 2021 9:54 amBut that said, it is not mentally healthy for people who have $20 Million in assets to compare themselves with the 614 people in the US who in 2020 were reported to have $1 Billion dollars or more. Nor is it healthy for people with $5 Million dollars to dismiss $20 Million as "not all that much." That kind of thinking leads to an irrational, life-limiting attitude of "I don't have enough" which is, sadly, what drives a lot of the most exploitative, destructive behavior we see among our fellow humans.
I don't think that the drift of this discussion is that $20 million is not a lot of money; it's that even with a net worth of that level, one doesn't need to stray away from index funds and into alternative investments.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Seasonal »

According to https://dqydj.com/top-one-percent-united-states/, you need $11 million to be top 1% US household net worth and $43 million to be top 0.1%. The advisor industry generally appears to consider $5 million very high net worth and $30 million ultra high net worth. For example, https://www.investopedia.com/terms/h/hnwi.asp
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by ruud »

mikejuss wrote: Mon Apr 19, 2021 9:46 am
ruud wrote: Mon Apr 19, 2021 9:21 am
nisiprius wrote: Mon Apr 19, 2021 8:25 am
Thomas93 wrote: Mon Apr 19, 2021 7:14 am What is the liquidity / transaction cost of VTI and VXUS such that a $20 million or $200 million portfolio no longer makes sense? $50 million 3-fund portfolio entirely in vti/vxus/bnd?

I think the mutual fund forms of the Vanguard etfs have daily limits. Is there a wealth level at which a holding in VTI or VXUS becomes too large? Or is it the opposite in that a higher wealth level would argue for the 3-fund approach?
I'm pretty sure the institutional classes like VITNX (Total Stock Market, Institutional class, $5 million minimum) and VIPNX (Institutional plus class, $100 million minimum) have a pretty high daily limit.
The limits are documented on this page.

For the fund you mentioned, VITNX and VITPX, it is $5M.

Interestingly, VITNX and VITPX are share classes of the "Institutional Total Stock Market Index Fund", which appears to be an entirely separate fund from "Total Stock Market Index Fund", which has Admiral (VTSAX) but also various Institutional share classes (VITSX,VSMPX, VSTSX). The larget transaction limit for this fund is $10M.
Do the institutional funds with really high minimums perform better than the admiral class of everyday funds such as VTSAX?
As far as I can tell, the performance is identical, aside from the expense ratio difference.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mikejuss »

ruud wrote: Mon Apr 19, 2021 10:18 am
mikejuss wrote: Mon Apr 19, 2021 9:46 amDo the institutional funds with really high minimums perform better than the admiral class of everyday funds such as VTSAX?
As far as I can tell, the performance is identical, aside from the expense ratio difference.
So Vanguard knocks 0.005% off of the expense ratio when you invest $5 million? That seems like a decent if not an extraordinary deal.
Last edited by mikejuss on Mon Apr 19, 2021 10:51 am, edited 2 times in total.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by ruud »

mikejuss wrote: Mon Apr 19, 2021 10:37 am
ruud wrote: Mon Apr 19, 2021 10:18 am
mikejuss wrote: Mon Apr 19, 2021 9:46 amDo the institutional funds with really high minimums perform better than the admiral class of everyday funds such as VTSAX?
As far as I can tell, the performance is identical, aside from the expense ratio difference.
So Vanguard knocks 0.005% off of the expense ratio when you invest $5 million? Seems like a decent if not extraordinary deal.
If you have $5 billion, they'll even lower the expense ratio to 0.01% :P
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by dziuniek »

One thing I can think of is maybe adding some farmland as an alternative investment for a piece of the portfolio.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by zaboomafoozarg »

Scooter57 wrote: Mon Apr 19, 2021 9:54 amThat kind of thinking leads to an irrational, life-limiting attitude of "I don't have enough"
That has kind of described me for the past 10 years. I didn't know how far behind I was until I found financial forums.

