patrick.net

My advice is to not take advice from this board. Get the pros involved- attorney, investment advisors, tax planners, etc. Good luck and good for you.

United Country Real Estate.com

Buy an almond orchard someplace w a jacuzzi.

Comment taken outside by gman. View

I would echo reply No.1. You need to seek professional financial advice. But if you wish to read further, here is my opinionated advice- thus not to be considered "advice" per say.

It doesn't matter whether you have $10 or $10 million dollars. The game is still the same. The very very basic principle behind investing is how to invest in areas that have historically performed a certain way and can more likely give you a consistent return. In general, a broad investment in the stock market has returned around 7-8% per year over the long term. That doesn't like that much but when you consider the effects of compounding, it takes a surprisingly small amount of initial investment to get you to a million dollars in 30-40 years. The key is time. Real estate has not proven to be the best investment as it only tends to return an average of 3-4% per year- also over the long term.

Anyway, it sounds like you're in a situation where you can have some flexibility. If I were in a situation where I could just generically stuff 100-150k into general stocks you better bet I'd do it in a split-second. But ultimately you really need to seek some professional advice.

* Disclaimer: Not considered financial advice

blackhammer says

A conservative method I've started using is the Permanent Portfolio. There is a mutual fund (PRPFX) by that very same name but it is not quite the same allocation.

blackhammer: Interesting comment. Is the gold and silver in PRPFX physical or only ETF? I don't want paper commodities.

Another question I have is about investment firms. I like Fidelity, but they are private and it's hard to know what's up with them. E-Trade is a public company, but just about went under with bad mortgages.

Iron Ranger says

Living in a 2 bedroom apt with wife and 3 kids. It's pretty cramped.

Let's fix that situation first as it seems more urgent. It's a good chance to mingle and network with your new Apple colleagues and pick their brains about where they live and why. And on the side, tell us when Apple TV will roll out.

Traditionally, US Treasuries are the end game, where security is everything and interest doesn't really matter. But lately, US Treasuries don't look like a 100% sure store of value anymore.

If you just want to keep the value and don't care about growing it, I'd say diversify the hell out of it:

* Treasuries
* CD's
* extremely boring and stable dividend-paying stocks like utilities
* a little gold and silver, though that could easily crash
* a house if it's not terribly overvalued compared to renting the same thing (see http://patrick.net/housing/calculator.php)
* rental property with positive cash flow and outsourced management

Mutual funds usually underperform the stock market because of fees and churn.

I would definitely not get a mortgage. You can be your own mortgage funder now, so why pay anyone else a profit you can keep yourself? Cash flow is not an issue for you.

You won't save any money with the mortgage interest deduction. You'd pay $1 interest to save 30 cents on taxes. Don't spend the $1 on interest in the first place and you're way ahead.

langr says

My advice is to not take advice from this board. Get the pros involved- attorney, investment advisors, tax planners, etc. Good luck and good for you.

Thanks, very good advice. I need to make sure these guys are fee based and don't have incentives that go against my needs.

langr says

Get the pros involved- attorney, investment advisors, tax planners, etc.

Investment advisors are not necessarily a good idea. Their interests and your interests are different.

Investment advisors in particular take their 1% of your assets annually no matter how much they screw up. And they can take even more by getting kickbacks from putting your money into their friends' mutual funds, etc.

Iron Ranger says

blackhammer says

A conservative method I've started using is the Permanent Portfolio. There is a mutual fund (PRPFX) by that very same name but it is not quite the same allocation.

blackhammer: Interesting comment. Is the gold and silver in PRPFX physical or only ETF? I don't want paper commodities.

Another question I have is about investment firms. I like Fidelity, but they are private and it's hard to know what's up with them. E-Trade is a public company, but just about went under with bad mortgages.

I'm a Vanguard person myself, although the MF Global debacle is making me consider diversifying among different brokerages as well. Vanguard's interface is ugly and keeps me from overtrading.

PRPFX holds physical coins and bullion, but their prospectus states that they have the option use futures markets. I believe they even state they may issue dividends/gains in the form of coins/bullion as well. It has an expense ratio of 0.77% which I consider too high, but I've recommended it to family and friends who aren't the do-it-yourself types.

The newer ideal permanent portfolio is an equal allocation of 25% Stocks/30-yr Treasuries/Physical Gold/Cash - totally unbiased toward any economic condition or prediction. I beat the PRPFX expense ratio using VTI, TLT, GLD. (I know I know, it's not physical)

Investment advisors are not necessarily a good idea. Their interests and your interests are different.

Investment advisors in particular take their 1% of your assets annually no matter how much they screw up. And they can take even more by getting kickback from putting your money into their friends' mutual funds, etc.

