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Ask HN: I sold my company last month for $5m. What do I do with the money?
140 points by radicaltype 1424 days ago | comments
I'm a 20 year old guy who sold his company last month for $5m in cash. I really don't know what to do with the money or how to manage it. I never gave it a thought and now suddenly I have $5m. Hacker News, please help me out. Should I deposit the money? Buy stock? Or what the heck am I supposed to do with it? I am just a regular guy who spends around $3000 a month. I don't buy fancy stuff and now suddenly I have more money than I can ever spend.

brk 1424 days ago | link

Send it to me, I'll take care of it for you ;)

Here is what I would personally suggest, having encountered a similar scenario once a long time ago...

Find a place to park about $4.9M in a CD, Money Market account, or similar ultra low risk location. Don't get too hung up on getting the absolute best interest rate, just find a place that will give you easy liquidity (ie: DON'T make a 5 year investment right now).

Then, buy and read the following books: "A Random Walk Guide to Investing" - Burton Malkiel "The Only Investment Guide You'll Ever Need" - Andrew Tobias

(and/or any equivalent titles that catch your interest).

Then once you have a good/better understanding of financial investments interview some financial advisors and talk to them in depth about how they plan to manage your assets. Ideally you're looking for something more along the lines of a "wealth manager" vs. a financial advisor.

Killing a year finding the right investment approach while your money makes even a very low percentage rate is, for a 20 year old, a better approach than rushing out and making possibly a bad investment that incurs a big loss, or has tax liabilities you don't fully understand.

In the shorter term, you should find a good local CPA-for-hire and make sure you understand any possible income tax issues. In some (many) cases, if you will owe a large income tax return you will need to pre-pay or make estimated payments. Not doing so can take a big bite out of your ass later (ref: portion above about keeping funds semi-liquid).

BTW, congrats on your success. Take it slow and don't be tempted to believe you know what you're doing or can repeat this easily (learned advice ;) ). You have much time and luxury to plan your next move, and no matter what anyone tells you, you are not missing out on the investment opportunity of a lifetime in the next 24 months and do not need to make any rash decisions.

At the same time, you should sort of off-handedly tell family and friends that you locked in to a great investment and in 5 years or so will be able to access some of the funds. This proactive approach is better than having to say no to all the outreaches for "help" and "personal investments" that tend to come with a large chunk o' cash.


starkfist 1424 days ago | link

CD rates are at 1% and are only FDIC insured up to $250K. I'm not convinced any bank will let you buy a $4.9 million CD. Although I'm sure brk is as smart as anyone I wouldn't take tips from random people on the internet.

Whenever these types of questions appear I find them a bit hard to believe. The anonymous OP suddenly has $5M in cash? There's just a un-cashed check for $5M hidden in the sock drawer? Where is the money now? As soon as you show up at a bank with more than $100K you're going to be swarmed with people suggesting various things to do with your money. Hasn't the OP already had to deal with all the tax and legal surrounding a transaction like this? He or she should be familiar with a flotilla of financial professionals by now.


i2pi 1424 days ago | link

You can buy 20 CD's or buy a CDAR, which is a pass-through instrument that aggregates CDs at multiple banks to get it all under FDIC insurance.


Personally, I think you'd just be better off buying government bonds from your favourite world leaders.


joshu 1424 days ago | link

Based on past experience, nobody will bother you.


mattmaroon 1423 days ago | link

Yeah. Unless you're going to Mom's Bank of Sheboygan, $5m isn't that big of a deal. I only have experience with 7 figure sums in corporate accounts, but even the bank teller at the supermarket isn't wowed by that.

If you tell a bank you have $5m to to put in CD's they'll wet their pants alright, but it won't be security they call. It'll be their boss to gloat. (Unless maybe you bring it in in $100's in a duffel bag.)


tewks 1424 days ago | link

The other brk seems like a pretty decent idea if brk's advice regarding buying large CDs is incorrect:



brc 1424 days ago | link

I'm with you about it smelling a bit fishy, but on this site I take people at face value.

That said, there's plenty of places you can invest in AAA securities that pay much more than 1%. Split across several of these the capital should be safe until he finds a better place for it.


chengas123 1424 days ago | link

Credit ratings are BS. It's as if we didn't learn anything from watching the disaster that occurred when the world believed AAA-rated MBSs were sound investments. Don't let someone else tell you what investments are "safe".


brc 1423 days ago | link

That sounds impressive and popular with all the 'the market doesn't work/they're all corrupt' type of outrage currently doing the rounds, but the failures of ratings companies to correctly rate highly complex debt instruments doesn't make them all useless.

