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Ask HN: Steady 4-5% on $5M?
39 points by gooeykabuki on Oct 5, 2020 | hide | past | favorite | 35 comments
Roughly ~10 years back there was a thread on this topic (https://news.ycombinator.com/item?id=1108163) which elicited interesting ideas.

I'm wondering what the 2020 answer would be to what would you do to generate a steady 4-5% annual return from $5 million?




If you mean 4-5% annual average return, just stick it in a total stock market index fund. There's no reason to pursue interesting or creative ideas or even spend any brain power researching all sorts of options.

Since its inception in 2000, VTSAX has an average annual return of 7.18% [0]. That's 20 years, multiple US presidential administrations, multiple people running the Federal Reserve, and a big economic downturn (2008) thrown in. It's boring and won't give you any cool stories to tell at parties but you'll likely get the 4-5%.

[0] https://investor.vanguard.com/mutual-funds/profile/performan...


At 5 million, you're in VITSX, not VTSAX.


If you really care about the difference between 0.03% and 0.04% expenses, then the logical thing to do would be to choose VTI. What's the advantage of VITSX, especially if you have exactly the minimum?


You're either owning VTI, or afaik, automatically moved to institutional shares when you own the mutual fund class. It's not about purchasing at a minimum.


Assuming that in order to preserve wealth you are targeting 4-5% safe withdrawal rate (including inflation adjustments), an all-weather portfolio or risk parity type of portfolios can serve this purpose well and designed to be very resilient and robust to different market environments.

Checkout various implementations of these portfolios:

1) Understanding All-weather portfolio: https://ofdollarsanddata.com/ray-dalio-all-weather-portfolio...

2) The Permanent Portfolio: https://www.bogleheads.org/blog/2014/09/11/harry-brownes-per...

3) Golden butterfly portfolio: https://portfoliocharts.com/2016/04/18/the-theory-behind-the...

4) All-in-one Risk Parity ETF based on an actively managed index: RPAR ETF: https://rparetf.com/rpar

5) Wealthfront risk parity mutual fund WFRPX: https://research.wealthfront.com/whitepapers/risk-parity/


There's no low risk options. The fed is holding interest rates so low that everyone is struggling to find a place to invest money.

The economy is in a strange place right now. Record high tech stocks with near record high unemployment. Incomes and stocks temporarily inflated by governement rescue money worldwide. An oncoming eviction/default bomb that governments keep kicking down the road.

If I had a significant amount of money I would half in US bonds and half in a Swiss bank account to ride out this volatility.

Look at Buffet, he's putting his money in Japan, a traditional safe haven currency outside USD


Even products like High APY savings accounts are under 1% at the moment, so 50% into a Swiss account is unlikely to provide a large return. Also, why Swiss, and what currency would you hold in that institution?

One thing to consider is protections against any one financial institution having liquidity issues or folding — with the US and something like a savings account this would be FDIC Deposit Insurance, which covers $250k per depositor, per FDIC-insured institution.


Many comments here are quite inaccurate saying "REIT / Real-Estate, High div stocks, solely VTI/VTSAX." These are not steady 4-5% and have very real risk of losing 50% within a year.

The safest way to steadily return 4-5% nominal is an approximate mix of:

55% VT (Global stocks) 40% BND (Total US Bond Market) 5% GLDM (Gold)

Whether that ends up being a real 4-5% return, as opposed to nominal or a definite 3% real, will depend on inflation.

More info on bogleheads.org


Triple Net Lease (NNN)

https://www.investopedia.com/terms/t/triple-net-lease-nnn.as...

Think of it like owning the property that a popular Starbucks location rents.

Obviously, the retail landscape has changed irrevocably in 2020.


AT&T give 7% dividend. VZ give 4.5% dividend. There should be good quality stocks which easily pay 3% dividend. If you do drip in 4 to 5 years it might become 4%-5%. But always there is a risk though


When government bond yields are below 1% from maturities from 0 to 10 years, there is no safe 4-5% return.

The price/earnings ratio (or its inverse, the earnings yield), is a better measure of stock valuation than the dividend yield. In a taxable account it is better to get capital gains because of stock buybacks than to get dividends.


> In a taxable account it is better to get capital gains because of stock buybacks than to get dividends.

This ends up being a lot of money on a 5M investment, good call out.


