Canadian Money Forum banner

What would you do with $15M?

18K views 82 replies 28 participants last post by  humble_pie 
#1 ·
Hi All,

I am suddenly about to be a "high net worth individual"! We are selling our company, should close in a couple of months I should be sitting on over $15M! It looks like financial independence may actually become a reality!

Needless to say, I now have a new thing to worry about : how do I manage the money? I want to "retire"... I want the freedom to pursue a variety of hobbies, and travel and only work if I choose. I am in my early 50's, am married and have 2 kids that are still in school.

This should be no problem with this kind of money. But I've always been a frugal, fiscally responsible type of person and, well, proper stewardship of this windfall just seems like the right thing to do. I'd like to invest it, live off the return with a conservative safe-withdrawl rate of, say, 1.5% after taxes.

At least half the windfall will be held in a holding company (for tax deferral - part of the sale deal structure) and we will need to pay tax on any value we pull out of it. But both myself and my wife are shareholders in the holding company. I have set up a Family Trust that will allow us to do some investment income splitting with our kids (with non-holdco investments).

I have no desire to pick stocks. I plan to either do passive investing, or have someone else actively manage our money.

For our RRSPs, I have been a couch potato investor for many years. I understand the theory of passive investing and it makes sense to me. But I've never really tracked my performance. (With an account that you are contributing to monthly with annual top-ups and infrequent rebalancing, it is hard to evaluate return on the back of an envelope I find.)

So, although I like passive investing, I don't have completely confidence in it... not when my family's future is at stake. I believe that there maybe stormy waters ahead in the global economy and... sometimes I start falling into the dangerous trap of thinking "this time its different" :) With the way interest rates have been for so long, and global fiscal experiments like quantitative easing. Maybe having some financial professionals on my side who contemplate these issues 24/7 is not a bad idea? But as a closet couch potato, I obviously want to minimize management expense and have a distrust of financial advisors - they're just trying to get a comission :)

So... thinking about low-maintenance active management, I've talked to my bank's "High Net Worth Wealth Management" branch. They have their actively managed funds with fees that start at 1.3% and creep down the more money you have invested in them. At $5M for example, their rates are 0.85%. This program has a $1M investment threshold just to join the plan.

I have considered talking to a 3rd party active management house like Steadyhand. Their rates seem similar to the bank.

I've heard of TIGER21, which seems like an investment club for rich people (not sure if I'm rich enough to join though).

My thought at this point is maybe give the bank, and Steadyhand, each $2-3M and see how they do - how I like the service, how much confidence they instill - and in the meantime just couch potato the rest. Also thinking that I should have the active managers focus on equity, and focus my own management efforts on fixed income. Since fixed income is typically safer but with less return, it doesn't make sense to me to have to pay the active MER's for portions of the money that are in fact much lower maintenance investments. (Does that make sense?)

I also wonder if there are resources for "high networth individuals" that I am not tapping into.

So... why am I posting here? (Other than to flaunt? Seriously, I hope it doesn't sound like that, but this expected change is already making me feel self-conscious about my good luck.) I'm wondering if people have any comments about "what would you do in my situation". How would you manage this windfall? Also, do people here have any insight into the HNI resources I wonder about?

Anyway, looking forward to any responses. Sorry to be long winded but this kind of thing doesn't happen to me every day.
 
See less See more
#34 · (Edited)
I would suggest that someone in effect 'winning the lottery' and arriving at a large sum without the confidence/experience to know how to proceed should be looking for professional advise. And not jut an accountant who is suggesting various tax reduction vehicles - you want a holistic team with the expertise to provide accounting, legal, financial and estate planning services - not just one or the other.
You need to determine with your family what your complete plan is - future priorities and goals - not just your investment strategy.
Without recommending any, look at the services of outfits like Mawer, or possibly your bank's wealth services group. As pointed out, don't rush into one, shop around, interview them, explore their depth of experience with 'lottery winners', find a fit with the personalities not just the services.
 
#35 · (Edited)
Everyone, especially humble_pie, thanks for the advice.

I now realize that this was not really an appropriate topic and I've approached it poorly. I doubt I can kill the whole thread but I've gone through and deleted some of my chatty extraneous posts.