The fact remains there are a lot of simple, understandable securities which the ratings companies are across and have a long history of payments to look back on. I'm talking about corporate bonds where you can assess the creditworthiness of the company, government (non-US) bonds of stable and credit-worthy nations that pay much more than 0-1%


sethg 1424 days ago | link

Short-term T-bills, then?



mhp 1423 days ago | link

You can buy Tbills directly from the Treasury at http://treasurydirect.gov/ Lower rates than a CD, but safer if you are worried about your bank going belly up (if you own a Tbill, the US Govt would have to go bankrupt for you to lose your money).


cynicalkane 1424 days ago | link

I'd recommend Ben Graham's "The Intelligent Investor". One doesn't have to buy individual stocks, or follow the strategy proposed in the book, but books like these will keep you from doing something dumb like, say, buying into the S&P 500 when its P/E is >30, and give you some perspective on and a valuable defense mechanism against all the stupid investment advice out there.


pragmatic 1424 days ago | link

The Intelligent Investor is good, however, it's a bit dated. It's from an age when values could be found by carefully checking the companies books (and or paper files) and finding it owned a utility that had a book value worth more than the stock of the owning company.

Even Graham has said that for most people a low cost index fund is the way to go. Competing against a computerized/connected/inside information Wall Street is very hard and because of transaction costs (higher to the individual than the institution) winning stock trading strategies are non-trivial.

However, Claude Shannon (famous computer science guy) was a pretty good investor: http://en.wikipedia.org/wiki/Kelly_criterion

Fortune's Formula http://www.amazon.com/Fortunes-Formula-Scientific-Betting-Ca... details some of Shannon's methods and covers some other interesting stories like LTCM, Mathematician Edward O. Thorp's black jack schemes and later his creation of the one of the first "computerized" hedge fund.


samuraicatpizza 1423 days ago | link

> The Intelligent Investor is good, however, it's a bit dated.

I found this edition helpful in that regard: http://www.amazon.com/Intelligent-Investor-Definitive-Invest...

Each of Graham's chapters is followed by another chapter of interpretation/reflection on his advice in a modern context.


Tichy 1424 days ago | link

Just be careful with wealth advisers. I have heard more than one story about people losing their inheritances and stuff because of advisers. Also people who lost 100K+ by investing in the stock market by themselves.

I've come to the opinion that there really is no way around getting a little bit savvy about investing oneself. Until then, I would probably also stick to something fairly conservative. Or at least decide on a basic split into risky and less risky investments.


tlrobinson 1423 days ago | link

I started reading Andrew Tobias' book but so far I'm bored with all the penny-pinching tips at the beginning... does it get better?


adamilardi 1424 days ago | link

I'm surprised that the ultra conservative advice got voted up on a start up geared website. I would have thought I'd see more risk taking from the users


reitzensteinm 1424 days ago | link

In the case of being a startup founder, you're risking little to potentially gain a lot. In the case of investing your newly earned fortune, you're risking a lot to gain a little (as a percentage).

The fact that the HN readership seems to be aggressive in the former case and conservative in the latter is not necessarily a contradiction (or, to be honest, even surprising).


adamilardi 1424 days ago | link

The risk involved to start a business is time and money. You take one year off as a high paid engineer your losing over 100K. What if you need to boot strap your business because venture funds aren't available. The risk is low if you coded something on your spare time and somehow got a huge amount of VC funds(CD style investing). Wise investments are key to success of any business. How will you allocate your first millions in VC funds. Are you going to invest in staff, equipment or acquisitions. Sure you will have advisers at this point but it's important to understand the value of investments. If you are not surprised I would imagine you view the majority of start ups as the former kind I mentioned. Spare time and lots of vc money. I don't have any evidence to say that isn't always the case but it would appear odd to me if it was.


nihilocrat 1424 days ago | link

It's also a site frequented by people working salaried jobs and moderately successful freelancers who will never, ever see more than perhaps $100,000 in their bank accounts at any one moment for their entire lives.

Thus, we may be thinking of it in terms of "how can I use this money to invest such that I can live off of the interest for the rest of my life, getting the equivalent of a decent salary but without the actual work"? If I got millions of dollars, this would be the first thing I would be thinking about, not about how to risk it all just so I can be another greedy douchebag unhappy with their single-digit millions.


loup-vaillant 1424 days ago | link

Except the typical startup founder, he now have something to lose.


anamax 1423 days ago | link

> I'm surprised that the ultra conservative advice got voted up on a start up geared website. I would have thought I'd see more risk taking from the users

The "conservative advice" is intended to buy him time so he can figure out what he should do.

Note that startups aren't about seeking risk. They're about exploiting cases where the perceived risk is greater than the actual risk. The advice givers think that his perceived risk is currently lower than his actual risk. They're trying to reduce the latter.


petercooper 1424 days ago | link

I wouldn't consider putting 95% of your wealth in a single place to be particularly non-risky. Certified or not, recent events have demonstrated that diversification is a must nowadays.


brk 1424 days ago | link

Yes, you are 100% correct. What I was trying to say is that overall he is better parking the cash and learning more about how to properly invest a large sum of money vs. just going out to the closest Edward Jones office and plunking down a check.


Aegean 1424 days ago | link

"killing a year finding the right investment approach while your money makes even a very low percentage rate is, for a 20 year old, a better approach than rushing out ..."

