5 million dollar windfall

Discussion in 'Odds & Ends' started by acura9927, Dec 5, 2012.

  1. acura9927

    acura9927 Semi-Pro

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    Any investment gurus out there. If someone came across 5 million net after taxes and just wanted to live off the monthly interest how much would a person be able to get per current USA bank rates. Wild guess is about 5k in bank interest per month? No idea, just day dreaming right now.
     
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  2. LeeD

    LeeD Bionic Poster

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    I'm no math genius, nor do I dream in such proportions.
    I thought one mil was 70.000 for 20 years.
     
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  3. acura9927

    acura9927 Semi-Pro

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    I was thinking of stashing the whole 5 million in the bank and living off the monthly income. 5k per month and I would be set and no job ever again.
     
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  4. LeeD

    LeeD Bionic Poster

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    That just doesn't make sense, to me.
    What's the 5 mil doing when you die?
    If you get hurt, the doctor's and hospital get's your 5 mil. Oh, the lawyers get half.
    5k per months is peanuts! I'm a homeless person. My g/f makes 8k a month, and we have little to show for it.
    I'd say, it's warranted to live on 20k a month.
    Heck ROMNEY makes that plus another half.
     
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  5. acura9927

    acura9927 Semi-Pro

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    I dont think 5k per month is peanuts for a single guy no kids.
    Nice life. 5 million in the bank as well sleep easy.
     
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  6. LeeD

    LeeD Bionic Poster

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    5k a month is peanuts. Policemen in SanFrancisco start at 6, fireman a little more.
    I was driving a cab in SanFrancisco making a true $40 k a year, taking home more than my fireman friends who grossed 77k.
    Problem with a bank account is interest and accountability. You don't want to pay either.
    As an almost 64 year old, my advice is to live your life while you can, don't wait for tomorrow, have something for your later stages in life, but you are young only ONE time.
     
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  7. Sumo

    Sumo Semi-Pro

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    60k before taxes can go a long way depending where you're living, but there are definitely easy and very low risk ways to increase that income well above 1%.

    You were correct about one thing in this thread.
     
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  8. LeeD

    LeeD Bionic Poster

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    Good one! :):)
    Article 3 days a go on SFChronicle... kids who don't grasp Algebra the first time around generally don't ever get it, and go on to avoid math at the higher levels.
    That's me. Well, I could grasp it, but I didn't ever do any homework thru junior high or high school. Made it tough to pass English, and SocialStudies.
    As for the one mil and 70k for 20 years, that's about an average nowadaze.
     
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  9. SoBad

    SoBad Legend

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    Why put it in a bank, even if you believe in fdic insurance - it will only cover a small portion of your fortune.
     
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  10. diredesire

    diredesire Super Moderator

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    This ^
    FDIC Insurance might cover 100K of your sum. You'd only be making ~3% at the HIGHEST interest rate savings account. More realistically, you'd be making <1% at the current rates.

    You'd pretty much LOSE value if you kept it in a savings account. Consider the rule of thumb to be ~3% each year on inflation. The "salary" you pay yourself from the interest would be worth less and less YOY.

    You'd need to invest it in the stock market to get higher gains, although the risk is much higher. You could diversify to mitigate risk, but if you're happy with a 5K/month (which is realistically higher than the interest you'd get in a savings account), you could reserve a 10 year or so portion of 5M
    10*5*12 = 600K and then invest the rest into the stock market in however you want.

    At the volatile period the market is right now, you'd realistically be buying shares at a huge discount. Again, you'd want to diversify, and you'd ideally be relatively young in order to have the reward be worth the risk. Otherwise you could just invest in bonds and/or mutual funds.

    There are other simple tricks you can do with your money, but that is the simple skeleton i'd approach with.
     
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  11. maggmaster

    maggmaster Hall of Fame

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    5 million is wealth management territory. Find a group that you like and work with a professional to set up an income trust. You can probably purchase an annuity with guaranteed income higher than bank interest rates.
     
