
Ask HN: Steady 4-5% on $5 million? - rumpelstiltskin
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 -<p>What would you do to generate a steady 4-5% annual return from $5 million?
======
pg
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.

~~~
diego
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.

~~~
rphlx
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. :-)

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

------
joshkaufman
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-...](http://crawlingroad.com/blog/2008/12/22/permanent-portfolio-
historical-returns/)

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-...](http://crawlingroad.com/blog/2010/02/06/permanent-portfolio-
back-to-basics/)

Hope this helps!

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

------
jakarta
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.

~~~
rumpelstiltskin
_If you want some I'll suggest some books for this area_

Please do. Thank you.

~~~
jakarta
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.

~~~
cloudkj
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.

~~~
jakarta
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.

------
portman
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?"_

~~~
barmstrong
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.

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

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

------
steveeq1
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> .

------
deyan
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.

~~~
barmstrong
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.

~~~
bjoernw
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.

------
gonepostal
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.

------
crawlingroad
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.

~~~
bokonist
_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&...](https://personal.vanguard.com/us/funds/snapshot?FundId=0043&FundIntExt=INT)
). 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&...](https://personal.vanguard.com/us/funds/snapshot?FundId=0043&FundIntExt=INT)
to
[https://personal.vanguard.com/us/funds/snapshot?FundId=0083&...](https://personal.vanguard.com/us/funds/snapshot?FundId=0083&FundIntExt=INT)
to
[https://personal.vanguard.com/us/funds/snapshot?FundId=0028&...](https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT)
). 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.

~~~
jey
> 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

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

------
skennedy
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?

------
olegkikin
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.

------
Dove
You may want to compare notes with this guy:

[http://www.reddit.com/r/IAmA/comments/9li9n/i_won_a_30_milli...](http://www.reddit.com/r/IAmA/comments/9li9n/i_won_a_30_million_lottery_jackpot_and_have_spent/)

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

------
mikedamas
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.

~~~
bokonist
_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.

------
nkh
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.

------
reasonattlm
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.

------
puresight
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...](http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm)

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.

------
cloudkj
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.

------
chasingsparks
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.

------
bokonist
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.)

------
mikedamas
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.

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

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

------
alastair
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.

~~~
joezydeco
What are your tax rates on interest?

~~~
gte910h
Does that matter? The poster is ostensibly going to have to pay at least the
US tax rate.

------
azeemazhar2
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.

~~~
nostrademons
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.

~~~
mynameishere
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&...](http://finance.yahoo.com/q/bc?s=PTTAX&t=2y&l=on&z=m&q=l&c=)

...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.

------
jacquesm
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.

~~~
bjoernw
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.

~~~
jacquesm
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.

~~~
bjoernw
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.

------
zandorg
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).

------
Super_Jambo
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.

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

------
exit
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.

------
Perceval
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.

------
theoreticalee
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>

------
gcheong
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.

------
nazgulnarsil
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.

------
known
Try investing in BRIC markets

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

------
moe
Poker and blackjack (50/50).

------
capablanca
Buy GOOG.

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