Financial advisers make money giving advice. That's like saying you shouldn't trust lawyers because they charge money to provide legal advice and services. How are financial advisers or any other finance professional different? There are good and bad ones- just like in any other profession. My mother in law and parents use advisers and have done quite well doing so. They have gotten some very good advice in the process. Remember- someone that gets paid to manage investments for others typically has it in their own interests to have those investments do well.

As far as companies like Fidelity and so on, well there's nothing wrong with Fidelity. I've used them for years. Them and a few others like Edward Jones and so on.

Mutual funds usually underperform the stock market because of fees and churn.

Depends. Most of what I've got invested is in mutual funds and all of the except one are performing at market average or higher. One is currently 13% YOY. Mutual funds can be as risky/conservative/diversified/specialized as any other form of investment. The fees I get charged are extremely minuscule. So its not really accurate to make a blanket statement that they "usually" underperform.

* Disclaimer: Not considered financial advice.

Talk to Vanguard or T.Rowe Price. If you open a money market account with some dough in it they'll make financial plans for you for free. The guys at Vanguard are as capable as anyone working anywhere in the business.
Money is invested for several goals of either 1. capital appreciation 2. income 3. capital preservation.
Unless you work again, you want to have some of your money provide 2. income. This means a bond fund. Dodge&Cox, T.Rowe Price, Vanguard have good plain vanilla bond funds of various kinds. I personally like Vanguard but all three companies are good.
The reason for some 1. capital appreciation (e.g. stocks) is as a way to beat inflation. Some good stock mutual funds are available at T.Rowe Price, Vanguard, Fidelity, etc.
Remember, the fee based planner is going to perform the same service for you as a planner at T.Rowe Price or Vanguard but for a lot more money.
An example of one fund that is conservative is at T.Rowe Price, called Capital Appreciation. It actually has bonds and stocks in it.
You can read in the prospectus or even the summary of the fund what it is trying to do. This is illuminating.
E.g. A stock fund that is a growth focus: "The objective of the fund is capital appreciation"
E.G. A Hybrid, or balanced fund: "The objective of the fund is capital appreciation, capital preservation, and income."
A bond fund I own at Vanguard is Total Bond Market Index. This is going to provide you with a yield of only 2.5% I think.
Another I own is Vanguard High Yield Municipal Bond. The yield is a little higher.
If I were in your shoes I would set aside at least 33% into something that can appreciate some capital, e.g. a stock mutual fund or a hybrid/balanced mutual fund.
Look at a prospectus for T.Rowe Price Capital Appreciation. Look at Fidelity Contrafund, then read one for Vanguard Dividend Growth fund.
Your enemy is inflation. Sitting on cash is not such a great strategy.

By all means avoid those who want to charge you a 1% "wrap" fee to "manage" things for you. This is an absurd fee if you consider what is done to earn it.
My father is an MD, and he inherited a bunch of bank stock, Wachovia.
He asked me questions but kept to himself what he had/makes, etc. I said "call up Vanguard.They do financial planning for a small fee ($1000?) or it's FREE if you have a money market account with them with $100K in it."
My father went to some jerk at Ameriprise financial planners.
The "rule of thumb" is not to have a lot of your financial net worth in ONE stock. Vanguard, Price, or I would have told my father "sell Wachovia and buy a mutual fund." This is the correct answer.
BUT, those planners will say to you what YOU want to hear because the correct answer to them is the one that makes you like them. They want you to like them and put all your money in their hands so they get that 1% of your financial net worth paying them forever.
What happened? My father said he "lost" $600K.
Of course he never blamed the Ameriprise person who was an idiot. He blamed it on "the market".
I briefly worked in this business, but it was a mistake for me to try to fit into the whole salesman nonsense. When I called Vanguard with a very complex question, I was amazed at the abilities of the people I spoke with.

Here's The best investment advice you'll never get. It's an index fund polemic that was written before the crash so YMMV.

Vanguard offers various types and levels of service at very low cost. You can have a financial plan, or ongoing wealth management, etc.
https://personal.vanguard.com/us/whatweoffer/advice/overview?Link=facet

I don't work there but they are an awesome company.

IR, that is a good problem to have.
Consider only ~1/10 SV startups hit the jackpot, the rest burn out. To facilitate, look at the simple chart I drew.

Where are you on this?
My humble opinion -
1) Guns and ammo, potatoes
2) Las Vegas or ultra short etf
3) vwelx
4) index funds and go enjoy life
5) diversified or find good FA (Is 4%/yr good enough?)

Mostly joking.

clambo says

My father went to some jerk at Ameriprise financial planners.