Although this is not the way it seems, I'm not rushing into anything. I am just trying to collect wisdom from a variety of sources to consider as things progress.

I guess this will probably be it as far as this handle goes. I'll be another newbie that disappears with a single thread :) I will try to make contributions through a different handle. It is not my conscious plan to be a taker, not a giver... but right now as far as advice goes, I need a lot and have little to give. I understand how that can be annoying!

Thanks again!
 
#37 ·
It is not my conscious plan to be a taker, not a giver... but right now as far as advice goes, I need a lot and have little to give. I understand how that can be annoying!
I don't think you have garnered a lot of annoyance here. Many members of this forum have been motivated to sign up and make initial posts because they have a question to pose, advice to seek, etc. Nothing wrong with that. As alluded to by HP, some come here making pleas for help, generate a gaggle of well-thought-out replies, and then disappear into the woodwork. Some don't bother to stick around to say thanks.

For my part, I am willing to accept that you are well-intentioned and will also make a worthwhile contribution when you have one to make.
 
#36 ·
^^

gosh, no, stay with the present username, it's already your 2nd, no?

what would be the point in going to a 3rd?

no harm done & now the boat does seem to be moving with the current.

onlyMO is right in suggesting a holistic approach, but these summa advisors are very difficult to find. We certainly don't have one in the forum. It may take you a while to find the right person/the right team, so the first order of business would be to Make No Mistakes in the Meantime. ie don't rush into contractual arrangements with financial advisors prematurely, don't make long-term investments or other commitments lightheartedly, keep the funds liquid for the time being.

(i recall, now, who you used to be on here) (it's the language signature) (similar themes)


.
 
#52 ·
Irrespective whether this is "real" or a pipedream, my brief advice would be the same.

1. Split the pile into 3 chunks. a) a portion you set aside to support your financial independence, approximately 25X a generous but reasonable annual spending baseline. Say that would be $180k pre tax, so 4.5MM or 1/3 of the pile, but depends on the annual figure you choose. b) half the rest to spend, thoughtfully and judiciously, in the next couple of years on upgrading your lifestyle - a great residence, 2nd home in the sun, hobbies you'd like, etc. c) the other half of the rest with which you try to make a difference in society. With a couple of mil you can do more than just write a cheque, you can catalyze a difference if you do it thoughtfully.

2. If what you say about your mentality and approach is true, you don't actually need professional advice. Couch potatio and/or permanent portfolio sound good. I would complement with reading some of the books by William Bernstein about investing with a capital preservation emphasis - a useful counterpoint.

Whether or not this precise story is true, simplified, or wishful thinking, I have known a couple of people who have sold businesses they founded for several million dollars, in one case over 10. The couple I've known that did something like this have stayed sane and sensible.

Good luck!
 
#55 · (Edited)
I'm not sure XIC is any riskier than the S&P 500; they drop in lock-step during bear markets. And there is a significant, tangible tax advantage to the TSX index.

I agree though that portfolios benefit from international diversification. Portfolios benefit even more from asset diversification, like bonds and gold.
 
#57 ·
.

the size of this portfolio puts it in a class of its own. Posts treating these funds as if $15M were $1M that should be run regular couch potato style are not quite on the money, imho.

in reality, an investor with $15M has unique challenges & tax restrictions which few persons in this forum ever face.

the OP, stayThirsty, has stated that he will have at least one corporation plus possibly an inter vivos trust or trusts.

he says he is concerned by standard index fund or ETF management fees & one can easily understand why. A 1% fee could cost stayThirsty $150,000 per annum, an amount that could hire his very own recent CFA to manage his portfolio full-time.

even halved, a .50% fee could cost $75,000, an amount that could hire his very own recent CA to manage his portfolio full-time ...

although stayThirsty appears to be gone now from this thread, one can see him working intelligently on portfolio planning in early posts. He wonders whether he could manage the easier portions of his portfolio, such as GIC ladders, himself. With even greater detail, he asks whether he could not also manage core stock sectors himself, since these will likely consist of stable holdings of blue chip stocks.

i think an appropriate response might go something like Yes & Yes, but Perhaps Not Quite Just Yet.

i think stayThirsty should sit down with ultra-high-net-worth advisors & listen to their ideas & proposals. As i've mentioned, i think he should end up choosing the team that will work best with himself. I haven't mentioned, but i think he should resign himself at first to paying their high fees. After all, such fees will be tax deductible.

