A Reader Wants To Know How To Invest Fifty Million (After Taxes)?

A reader wrote to me recently and asked how I would invest $50 million after taxes. At first, I assumed this was a hypothetical question, but after exchanging a few emails, I found out that this was a real situation from someone who suddenly found themselves involved in managing a trust. This trust has one beneficiary, a teenage girl, and all of her descendants, but will be managed by another person in perpetuity, receiving a small stipend from the trust.

The easiest way to frame this question is what would I do if I had $50 million to invest, live off of, and fund my family’s future?

First, I’d determine exactly what I need to live each year. What are my monthly expenses for what I do now and what I would want to do in that situation? Let’s say, hypothetically, that I decided I needed $250,000 a year in income after I evaluated this situation.

Next, I would invest enough of the $50 million to provide that steady income in a rock-solid fashion. This would probably come in the form of 10 year treasury notes. Let’s say the current yield on the treasury notes was 4.9%, which means that each year, I’ll receive 4.9% of the face value of the note. In order to receive $250,000 a year, I’d have to have $5.1 million of the money in treasury notes.

This amount would be adjusted annually by purchasing more treasury notes to keep up with inflation, but if the investments of the remainder of the $50 million are doing well, the portion devoted to sustaining my income level will gradually grow smaller.

This portion of the portfolio would serve solely to cover my living expenses. The rest of the portfolio would be invested to make sure I’ll always have living expenses covered, as will my children and perhaps my grandchildren.

So how would I invest the remaining $44.9 million? This is really up to the individual investor and how much time they want to spend managing it. For me personally, I would invest about 70% of it in broad-based index funds covering a variety of different markets, perhaps something like the Vanguard Target Retirement 2050 fund, and the other 30% would be played with in individual stocks in companies I believe in. Remember, all these investments have to do is return about 6% to keep growing in perpetuity (at least until there are more people drawing from the money).

At some point, you would have to ask yourself if you were shooting for growth with that $44.9 million or for long term security with it. Given my temperament, I would prefer security from it, so my investment choices would reflect significantly less risk than someone who imagines becoming a billionaire someday.

If you have that sort of money, though, you should look into serious wealth management, not the advice of an individual investor just hoping to build a good retirement.

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32 thoughts on “A Reader Wants To Know How To Invest Fifty Million (After Taxes)?

  1. TylerK says:

    The rules are completely different when you’re dealing with that much money. I’d hire a professional right off the bat.

  2. Cindy says:

    I’m with TylerK.

    I’d look at Ken Fischer Investments. They only manage money for high-net worth individuals and institutions. My parents have been lucky enough to have an account with them, and they give spectacular returns, lots of personal service (i.e., they come to your house), and they are very open telling you about what they are investing in and why. Oh, and Ken Fischer writes a column for Forbes, so you can go check out his philosophy beforehand.

  3. Sailsa says:

    I have to agree with TylerK. I’ve worked in the financial services industry for several years and while I agree that your recommendations are perfect for the vast majority of people (myself included), there are better options for the very wealthy. When you’re dealing with that much money, there are tons of options available and with tax consequences and other considerations, the fee that a professional charges is a fraction of the extra income they’ll provide. With a combination of tradition and alternative investments, you can beat the traditional indexes while having a more diversified portfolio with less overall risk.

  4. Erin says:

    Also, because the beneficiary is a minor, there may be restrictions on how the money can be invested until she is 18. The executor should contact a qualified wealth management adviser immediately!

  5. Justin says:

    The target fund isn’t as tax efficient as individual index funds.

  6. brent says:

    start a company.

    buy some injection moulding machines, set up a factory, put in a tool room, hire some engineers, start selling something.

    better than just investing: use the money to make profit.

  7. Kevin says:

    when you have that much money do you really need to start a company? Even a meager 5% return would net you 2.5 million. You would have to put together one nice company to beat a profit of 2.5 million. Even if you wanted to try and operate with a 20% profit margin you would have to do 12.5 million in sales.

  8. limeade says:

    I’d buy rental real estate with a good portion of it. It’d provide solid income and you can have a property management company handle everything for you. Index funds are alright, but owning real property is conservative and provides great returns.

  9. If you had that kind of money, why would you solicit investment advice from random people on the internet? I think your closing sentence about soliciting advice for a respected wealth manager hits the nail on the head. Actually, it might be best to solicit multiple opinions. You may or may not want to have them actually them manage the money, but this is clearly a case where professional advice is warranted.

