It may feel like infinite money, but can be burned through at terrifying speed. This happens to a lot of people who suddenly get money.
My advice is do nothing with it, and start reading books about finance, investing, and money management. Then start gradually investing it as you learn the ropes.
Hire a good CPA to help you with taxes.
Buy liability insurance, because you're now a target for jackpot lawsuits.
Don't listen to advice from the internet, your friends, family, any personal wealth manager, or anyone who wants you to invest in their business.
> My advice is do nothing with it, and start reading books about finance, investing, and money management.
I see where you are coming from, but if you step back for a second, this just sounds bizarre.
OP now has more money than they need or ever have had, and instead of relaxing and finally caring about something other than money, you suggest they actually start caring more about money.
They are not closely similar. Ponies will die if you dont know how to handle them, money while being gobbled away by inflation will more or less hold its value.
It's a smart thing to do learn money-management at any point of your life, even more with a sudden windfall like this. The OP seems like a straightforward guy who isnt really interested in money hence this post.
So it's up to him what kind of impact he'd like to have to the world around him. If you really get down to it there's no wrong or right way to proceed. To maintain that wealth he should definitely learn how to manage it. To spend that money on things he deems important he probably doesnt need to learn much money-management.
Wisest thing in my mind, and what others have suggested, is to wait and ponder what he really wants to do in life. Maybe read some money-management books, sure. To see if it's any interest to him.
It's quite silly to say something is false without providing a logical reasoning. And what is false about that statement, that it will absolutely not hold its value? Sure, but it wasn't my main point.
Exactly. If it were me, managing that money would become my full time job! Might even consider raising the kids to run the “family business”, they could become financial professionals as a career.
>you suggest they actually start caring more about money.
This is how the rich stay rich. You can't just spend (I mean, you can if you're really disciplined and treat it like a retirement income). When you've got a lot of money you need to park your money somewhere it appreciates and then skim off some of the appreciated amount when you want to use it.
Unfortunately, that's what happens when you get a windfall. It happened to my wife and I when we sold our company. It's a fantastic "problem" to have, but it takes some time to get comfortable. This is especially true in OP's case, when they could feasibly retire immediately.
I diagree with you, in a sense this is now a huge responsibility, especially if you see this windfall as the start of a family legacy, something to be rolled forward for all time. I would read about legacies. How did the Bushes, Kennedy’s, etc do it ?
with a wise investment strategy, the guy can spend about $300k per year without losing money in the long term. that's a lot of money, but it's not so much that you can't easily overspend if you're not careful and/or start "seeing green". if his kids end up going to top schools for college, that'll be ~$150k per year right there.
Even if OP spends 1M on college fees ( I forgot how expensive it is in the US ), I would imagine that they'll still be very comfortable for a long time.
Plus, you need to factor in their future earnings. When people speak of retirement, they really mean just doing something else they're interested in. The likelihood of these activities generating income, at some stage, is substantial.
Also why would anyone need to spend 300k in a year? If you own your house, there's not much to spend other than utilities, food and a couple of holidays... Or am I missing something?
no one needs to spend $300k in a year, but unless you are some kind of ascetic monk, you are susceptible to lifestyle creep.
the reason i bring up college expenses (which are about $70k/year at top US schools) is that parents tend to do whatever they can to give their kids the best possible chance in life. even if someone is not purchasing luxuries for themselves, it's not hard to spend tons of money on children. about $600k needs to be set aside if he wants to guarantee that his children can attend any college they can get accepted to. in the meantime, there are plenty of expensive things he can do to improve their chances of admission. maybe this means buying a house in a better school district or paying for private school (possibly >$40k per year per child). maybe it's private SAT prep to boost test score. extracurriculars are also very important for admissions (and are enriching in their own right), and the most impressive ones aren't cheap either. there's always something you can spend more money on to improve life outcomes for your kids.
you can't just say "I have a lot of money, I'm going to spend modestly, and everything will be alright," and have it be so.
Your holidays can become progressively longer and more extravagant. The cost of this can add up quickly. Maybe you previously just went to Florida for a week for vacation. Now you decide to take the family to Italy for 3 weeks in the summer and to New Zealand in the winter....
There can also be an urge to buy that vacation home in Tahoe or Jackson that you always dreamed of. Maybe you used to rent a house in Tahoe for a weekend every winter before windfall. Now you buy a place and have a mortgage for a cabin that you use a handful of times a year.
Before you know it, you can have a lot more expenses creep up.
Add up a few even ifs of $1M each, and the comfort level drops considerably. $8M should be enough to live comfortably, but it requires a bit of planning and a reasonable definition of comfort.
It doesn't take a lot of reading to get towards get a nice umbrella policy, talk to an estate lawyer, and then put most of the money in a diversified bond fund and a diversified stock fund', and plan to pull out a small % per year as your annual budget; allow for large expenses occasionally, but be aware of the impact on your future annual budget. Maybe set aside a specific amount money (in consultation with your significant other) for unwise investments, if you want to learn first hand why they're not recommended.
I suspect the ratio of older HN people who have had experience of windfalls is higher than on boggleheads.
Though my personal game plan was take one of they founders of nominet worth well over 100m at one point) out for lunch in the best restaurant in Brighton and ask hime what he would have done differently :-)
Or do a cheeky letter to one of the Rosthchild's I met at fast Tuesday years ago
In some places, liability can be based on lifetime earning potential, so OP may have already been a good candidate for liability insurance. Don’t wait for a windfall.
Strongly disagree. Don't listen to the wrong advice from the internet. Do listen to wise, earnest, un-conflicted advice from the internet (e.g., Bogleheads).
> You will be encouraged to hire an investment manager. Considerable pressure will be applied. Don't.