Thankfully this and other forums taught me a lot about personal finance and investing, but with more knowledge comes more concern.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by mikejuss »

ruud wrote: Mon Apr 19, 2021 10:43 am
mikejuss wrote: Mon Apr 19, 2021 10:37 am
ruud wrote: Mon Apr 19, 2021 10:18 am
mikejuss wrote: Mon Apr 19, 2021 9:46 amDo the institutional funds with really high minimums perform better than the admiral class of everyday funds such as VTSAX?
As far as I can tell, the performance is identical, aside from the expense ratio difference.
So Vanguard knocks 0.005% off of the expense ratio when you invest $5 million? Seems like a decent if not extraordinary deal.
If you have $5 billion, they'll even lower the expense ratio to 0.01% :P
I think I'm about $4.999 billion shy of that number, but I will definitely keep that expense ratio in my sights as my career develops. :wink:
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by secondopinion »

phositadc wrote: Sun Apr 18, 2021 5:01 am Say you've got 5 million worth of investable assets. I think many Bogleheads would believe a pretty simple portfolio of low-cost index funds would be the best way to invest it. Perhaps 3-fund. Maybe add a small value tilt if you want, add a chunk of REITS, whatever. But definitely stick with low cost index funds.

What about 20 million worth of investable assets? Or 200 million? Would a "good Boglehead" continue to use only widely available index funds for the entire portfolio? Or, at some point, does great wealth open up investment options (just guessing: venture capital, hedge funds, who knows what else?) that a good Boglehead should consider diversifying with?

Just curious. Thanks for any thoughts!
If I had 200 million of investable assets, it would likely be due to investments or business development; I doubt I would change my investment strategy because of the net worth, since I must be doing something right to make it grow well.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Riprap »

How are the ultra wealthy planning for a wealth tax? How would you raise cash to pay wealth taxes on an illiquid investment? How would the value be determined?

I'm guessing these questions might be off limits. I think there are some serious implications though.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by HootingSloth »

I have advised a handful of billionaires and a much larger number of people in the $20M+ category. From what I see, their investment affairs generally do get much more complicated the higher that you go. Of course, I see a biased selection of the wealthy; if things were kept simple, they probably would not come to me for advice.

These wealthy folks generally seem to have come by complexity one of two ways. Some are very savvy and entrepreneurial types. They generally seem like they get a lot out of the complexity, regardless of what kind of return it has relative to an index fund, because they derive a lot of enjoyment from negotiating, trying to find an edge, etc. If they thrive in this context, then I see no reason for them not to enjoy it.

Others ended up in a complex situation unintentionally, usually through inheritance or questionable advice, and it seems to be much worse for them. I have, on several occasions, been involved in fixing problems created by other advisors who set up something that was extremely complicated, with very little margin for error, and then ran headlong into reality. When the very wealthy have problems, they can become extremely time consuming, and I have seen people waste large chunks of their lives on the resulting mess.

This has led me to conclude that when you have enough (or much more than enough), simplicity can become even more valuable. At a high enough net worth, the risk of getting into this kind of headache is much larger than any of the typical types of financial risk that investment advisors will talk to you about.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Chris K Jones »

I will never get to that point, but I would continue to invest using index funds. And a three fund portfolio would be fine. I probably WOULD change my asset allocation however. I'd probably have a smaller percentage of bonds. Best wishes and good luck getting to that point :)
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by JackoC »