i think stayThirsty should select a team that will be comfortable gradually working its way towards a partial exit door, if he chooses to move more into hands-on financial management in the end.

i've looked at stayThirsty's earlier messages on cmf forum, now that he's confessed that he used to post here under a different username. He appears to be an entrepreneurial soul & i for one believe he would be an excellent candidate to ultimately manage half or three-quarters of his windfall portfolio himself. He might engage specialized investment counsel to manage small cap or emerging microcap investment opportunities, but in the end i think stayThirsty would do fine with the KISS core portfolio, huge though that might be.

a key aspect will be US stock selection, but here the above-mentioned planning stage & the qualified advisor will matter most, as it will be helpful to hold US securities in the corporation or in the private trust or in both. For reasons such as avoiding US estate taxation, for example.

all this is by way of saying that discussing regular ETFs such as XIC or regular funds such as mawer or performance is something of a waste of time when it comes to mammoth portfolios. Like all large creatures, these require enclosure in their own special protected national parks.

.
 
#59 · (Edited)
all this is by way of saying that discussing regular ETFs such as XIC or regular funds such as mawer or performance is something of a waste of time when it comes to mammoth portfolios. Like all large creatures, these require enclosure in their own special protected national parks.
But are the ETFs really such a bad idea as a first cut? Take ZCN for instance with its 0.06% MER (or $9,000 a year). You get 420k all in eligible dividends.

Even with naive T1 taxes, the average tax rate is 31% and of that 420k gross distribution you get to keep 291k. Is that really so bad?

How much better would a team of people (the CFA, the broker, the stock expert) do by managing a portfolio themselves? How much lower can they push that average tax rate through complicated corporate structures? How much pay will that CFA & broker & lawyer etc want ... I guarantee you they will want more than $9,000 a year.

And the investor herself ... if she is the kind of person who can amass $15 million in wealth, surely their time is better spent on other pursuits.
 
#63 ·
no, simple indexing would never be a startup option for a party with 15 million dollars.

the reasons have nothing to do with low or high MERs. The reasons have to do with complex needs - US estate taxation, foreign taxation, foreign real estate holdings, estate planning, income splitting, supporting offspring at foreign universities - such a party will benefit from specialized ultra-high-net-worth advisors.

these advisors do exist. We don't hear about them in this forum because, as mukhang pera says, no one on here has 15M.

.
 
#61 · (Edited)
james, mordko, houska (and others) for the record I am still listening and I appreciate the ideas. However, since I kind of regret this thread and hope it will die, this will be my last response :) [BTW, I don't exist, and 9/11 was an INSIDE JOB.] Thx.

[Edit: I'm going to stay as a CMF member though and hope to contribute and initiate new threads, I'm not gone for good, just gone from this thread]
 
#62 ·
james, mordko, houska (and others) for the record I am still listening and I appreciate the ideas. However, since I kind of regret this thread and hope it will die, this will be my last response :) [BTW, I don't exist, and 9/11 was an INSIDE JOB.] Thx.
Ok, one more response. HP, didn't see your post - thanks for the summary, that is pretty much on the target of what I plan. I plan to take things very slow and build my plan and team over considerable time (1-2 yrs). I'm reading a lot (4 Pillars, Random Walk Down Wallstreet and more on the shelf), I need to have those conversations with advisors (which have not happened yet). So really, at this point I'm just making a plan to make a plan.

I am sure I will have more topics to discuss with CMF-ers in different threads, but will avoid the details of my situation in those discussions so we can avoid the awkwardness of this one. I definitely have some theoretical questions about what I've read in 4 Pillars of Investment that I can start a new thread on...
 
#66 · (Edited)
OK... I see what you're getting at. Just those US estate taxes are a menace (StayThirstyMyFriends may want to minimize or even entirely avoid US investment actually, and definitely avoid becoming a US person).

StayThirstyMyFriends - you may want to read this guidance from Switzerland's Wegelin bank, some years ago. It rambles a bit, but has some very important messages.
http://www.greatponzi.com/shared/Wegelin-Document-on-American-Taxes-and-Assets.pdf

And yes I agree that securities lending is a huge problem. The ETF providers disclose it in their documents; you can see how much of the assets are out on loan. This has at least been telling me to what degree securities lending is happening. I have seen these tables in both the BMO and iShares annual financial statements -- there is disclosure. (Nobody reads it, but it's there).