  10. Lifeguard says:

    First I would hire a professional. Hopefully the professional would ask what I wanted to use the money for. As pointed out in the article, you can easily use a very small portion of the money to generate an income stream for life.

    Now, what do you want to do with the rest? Invest it until it grows to $1 billion? Great. What are you going to do with that money? Eat it?

    Personally I like the idea of starting a business with it. Then you get to help others by providing them jobs.

    Additionally I like the idea of starting a charity to help those less fortunate.

    Hopefully the professional would ask a lot of questions to see what you wanted to do with the money. Life is about more than owning a the S&P 500.

  11. Jesse says:

    You could invest a portion of it in my education! I have a schwack of student loans… it’s a good cause.

    Great site Trent, appreciate all the advice.

  12. Brip Blap says:

    $50 million could certainly fund the Institute of Personal Finance Blogging nonprofit that I’m planning to start up… :)

  13. My mom calls these “platinum problems.”

  14. !wanda says:

    The beneficiary is a teenager. A portion of the money should be put away in good short-term investments for her education. I also feel that another small portion of it should be invested in her right now, in things like test prep, college and career counseling, and facilitation of resume-enhancing activities like community service, sports, music, and after-school clubs. It won’t hurt for her to get into a good school, if she can pay for it, and an intense dose of this regimen should prepare her well for life after college.

    If the girl is mature enough, you can also try to see where she’s going in life. Is she inclined towards a poor-paying career, where she’ll need that stipend? Is it likely that she’ll have health problems at a young age? Is she civic- and charity-minded? Does she want children? Obviously, she’ll change as she grows up, but you can try to use these characteristics to shape your initial investment strategy.

    I hope someone is raising this girl right. That much money is both a blessing and a danger. I hope the administrator of this trust is giving her “the freedom to do anything but not the freedom to do nothing.”

  15. plonkee says:

    I agree that you should be consulting a professional – especially as its all held in trust. But it always helps to have some ideas before you do.

    As she’s a teenager, it probably makes a great deal of sense to have quite a bit of money available to pay for college.

    The basic idea of having some set aside for medium term living expenses and the rest in long term investments is a good one.

  16. Stephen says:

    Idea fora future post ….

    What level of wealth would trigger a serious consideration for professional help in wealth management?

    Off the top of my head, the closer that someone gets to the crossover point the more seriously they should consider it.

  17. Jack says:

    If it’s your own money, Trent’s suggestions are fine. In this case, however, they are acting for the best interest of someone else so they have a higher responibility. When faced with a tough choice I always ask myself the courtroom question; that is I imagine myself on the witness stand with a prosecutor saying something like “Please explain to the court why you thought YOU were the best one to manage $50 million dollars in trust for this child and not Merrill Lynch.”

  18. Jack: Your point is well taken, but I’m not sure a place like Merrill Lynch would be the best, either.

    The bottom line is that $50 million opens up investment opportunities that the “normal” person has never thought of, and is perhaps totally unaware of (even if the realm of mutual funds). Even though I’m a total do-it-yourselfer, I would definitely seek the counsel of a well-respected wealth manager. Ideally, as I said above, I’d seek multiple opinions. And the first words out of their mouth had better be something along the lines of “What are your goals (or those of the trust) when it comes to investing this money?”

  19. Moneydork says:

    For some reason, I think buying 50 million lottery tickets would get me laughed at.

    Once you get beyond the $100,000 range, you go from what can you invest to get 5-10% return, to which return gets you the best investment. There are so many funds and places to invest, it’s just a matter of where your money will work harder for you at.

  20. Tim says:

    yup, pro help is the best way to manage the money. pro help will best look at the goals, taxes, etc of the entire estate.

  21. Christine says:

    What a lucky girl!

  22. Gayle says:

    The post does not mention who is the girl’s legal guardian, and almost certainly the court is involved somewhere in this. It is unlikely to be 50 million in cash in the first place. It is probably already invested in something. The first thing to do is establish what is already there. Who is already managing the money and what have they accomplished with it? Who has a vested interest in taking that money away? Going around asking random “wealth managers” what to do is asking for trouble and a good way of attracting unwanted attention. A good place to start looking for help and advice would be the people who were trusted by this girl’s parents to set up the trust in the first place.

  23. Brad says:

    You are almost guaranteed to get “trust fund babies” out of this. If not in the first generation, then it will come later. The tough thing is training things down the line.

    Educating the teenager, though not necessarily just an expensive college, is key.

    I am glad I don’t have this problem in many ways. While the money would be great in a lot of ways, I would tend to find ways to give it away to worthwhile causes now rather than build a pile that can be subverted for other things later.