So if you get $5M you should be looking to sacrifice a year from your life? Doh!


brk 1424 days ago | link

It would hardly be a sacrifice, it would be an opportunity to learn about investing and wealth management in a non-rushed manner while you carry on with the rest of your life more or less however you like.


mcav 1424 days ago | link

As opposed to sacrificing a year of your life working for a typical salary?


cookiecaper 1423 days ago | link

You can spend that year doing whatever you want, just as you could before you got the money. No one is forcing him to invest his money if he doesn't want to.


vessenes 1424 days ago | link

First, congratulations!

Now, to business.. If you sold company stock, and live in the states, you now owe about $1m in taxes, or a little less depending on what state you live in.

Your very first job is to sit down with an accountant and get your 2010 taxes estimated. Then set aside the money for this. Seriously, do it today. Then lock in your head "I sold my company for $4m." It will help you in the future days to remember that.

If it was an asset sale, you got f-ed, and now owe a lot of tax money. Live and learn.

Next, let's talk about 'more money than I can ever spend'. If you keep your current spending rates, and you keep your money in a completely 'safe' vehicle that exactly matches inflation, you have about 94 years of spending ahead of you at your current rates, and at 15% cap gains tax on the 'earnings'.

It is nearly psychologically impossible for a newly minted 20-something millionaire to keep at their current level of spending. Since you do not already have a plan for this money, I would say that it is 100% likely you are not the sort who can go about his business without some change in lifestyle. So I would suggest that you expect either to keep working or get good at investing.

Along with the books recommended here, I would strongly recommend you pick up one called "How To Retire Early and Live Well on Less than a Million Dollars." It's written by a financial writer who decided to do what the title says in the 1970s. He talks through a number of items and considerations that financial advisors will not think about. Simple example: what's the proper amount of real estate leverage for someone who needs some income, and wants to be able to hold on to the building in a real estate crash? This is not typically discussed in most investing books.

It is not unreasonable, based on all this, to put almost all of this money into a one year, low-risk, locked-away investment just to give yourself time to think, plan,and get on with a new part of your life.

Now, if you built this company up, and are now unemployed, expect to be depressed. You should consider (along with some celebrating) doing some fun things (I like to travel), and also learning some new skills.

You will need some new friends, because your old ones will all still be working,and won't be able to hang out most of the time. You might want to find a new hobby, or pick up an old one.

Finally, enjoy! Sounds like a great experience.


michael_dorfman 1424 days ago | link

Questions like this one puzzle me, not least of which because I was recently in a very similar situation, and it never in a million years would have occurred to me to ask HN for advice. I mean, I love you people here, honest I do, but when I need legal advice, I go to my lawyer. When I need medical advice, I go to my doctor. And when I need financial advice, I go to my financial advisor.

You don't have a financial advisor? Well, I assume you have a lawyer, and I assume you have a banker-- ask them for recommendations. You might also ask the pros who were on your board of directors prior to the sale.


brk 1424 days ago | link

You don't have a financial advisor? Well, I assume you have a lawyer, and I assume you have a banker-- ask them for recommendations. You might also ask the pros who were on your board of directors prior to the sale.

I wouldn't assume any of these things. Did YOU have a lawyer or financial advisor when you were 20?

The OP reads as if it was basically a 1-man shop sale. If he sold a company for $5M that had a board of directors and all the typical formalities, it probably would have been VC or angel backed, and the terms of the deal for a $5M sale would have probably netted him $500K at best. Let's face it, almost any investor-backed equity event of $5M is pretty much a failure and returns little if anything to the management team.

So, I read this as a "guy in a basement" sort of scenario who managed to create some webapp, service, or widget pretty much solo and was wise enough to be able to flip it for a nice chunk of change.

I also happen to think he was smart for reaching out here to get broader advice. I've met TONS of financial advisors that can't manage funds for shit. Not to mention in the current market a lot of funds are down, and I'm sure he would have no trouble finding a bad financial planner or lawyer that would love the opportunity to manage the portfolio of someone naive in that regard.


michael_dorfman 1424 days ago | link

I didn't have a lawyer or financial advisor when I was 20, but I also hadn't closed a $5M sale, either. And when I did so (at a more advanced age), I certainly did.

It strains credulity to imagine that anyone, of any age, would be able to close such a deal without a lawyer or a banker being involved. (And believe me, when you show up at the bank with a $5M deposit, you get introduced to financial advisors, like, fast.)

Seriously: just the practical mechanics involved in the sale of a corporation requires a small team of professionals. No one hands a check for $5M to a "guy in a basement" without some due diligence, and that involves accountants, auditors, lawyers and bankers.


Judson 1424 days ago | link

I did have parents, who had a lawyer and a banker ;)


run4yourlives 1424 days ago | link

Not everyone lives with silver spoons in their mouths.

(In fact, not everyone has the luxury of parents with good finances, or parents with jobs, or parents at all.)


Judson 1423 days ago | link

In a society where bank accounts are free (and allow access to the resources of the bank) and lawyers work pro-bono, I don't think "silver spoon" is how I would describe people have access to either.


run4yourlives 1423 days ago | link

A banker and a bank-account are two different things.

Pro-bono lawyers aren't going to be pro-bono for long when they figure out you can actually pay them. That doesn't really help his cause though.