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  12. acura9927

    acura9927 Semi-Pro

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    I got burned in the 2000 Nasdaq crash and have not recovered. So thats why if I have a windfall I would say screw it to the stock market and not tempt fate a 2nd time. I have modest taste- a nice motorcycle, good health and travel once a year to a far away place is all I require if I hit it rich.
     
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  13. mikeler

    mikeler G.O.A.T.

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    Municipal bonds is probably where I'd put a decent amount of change right now. I'd only go with AAA or AA bonds though which have a lower yield but are safer.
     
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  14. nyc

    nyc Hall of Fame

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    Key is diversification and build smartly. Sounds like the lesson you should have learned in 2000 is not to bet on a single horse.

    If you get 5k/month that's all you ever get. I assume your needs will change, family kids, schools to pay for. 5k might seem plenty now, but in 20 years this will get you zilch.
     
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  15. sureshs

    sureshs Bionic Poster

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    LeeD just stashes the money in his 1977 Ford van.
     
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  16. Fearsome Forehand

    Fearsome Forehand Professional

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    Keep some portion in cash/liquid. Invest the balance is low risk items. Your goal should be to outpace inflation and earn a decent return. The amount of risk you should be willing to assume is also a function of your age.

    If you are willing to live humbly, you should be able to live off the investment income and preserve most of the principal. If you earn a mere 3 points/year that is 150K pre tax. If you have clue, you should be able to do better than that in the present environment. When inflation kicks in again (inevitable), returns will be bigger nominally but not in terms of purchasing power.

    If you don't own a house, buy a decent (not an overpriced one) in an area in which you wish to live. Eventually, housing will recover and you will make money on the house if you chose one wisely and don't overpay. I am not a fan of US currency long term. Current fiscal policy will not end well IMHO. While I would keep some portion liquid, I would not keep the whole amount in cash.

    Depending how you acquired the windfall, you will probably be faced with a hefty tax bill.

    If it was me, I would buy a nice piece of property on the outskirts on an area that I liked and wait for "progress" to move out that way at which point I would sell and repeat the dance. Just don't overpay to begin with. My big extravagance would be to build a tennis court.

    Most of the people who lose fortunes invest in businesses they know nothing about, buy huge houses at huge prices, invest in crazy, volatile things, get married and divorced multiple times, make bad loans, etc. Should be easy enough to avoid if one is somewhat cautious.
     
    Last edited: Dec 6, 2012
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  17. gavna

    gavna Hall of Fame

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    If you were to deposit 5mill US into a std consumer account the basic interest rate is between .10 and .15 depending on the agreed fees and services. With 5mill you would for sure get even even better preferred rate if you were to dump the whole amount into a single bank - but even at .10 your 5mill will provide a very good living off the interest alone.
     
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  18. jmnk

    jmnk Professional

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    sure, but you do realize that the stock market is essentially a ponzi schema, right? realistically the only reason why one buys stocks is the hope that he will be able to sell it at higher price in the future. I mean this is literally no different than buying baseball cards - the stock/cards themselves have no real value whatsoever. It's not like stocks represent any meaningful 'percentage' of the company assets - it's all made up. Hardly any company pays meaningful dividends, your whole and only hope is that someone will buy those stocks from you in the future. Just like with baseball cards. Or vintage tennis rackets.
     
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  19. r2473

    r2473 Legend

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    I'd put it all on black.....
     
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  20. diredesire

    diredesire Super Moderator

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    Yep, just because OP got burned doesn't mean that he invested correctly. Most people don't handle risk management well. It's easy to say this looking back into the past, though. Like I said before, your money value of a 5K "salary" per month will decrease as time goes on.

    I agree with the idea of most of the above, but I probably wouldn't use real estate as an investment unless you're looking extremely long term, or flipping real estate, which isn't as easy to do currently. Although interest rates are so low, it's probably causing artificially inflated asking prices...

    Sure, the market is largely arbitrary, but historical returns are ~8% over time following only index funds. I'm only saying that it is going to give you bigger returns in the long run as compared to a traditional savings/money market account. I acknowledged it's higher risk (due to above). "It is what it is," and there's nothing you or I can do about it. Doesn't mean you shouldn't invest. If you're risk adverse there's still better options than holding money (strictly) liquid or put it in a bank. With current interest rates, you're losing (real) money on an YOY basis. IMHO it'd actually be pretty unwise to toss the money into a savings account and call it good.
     