mikejuss wrote: Mon Apr 19, 2021 10:05 am
Scooter57 wrote: Mon Apr 19, 2021 9:54 amBut that said, it is not mentally healthy for people who have $20 Million in assets to compare themselves with the 614 people in the US who in 2020 were reported to have $1 Billion dollars or more. Nor is it healthy for people with $5 Million dollars to dismiss $20 Million as "not all that much." That kind of thinking leads to an irrational, life-limiting attitude of "I don't have enough" which is, sadly, what drives a lot of the most exploitative, destructive behavior we see among our fellow humans.
I don't think that the drift of this discussion is that $20 million is not a lot of money; it's that even with a net worth of that level, one doesn't need to stray away from index funds and into alternative investments.
I agree and also would agree with posts saying you never *need* to stray away from index funds. However I don't agree with the idea that progression in wealth has absolutely no effect on the cost/benefit of keeping things very simple. That's simply and obviously not true IME. With a few $100k mainly in 401k, I see no reason to more than a small handful of funds. Once you're talking about larger amounts accumulated over time mainly in taxable, just simple tax optimization means a downside to limiting yourself to 3 funds. Very rudimentary example, carefully picked CD's having an often significantly higher risk adjusted after tax return than comparable investments. But $250k FDIC limit means that could be a bunch of CD's at a bunch of banks/CU's, or could be brokered CD's at a one stop shop brokerage but then the yields won't be quite as high...just a simple example where it's obvious how scale can make extreme simplicity *relatively* less attractive. There would be a large number of other examples, expanding as you go up the scale. I think the question is interpreted too narrowly if just the same old bashing of hedge, PE or VC funds that's so popular here. Or if it assumes the person can do 3 fund themselves but for anything more complicated they'd pay somebody else too much to do it for them. That's not necessarily true, it really depends on the person and the scale. Some people would be $ scale limited in what they could (economically) do beyond a few index funds, other people would be expertise limited in what more they could do themselves or be in full control of. Assuming, as I do, that having people do stuff for you that you don't understand has potentially serious risk downside, and what you pay them can make it negative NPV even if benign.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by bogcir »

Riprap wrote: Mon Apr 19, 2021 11:05 am How are the ultra wealthy planning for a wealth tax? How would you raise cash to pay wealth taxes on an illiquid investment? How would the value be determined?

I'm guessing these questions might be off limits. I think there are some serious implications though.
Hypotheticals are off limits. But the Estate Tax is a currently legislated one-time wealth tax, and it is circumvented by getting assets outside of your estate though legal means (trusts, grats). And illiquidity of privately held business can be a concern.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Bluce »

IMO, much of this is being over-thought.

Seems to me, as always, one must define the reason for the money, when it will be needed, and one's risk tolerance.

It shouldn't be any harder or more complicated to manage a large sum than a small sum -- especially if one started with a small sum and has managed it the whole time themselves. Per my previous post, it's all about percentages, not necessarily real dollar amounts.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by financialheadache »

The short answer is yes.

The long answer, from my personal experiences with individuals in the 20M-100M range, is that most have their money invested in different ways. At a certain NW some people will choose to use a family office where they will likely try to re-create an index fund using dozens or hundreds of stocks for tax efficiency purposes. The returns will be very similar to SP500 or total market, but with more abilities for tax harvesting, avoiding a specific stock, etc.

Other families that I know with older money (from sold businesses or inheritances) seem to have a higher amount in real estate or alternative investments. If you sold a business for 1.3B, why not have a little fun and splurge 50M on your dream house? (real example)

My parents started off with mainly mutual funds/index funds, but then also had small % amounts in individual stocks. Due to luck/tech boom/etc these individual stocks now make up around 1/3 of their portfolio after a few decades (thanks AAPL.) They have never re-balanced and the capital gain taxes would be in the millions. When you have big winners, it is difficult to sell. I think a lot of ultra wealthy feel similarly. Whatever got them that wealth is hard to step away from, investment wise.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Californiastate »

My portfolio isn’t only index funds. It includes real estate. It’s only prudent and has its tax advantages. There’s always a new company going public. For all intents and purposes they stopped making land some time ago.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Californiastate »

My portfolio isn’t only index funds. It includes real estate. It’s only prudent and has its tax advantages. There’s always a new company going public. For all intents and purposes they stopped making land some time ago.

FYI
$20 million isn’t uber wealthy.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by alex_686 »

Riprap wrote: Mon Apr 19, 2021 11:05 am How are the ultra wealthy planning for a wealth tax? How would you raise cash to pay wealth taxes on an illiquid investment? How would the value be determined?