The serious lack of any understanding with regards to how difficult a situation not having responsible parents that give you a serious leg up is betrays both your youth and your own upbringing.

I'm not attacking you, I'm just saying that it pays to remember that not everyone has all the options you do available to them. Certainly not to the extent that it means they would never see the benefit in asking HN for advice.


cynicalkane 1424 days ago | link

Don't go to a financial advisor, at least not without doing some research first. Many of them are paid on commission for funneling money in certain places, and many more are just bad.

Generally, someone smart enough to build a $5 million company should be smart enough to manage his own money.


chollida1 1424 days ago | link

> Generally, someone smart enough to build a $5 million company should be smart enough to manage his own money.

They are probably also capable of fixing their own car or doing their own plumbing or landscaping.

Sometimes you want to delegate tasks that you dont' want to do onto others.


cynicalkane 1424 days ago | link

There's a difference in magnitude and importance between doing your own landscaping and managing your own $5 million dollars of net worth.


chollida1 1423 days ago | link

Agreed, all the more reason that this statement:

> > Generally, someone smart enough to build a $5 million company should be smart enough to manage his own money.

is false.


cynicalkane 1423 days ago | link

Your post contains no information and bears no insight. Why are you posting it? Simply for the joy of contradiction?

There's nothing an half-rational person can't do that your garden variety financial advisor can. If you can build a business, then basic ETFs, mutual funds, and bonds are easy to understand, and if you want to move into individual investments or private funds... you should not be relying on a financial advisor for this. If you think otherwise, I have some stocks I'd like to recommend. And a shady commercial real estate deal that will net me a fat commission. And a bridge in Brooklyn.

Legend has it there exist good financial advisors--but you have to find them. "Delegating" this because you "don't want to do" this is entirely the wrong attitude. If you don't take responsibility for your money, it will go away. It's 5 million freaking dollars, probably the entire net worth of this person, and the fruit of his business which he built.


ZachPruckowski 1423 days ago | link

Correct. If you screw up your landscaping, you wait a year for the shrubbery to grow back or whatever. If you screw up investing your money, it don't grow back.


jseliger 1424 days ago | link

I was just going to say almost exactly this. The problem is that your financial advisor's purpose is probably to make money, which he or she probably does most efficiently by separating you from yours through fees. A few minutes ago I recommended the book The Millionaire Next Door, which points out how fees can quickly kill your returns, which can't beat the market over time anyway.

You have a major principle-agent problem with financial advisers, and that's why I suspect many are better off without, especially if they can find an investment column in a newspaper or something like that. Years ago I read a guy named "The Coffeehouse Investor," which helped me enormously, as did the books I recommended previously.


vaksel 1424 days ago | link

since it's a brand new user it's probably bullshit, especially when you remember that it's next to impossible to sell a company as a cash only deal. There is always an earn out/stock play, to make sure the buying company isn't buying a lemon


brown9-2 1424 days ago | link

since it's a brand new user

or a regular user who did not want to post under his/her regular username for privacy reasons.


brk 1424 days ago | link

It all depends on the company. If he created something that works, has value, and happened to find someone with money who can do the math, this is not unlikely at all.

I have first-hand knowledge of several simple cash transactions for business sales like this in the $2M-$10M range.


starkfist 1424 days ago | link

> I have first-hand knowledge of several simple cash transactions for business sales like this in the $2M-$10M range.

Like what?


brk 1424 days ago | link

I don't want to ignore your comment, but these were generally private sales, and the private part implies a certain amount of trust and non-disclosure.

I know this probably doesn't do anything to convince you I'm not full of shit, so I apologize for not offering concrete details. If you stop and think about it though, there is a lot more private money out there moving hands than you might think.


jacquesm 1424 days ago | link

I don't know.

If I had a windfall like that I'd keep it quiet too, or at least not directly associated with my online identity, so if I would ask for advise about it online I'd do it just like the OP did.


ktsmith 1424 days ago | link

The flip side of this is that at 20 something he may not have those relationships established, or may not be sure about the lawyer/banker he's chosen. There also seem to be quite a few people here that have been through similar circumstances and may be able to offer advice. In my own experience in my early 20's when I suddenly came into a large sum of money I had a good financial advisor in the sense that he helped me make more money from my investments in the short term, but I had no long term strategy. When the bubble burst I lost a lot of money. I also didn't have a good tax strategy and ended up with some very large unforeseen consequences of my decisions. Then there were the people looking for handouts and investments in their "amazing ideas." I lost every penny I put into investments or loans, though I was smart enough not to expect to see any of that money again.

The best advice I would give is to be quiet about how much money has been made. Find a good CPA and wealth manager. Talk about long term strategies, be sure to look at tax issues up front. People will come looking for hand outs and investments, avoid those for the most part. Make sure you trust your advisors and fully understand the decisions you are making. Don't take specific advice from somewhere like HN, try to look at patterns that may emerge from that advice however. So far it seems like everyone is advocating a conservative approach.


fleaflicker 1424 days ago | link

Or you can ask HN because a lot people here have faced similar situations.


dalore 1423 days ago | link

Unless your financial advisor is rich from investing themself then no, DON'T talk to a financial advisor. All they will do is try and sell you stuff to get comission.