Oh boy. Sorry to hear that Clambo. Did they try to sell him a VUL policy?

EBGuy says

Here's The best investment advice you'll never get. It's an index fund polemic that was written before the crash so YMMV.

Great Article. I don't know why people still buy mutual funds instead of ETFs, particularly if they just want to track an Index.

edvard2 says

In general, a broad investment in the stock market has returned around 7-8% per year over the long term. That doesn't like that much but when you consider the effects of compounding, it takes a surprisingly small amount of initial investment to get you to a million dollars in 30-40 years. The key is time.

edvard, is it 7-8% real return or just nominal return?

I know you are optimistic in general about the stock market.

I suggest you read this:
http://www.thetrader.se/uploads/2011/04/artemis-volreport.pdf

It is rather quite clear that we're in a decade (or even two) of deleveraging, which means that conventional wisdom doesn't apply. Return of capital is more important that return on capital.

The deleveraging is happening in the countries that have slow GDP growth. In the other countries the consumers spend and have usually no debt.

clambo says

The deleveraging is happening in the countries that have slow GDP growth.

First off - GDP as a statistic itself is useless.

Here's why: http://financeandeconomics.org/Articles%20archive/2011.09.02%20Why%20GDP%20is%20nonsense.pdf

Second of all, US and Europe combined is a very significant contributor to the consumer market and both these continents have to deleverage. Whether they do this with more money printing or through austerity is the question. Europe will probably do both, US will go the printing way. Which means that nominal dollar measures are not meaningful comparisons.

clambo says

In the other countries the consumers spend and have usually no debt.

There are housing bubbles in other countries too. Australia is in a massive housing bubble, Canada is in one. China real estate prices are falling. All of this points to further deleveraging. China's massive capital misallocation in infrastructure investment cannot sustain forever. You only have to pull their credit growth chart and see the problem clearly.

I know all of this sounds bearish, but that's exactly what it is.

You can say that boring companies like Pepsi, P&G will still continue to exist. This is probably true, but nevertheless whether their stocks can keep up with all this deleveraging is questionable. As I said, return of capital is more important than return on capital.

yeah that amount is way too much to really give advice on a message board.

I guess here's some do's and don'ts

Don't get into art - it is easy for some to tell if gold is a fake but for paintings who the heck knows

Don't get into anything collectible. Collections drop in price. Baseball cards and comics don't yield the same they did decades ago. I'd argue the same with antiques.

Do get into something liquid and diversify. Putting 3.5 million into something you cannot sell in a given period of time isn't a good idea.

Do you get a discount on shares of apple being an employee? I'm not advising all 3.5 million go into it...it is near a all time high as well.

Buy a decent place in the states, some gold and keep some cash.

+

Buy a decent place in another country, with some gold and the other currency.

put it somewhere as secure as possible. spread it out over 14 fdic insured bank accounts(fdic insures accounts up to $250k @ $3.5M = 14 accounts). not sure if these accounts can be all at one bank or have to be spread out over 14 banks.

don't touch it for a year. spend this year to plan what you're going to do. most people do stupid things with a jackpot. don't be stupid.

majority of financial advisors give not-so-great advice but the good ones are worth their weight in gold. if it were me, i would spend most of my time interviewing and rejecting financial advisors until i found one that suited my personality. i might spend the majority of the year doing this.

search google they have lots of ideas on how to manage your new wealth.

3.5 after federal taxes- that only leaves you 1.8
not even enough to last if you wanted to retire

You guys are all so boring!

Geeze, just put the money in some fdic accounts and travel while you can! No rush to buy a house or anything else for that matter. See the world and expose your children to the world while cheap energy still exists and the world is still a relatively safe place to travel around.

Then I'd find a nice town outside the immediate Bay Area, buy a nice place for relatively cheap where you can raise your children away from all the horrible people and crazy tiger moms and f'ed up kids that inhabit this area. Start a nice small company for yourself, figure ut what you and your wife love to do and do that for extra income.

Figure out how to enjoy LIFE!

The only safe investment you can ever have is US government bonds. It's safest.

You made over 3 million though by taking chances in life, why not continue on the same path? Take some time off to enjoy it and go back into the game of start-ups and venture capitalism? Doesn't seem like quitting is the right thing to do when ahead.

If you have $3.5m, why would you stay in the bay area? The only reason to go there is to get rich. It's a shit hole as far as actually living goes.

Buy a nice house further down the coast where people are sane and prices are more reasonable.

sales says

3.5 after federal taxes- that only leaves you 1.8
not even enough to last if you wanted to retire

Hi, my total gross is $4.9M. I'm estimating $3.5M after state and federal taxes. It's definitely long term capital gains.