> Investment managers charge fees, usually a percentage of assets. Consider this: If they charge 1% (which is low, I doubt you could find this deal, actually) they have to beat the market by 1% every year just to break even with a general market index fund. It is not worth it, and you don't need the extra return or the extra risk. Go for the index fund instead if you must invest in stocks. This is a hard rule to follow. They will come recommended by friends. They will come recommended by family. They will be your second cousin on your mother's side. Investment managers will sound smart. They will have lots of cool acronyms. They will have nice PowerPoint presentations. They might (MIGHT) pay for your shrimp cocktail lunch at TGI Friday's while reminding you how poor their side of the family is. They live for this stuff.
> You should smile, thank them for their time, and then tell them you will get back to them next week. Don't sign ANYTHING. Don't write it on a cocktail napkin (lottery lawsuit cases have been won and lost over drunkenly scrawled cocktail napkin addition and subtraction figures with lots of zeros on them). Never call them back. Trust me. You will thank me later. This tactic, smiling, thanking people for their time, and promising to get back to people, is going to have to become familiar. You will have to learn to say no gently, without saying the word "no." It sounds underhanded. Sneaky. It is. And its part of your new survival strategy. I mean the word "survival" quite literally.
>>...they have to beat the market by 1% every year just to break even...
It's even worse than that.
1% ON TOP of inflation, which is reported as 1.9% but many financial experts say the actual figure is closer to 4% once goods such as energy and food are factored in.
So the hypothetical investor must make ~5% just to break even. Anything less is a loss of spending power. Add 4% to realized losses and the figures can be especially gloomy.
Financial experts most certainly do not say anything like 4% inflation in the US.
Energy is extremely volatile, so it’s annual rate spikes up and down by as much as +/- 25% in any given 12 month period, but over longer time spans it’s close to flat, with US consumer prices driven down by fracking.
Food prices, similarly, are volatile, but have trended flat over long timespans.
Food and energy are going to be a tiny, tiny fraction of consumption for someone living off float from an $8 million windfall; core inflation (removing the volatile food and energy categories) is the right number to pay attention to.
I have a personal friend who is a wealth manager who basically gets his clients to put their money in index funds.
I wouldn't paint the whole industry this way. Some people are simply not good at handling money and paying someone to keep your hands off of it is wise.
For the record, my buddy works with sports/entertainment stars (and including tech founders who exit) that categorically have the worst discipline when it comes to money.
This is a recommendation for early management of a large windfall (large inheritance, exit or lottery winnings).
If in the long run you believe/understand that a wealth manager could do a better job than the basics and you want less safety, you can always hire one: wealth managers will still be there next year or decade. However if you get a wealth manager right now your funds may not be.
The cocktail napkin stories are one-off anecdotes that all law school students go through in their first semester to learn about what actually makes a contract. They are great example to show how a formal document with signatures is not the critical piece of a contract. They do not mean that you should never scrawl notes on a napkin because napkins have some special legal power. And any quote that implies such should be taken with a fairly large grain of salt.
Also, wealth managers don't simply try to beat the market over a short term. They try to help you diversify so that in the case of a market change or complete meltdown, you don't lose everything. You pay that percentage not to maximize every penny, but to make a reasonable return while minimizing your losses in odd scenarios, so that you can live on the returns while never even touching the principal assets. Again, anyone who boils it down to "just invest in index funds" is missing the big picture. (And that includes bad financial planners. If they give simple advice, call someone else.)
Agree. And some people will just sleep better knowing a professional is helping with their investments, and that's worth something.
One hint is to talk to a couple of local estate planning attorneys and see who they recommend for financial planning/wealth management. They will have seen who does a good job and who doesn't. It probably isn't the guy working at the local Charles Schwab or Edward Jones office in a strip mall.
Most of them are simply salesmen, selling high-load products. Incentives are not aligned, but if you can find one is who independent of any particular set of funds and who only earns from a percentage of your earnings, and not from brokerage fees or commissions, then it might be worthwhile but you should still learn about this stuff yourself.
There are different types of advisers. People often get burned because broker dealers, stockbrokers, and insurance agents do not have fiduciary responsibility (they do not need to act in your best interest). A fee only adviser (with fiduciary responsibility, which will only charge you a fixed fee is a solid choice and worthwhile to keep you out of trouble.
Yup, this is why if you really want to be hands-off with your wealth and put it in the hands of an independent professional, look for FEE BASED financial advisors/wealth planners. Finding one via NAPFA is one's best bet.
This is not nearly enough money to justify a wealth manager. People always think they're special when they aren't, and salespeople are always willing to encourage their delusions.
>My advice is do nothing with it, and start reading books about finance, investing, and money management.
Unless you have serious interests in it, you're likely to be a lazy investor and lean on index funds with some gambling money.
There's a big pit where investment performance tanks between lazy index investors and serious investors. These people simply want to trade on their own invented investing signals and feel like they are doing something. It's a big, easy trap to fall into.
Maybe stay out of index funds until Trump is gone because he's volatile for world politics and the market has likewise been volatile and that swings index funds. Not because you'll lose money long-term (in fact, time in market > timing the market), but because seeing your portfolio drop $300,000 in a week is going to shock you and you might make bad decisions before you've developed resilience to these things. This is because the news is so good at making the world seem like it's going to end while you are treating it as serious investment warnings because you don't have the experience. It's like armageddon calculus.
Definitely don't invest in cryptocurrency though, even with your gambling money.
My advice is do nothing with it, and start reading books about finance, investing, and money management. Then start gradually investing it as you learn the ropes.
Hire a good CPA to help you with taxes.
Buy liability insurance, because you're now a target for jackpot lawsuits.
Don't listen to advice from the internet, your friends, family, any personal wealth manager, or anyone who wants you to invest in their business.