Seriously just learn about it yourself. My favourite book is "The Richest Man In Babylon" and it a phrase similar to yours: Don't go to a plumber to get bricklaying advice, go to a bricklayer, so don't get advice about your money from someone who isn't rich himself.

Now if your financial advisor is rich, what is he doing working for you?


ErrantX 1424 days ago | link

I have a suspicion that this is not true... or at least is just for the purpose of bragging. But the replies at least could be interesting. Here's mine:

At 21 I came into a pretty useful 6 figure sum, essentially through good luck and timing. At that age you're used to living on a shoe string (especially if a student like I was) and so that can seem an extraordinary amount of money. I'd say it's a pretty scary age to become affluent, you may have grown up in the last couple of years since leaving school but it hardly counts as worldly.

I spent about £30,000 within a couple of months before I stopped and thought about it properly. So the first piece of advice is: avoid too much temptation! That can be hard and I still have trouble controlling impulse purchases (Amazon Prime is the worst invention ever :P my book buying budget is still about £300/month, and I've actually worked to get that down).

As to what to do with the money; while plenty of HNers will be able to give you advice (hopefully from experience!) the other posters are right - you need to talk to a financial advisor.

My take? Put it somewhere safe and take the interest - then just ignore it. If you want to take the $5M and do something with it (i.e. start a firm, pursue your dream) then do that. Otherwise I advise ignoring it and just carrying on with your career how you want - albeit slightly more comfortable/financially secure. In 5 years when you want a nice house the money is there and ready. etc etc.

Certainly having money is going to change you; but I'd suggest it needn't change your life path too much. Don't let it derail what you want to do :) allow it to facilitate those things!

This is pretty much what I have done and it sees to have worked. YMMV.


gojomo 1423 days ago | link

I don't buy fancy stuff and now suddenly I have more money than I can ever spend.

When you're young and/or of average means, you mostly think of money as something to spend for either the necessities or luxuries of life.

But past a certain scale, another important function of money comes into play: money signifies control/ownership. These amounts can't be spent; they are instead placed in assets -- and if placed and steered well, more control is earned.

It's confusing because the two functions -- spending and controlling -- are denominated in the same unit, dollars. But the dollars of a billionaire -- deployed in assets -- and the dollars of a thousandaire -- deployed for daily needs -- aren't even serving the same social function.

They are still intrinsicly convertible: you can give up control for consumption, or vice versa. But anyone who casually observes about someone else, "he has more in assets than he could ever need, some should be given to others" is in the grips of this confusion -- because as much effect the redistribution will have on consumption, it will also have on control. Ceteris paribus, it will mean transferring relative control to people with more of a consumption mindset than a control/expansion mindset. Done too much, this 'eats the seed corn' for future wealth.

Park your money in a few diverse investments and take the time to change your conception of money, because if you stay in the usual "how can I spend this" mindset, any amount of windfall can be consumed or frittered away. Become comfortable with the idea your windfall is not a consumption bonus, but a control bonus -- giving you a slightly disproportionate say in how societies' wealth should be deployed so as to keep delivering, rather than deliver once and disappear.


AndrewWarner 1424 days ago | link

Would you be willing to do an interview about your company? http://mixergy.com/contact


bvi 1423 days ago | link

Potential title:

"How a 20 year old basement-dwelling runt came out of the tunnel $5 million richer"


DanielStraight 1424 days ago | link

1. $5m is not more money than you can ever spend.

2. $5m is enough to hire a professional to help you invest it.

A good place to start learning more about money might be the Personal Finance section of the Personal MBA reading list. See http://personalmba.com/best-business-books/


DavidSJ 1424 days ago | link

A very simple strategy will go very far:

Put 30% in VTI - the Vanguard Total Market Index (basically all US stocks).

Put 30% in EFA - the Europe, Australasia, Far East first world country index.

Put 10% in RWR - an index of U.S. real estate.

Put 10% in RWX - an index of international real estate.

Put 15% in Treasury Inflation Protected Securities.

Leave 5% highly liquid.

Minor variations on this are fine. The key is invest in broad market indices, diversified among stocks and real estate, domestic and internationally, with a bit of cash set aside for rainy days. Any other strategy involves speculation (trying to be smarter than the market), and unless you think you really know what you're doing, you shouldn't speculate.


illumin8 1424 days ago | link

Sorry, I have to take issue with this approach. You're tying 60% of your total assets to the market indexes of countries that are likely to decrease in value over the next several years. You're tying 20% to real estate indexes that are also extremely overvalued.

You're young. Stick it in a money market account or something safe for a few months until you can get some real financial advice.

Personally, if I had $5 million I would probably leave it in money market and safe CDs until this period of global deflation and low interest rates is past us. I would wait until the inevitable inflation that is coming in a few years, and when interest rates are over 10% (hopefully), put a couple million in fixed annuities that will pay out monthly for the rest of my life, put 1-2 million in safer investments, and invest the other million in risky stocks with a high potential payout.

