Rule #1 Finance Blog

With Investor Phil Town

HANDLING LARGE INVESTMENTS WITH RULE #1

Variations on this question get asked every so often.

Phil,

I have a friend who will be getting a $2,000,000 + settlement after taxes.  Should he put this all into one investment account with one custodian, or should it be split up?  I'll be encouraging him to max out his Roth/IRA/SEP opportunities, but with that much money, it won't make a dent for years, especially if we get him on the Rule #1 track.

Thanks,

Ladd

My response:

Hi Ladd,

If your friend puts $2 million with a custodian who determines what it gets invested in, he will have occasion soon enough to become a true believer in Rule #1.  In this market, the mediocre help he will get for his $2 mil is going to get him in trouble.

Here's what I'd advise him if he intends to remain ignorant about investing.  He gets two choices:

  1. Put the two mil in treasury bonds and accept the $80,000 a year as
    income for the rest of his life.  As he gets older and inflation eats
    at the value of the principle, he can pull down about 4% of the two mil
    per year — about another $80,000.  Together, he can live well for a
    long time.
  2. Buy SPY — spyder — the S&P 500 index — and be willing to ride
    the ups and downs for the next 20 years.  That is likely but not
    guaranteed to increase his return to a long term average of about
    $160,000 a year pre tax.  But it could be a long, long time before he
    sees any return at all on that money.

Other than that, I don't know of anyone who is willing to accept a $2
million investment who has a great track record of Rule #1 style
investing.  The guys I know who do, accept only $10 million and up and
require that you not touch it (or call them, even) for the next five
years.

Anyone have any candidates in mind who can handle two million and do it well?  Love to hear about it.

Now go play.

Phil

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