This is the whole premise of FIRE[1]. Invest in a S&P index fund and you should be able to pull out 4% or so without ever running out of money.

1. https://old.reddit.com/r/fire


https://old.reddit.com/r/financialindependence is the right link


That's the bigger sub, but also one that stifles basically all conversation. /r/fire is the right place imo.


Check out /r/fatfire it's more appealing for this situation.


Steady 4-5% is a lot in North America, considering the rate is low at the moment. If you are willing to invest in some other parts of the world, 4%-5% could be the norm, for example China 10Y- bond is at 3.157% and you could probably find some relatively safe bonds with 1% above 10Y bond. But then you are going to be exposed to exchange risk and political risk. So far I don't really see any "safe" option here.

In Canada we do see 2% - 2.5% GIC offerd by some of the banks from time to time with a bit of bonus (say $1,500 maximum), but it's still far from 4% to 5%.


High dividend stocks or REITs.

Some markets are currently paying more than 4% as a whole: https://www.starcapital.de/en/research/stock-market-valuatio... . Russian stocks pay above 7%. Asian REITs have high dividends as well, e.g.: https://sreit.fifthperson.com/


You pay a lot of taxes on High Dividend stocks just FYI.


Real estate should still be a good bet for 4% real. It would be better with leverage if you could borrow at least 50% at some outrageously low rates but it’s not passive.


Could you please explain your thoughts on this? My current operating philosophy on real estate prices are that inflation is demand driven (buyer purchasing power), and that individuals are already maxed out (40 year mortgages, rents 50% of income). The only reason I can see real estate continuing its climb is if government policy continues to insist that home prices can never depreciate. If that plays true, then sure, you get your 4%. But it feels like a ponzi scheme waiting to collapse.


(not the GP)

> government policy continues to insist that home prices can never depreciate

Those policies are for old people cashing out, rich people buying investment properties, and even richer people who own real estate developers. What do you think are the odds that in... let's say 5 years, either of these groups will have less weight in public policy making than they do today? I think it's very, very close to zero.

In markets like Canada, lack of government investment in small towns, NIMBYism preventing density, and high rates of immigration, mostly to big cities where the jobs are, put consistent upwards pressure on real estate prices despite the end result sucking people dry. I think we'll sooner see negative interest rates to prop up further spending than a government willing to address this crisis head on.


Agreed, fixing real estate crisis is taking money away from the main wealth storage of most people. Apart from a catastrophe I don't see the elected officials do anything about it.


Real estate can climb for a number of reason. Either a shortage of housing, falling interest rates or just pure inflation. If you can somehow tap into really low rates, even if the house drops a bit in value you can extract enough rent to cover holding cost and then if you just match real (government inflation number is a lie imo) inflation with no growth you would be already be at 4%


You can also invest in REITs passively


Taxed as income though


As others have written, there is no sure way of generating steady 4-5% in current markets. So think about what do you want to use the money for? Can you reduce your future known expenses or buy something now that you know you want?

If you have a mortgage, probably worth paying it off.

Invest in reducing energy costs -- insulation, renewables if in right place.

If you want a yacht, buy it now and rent it out until you need it.


Be the first mover to build FTTH networks in underserved communities. Infrastructure has the benefit of a nice steady long tail of recurring revenue.


The first question is 4-5% real or nominal. I.e. 4-5% or ~6-8% nominal?


A classic diversified portfolio is your best bet. Ie bit of everything


Selling covered calls on blue chip dividend stocks. Fixed income etc


There is even an ETF that automates that: QYLD


stocks, stocks and stocks. if you want something safe, buy some index. maybe something form a sector you understand a bit about or just go with s&p500, etc.... there is nothing safer than that.

personally i pick my own stocks. so far i am +35% since december and i was at +60% recently. it fluctuates but i am a long term investor so i just chill and don't sweat about it.

in the end it depends on how much work you are willing to "invest". you can flip alcohol or houses or daytrade but it all requires time and effort and it just becomes a job. hence i advocate for long term investing.


I can do 20% on $2.5MM easily with only $500K at risk trading options.

Edit: I'd love to hear input on why people are scared of options.


Well your username here is well chosen, then :)

(I had a previous comment of the same sentiment that seems didn't fit well here)

Edit: I guess this one doesn't either?




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