That way, I have guaranteed income for the rest of my life from the annuities, enough to live off of, and can hopefully see some better returns from the rest of the money. A good financial advisor can give you a better strategy.


DavidSJ 1423 days ago | link

If you think you know something the market doesn't know about those countries, and future inflation rates, then your strategy makes sense.

But otherwise, investing in a pure cash portfolio is super-exposed to inflationary risk, and very low-growth.


illumin8 1423 days ago | link

It doesn't take a genius to see that Europe is in a deflationary spiral right now, with Greece and Portugal leading the way. Why would you want to bet 30% of your portfolio against the trend of Euro/Dollar weakness?


300baud 1422 days ago | link

Being able to see the future isn't enough for a financial bet. You have to be able to see the future before other people with money. If something is sufficiently obvious, it will already be priced into the market.

In other words, a financial trade isn't a bet on your insight. It's a bet that your insight is sharper than the person on the other side of the trade.


mrvir 1424 days ago | link

You have an excellent list there.

Recently there was some discussion about simplest possible portfolio on Dilbert blog: http://www.dilbert.com/blog/entry/worlds_simplest_portfolio/


run4yourlives 1424 days ago | link

I think this normally excellent advice is not the best option given the current fluctuations in all market sectors.

There is a very likely chance that the first four options could all suffer losses in the immediate future, which is a needless risk.

I think staying out of the market until the current mess passes would be better rather than risk your initial investment by investing right this second.


brc 1424 days ago | link

Given the state of things right now, I'd park your money somewhere secure and live off the interest. Then learn two disciplines : real estate investing and stock market.

Don't turn your money over to a financial advisor, unless they are personally referred by someone with a lot more cash than you. Any advisor you can afford is no good to you because you probably have more cash than them. By all means take advice, but don't blindly follow it and don't turn over control of your cash.

Learn a specific part of the real estate business that attracts you, and steer clear of single family residence homes. With that sort of cash you should be in multiple dwelling properties, or commercial retail, industrial or office buildings. The real estate market is dead and dying a bit more, so in the next couple of years that plum bargain is going to turn up, and you can be johnny on the spot, if you have done the study and learnt what is what. One good commercial property investment and you and your future family could be set for life with a healthy tax advantaged income and growing asset base.

With the stock market, I see a lot of advice here to approach the market, I would do so with a very limited amount of cash, certainly less than $50,000. If you lose that consider it a quality education on the perils of the market.

Learning to be an investor is like any other field and just because you win big in business doesn't make you an automatic whiz at investing. Capital protection is now your number 1 priority.

Oh, and if you're single, don't tell prospective girlfriends about it. You want to know which ones like you for who you are, not your bank account.


kls 1423 days ago | link

Oh, and if you're single, don't tell prospective girlfriends about it. You want to know which ones like you for who you are, not your bank account.

I read an article on HN the other day about signing a contract with a third party entity, that states if you do not sign a prenuptial agreement, when you meet that prospective mate and decide to get hitched. Then said third party is entitled to half of your current net worth.

It is a poison pill, but one that they have to swallow. If you are not married, I would consult a lawyer about setting up that contract with a parent, sibling, best friend or me. The good part is it gives you an out without being awkward when the time comes, you can use the:

"My parents begged me to do it, because they where concerned about my partying with rock stars, the coke and running with the wrong kind of girls, and at the time I had not met my one true love, It's no big deal because we are going to be together forever, right?".


briancooley 1424 days ago | link

Cultivate a solid understanding of the exponential function?

In all seriousness, congratulations. Seems like a good problem to have. I don't have a lot of advice, but if it were me, I would avoid trying to leverage the money too much. It might be a good way to turn $5MM into $50MM, but it's also the best way to turn it into $0.

The utility of a lot of extra money is likely to be low for you.


stevenbrianhall 1424 days ago | link

Have you ever considered investing in an organization that specializes in micro-finance? The potential to do good and impact impoverished people with even a small portion of your recent earnings (congrats, by the way!) is incredible.

A high-level summary of micro-finance is the issuing of small loans (often just $100-$200) to small groups of 3-4 extremely poor people. The borrower then uses that previously unattainable capital to purchase supplies and equipment to open their own business.

A classic example would be a poor woman in rural Mexico. Her husband works in the fields and they make just barely enough to get by and feed their kids, there's no capital left over even in a good season, and therefore no way to get ahead. If someone were to offer her the opportunity for a micro-loan, she would have a chance to overcome that barrier of extreme poverty.

The lender of the micro-loan would have the woman find another two or three of her friends, and they would form a borrowing group. The borrowing group puts together their aggregate financial needs, and a loan is issued to the group. The purpose of the group is accountability and camaraderie, and receiving additional loans is contingent on every member paying back their loan on time The group will meet together once a week with the lender and pay back a small portion of their loan plus interest over the course of 6 to 8 months.

Upon receiving the loan, the woman would buy a large pot, supplies, ingredients, and a table, and begin making and selling tamales out of the front of her house. She'd make enough to cover her own living expenses and pay off the weekly loan repayment amounts, while improving her own quality of life and gaining confidence.

