5 million dollar windfall

[acura9927]

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.

[LeeD]

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

[acura9927]

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.

[LeeD]

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.

[acura9927]

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.

[LeeD]

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.

[Sumo]

Originally Posted by acura9927

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.

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%.

Originally Posted by LeeD

I'm no math genius,

You were correct about one thing in this thread.

[LeeD]

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.

[SoBad]

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

[diredesire]

Originally Posted by SoBad

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

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.

[maggmaster]

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.

[acura9927]

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.

[mikeler]

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.

[nyc]

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.

[sureshs]

LeeD just stashes the money in his 1977 Ford van.

[Fearsome Forehand]

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.

[gavna]

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.

[jmnk]

Originally Posted by diredesire

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.

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.

[r2473]

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

[diredesire]

Originally Posted by nyc

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.

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.

Originally Posted by Fearsome Forehand

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.

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...

Originally Posted by jmnk

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.

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.