I'm guessing these questions might be off limits. I think there are some serious implications though.
You only pay taxes when you actually sell something. The value of the illiquid asset can go up and down but it does not actually trigger any taxes until it is actually sold. And at that point you have the actual cash.

You have hit on one strategy. There is a distinct difference between economic value, cash flows, and taxable transactions. One tax method is to tax advantage of the difference in timings. A illiquid investment's value is often determined by a appraisal, and the value of that appraisal can be manipulated by legitimate or shady means. Also, one often exercises managerial control over the asset, and thus can manipulate the timing and size of the cashflows.

It has been a while since I have work directly with this issue. A tacit was the use of restricted stock. A company could compensate a employee - often a C-level employee or board member - with stock grant with a 7 year restriction. The restriction obviously lowers the value of the grant. I have seen arguments that this reduces the value by 25% to 75% depending on the volatility of the stock and how aggressive the accountant was.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by nisiprius »

mikejuss wrote: Mon Apr 19, 2021 9:46 am
Do the institutional funds with really high minimums perform better than the admiral class of everyday funds such as VTSAX?
Yeah.

For one year, 4/19/2020 - 4/18/2021, iMorningstar is showing a $10,000 investment growing to:

$15,409.72 in VITPX, Vanguard Total Stock Index Fund, Institutional Plus (0.02% ER) i.e. 54.10%
$15,406.00 in VTSAX, Vanguard Total Stock Index Fund, Admiral Shares (0.04% ER) i.e. 54.06%
and, of course, we'd better look at...
$15,362.14 in FZROX, the Fidelity Zero Total Stock Index Fund, (0.00% ER), i.e. 53.62%
Last edited by nisiprius on Mon Apr 19, 2021 4:41 pm, edited 1 time in total.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by alex_686 »

To the OP, yes the 3 fund portfolio works fine for the ultra wealthy.

But a couple of thoughts. At this level a couple of doors open.

Hedge funds, private equity, direct real estate, etc. Bogleheads tend to run strongly against the first 2 but they do have their places. Nothing that I would be running out and doing, but a legit option.

There are more options to calibrate your portfolio to meet your goals. Taxes are one, in particular when a fair amount of wealth is associated with low bias cost stock. But there are issues when the extra cost can be justified.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by LadyGeek »

I removed an off-topic post linking to an article which discusses political opinions of the wealth tax. As a reminder, see: Politics and Religion
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Dinosaur Dad »

Elysium wrote: Sun Apr 18, 2021 8:55 am
phositadc wrote: Sun Apr 18, 2021 5:01 am Say you've got 5 million worth of investable assets. I think many Bogleheads would believe a pretty simple portfolio of low-cost index funds would be the best way to invest it. Perhaps 3-fund. Maybe add a small value tilt if you want, add a chunk of REITS, whatever. But definitely stick with low cost index funds.

What about 20 million worth of investable assets? Or 200 million? Would a "good Boglehead" continue to use only widely available index funds for the entire portfolio? Or, at some point, does great wealth open up investment options (just guessing: venture capital, hedge funds, who knows what else?) that a good Boglehead should consider diversifying with?

Just curious. Thanks for any thoughts!
Look no further than Where did John C. Bogle keep his own money for guidance. Jack Bogle never had any issues keeping most of his $80 million net worth in Vanguard funds, according to this report bulk of it was invested in Vanguard Limited Term Tax Exempt fund. We should note, he also could have had a lot more than $80 million, but he decided that was enough and instead chose to give us a fair shake.
off topic a bit, but this fact - that Jack Bogle chose a path to benefit the average investor when he could have made an immense fortune (see Fidelity's founders) - just blows my mind every time it comes up. Warren Buffett put it this way in his letter to shareholders in 2017: "If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value. In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by anil686 »

alex_686 wrote: Mon Apr 19, 2021 4:31 pm To the OP, yes the 3 fund portfolio works fine for the ultra wealthy.

