I'm a partner in a business and we are selling our largest division. Should net about 3.5 Million after taxes. I want to put some in a charitable foundation and need to figure out a plan for the rest. Talking to the accountants this week but I thought I'd tap the brain trust here. I'm single and 42. Would like to make this last. I will also not be taking a salary for at least the next year as we're starting a newer business. I have a 500K mortgage but no other debt. General thoughts?
No general advice, as I'm pretty new to investing, but congrats on the sale!
Wouldn't mind being in your exact same position in years from now. Good stuff! I'm sure some gents on here will be able to help you out with some sound advice. With that type of capital in-flow and minimal debt, there are a lot of conservative ways to keep things steady.
BOL going forward,
Steiner
Wouldn't mind being in your exact same position in years from now. Good stuff! I'm sure some gents on here will be able to help you out with some sound advice. With that type of capital in-flow and minimal debt, there are a lot of conservative ways to keep things steady.
BOL going forward,
Steiner
I agree with all of this.
Wow, my investment guy is telling me to basically do the opposite. After putting about 1M in a charitable trust I received 6.4M in total for which I owe about 2M in taxes. Financial guy is saying not to pay the taxes out of the 6.9M but instead to open a credit line (at about 2.25%) and pay the tax bill from the credit line and invest the whole 6.4M. He says that I should be earning well above the 2.25% and calls it capital preservation or some such. It sounds a bit counter-intuitive to take on more debt but the way he explains it it may make sense. I could pay off the credit line at any time.
This advice may not suck on paper but it sucks in real life.
I would do exactly none of that.
Can you explain why this is? Is it because I am somehow at a greater risk if the market really drops? If I can pay the line off at any time doesn't this give me more flexibility? I would be really eager to understand the reasons why this is a bad strategy. What is the general downside of the strategy and what is the worst-case down side?
TBH he would probably need to know a lot more about your overall financial picture to begin to accurately assess what you should do. This is obviously info that your financial advisor is privy to that none of us ITT are.
In general though what he is saying is that taking out a 2M+ loan is risky when you aren't remotely guaranteed to be able to use your assets to throw off the income to do that. The more conservative approach would be to wipe the 2M out with your 6.4 and have 4.4 and no debt.
Worst-case downside tough to predict but if your assets greatly deplete while in the market, it is gonna make paying the loan tougher and may effect other parts of your life/finances. Again though, like I said we just have a slice and your advisor does have more info.
Advisors sometimes make decisions for individuals as if they have no emotion and are soulless profit seeking corporations looking for the best EV possible, but with a 2.5 million dollar loan outstanding and no income to speak of since you just cashed out then it might be tougher to sleep at night. Especially if things start to go south with the market, think Chop was mainly saying if it were him he would lockup the peace of mind.
Just will add that 4.4 networth # (if this is your #) is over the threshold of where continuing to accumulate wealth becomes less important for most people. Preservation/slightly outpacing inflation tends to become more important in that range.
If you got no other income and you aren't sure how your next business venture will do, I'd probably be inclined to agree with Chop.
Could also pay off half the taxes and keep like 1M outstanding.
If you got no other income and you aren't sure how your next business venture will do, I'd probably be inclined to agree with Chop.
Could also pay off half the taxes and keep like 1M outstanding.
I believe your financial guy is correct. If you can park the $2M in some type of fund that outpaces the 2.25% then, mathematically it makes sense. I hear what others are saying with the risk factor, but with $6.4M cash, you can spread it around in low risk bond and fixed asset funds that should be relatively safe and get 5% a year.
You should look up sofi.com and see if they are looking for investors. I have family that works there. Basically they give student loans out to the smartest kids, at the smartest schools. They haven't had a kid default on a loan yet. Using this base of customers they are now branching into giving mortgages out to the kids that have paid back their loans. Not sure if they take retail investors (might only be institutions), but if they do, this is sure fire way to make money on your money.
I've never got a 2 million dollar loan in my life so would have to see the terms on it. Obviously he has to pay principal back as well so it isn't just 4% in, 2.25% out but I could see this working over time. Between 2M loan, 500k loan, living expenses his overhead is gonna be getting up there. Not sure if he needs proceeds from this sale to start next business?
Can also buy income property in nicer areas that will yield 3-5% returns ontop of appreciation but that is a little more on the active investing/business side.
Can also buy income property in nicer areas that will yield 3-5% returns ontop of appreciation but that is a little more on the active investing/business side.
I understand why that advice was given. Its just not my style to take a loan for investment purposes.
Its just one of those sleep well at night type things for me.
If everything goes great you are going to come out well ahead.
Its just not me though.
Most people don't think like me when it comes to money anyway so I understand.
Im just starting to get into rentals as a side gig and I could buy a lot more in a shorter period of time if I was willing to leverage myself out more but I'm not.
Just a personality thing.
Good luck.
And you have a one of those problems thats good to have.
Its always nice trying to figure out what you want to do with 6 million bucks.
Its just one of those sleep well at night type things for me.
If everything goes great you are going to come out well ahead.
Its just not me though.
Most people don't think like me when it comes to money anyway so I understand.
Im just starting to get into rentals as a side gig and I could buy a lot more in a shorter period of time if I was willing to leverage myself out more but I'm not.
Just a personality thing.
Good luck.
And you have a one of those problems thats good to have.
Its always nice trying to figure out what you want to do with 6 million bucks.
While I have all you smart guys in the room I thought I'd just post the specifics of the investment allocation my guy is suggesting. I don't know anything about this....
| Fixed Income - 35.00% | ||
| Multi Asset - 4.00% | ||
| Equity - 61.00% | ||
| Multi Sector - Total Return Fixed Income (3.00%) | |
| PSRAX | Pioneer Strategic Income Fund |
| BASIX | Blackrock Strategic Income Fund |
| BGCAX | BlackRock Long/Short Bond Fund |
| High Yield Fixed Income (7.00%) | |
| FRHIX | Franklin High Yield Tax Free Fund |
| SJNK | SPDR Short Term High Yield |
| LSFAX | Loomis Sayles Sr. Floating Rate Fund |
| Municipal Fixed Income (20.00%) | |
| UBS Intermediate Municipal Bond Program | |
| International Fixed Income (5.00%) | |
| TGTRX | Templeton Global Total Return Fund |
| FMKAX | Fidelity Advisor Emerging Markets Income |
| Multi Asset (4.00%) | |
| EAAFX | Evergreen Asset Allocation Fund |
| FASDX | Fidelity Strategic Dividend & Income Fund |
| US Large Cap Equity (25.00%) | |
| Individual stocks | |
| SDY | SPDR Dividend Index |
| PKW | Powershares Buyback Index |
| FNIAX | Fidelity New Insights Fund |
| OAKMX | Oakmark Fund |
| US Mid / Small Cap Equity (14.00%) | |
| IJR | iShares Core Small Cap Index |
| IJH | iShares Core Mid Cap Index |
| PENNX | Royce Pennsylvania Fund |
| DEFIX | Delafield Fund |
| VNVYX | Vaughan Nelson Mid Cap |
| Global Equity (13.00%) | |
| OAKIX | Oakmark International Fund |
| WSTAX | Ivy Science and Technology |
| XLI | SPDR Industrial Index |
| FEZ | SPDR Euro 50 |
| GLO | Clough Global Opportunities Fund |
| Emerging Markets Equity (9.00%) | |
| DEM | Wisdom Tree Emerging Markets Income |
| SEMVX | Schroder Emerging Markets |
| CHNIX | Clough China Fund |