Kevin says

If you have $3.5m, why would you stay in the bay area? The only reason to go there is to get rich. It's a shit hole as far as actually living goes.

We like it here, just moved here 9 months ago. Found a great private school, church, etc. More engineers per capita than other places, so I feel at home.

I'm going to stay at Apple since I have a ton of RSUs to vest over the next few years and they threw me a ton again after only being there 6 months. What's cool is I can take more risks at work now with a nice nest egg.

I'm going to check out Vanguard...

Thanks all for the comments and advice. Of course, I'm filtering out all the strange advice.

Kevin says

If you have $3.5m, why would you stay in the bay area? The only reason to go there is to get rich. It's a shit hole as far as actually living goes.

Dunno where you're from, but if this is a shit hole, OK by me! California feels like freakin paradise compared to most of the US, even after 15 years here:

* no real winter
* unbelievable coastline scenery
* interesting people from all over the world
* far higher pay for programmers than most other places
* far fewer Republicans screaming semi-coherent bullshit defending the 1%

OK, Prop 13 screwed over CA schools so that businesses could evade property taxes, there are earthquakes, and Silicon Valley is horribly expensive with bad air, but compared to most of America, it's still no contest. I will never go back.

I didn't carefully read your first post that you had a JOB. Therefore you don't actually need income, but the mixture of income producing stuff will give you most of the return with much less of the ups and downs of just the stock market alone.
Go look at a chart of Vanguard Wellington, or T.Rowe Price Capital Appreciation. Yahoo finance or google.
Then, look at the chart for the S&P 500 index and see how they compare.
If I had a good job and had a windfall, I would just get a balanced, or hybrid fund.
A little rule of thumb may help out. When interest rates are low, stocks usually do well. When interest rates are high, bonds throw off interest that also is nice to compound over time.
Simply owning both types of assets can be very enriching over a couple of decades.
Vanguard and Price have an interesting kind of fund called "Tax efficient". These are wonderful because you have the total flexibility of them being in non-retirement accounts, but they produce very SMALL 1099 DIVs=you pay no taxes on them as they grow, like your IRA, etc.
They are a variation of the other very "tax efficient" Index fund.
Vanguard also has a "tax efficient balanced" fund, which would be muni bonds in the bond portion, with stock index in the stock portion.
If it all gets very confusing and overwhelming, there is a great company in San Francisco called Dodge and Cox. They have about 5 funds: stock, balanced, international stock, income, global. The "global" one is sort of superfluous since you can make it youself just owning stock and international.
If I had a ton of dough and didn't need income from my investments to live on for a while, I would look at Wellington, T.Rowe Price Capital Appreciation or similar funds.
If I wanted to avoid any kind of tax bite each year from them, I would look at the so-called "tax efficient" funds.

Is my screaming semi-coherent?

clambo says

Is my screaming semi-coherent?

No, you're not screaming. I'm talking about other people.

You sound like yuppie scum, so invest your money with a nice wall street mutual fund or buy real estate cause it never goes down in value.

Kevin says

If you have $3.5m, why would you stay in the bay area? The only reason to go there is to get rich. It's a shit hole as far as actually living goes.

Dunno where you're from, but if this is a shit hole, OK by me! California feels like freakin paradise compared to most of the US, even after 15 years here:

* no real winter

* unbelievable coastline scenery

* interesting people from all over the world

* far higher pay for programmers than most other places

* far fewer Republicans screaming semi-coherent bullshit defending the 1%

OK, Prop 13 screwed over CA schools so that businesses could evade property taxes, there are earthquakes, and Silicon Valley is horribly expensive with bad air, but compared to most of America, it's still no contest. I will never go back.

*california* is great. I was specifically referring to the bay area as a shit hole. It's an endless stream of poorly maintained strip malls and suburban decay. It has no real culture outside of "work 80 hours a week and try to flip your startup to $BIG_CO".

If you're in SF proper, things are nice, but the rest is only tolerable because of the weather.

Also, if you're financially independent (but still interested in working), the value of working for a big company is limited. If you're an executive, you have plenty of opportunity to do great things, but if you aren't then you'll get far more out of life by joining a startup (or starting one).