But a couple of thoughts. At this level a couple of doors open.

Hedge funds, private equity, direct real estate, etc. Bogleheads tend to run strongly against the first 2 but they do have their places. Nothing that I would be running out and doing, but a legit option.

There are more options to calibrate your portfolio to meet your goals. Taxes are one, in particular when a fair amount of wealth is associated with low bias cost stock. But there are issues when the extra cost can be justified.
+1 - I would also add that Burton Malkiel and Charlie Ellis wrote a book some years back (I think about 5-10 years ago - The Elements of Investing). They also brought up hedge funds and private equity - both pitfalls to avoid due to the lack of being able to find good enough managers for both. I think they referenced how you would need to be pretty well connected in those circles to be successful. I think direct real estate is a part of most ultra-wealthy portfolios - but I can see how most can look at that as illiquid and so for the purposes of liquid investments - they are in index funds....
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by LadyGeek »

alex_686 wrote: Mon Apr 19, 2021 4:26 pm
Riprap wrote: Mon Apr 19, 2021 11:05 am How are the ultra wealthy planning for a wealth tax? How would you raise cash to pay wealth taxes on an illiquid investment? How would the value be determined?

I'm guessing these questions might be off limits. I think there are some serious implications though.
You only pay taxes when you actually sell something. The value of the illiquid asset can go up and down but it does not actually trigger any taxes until it is actually sold. And at that point you have the actual cash...
Caution, that may not be correct for a stock. You pay taxes both when a stock is sold and when it declares dividends.

In a stock fund, individual stocks are constantly bought and sold. There will be taxes because of this activity.

The wiki has some background info: Tax-efficient fund placement
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by TomatoTomahto »

Dinosaur Dad wrote: Mon Apr 19, 2021 7:50 pm off topic a bit, but this fact - that Jack Bogle chose a path to benefit the average investor when he could have made an immense fortune (see Fidelity's founders) - just blows my mind every time it comes up. Warren Buffett put it this way in his letter to shareholders in 2017: "If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value. In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
I’m not embarrassed to admit that this brought some moisture to my dry eyes this morning. What a mensch! Abigail Johnson has the right to have made the choices she made, but what a difference.

It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
I get the FI part but not the RE part of FIRE.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by IlliniDave »

TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by deltaneutral83 »

Does "better investments" for the wealthy mean higher risk adjusted returns or just absolute ROI? I would assume they certainly have more opportunities for higher ROI but I assume they aren't any better on a risk adjusted basis? The age old hedge fund seems like it would be hard to do over 20 years if they take 2% AUM right off the top, and then 20% of the profits which shows up on a CAGR basis I assume in down years since you didn't get all the profits in up years?
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Vanguard Fan 1367 »

IlliniDave wrote: Tue Apr 20, 2021 7:10 am
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
How would anyone know the average NW here?
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by TomatoTomahto »

Vanguard Fan 1367 wrote: Tue Apr 20, 2021 2:23 pm
IlliniDave wrote: Tue Apr 20, 2021 7:10 am
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
How would anyone know the average NW here?
There was a survey done back when polls were allowed. The NW and income were self reported of course, but iirc anonymous.
I get the FI part but not the RE part of FIRE.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Vanguard Fan 1367 »

TomatoTomahto wrote: Tue Apr 20, 2021 2:31 pm
Vanguard Fan 1367 wrote: Tue Apr 20, 2021 2:23 pm
IlliniDave wrote: Tue Apr 20, 2021 7:10 am
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
How would anyone know the average NW here?
There was a survey done back when polls were allowed. The NW and income were self reported of course, but iirc anonymous.
Thanks
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Seasonal »

IlliniDave wrote: Tue Apr 20, 2021 7:10 am
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
The 2015 net worth survey showed an average portfolio value of $1.5 million (median $877,000) and net worth of $2 million from 1,405 participants. viewtopic.php?t=154364

Do you have a link for $5 million?
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by SteadyOne »

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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by SteadyOne »

SteadyOne wrote: Tue Apr 20, 2021 9:00 pm
bogcir wrote: Sun Apr 18, 2021 9:52 am The beauty of index investing is it scales well. If you want to be hands on then there are other options but if you are a relatively unconnected or inexperienced individual, I think your chances of improving your returns are not great.