    BTW, Trent, you didn’t note foreign investments. While I would tend to find one or more professional managers, I would also look overseas for at least a chunk of it.

    Brad

  24. Jim Lippard says:

    I agree with Tyler K. With that much money you need a professional, and specifically a professional who is well versed in tax law as it affects huge quantities of money, such as Jonathan Blattmachr at the Milbank Law Firm in NYC.

    I would also look at investing through a company such as the D.E. Shaw Group or Dimensional Fund Advisors–they’re going to be able to do some things that are not available to the small investor. (Though actually, relatively small investors can now invest in DFA Funds through Assetbuilder (www.assetbuilder.com), minimum investment $50,000.)

  25. Duane Gran says:

    I’ll second the suggestion to work with a professional wealth manager. The firm should act as a fiduciary and should demonstrate past experience managing trusts.

  26. Penny says:

    I was just reading an interesting article in todays Sydney Morning Herald – about wealth classes for the young – teaching those who are coming into wealth to be good stewards of that wealth. For example, teaching them about hte stick market etc. It sounds like this young lady is well set up, even just with the income this trust will generate. I would make sure she was educated to make good decisions about her wealth and to not just squander it. Thats most important!

  27. Art Dinkin says:

    I was planning on leaving a comment which said that it would be very irresponsible for this individual to try and manage this amount of money without professional help, but I see several people already beat me to the punch.

    A basic rule of thumb, if you have to ask, then you need help!

  28. Rich says:

    There are countries and currencies other than the U.S.

    I would make sure to have at least 20% of the portfolio (and maybe 50%) out of the US currency and out of US markets.

  29. kim says:

    Some people have all the luck. Could you imagine being the recipient of a $50 million dollar trust!

  30. Amber Yount says:

    Shoot I would be just content to have a few hundred thousand. I’m not greedy :)

  31. Paris Hilton says:

    I’d start out going to high roller parties at the age of 16 to rub shoulders with movie stars and other celebrities. Then I’d frequently get my name in the gossip rags for being a member of the scene and for dating minor celebrities. Then I’d film myself having sex with a movie star and sell it for a million dollar profit, all the while upping my Q rating and name recognition. I’d parlay that into a reality show with someone a lot like me. Of course I would continue to club hop all over the world, for a fee of course. If I get in trouble for driving drunk or saying racist things on home videos or have pictures of me snorting coke off a dudes chest, it will only increase my wealth! Because I own a piece of the website, you stupid nobody. That’s hot!

  32. James Jackson says:

    As a former wealth advisor, the most important thing for everyone to keep in mind is that at this level of wealth, the focus should be on “wealth preservation”…….taking appropriate and prudent steps to secure her financial future and possibly future generations as well. As has often been said, history suggests that most wealth gained through inheritance is lost within two or three generations. Thus, those who mentioned enrolling this individual in a wealth management class are definitely on right on track. You can never start too early to educate your kids on this topic regardless of you’re current financial state of affairs.

    This may be surprising to some, but multiply or leverage these dollars intoadditional millions would actually be a very low priority. Let’s face it, you’ve struck it rich. There is no need for you to take on no where near the same level of risk as someone whose financial goal is to attain even one-hundredth of your present level of wealth. In my humble opinion, 70% in securities, be it mutual funds or individual stocks, is way too heavy a concentration of assets. It’s probably fine for an individual trying to figure out how to allocate their 401k contributions with the purpose of securing their retirement. However, it would in most cases be entirely inappropriate for someone that has this kind of money to invest. The over arching investment benchmark goal would be to beat inflation on average by a few of percentage points a year. That’s all there is too it. How do you get there?

    I would be looking at a highly diversified portfolio of stocks, bonds, and real estate of various types e.g. residential, commercial, undeveloped land. Precious metals, commodities and foreign currency could also be part of the mix, but only for hedging market risk and not speculation. Ventures like starting one’s own business or investing in individual companies ( e.g. start ups) would generally be off the table. And yes, philanthropy in all of its different forms can also be part of the equation, especially if the person expresses an interest. We actually encouraged it, since the psychological return of money and efforts invested in such endeavors can rarely be beat. Jus ask Bill Gates :)

    Again, the overreaching goal would be to shield the portfolio from any sudden and dramatic losses that could not be recovered with a high degree of certainty within a reasonable time frame. This focus on risk aversion has become increasingly important in the wealth management field in recent years given the uncertain state of world affairs. I think Warren Buffet famous rules regarding wealth creation sum it up best: Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.

    Sorry folks for this long post, but I hope it was worth you time.

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