This extends credit to people who would have never qualified under the existing banking system, and I have story upon story of people's lives who were absolutely changed by what we would consider an absolutely trivial amount.

I don't do this for a living, but I firmly believe in it, and will be putting that belief into practice within the next year.

Some micro-finance organizations include: 1. Grameen Bank - http://www.grameen-info.org/ 2. Kiva - http://kiva.org (started by PayPal alums) 3. MicroPlace - http://www.microplace.com/ (backed by PayPal)

For further reading, see (Microfinance) http://en.wikipedia.org/wiki/Microfinance and (Banker to the Poor) http://www.amazon.com/Banker-Poor-Micro-Lending-Against-Pove...

Go do some good. :)


cmer 1424 days ago | link

I was in a similar situation recently. The best thing I did was to find a VERY GOOD investment advisor who handles my finance. By very good, I don't mean Madoff good, I mean somebody who doesn't promise the moon and really knows what he's doing.

The problem is that 99% of these people are jackasses and have no clue what they're doing. Ask rich people around you who they use and interview a few of them. Only go with someone you feel 100% comfortable with.

I would also advise you not put all your eggs in the same basket. And put some money aside for your next startup!


cookiecaper 1423 days ago | link

I'd imagine hiring a good financial planner is like hiring a good programmer: it takes one to know one. Are you sure your financial planner is so good? How do you know? Gains aren't necessarily a signal -- Madoff produced "gains" for his clients for decades.


cmer 1423 days ago | link

1. Every person who made a lot of money on the web around here has been dealing with him for around 10 years and has been extremely satisfied

2. He works for a large bank

3. He has just a few large portfolio clients

4. I can see what I own at any time through the bank's web interface

5. He calls me whenever he wants to make a move

6. Average time between when I send him an email and my phone rings: 3 minutes

7. He's strategic. He always keeps some of my money in cash in the event of a significant pullback (which I still think will happen sooner or later; this recovery is not sustainable)

Hope it helps!


JunkDNA 1424 days ago | link

Hire a professional. You have the money now so you can afford one. So you don't get taken, I would ask around for suggestions. You could also call up Vanguard they offer financial planning for people with that amount of money. With them, you don't have to worry about ulterior motives because of their corporate structure.


gokhan 1424 days ago | link

You can also check this IAMA at reddit: http://www.reddit.com/r/IAmA/comments/azgs6/iama_guy_who_sol...


howradical 1423 days ago | link

My advice:

- It's not as much money as you think. That might sound ridiculous to people without it, but you're not going to start living the Entourage lifestyle on 5m. You are 20, not 60 and it's unlikely you will ever get a higher return on an investment. It's your duty to protect and grow this wealth.

- You can't stop working, I tried and failed. Take some time off, travel, find a new passion or start over with a new company. Your life is just beginning.

- I'd suggest reading about Value Investing. I'm not saying you should invest your own money, but you damn well better know what's going on with it and why. Understand that inflation will eat away at this without the proper defense. Understand the ramifications of investments: liquidity, taxes, cash flow, etc.

- Keep a low profile, people are going to come out of the woodwork for lunches/pitches/loans/gimmicks. Be polite, but be stern (the answer should almost always be no).

- Get a good local attorney and a good accountant ASAP, an afternoon of research should point you in the right direction. Talk to them about asset protection plans.

- Stick with what you know (assuming it's computers). People are going to suggest all sorts of things, but do you really want to be a landlord, run a Subway, own a carwash, etc? I'm not saying you can never go in a new direction, but be careful. It's about 1000x easier to lose a fortune than make one.

- Buy yourself a nice, not extravagant house. Treat yourself to something "fancy" (say a slightly used BMW, not a Ferrari) and the rest goes away. Set a comfortable monthly budget, DO NOT GO OVER THAT BUDGET. Make a spreadsheet of your investments, get a Mint account, find leaks and plug the holes.

- Invest your money in a mix of stocks/bonds/treasuries. Spread the stocks across different markets (US/China/Asia/Japan/Europe), it should be about half of your asset allocation. Keep about 5% accessible.

- Stick with your friends and family, be careful with girls and sign a prenup.


DanielRibeiro 1423 days ago | link

Paul Buchheit's comment on this thread can also give you some insights. http://paulbuchheit.blogspot.com/2010/05/what-to-do-with-you...

More comments on his FriendFriend link: http://friendfeed.com/paul/c34da6af/what-to-do-with-your-mil...


joshu 1424 days ago | link

Having actually done this: Drop me an email.

There's more to it than "invest in x" or whatever.


fleaflicker 1424 days ago | link

Why not post here? He won't be the last HN user to have this question.


joshu 1423 days ago | link

Some of it is common sense. Some of it is psychological that I don't feel like sharing. Most of it is not wanting to be criticized by people with no relevant experience.


faramarz 1423 days ago | link

Buy a few houses/condos near your local University campus and rent it out. Rinse and repeat. :)

Spend a few grand to renovate, put lock on each door etc. and just sit back and watch the money come in. (not much sitting back really, you need to make visits, collect checks etc) but still..

On average students pay $500-700/month for school housing and most of those are in homes with multiple house-mates to lower the rate. There's school all year round, no shortage of students.