What are you going to do, anyway? Hold the stocks individually at your brokerages? The broker lends those shares out too. Use any margin at all, and the shares start zipping around. It's true that ETFs and mutual funds do this horrible securities lending thing, but so do the brokerages.

I share all of these same concerns about derivatives and securities lending in ETFs. But as MF Global and the rehypothecation scandal(s) showed us, it's tough to escape this kind of trickery. These middlemen are all crooked -- whether they're brokers, ETF providers, or whatever. They use the same sleight of hand with pension fund assets and institutional clients, as with retail clients.
 
#68 ·
OK... I see what you're getting at. Just those US estate taxes are a menace (StayThirstyMyFriends may want to minimize or even entirely avoid US investment actually, and definitely avoid becoming a US person)

this is an example of why stayThirsty needs a specialized ultra-high-net-worth advisor, not just any bloke from cmf forum. US assets can be held inside corporate or trust structures & they will be protected from most or all of these ill effects.

suggesting he avoid US investments is not quite appropriate ... :peach:



And yes I agree that securities lending is a huge problem. The ETF providers disclose it in their documents; you can see how much of the assets are out on loan ... I have seen these tables in both the BMO and iShares annual financial statements -- there is disclosure.

i believe at the time of the original discussion it was determined that only iShares USA reports securities lending but canada does not so report. It is the iShares USA reportage that is so obscure & so heaviy asterisked onto succeeding pages that no investor can understand it.

in canada, a year ago, iShares was reporting nothing. In canada, a year ago, the iShares manager was emphatic that lending information can never be disclosed to rank-&-file investors because they would be incapable of processing the information correctly.

i'm left wondering where you are finding these tables for canadian ETFs? i for one haven't seen any ...



What are you going to do, anyway? Hold the stocks individually at your brokerages? The broker lends those shares out too. Use any margin at all, and the shares start zipping around. It's true that ETFs and mutual funds do this horrible securities lending thing, but so do the brokerages

a safer broker procedure would be to hold securities at a broker in cash account, with no margin impairment.

please bear in mind also that, in a margin account with options, the broker cannot borrow any stock against which a short option position has already been pledged to an exchange.

(1) please also bear in mind that most ETF families are run out of the US. The regulatory authority is the SEC, which will not recognize canadians or the rights of canadian investors in any difficult situation. But at the same time, keep in mind that the IIROC and/or the applicable provincial securities authorities will not be able to help the same canadian investors when it comes to a failed foreign investment.

i for one feel more secure with individual stocks held at a broker i've known most of my life, reporting to a securities authority in my own province, under the regulation of a canadian IIROC in a next-door province, than i do with an anonyous ETF fund which has loaned out unknown selections from among its alleged holdings but refuses to tell me about it. Which, moreover, is also *holding* clusters of certain stocks only as derivative proxies via representational trading techniques, while being allowed to claim that it is holding the actual stocks themselves.

it's a question of degree of distance. Control & transparency of an ETF are, respectively, far too remote & far too clouded for my comfort.

(2) there is also the question of the CIPF. In a fund failure - perhaps related to its principal broker failure or its bank failure - would any CIPF coverage apply? i don't believe there are any precedents. I don't believe anybody has any reliable answer, although the fund industry's salesmen could be expected to have a soothing don't-worry-be-happy theme.

(3) returning to the notion of a $15M portfolio, this in itself is the size of a small startup ETF. There is no reason, imho, for such a portfolio to become a dependent of the ETF/mutual fund industry.

for a large portfolio, yet another disastrous result of becoming such an ETF dependent is the loss of the ability to self-govern most taxation consequences.

.
 
#67 ·
And unless there's some seriously deceptive financial statements (for which Pricewaterhouse Coopers will be sued & dissolved), I don't see anything too wrong with XIC.

