How to Invest 10 Million Dollars – Retire Early and Make an Impact
Ten million dollars is a lot of money. If you invest this money wisely you’ll have more than enough for a lifetime. A ten million dollar portfolio is the beginning of generational wealth. Sensible annual spending will allow your kids to be set for life.
A 5 million dollar portfolio can last you a lifetime if invested wisely. You can live a great FatFIRE lifestyle with 5 million dollars. If you have ten million dollars. Well you my friend are living the dream. However, the wise investment strategy is no different. If you have 5 or 10 million dollars, the investment strategy is the same.
The Secret Investment Formula
The following strategy is so simple it threatens the entire wealth management industry. If this secret gets out Wall Street will be furious! Please do not share this top secret strategy with anyone. I have a family. I don’t want those evil bankers showing up at my house.
If everyone followed this basic strategy they wouldn’t need a financial advisor. They could manage their portfolio in less than an hour per year. They could live a beautiful live, not worry about money, and die richer than they are today. The reality is that everyone will not follow this basic strategy. It’s too simple and it’s too boring.
The beauty is in the simplicity.
- Here’s the short version = 70/30.
- The slightly longer version = Invest 70% of your money in the S&P 500 and 30% in Bonds.
Yep that’s it. That will do just fine.
Ok a little more detail. Let’s go crazy!
- Take 70% and invest in an index fund that tracks the S&P 500.
- Here are a few ETFs that do that. IVV: VOO, or SPY
- Take 30% and invest in an index fund that tracks the total bond market.
- Here are a few ETFs that do that: BND, AGG, or SCHZ
Amazing stuff. A master class in investing in less than 30 seconds.
Ok we’ve completed the investing piece of the puzzle. Now here are the spending rules.
Every year withdrawal 2.5% of the total value of the portfolio.
Spend that. That’s your budget. 2.5% of 10 million dollars is $250,000.
Don’t spend more than that. If you do, you’re an asshole. You don’t need any more stuff.
Your sizable portfolio will continue to grow as you spend 2.5% of the total value.
Your kids will inherit a portfolio 2 or 3 times the size. Compound interest is wild stuff.
To recap. 70% stocks, 30% bonds. Spend 2.5%
You may be asking yourself, can I spend more? Yes you could. But why overthink it. Don’t be a dummy. Stick to the simple strategy. The biggest risk is you screwing this up.
Investments to avoid
There is no reason for you to invest in a hedge fund. The industry’s track record is terrible. People invest in hedge funds so they can tell their rich friends about it. Hedge funds are great for those running them. The fees make the managers a lot of money. The investing returns make you very little.
High Dividend Yielding Stocks
There is no free lunch in investing. High yield stocks underperform the market. I love getting dividends as much as the next guy, but don’t invest for yield. Invest for total return. Invest in an index fund that captures the total return of the US equities market.
Preferred Stocks have high yields. Don’t get seduced by the 5% to 6% dividend yields.
It’s reasonable to expect this equity heavy portfolio to generate 5% real returns in the long run. The 2.5% withdrawal rate is half of your expected returns. Many people pursuing FatFIRE only spend 50% of their income. Why not do the same in retirement? Living, spending and watching your portfolio grow makes you feel abundant. As you practice being retired and living off your portfolio you’ll get better at it. This low spending rate reduces risk and allows you to really
Reduce your risk and live intentionally during the beginning of retirement. You can adjust with time and you hone your skills and become wiser.
As you add complexity to your portfolio you add execution risk. Making one mistake can wipe out any incremental gain vs the elegant 70/30 portfolio.
Here’s a list of things that can go wrong:
- errors in rebalancing
- poorly calculated tax implications
- overweighting underperforming asset classes
- trading costs
- individual stock picking
- breaking the rules due to emotional feelings
It all works against you. You are your own worst enemy.
Don’t be lured by income-producing assets.
- Dividend-paying stocks
- Bond Ladders
- Real Estate Stocks or REITs
Embrace the zen of the 70/30 portfolio.
Come to terms with this simple approach. Learn to love how boring it is.
Make your life exciting and your portfolio boring.
There are many ways to get a dopamine rush that has nothing to do with investing.
Be bold. Be different. Focus on creating value in this world. Focus your attention on your community, not your portfolio. Use all that brainpower being a good friend and family member. Use all those hours not working and not thinking about the markets for something else.
Be a good neighbor. Spend time reading and researching. Be intentional about every moment in your life. Take nothing for granted.
The world needs more teachers, educators, coaches, nurses, and doctors. It needs more environmentalists, engineers, and advocates for positive social change.
Spend your life doing something else besides micromanaging your portfolio.