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  21. Fearsome Forehand

    Fearsome Forehand Professional

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    Regarding real estate, it really depends on what and where you buy and for how much. :)

    I think if one is very selective, you can find some good deals.

    Or, he could just live in a deluxe trailer or in a van down by the river. :)
     
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  22. LuckyR

    LuckyR Legend

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    The 2000-2001 NASDAQ crash was a perfect example of a spike. In this case the spike was so narrow (brief in time) that only those who tried to "time" the market are likely negative at this point. Perfect evidence for dollar cost averaging over timing strategies. Or to put it another way, if you erase the 24 months or so of the spike, the NASDAQ has a steady climb in value, since 1978, a perfect place to put money.
     
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  23. jmnk

    jmnk Professional

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    yes indeed, it is what it is. But I seriously wonder if we are not nearing the time when people do realize what the stock market is and just stop buying - which will be just the end of stock investing as we know it. It already appears that there's fewer new investors coming (just like in ponzi schema when you run out of new gullible folks).

    In fact when you see index return from like 1999 till now (~13 years) you will see that there's virtually no return over this 13 year period whatsoever. Not 8% yearly, not 5% yearly , nothing. (i mean assuming you invested in Jul 1999 and just hold till now).

    When you say "there's still better options than holding money" - what are those? I'm seriously asking since I do agree that putting it in the bank is indeed a losing proposition due to inflation.
     
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  24. diredesire

    diredesire Super Moderator

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    It really depends on how old you are, and how risk adverse you are. Holding cash and/or savings is ~1% now, almost any investing scheme is better! If we're avoiding discrete stock trading, most funds or bonds will be better. Not to mention tax advantaged accounts, but that still falls under the same large umbrella. If you're avoiding trading/attempting to game the system, then your options are relatively limited (real estate, microloans, angel investing, possibly fine art...?)
     
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  25. ten11

    ten11 Rookie

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    Buy a racquet club

    Buy and manage a tennis club. Play tennis, do some stringing, teach the kids for free so they will start play tennis. Later on they will join club, so can make more money.
    make money while having fun.
     
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  26. GRANITECHIEF

    GRANITECHIEF Hall of Fame

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    ^^ What he said. Also buy Gold (physical), McD's, Coke, Pfizer, a few REIT's, and some tech mutual funds.

    Also MNST and AAPL have pulled back a bit lately. Might be good entry points.
     
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  27. mikeler

    mikeler G.O.A.T.

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    What do you guys think of buying index funds versus trying to pick individual winners in the stock market? I know there are fees with index funs but it seems like a much less risky way to invest.
     
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  28. ATP100

    ATP100 Professional

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    Put most of it in a Spyder/Spider Cd, that way all funds are FDIC insured.
    Don't make any other decisions for at least 1 year.
     
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  29. diredesire

    diredesire Super Moderator

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    Index funds can be extremely low fee as compared to many managed funds. Individual winners (at least in my eyes) is more of a short term investment. Making any long term (significant) investment goes directly against diversifying your portfolio (putting all your eggs in a basket).

    Realistically, if you're making bets on individual stocks, you're going to be buying/selling on a short term basis. There's going to be taxes on this income vs. being able to hold a stock for >1 year (http://taxes.about.com/od/capitalgains/a/CapitalGainsTax_2.htm). You're going to get penalized, just in a different way.

    Index funds IMHO are completely fine if you're looking to hold long term, but if I were going very long term, I'd just buy into a target/retirement date fund. The fees (depending on which/where you invest) can be low, and the fund is managed for you. You don't have to worry about diversification/reallocation as you get older, and the fund starts out more aggressive, and gradually moves towards more stable investments nearer the end/goal date. For anyone overwhelmed with the sheer amounts of options, this is an easy one to just dump money into and forget until it's time to take it out. Kind of out of the scope of the initial question, though.
     
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  30. Maui19

    Maui19 Hall of Fame

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    I would put the money into a managed DSIP. Wells Fargo has an excellent one.
     
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