There’s no doors that automatically open to better returns. You can access VC funds ,hedge funds, etc..., but not necessarily the good ones.

At scale, look at Harvard endowment:

https://www.hmc.harvard.edu/partners-performance/

Their asset allocation includes public equities, private equities, hedge funds, natural resources, real estate.

As I recall they actually own land / trees for lumber. So they have to coordinate buying, growing and holding for years and the clearing and selling. That you can’t do at low net worth, but it also requires a lot of effort and infrastructure.
You will need to hire a bunch of people to replicate endowment funds operations and pay them really well and ensure audits being done properly. Then this is your job. If I had $100 million I would not want a job but enjoying spending moneys. My approach would have been to have three fund portfolios in each of the three main investment firms and let it run. Taxes, well there is no way escaping those.

But to each it’s own.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by anoop »

In other countries I know ultra rich folks that do 1/3 real estate, 1/3 stocks, 1/3 currencies.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by IlliniDave »

Seasonal wrote: Tue Apr 20, 2021 4:35 pm
IlliniDave wrote: Tue Apr 20, 2021 7:10 am
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
The 2015 net worth survey showed an average portfolio value of $1.5 million (median $877,000) and net worth of $2 million from 1,405 participants. viewtopic.php?t=154364

Do you have a link for $5 million?
Some tossed it out earlier in this thread based on the 2015 survey with a swag at what a sizeable portfolio might have grown to since 2015, although iirc, they started with a perhaps misremembered starting point of $3M net worth. My point's still the same though, I'm below average and below median but still Mr. Bogle's fingerprint was there and enabled me to even get where I'm at.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by sc9182 »

Californiastate wrote: Mon Apr 19, 2021 4:19 pm My portfolio isn’t only index funds. It includes real estate. It’s only prudent and has its tax advantages. There’s always a new company going public. For all intents and purposes they stopped making land some time ago.

FYI
$20 million isn’t uber wealthy.
LOL on - land is constant, population keeps growing.

My rhetorical question is - what about apartments/condos (just about anything other than single-family/independent homes).. Your population density multiplies by orders of magnitude once you put apts/high-rises into this scenario.

Yes there are tax-advantages in direct real-estate holding(s), but most of the juicier advantages have gone since late 80s though .. if you still have patience to manage (or find good manager) for it with great tenants, you could possibly do well.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by Dinosaur Dad »

TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am
Dinosaur Dad wrote: Mon Apr 19, 2021 7:50 pm off topic a bit, but this fact - that Jack Bogle chose a path to benefit the average investor when he could have made an immense fortune (see Fidelity's founders) - just blows my mind every time it comes up. Warren Buffett put it this way in his letter to shareholders in 2017: "If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value. In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
I’m not embarrassed to admit that this brought some moisture to my dry eyes this morning. What a mensch! Abigail Johnson has the right to have made the choices she made, but what a difference.

It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
TomatoTomahto: your family, mine, and countless others. :sharebeer
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by sc9182 »

Dinosaur Dad wrote: Wed Apr 21, 2021 2:39 pm
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am
Dinosaur Dad wrote: Mon Apr 19, 2021 7:50 pm off topic a bit, but this fact - that Jack Bogle chose a path to benefit the average investor when he could have made an immense fortune (see Fidelity's founders) - just blows my mind every time it comes up. Warren Buffett put it this way in his letter to shareholders in 2017: "If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value. In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
I’m not embarrassed to admit that this brought some moisture to my dry eyes this morning. What a mensch! Abigail Johnson has the right to have made the choices she made, but what a difference.