You don't even need to buy the house outright inc ash. Put a modest amount as down payment to lower the interest, and pay for it with all the rental income.

Trust me this works. I was one of those students and the landlord was a 26 year old cop who had enough common and financial sense to do this with very little money down. He earns $3500-4500 a month in rentals, depending how many people you can legally (or illegally) fit in the house.

Congrats! Don't forget to look after the most important people in your life, and set aside a percentage for good-will and charities.


LBarret 1424 days ago | link

1. don't change anything about your spending habits.

2. hire a pro to manage it

3. travel all aroudn the world (1 year is cool)

4. come to france and invest in our startup. ;)


bdickason 1424 days ago | link

Precisely. Hire a financial advisor and they will manage EVERYTHING for you from start to finish.


david_p 1424 days ago | link

second, except invest in OUR startup :)


MrMatt 1424 days ago | link

What was your company called?


jacquesm 1424 days ago | link

He's posting from a throwaway account, why would he reveal what the company was called and undo that ?

Also, he may very well have agreed not to reveal the sales price of the company to 3rd parties, keeping it anonymous is skirting that line.


pinstriped_dude 1424 days ago | link

How about giving the OP an opportunity to respond?


lanstein 1423 days ago | link

Pretty sure Jacques knows what he's talking about...


TWAndrews 1424 days ago | link

The very first thing I'd do is talk with a good accountant or tax lawyer. Ideally you'd have done this prior to selling the company, and maybe you did and the 5m is after taxes.

In any case, if it were me, I'd put $1m into an inflation protected security like http://en.wikipedia.org/wiki/Treasury_security#TIPS. That gives you enough money to cover yourself if things go otherwise awry.

I'd decide where I wanted to live and buy a house that I could see myself living in for 10 - 20 years for cash. Probably wouldn't spend more than 2m on that, perhaps quite a bit less.

I'd put the rest into a money market fund for the time being--low return, but very low risk, and I'd take 18-24 months to travel and see the world and figure out what I want to do with the rest of my life.

Figure that you hit the jackpot--you'll never really need to work, other than to stave off boredom--take a little time and determine how you want to spend the rest of your life. Don't worry about missing current opportunities--there will be more, especially for someone who's already had a successful exit.


petervandijck 1424 days ago | link

Three things:

1) Take your time. Put it in a low-interest, save place and research.

2) ONLY take advice from an advisor that you pay. Investment advice from a bank or anyone who is selling you products (or takes a cut on them) will be flawed. So pay someone.

3) Be very, very, very careful with taxes and pay a tax accountant as well for advice.


maxklein 1424 days ago | link

When you get on a sum of money quickly, you lack the neccessary skills to manage it. And you will blow it quicker than you think, because there are many toys out there. So invest your time in learning how to manage a larger sum of money, and you will be able to increase it quickly.


bwh2 1424 days ago | link

Read every article you can find on professional athletes and lottery winners that squandered millions.


pinstriped_dude 1424 days ago | link

Here's a related one from today's news wire - http://nba.fanhouse.com/2010/05/26/the-trials-and-tribulatio...


iamelgringo 1424 days ago | link

There was an article a year or two ago on SFGate or the SF Chronicle about Google's what Google did when their set of early employees vested. Their first 1000 employees' stock options were all worth over $1M if I remember correctly. They paid a number of investment advisers come in and give talks on what to do with the money. They all suggested index funds.

Anyone find a link to that article?


illumin8 1424 days ago | link

Unfortunately, if you took that advice back in 2000 you're probably still underwater.

Index funds are great over long period time frames like 25+ years, but as always, you need to time your entry and exit strategies. Index funds work great overall for 401k and retirement funds because you're buying in every month so fluctuations up or down help you out. Just don't stick 100% in an index fund in the middle of an overvalued bubblish market.


AN447 1424 days ago | link

In my opinion since you don't know what to do I'd do the following.

1) Go on holiday and chill out sit and mull things over. It doesn't have to be over the top or anything

2) Forget all this reading books crap, whats the point they will in most cases be dated advice, better you go talk to someone and get some advice maybe from a few people not just one so called expert wealth manager.

I think for someone your age you should think about a) preserving your wealth b) building a portfolio of investments albeit a small one just to start off with (a % you'd be happy to lose in the very worst case scenario) c) you're a founder so possibly think about starting another company

But in all seriousness, take a holiday, I think you deserve it.

Lastly, well done man


epi0Bauqu 1424 days ago | link

I was in this exact situation a few years ago. Email me if you want to discuss. It depends on your goals and risk tolerance.


davidw 1424 days ago | link

Wow - that's cool - what was it / what did you do?


JoelPM 1423 days ago | link

Buy a Harley and these three books: 1) Zen and the Art of Motorcycle Maintenance 2) Shopclass as Soulcraft 3) The Bible Then hit the road and don't come back until you've learned some things.

There, I've helped answer the question for 30k of your 5mil, I'm sure others can help with the remaining 4.97m :)


vdm 1423 days ago | link

Seconded Shopclass as Soulcraft.



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