How to Invest a Million Dollars

September 4, 2019 By Machinist

An avid reader of the Perpetual Money Machine blog wrote in last week to ask the following question.  Say you are 40 years old, you have one million dollars cash. How and where you should deploy your money to withdraw 4 percent (inflation adjusted) for next 50 years with a high probability of not running out. What type of asset allocation, funds you would go with? As I formulated my response, I realized that this question deserves an article of its own.  Here is my response.

Thanks for reading and for your question.  It sounds like you are in an enviable position, being millionaire at age 40.  I am going to make some assumptions about the missing details of your scenario.  Please let me know if I have assumed anything incorrectly.

Emotional Concerns About Timing

The first thing that strikes me about your situations is that investing a million dollars all at once could be an emotional challenge.  What if you invest tomorrow and the market trends downward for the next few years?  Would you panic and sell?  

Would it be easier emotionally if you had earned and invested that money over decades – if you knew that your cost basis was far less than a million dollars?

In point of fact, that’s all this is – an emotional concern.  It doesn’t actually change the strategy.  In fact, holding one million dollars in an investment is really no different than buying that investment each day.  If you invested a million dollars in stocks tomorrow, there would be little difference between your day-old account and my 20-year-old account.

If you are an emotional investor, then the rest of what I say here, might not be right for you.  Your best odds of successful investing are achieved when you buy the broad stock market and hold for decades.  I have described here and here how this strategy has delivered at least 8-10% returns over the last 80 years, through depressions, wars, presidents of questionable character, and everything else. 

These returns are more than enough to sustain 4% annual withdrawals, keep ahead of inflation, and grow your portfolio.  If you are committed to investing based on math and science rather than emotions, then please keep reading.

Advantages of Investing a Million Dollars At Once

Having one million dollars is a very nice advantage in and of itself.  Beyond than that, the only other benefit of having all that money at one time is that your options of account type and your planning for tax advantages are quite limited.  I’m calling it an advantage, because I’m trying to be positive.  Mostly it just makes your choices easier even if you don’t get to save on taxes.

How I Would Invest One Million Dollars Cash

To continue reading, please go to the original article here:

https://perpetualmoneymachine.org/how-to-invest-a-million-dollars/#more-618