5 Million Dollars

How to Invest 5 Million Dollars and Retire Early

5 million dollars
Photo by NeONBRAND on Unsplash

Grow your net worth to a point where work becomes optional. That’s the dream of financial freedom. FatFIRE or comfortable spending without a scarcity mindset is more than enough. Five million dollars is more than enough to fund that dream. Unless you have a spending problem, you’ll be OK.

Can you retire on 5 million?

If you’re asking yourself can I retire on 5 million dollars? Yes, I think that’s very reasonable. Don’t listen to Suze Orman. She’s long past knowing what reasonable spending is like. You can survive on $4 million dollars but who doesn’t like an extra million-dollar buffer?

*** The following is not financial advice. It is a simple hypothetical strategy. It may threaten the multi-trillion dollar wealth management industry. So they most likely don’t want me to write this. Proceed with caution and don’t tell your rich uncle about this… ***

Investing 5 million dollars

A $5 million dollar portfolio can last you a lifetime if invested wisely. A reasonable annual budget will also allow the portfolio to grow. There’s a pretty good chance you end up with a larger nest egg in the end. 

Ok, so how do you invest a five million dollar portfolio to generate good returns?
Let me provide a short and sweet answer that the investment management industry doesn’t love. If everyone followed it, they’d be out of a job. 

Don’t worry Wall Street sharks. An overwhelming majority of people don’t have the patience and resolve to listen to these wise words. People are silly and the human brain is weak. 

It’s like general fitness and weight loss advice. Shut your mouth and move your ass. That lacks bedside manner but I think you catch my drift. 

For most humans, not all but most, the path to weight loss is reducing calories and exercise. It’s not complicated it’s just hard to do! It’s hard to build a habit that supports daily physical fitness. It’s just as hard to build financial habits that support daily financial fitness. 

Think of this simple strategy as a 30-second MBA degree program.

Alright, you have $5 million dollars, you did it, you won the game. Perhaps your company just  IPO’d and now you have all this money and you’re asking yourself, what do I do with it? You may feel a desire to call a friend who’s an investment banker. Or maybe a friend’s mom or dad who’s a big fancy executive. They must know how to handle money.

Hopefully, you decided to google a few things first. Hopefully, you stumbled upon this little website. 

** Alright dummy, here it is. For your eyes only **

70% stocks
Photo by Piotr Janus on Unsplash

Step 1:

Invest in a 70 / 30 portfolio. 

70% invested in the S&P 500 (ETFs: IVV, VOO, SPY )

30% invested in the Total US bond market (ETFs: BND, AGG)

Done. OK, next step. 

Step 2:

Withdrawal 2.5% of the portfolio every year and spend that. 

That’s your budget. 

Step 3:

Don’t eff it up.

30% bonds
Photo by Muhammed Zafer Yahsi on Unsplash

*** Class dismissed *** 

Your Annual Budget

A withdrawal rate of 2.5% gives you an annual budget of $125,000 in year one or $10,000 per month. 

Congratulations you won the game. You’re a smart cookie and an intentional spender. That’s more than enough. In fact, if you’ll probably end up cash flow positive and invest the difference. Your kids will thank you as your inheritance grows with each passing year. 

Your portfolio is likely to grow each decade as you withdraw approximately 50% of the long-term real returns of the portfolio. It’s reasonable to expect this equity-heavy portfolio to generate 5% real returns over the long run. Isn’t the stock market grand? 

The FIRE community often touts a “spend half strategy” during the accumulation years. I love that recommendation and support it. I’ve also lived it and then sum over the past 5 years. I also support doing the same during early retirement. 

You need to practice early retirement. The same way you practiced living your FIRE lifestyle while working. You’ll be clumsy at first and get better at it with time. Reduce your risk and live intentionally during the beginning of early retirement. You can adjust with time and you hone your skills and become wiser. 

Protect the portfolio from yourself

You don’t need to over-complicate this. You don’t need to invest for income. You don’t need a yield shield or an annuity or anything like that. As you add complexity to your portfolio you also add execution risk. Making mistakes can wipe out any incremental gain vs the stupid simple 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
  • CDs
  • Bond Ladders
  • Annuities 
  • Real Estate Stocks or REITs
  • MLPs

Embrace the zen of the 70/30 portfolio. The problem with this strategy is that it’s too simple. In fact, it’s too boring! Life is all about excitement, adventure, and dopamine. 

This approach lacks all those things. And for that very reason, it will be ignored by 99.99% of investors. Be different and choose to simplify your financial strategy. Spend all those beautiful brain cells on creating a positive change in the world. If you worry about your portfolio, you don’t reduce the volatility or increase the returns. Worry brings no joy and happiness into your world. What if I see an opportunity and cash in?! 

Guess what. Your family doesn’t care if your 5% overweight to emerging markets worked well last year. You’re still you, you still have more money than you’ll ever need.

Also, do not pay some dipshit wealth manager 1% to 2% of your portfolio to figure this out for you. They’re out playing golf while the market does its thing. That should be you. This strategy works for 5 million, 10 million, or 25 million… you get the point. 

Build a better future

I don’t have proof, yet, but it’s in Wall Street’s best interest to make investing complicated. Management fees pay for all those fancy jobs, fancy cars, and lavish lifestyles. These people have no incentive to provide practical and easy-to-follow strategies. More fear equals more dollars for wall street.

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. No one gives a shit about you bragging about stock picks at the next backyard BBQ. Actually, it’s obnoxious, please do that to your friends and family. Stick with sports, Netflix, or the weather.

There are many ways to get to a net worth of 5 million dollars. Some are easier and faster than others. It’s a journey and a difficult one in the majority of cases. 

If you’re on this website, you’re a high achiever and FIRE is yours for the taking. Explore the site, reach out to me if you have any questions, and never stop learning. Earn, save, invest with intention, and resolve. You’ll get to Financial Freedom soon enough. Your second act is calling your name. It’s time to separate your work from your mission here in this crazy place called earth.

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