To show you something tangible, you can look at XIC's financial statement here
https://www.blackrock.com/ca/individual/en/literature/annual-report/annual-report-equity-en-ca.pdf

On page 271, you'll find a table of asset exposures by Level 1/2/3 which gives you a summary of derivative exposures. XIC is entirely level 1, common stocks. There are also no derivatives shown in the detailed listing of fund assets on page 12

On page 283, you'll find securities lending details. XIC has loaned out $121 million of securities vs $1,997 million net assets, or just 6% of securities out on loan. Yeah I don't like it either, but there's the amount -- 6%. This is on the low end of securities lending in US & Canada.
 
#70 ·
ETFs are a terrible idea for the super-rich.
This is a red herring.

Firstly, if ETFs are engaged in irresponsible lending then they would be a terrible idea for anyone, unless we are saying that poor can afford the losses more than the rich.

Secondly, there is a huge number of ETF and index fund products out there. Trabant sucks but it does not mean that all cars do. Everyone has to do his homework. As an example, funds run by Vanguard lend very little and take cash as collateral. In general ETFs used in Couch Potato scenarios fit this mold.

Thirdly, I personally have a generic issue with investing in bonds right now (be that via ETFs or not). That has nothing to do with the ETF examples discussed above (XIC or VTI).

There are basically 3 options out there:

1. Index funds/couch potato/permanent portfolio, etc.... ETFs are a great tool but not the only tool for executing this strategy. ETFs are known to be extensively used by superrich, people with >>$100M. This strategy will be more tax efficient than active trading. There are certain things one can do to reduce/postpone the tax burden further, e.g. by constantly harvesting capital losses and using similar ETFs.

2. Active investing into stocks and bonds. This will be less tax efficient than 1. Can be done and you can beat the index if you are a new Buffet or find a new Buffett to do it for you. $15M is too small a fund to get someone else who is worth the cost of doing this.

3. Investment in private companies/new ventures. This is an interesting option which can certainly beat the index, give one satisfaction and $15M would allow for this to be done but it's not a "hands off" approach. This is basically another job.

All of these options should involve consulting with an accountant who is experienced in cross-border investments.
 
#71 ·
Wow…. That’s some serious money mate. I would say bonds would be great idea with potential of gaining nearly 1-2% returns per month which is scary with the upfront money of 15M! You should not be required to worry about anything at all with that mate…. Your life is already set and so is your family’s.
 
#75 ·
We sold our business in stages 3-4 years ago for nowhere near your money but it was 7 figures.We have done the same with the large amounts as we did with lower amounts , still slowly moving cash into non registered accounts and buying dividend paying stocks .FYI the bulk is at TD Direct Investing but recently opened an account with CIBC.
 
#78 ·
$15 M is a crazy amount of money, if still true.

I stand by a simple 50/50 bond/equity split. That should yield about 3% or so. That's $450,000 per year every year for life....and your kid's and your kid's kids....

Otherwise, MAW105 http://www.mawer.com/our-funds/fund-...balanced-fund/
...is great as well.

Just keep your investing fees very low and don't trade!

Geez....$15 M. Wild. Some big fun parties in your future with $450k per year.
 
#79 ·
.

why would anyone go on about this old thread today, months after the fact, though.

the OP was for real. Had a partnership where he was the sole rainmaker, the others weren't pulling their weight & everybody knew it.

he sought advice on how to wind up the partnership without causing ill feelings under another name in this forum. Then returned in this thread with the $15M after the partners decided to liquidate. But at $15M, he was totally out of our league. As mukhang pera said, when has a cmffer ever had 15 million dollars?

our friend is gone now, gone to that fabulous playland of the truly hyper-rich. Leaving us to slog on in the mud about our wretched little dividends & our miserable XIRRs .:peach:


.
 
#82 ·
That is lottery money, that is the kind of money that can change a families fortunes forever, or destroy a family just as easily. It sounds like your plan is to live on a very moderate amount of money forever (relatively speaking of course). So the question even more so than what type of investments do you want to keep it in, is how do you raise your family in a way to respect this money, and use this money to grow themselves, and grow their wealth like you are doing rather than just blowing it.
 
#83 ·
? maybe you in the wrong thread?

the OP here worked hard all his life, succeeded in business, dissolved his partnership amicably & ended up with 15 million $$. Nothing to do with lottery, blowing money or destruction of families.

perhaps it's true that some do what onlyMO says above. Shoot first, read later ... :peach:


.
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top