Investment advice: Do it yourself; 99% of brokers and advisors say the same thing to follow the herd -- they really must. But that's why you don't want to go with them. Put your money with an honest, low-fee company like Vanguard and self-direct. Decide what % stocks/bonds/s.t cash and even IAU gold....perhaps 35, 40, 10, 15...with stocks being defensive like walmart, costco, bjs, family dollar, dollar gen'l, campbells, hormel, conagra, genlmills....and vang precious metals/mining fund. Buy vang energy fund if it looks like Repubs will win 2012......and bonds like Pimco total return, FAX, TRowePrice ELX......in other words, bonds that are mostly if not entirely OUT of us treasuries, europe and japan. This will be a bumpy ride the next 5-10 years and the 'experts' you would pay, do NOT want to stick their neck out with defensive advice. Don't buy a house; rent. Calif's worst days are ahead as are the country's. How big is our current $1.5T annual deficit, being financed by fed-money-printing? It's enough to give $30,000 to 50 million people. This can't go on much longer.....maybe 1,2,3 more years; we've just begun the 4th federal fiscal year of this insanity. Then boom, the economy will re-settle at a MUCH lower GDP. See also pensiontsunami.com for govt pension plans that are totally unsustainable and unaffordable by the private sector taxpayers. We're headed for trouble on MANY fronts.

Buy a house in Big Sur. Become a hippie, surf Fullers and grow organic food.

Pure Luck says

You sound like yuppie scum, so invest your money with a nice wall street mutual fund or buy real estate cause it never goes down in value.

Dude, I grew up poor in northern MN and went to a small country school. 42 in my HS graduating class. We heated our house with wood in the winter. The farmstead was originally built over 100 years ago and the wall studs were pine tree poles from the swamp still with the bark on them. The floor joists were raw tree trunks as well. My dad spent $2000 in 1979 to buy me a TRS-80 computer. That was over 10% of his yearly income. My mom freaked out, but my dad believed in me. He experienced the depression. Before I was born, he went big into turkey farms and lost his whole investment in a fire. However, he was an optimist. Any disaster can turn into a bonanza.

I started out at the bottom of the 99% and worked hard and was blessed for it.

The first thing I'm going to do with the money is donate 10% to non-profits.

It's people like you who are killing this country.

I'm all for the Vanguard idea, but y'all should keep in mind that even Vanguard cannot save you from a 45% market drop like what we saw in 2008, even if all you own is some utility company mutual fund.

Likewise, Vanguard has great low-expense bond funds, but when bonds go to hell they cannot save you from that either.

Pure Luck says

You sound like yuppie scum, so invest your money with a nice wall street mutual fund or buy real estate cause it never goes down in value.

I'm a Bob Dobbs kinda girl myself, but still, not a nice comment.

Iron Ranger :

Never posted here before - but had to reply.

You must have gone to Cherry or Cook or one of the other St. Louis county schools - I also grew up in the same area (Embarrass), same time frame, same lower 99%. I can go thru the same stories, heated our house with wood - but all those cords the first year by hand with a crosscut saw & a bow saw - and I was 12. -60 below one winter in the early 70's with 40 mph winds - we dressed up and went outside just to see what it was like LOL. 59 in my high school class and I was a National Merit Scholar. Tough place, tough people - almost no one can relate.

I have not hit the lottery like you have, but spent a long while in silly valley - it is definitely an interesting place - and ran a startup or two myself. Now I work as a hired gun and the pay is good but we move a lot.

Congrats on your success - people in most places have no idea what the Range used to be like. Party lines LOL.

Anyways - some free advice - worth what you are paying for it. I read your missive and I would be more than a little concerned that you seem to be completely ignoring (or unaware) of the current macroecon situation. Personally, we have also saved up a big chunk of cash (for us) and the idea that you can 'invest' in anything right now is a really really bad idea IMO. The Euro is collapsing as we speak and the US stock and bond markets are up only because of capital flight. You have a good job I am sure, and interresting I'm sure, but that company makes TOYS and when the econ situation gets far worse than it is now, I don't think they will fare too well - not meant as snideness, just reality. Important to stay now for sure as you wait for your windfall from them, but you need a good Plan B (and C & D if you are a decent engineer).

I will echo what a poster above said, pick out 20 or so credit unions with high ratings and dump that money in a savings & checking accounts (NOT a money market) and let that money SIT for a year while you go educate youself.

Read the Fourth Turning book by Strauss & Howe - written in 1997 it has predicted virtually every trend and turn of the last 15 years - they literally nailed it all and continure to do so. It's my handbook for the future.

Market Ticker should be your first stop on the net - if you have not been there you Karl D has a years worth of reading for you right there.

ZeroHedge as well, for up to the minute details of the econ collapse.

Nassim Taleb would be some good reading as well.

You got good & lucky hitting the jackpot and I admire you for it - dont throw it all away because you are extrapolating linear trends in a non-linear world.

If you are aware of all the above people and still choose to 'invest' your money, then there is nothing I can do to help. You are not going to like what comes next.

kochevnik