It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
TomatoTomahto: your family, mine, and countless others. :sharebeer
Yes - mostly concur on above sub-topic. But as far Abigail Johnson, if any, she has cut down expenses on Fidelity funds so much - they are giving run for the money from other Funds/ETFs -- including Vanguard.
In fact, Fidelity has ZERO cost funds - yup - ZERO, ZILCH -- if thus lower costs desired.

Abigail Johnson has also done immensely to further Women causes in Corporate world.

Investing world has changed a lot positively (Thanks uncle Jack !!), but Abigail Johnson not only stepped up to the plate - but has one-upped Vanguard on her selection of lower-cost funds, zero-trading fees, and ZERO-expense Funds etc.

Most of the Brokerage profits these days come from cash-float, margin-lending and some monies due to stock-lending -- each of which doesn't directly affect consumer/customer costs. All brokerages, including Vanguard happily DO these items to boost their bottom line.

Searching on other threads about Fidelity (Abigail Johnson) -- customer service, and depth of knowledge of their reps, Service Centers across US, all of these add additional value to customers.

Why not have best of both worlds - have V* funds/ETFs in Fidelity !!

Again - thanks to great Jack - for his relentless efforts to bring Wall Street to masses - great index funds, with minimal costs/overheads !! But I think Fidelity (and to some extent Schwab) have one-upped on this strategy .. while continuing to provide BEST customer service!
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by aristotelian »

Sure, they work for many pensions and institutional endowments worth multiples of $20M, arguably better than active management. Ultra wealth can enable you to take more risk with private equity and such, but also reduces your need to do so. Really depends on your goals and risk tolerance as an investor more so than your level of wealth.
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Re: Do simple index fund-only portfolios (e.g., 3-fund, 5-fund, etc.) work for the ultra wealthy (say, $20+ million)?

Post by JackoC »

Seasonal wrote: Tue Apr 20, 2021 4:35 pm
IlliniDave wrote: Tue Apr 20, 2021 7:10 am
TomatoTomahto wrote: Tue Apr 20, 2021 6:42 am It’s in large part due to Jack that we, a W2 income family, have been able to provide for our future.
Amen to that. Even well below average here apparently (saw in another thread where our average NW here is $5M :shock: ) and with an employer plan managed by Fidelity limiting VG access in my main pot of money, whatever success I can claim has Mr Bogle's fingerprint on it.
The 2015 net worth survey showed an average portfolio value of $1.5 million (median $877,000) and net worth of $2 million from 1,405 participants. viewtopic.php?t=154364

Do you have a link for $5 million?
There's no way it's $5mil, even average (rather than the median), obvious IMO from general themes and attitudes. Median in the high 6 figures, average a little over 'millionaire' rings true to me, among at least fairly frequent posters (I guess lower if you counted lurker/infrequent posters).

To summarize topic again seems to me it depends on how you define 'simple', and 'does it work?' as opposed to 'is it optimal?'. There is no absolutely disqualifying characteristic of a portfolio solely consisting of a small number of stock and bond index funds, at any $ level. But it's less likely to be optimal at higher levels of NW, even a 'modest' $20mil, even because of simple stuff like tax optimization or estate planning. Also very vanilla 'alternatives' like owning rental properties. And on this forum lots of people like to bash hedge and private equity funds. But a) portfolio can get somewhat more complicated, practically speaking, without those things, b) it's not etched in a tablet from the holy mountain that those things can *never* make sense. PE and most HF's are not picking and choosing among the same securities index funds buy, thus not strictly subject to the 'costs matter' axiom which says their holders *must* on average come out behind stock indexers after fees. The fees often still kill them for the end user, but not necessarily on average on a risk adjusted basis including portfolio effects. Also the discussion tends to assume an investor who can only use scale to pay fees to other people to do more stuff, not to DIY more things. But people w/ financial trading backgrounds are a non-negligible portion of people with a lot of money.
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