1.4 million cash. What do I do?

Question

I hit the jackpot by selling my start up for $1.4 million. Then I took a salaried job at $107k. I have no debt and own a fully paid-off house and car. For the rich this may sound like small money, but this is new to me.

1.4 million is not enough to retire. I'm 31 years old and plan on living to 100.

I've always let my money sit in regular checking and savings accounts. I really don't want to blow it on bad investments. On the other hand, I am going to lose $42,000 this year from inflation ... assuming 3% inflation.

What should I do with 1.4 million dollars?

Answer 1

For now, park it in a mix of cash and short term bond funds like the Vanguard Short Term Investment Grade fund. The short term fund will help with the inflation issue. Make sure the cash positions are FDIC insured.

Then either educate yourself about investing or start interviewing potential advisors. Look for referrals, and stay away from people peddling annuities or people who will not fully disclose how they get paid.

Your goal should be to have a long-term plan within 6-12 months.

Answer 2

You can get an investment manager through firms like Fidelity or E*Trade to manage your account. It won't be someone dedicated exclusively to you, but you're in the range where they'd take you as a managed account customer.

Another option would be to get a financial planner (CFP or something) help you to identify your needs and figure out what your investments portfolio should look like.

This is not a whole lot of money, but is definitely enough to have an early retirement if managed and invested properly.

Answer 3

I'm still recommending that you go to a professional. However, I'm going to talk about what you should probably expect the professional to be telling you. These are generalities.

It sounds like you're going to keep working for a while. (If nothing else, it'll stave off boredom.) If that's the case, and you don't touch that $1.4 million otherwise, you're pretty much set for retirement and never need to save another penny, and you can afford to treat your girl to a nice dinner on the rest of your income.

If you're going to buy expensive things, though - like California real estate and boats and fancy cars and college educations and small businesses - you can dip into that money but things will get trickier. If not, then it's a question of "how do I structure my savings?". A typical structure:

• You're going to have an emergency fund, ~$50,000+, depending on your yearly expenses. You'll store that in a bank account.
• You might be contemplating a major purchase, like new real estate, in the next few years. If that's the case, you'll want to have your future down payment in a low-risk instrument, either a savings account or short/intermediate-term bond fund of some sort. You probably won't want to buy the entire place with cash because there are tax advantages to using a mortgage (although Paul Ryan may change that in 2013, who knows) and keeping the rest of the money invested.
• You're going to have a lot of stocks. Stocks will make you money over the long term. You have a high risk tolerance, and can afford to chase rewards. Probably at least 50% of what's left at this point will go into stocks, more if you're really treating it as a retirement fund. I'd expect to see mostly index funds or index ETFs, because you'll be investing after-tax and you don't want a lot of portfolio turnover in mutual funds that buy and sell lots of securities. You also don't want high expense ratios. (Look at expense ratios.) Owning individual securities is another option, but will likely take more maintenance.
• Most of the rest of your money will probably go to bonds - probably at least 20%. Some of those bonds will be inflation-protected.
• You won't put a lot of money into precious metals and gold. It's trendy, but might also be a bubble. If you do have gold, you might consider getting a few physical gold coins and keeping them in your house so that if the nation gets unexpectedly hit by World War III or Occupy Whatever Stuff magically turns into a full-fledged revolution you'll have something to barter with after everything goes south, but that's kind of low-probability, if you know what I mean.
• You probably won't put much money into any fancy insurance products (annuities, fancy life-insurance policies). Life insurance has some benefits if you're trying to leave money to your heirs, but I don't think you're at that point yet. Some annuities will reduce your risk exposure, but you pay a high price for that, and you can afford to wait until sometime closer to retirement to look one up. If an investment adviser tells you what a wonderful idea it is and how you really must buy it what's wrong with you just buy it already blah blah blah blah blah buy blah buy, they're dirty thieves that you shouldn't trust any further than you can throw them, and you should consider offering them a sandwich (a knuckle sandwich). Avoiding this is why you go to a fee-only investment adviser. Other sorts of "structured investments"— likewise. A few "alternative investments" are actually legit (e.g. certain real estate) but most are "alternative" for a good reason and they're usually difficult to understand.

Anywho. If you can research general principles in advance, you'll be better prepared.

Answer 4

First--congratulations! I certainly wish I could create something worth buying for $1.4 million. In addition to what @duffbeer703 recommended, consider putting some of the money in Treasury Inflation-Protected Securities (TIPS). I second the advice on staying away from annuities as well. @littleadv is right about certified financial planners. A good one will put those funds in a mix of investments that minimize your potential tax exposure. They will also look at whether you're properly insured.

Research what is FDIC-insured (and what isn't) here.

Since you're still making a six-figure income in your salaried job, be sure not to neglect things like contributing to your 401(k)--especially if it's a matching one. At your salary level, I think you're still eligible to contribute to a Roth IRA (taxable income goes in, so withdrawals are tax-free). A good adviser will know which options are best.

Answer 5

At 1.4 Million, you can definately afford a professional advisor who would give you the best advice taking into account all your goals and risk appetite.

Answer 6

Have you considered investing in real estate? Property is cheap now and you have enough money for several properties. The income from tenants could be very helpful. If you find it's not for you, you can also sell your property and recover your initial investment, assuming house prices go up in the next few years.

Answer 7

For what it's worth, the distribution I'm currently using is roughly

41% large cap stock index fund
29% domestic bond index fund
17% international stock index fund
8%  small cap stock index fund
5%  REIT 

... with about 2/3 of the money sitting in my 401(k). I should note that this is actually considered a moderately aggressive position.

I need to phone my advisor (NOT a broker, so they aren't biased toward things which are more profitable for them) and check whether I've gotten close enough to retirement that I should readjust those numbers.

Could I do better? Maybe, at higher risk and higher fees that would be likely to eat most of the improved returns. Or by spending far more time micromanaging my money than I have any interest in. I've validated this distribution using the various stochastic models and it seems to work well enough that I'm generally content with it.

(As I noted in a comment elsewhere, many of us will want to get up into this range before we retire -- I figure that if I hit $1.8M I can probably sustain my lifestyle solely on the income, despite expected inflation, and thus be safely covered for life -- so this isn't all that huge a chunk of cash by today's standards. Cue Daffy Duck: "I'm rich! I'm wealthy! I'm comfortably well off!" -- $2M, these days, is "comfortably well off.")

Answer 8

you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire.

I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971).

This is not investment advice. Talk to your broker before doing this.