# "What Would You Do with the $2.4mil?"



## e86s54 (Mar 27, 2014)

All,

So I'm about to sell my business and will end up with about $1.7mil. It's currently my sole source of income and we live off of about $6 to 7k/mth. My wife and I have about $200k in TFSAs and $300k in RRSPs and about $180k in our margin account (all in stocks). We own our house outright and its worth about $750k and no debts. We are in our very early 50s, with 2 kids away at university (1st & 4th year). I have the feeling we may be done with work (time will tell) and so we want to proceed with the idea that we are retired and will never make another $1 from working. So this is it...NW in the $3.1mil range with $2.4mil to invest and live off of.

Having most of our eggs in the biz and having the investments in just a couple of stocks (companies I am very familiar with), we will be needing to invest the $1.7mil and diversify the rest. We have also been kicking around the idea of owning a winter home somewhere south (USA/MX/CR). 

I've always been a DIY kinda of person, but haven't really had the chance to look into this as the biz sale is rather sudden. So I've just started reading up and I'm looking for pointers and suggestions from a Canadian perspective.

Thanks in advance!


----------



## OnlyMyOpinion (Sep 1, 2013)

Wow, no comments - must be a problem that most of us have no experience with :encouragement:
A few thoughts:
Clearly enough to live off if you don't go blowing wads of money here and there. So don't jump into a winter home purchase until you've spent some time in the area and know what your life style and activities are going to be. 
In fact, like a lottery winner, don't dedicate or lock up any large amounts until you have had the time to develop a solid plan together. Google 'what to if you win the lottery' and you'll find lots of links with some common points, such as getting good tax/legal/investment advice, keeping the scammers and wolves at bay, ensuring your estate & wills are in order, etc.
As far as what do do with the $2.4MM:
- will you assume that your spending will remain at its current level?
- How much to you want to retain as a family inheritance, do you see providing $400k x2 in several years to help the kids with a house, etc. - these will constrain the amount of capital you can spend, and whatever is left will constrain the income stream you can expect from what is left.
- You don't appear very diversified, a TSFA worth $100k ? suggests some pretty aggressive investing. As a 'retiree' what will your appetite for risk be, are you thinking of allocating $xx whose focus will be on 'capital preservation' and on providing enough income to cover living expenses? This might include a slice intended to optimize the benefits of cdn dividend income. Then, what size is the remaining % that you will keep in higher risk - higher growth investments?

A nice problem to have, but can certainly see how it might be overwhelming. You mention DIY, but do you have the ability/tools to run out different secenarios and see how they impact your future income, taxes and capital? - a fee-only planner who is experienced with high net-worth, lump sum scenarios sounds like a good idea to at least run your plan by.


----------



## MoreMiles (Apr 20, 2011)

It must be painful to see a loss of $10000 per day these days with market drops. That is the problem with DIY with a 100% 'all in stock' portofolio. Would you sleep well if there is a loss of 10%, or $250,000 from you net worth? You have to ask yourself that. Most will say yes but in reality nobody laughs when he indeed losing $250k like that. 

So for your mental health, you may want to think about that. You are already rich... so do you need to be 'rich again' if that even exists. Or do you want to preserve your wealth?


----------



## AltaRed (Jun 8, 2009)

I think the response by OMO above is a good one. Decide what factors will be important over the next 30 years, including a legacy if any, spending needs and desires, and then engage a fee only planner to develop a model plan for you. Typically such a planner can easily run 3-4 broad sensitivities from the base plan for a range of investment returns and/or spending plans. All for perhaps $2-3k total (depending on how well organized you are with your vision). This will help determine the asset allocation you need, the diversification you need, and when/how to re-balance. Then I would invest in ETFs to meet that plan to simplify the amount of time and effort required to manage the plan....and spend your time enjoying the things you didn't have the time to do while running the business.


----------



## OhGreatGuru (May 24, 2009)

Ooh Boy! Lots of decisions to make. Don't rush in too quickly.

Work out a financial plan before deciding how to invest. How much income do you reliably need over the next 5-10 years to be happy? Invest enough of your capital into conservative instruments (monthly income funds; suitable index funds to reliably generate enough income for your basic needs.

Until now you had income from your business, so you could tolerate a lot of risk in existing investments in RRSPs and TFSA's. Re-examine if this is still appropriate. (I would suggest you might want to be more conservative in these if you are going to be aggressive in your non-registered portfolio.)

Ask yourselves if you are serious about buying a winter home down south (as opposed to renting as needed). (And there are lots of discussion threads on this theme.) If you are, then you want a pile of money set aside for that.

You will find lots of support and advice on this forum for DIY investing, but I wouldn't recommend you take all your money and jump into stock trading with only limited experience. After you have set aside enough in a conservative portfolio for basic needs, look at what is left over over and ask yourself: is this money I can afford to lose? If not lose, is this at least money I can afford to tie up for several years if the market tanks, while I wait for recovery? Then start investing it accordingly.


----------



## warp (Sep 4, 2010)

I would really like to know what stocks you bought in your 2 TFSA's, that you say are worth $200K.

Would you care to share this info?

As for what to do with all that extra cash....figure out what asset class mix will give you a reasonable return at a reasonable risk. Personally I prefer dividend paying value stocks, ( or etf's), diversified around the world, but mostly in Canada, USA, and UK.


----------



## fraser (May 15, 2010)

We did some research. At the end of the day we went with a fee for service wealth management firm. This suits our lifestyle. 

We have been working with them for three years now. Very pleased with the service and the results.

It took us about six months to find the right firm/individual. The firm has since been acquired by a large bank. Our contacts, service, and fees remain the same but we have access to a few more opportunities. This works for us. The good part for me is that I have been able to get my spouse to every meeting. Should something untoward happen to me I want her to be in a position to simply move forward with our finances.


----------



## AltaRed (Jun 8, 2009)

fraser said:


> Should something untoward happen to me I want her to be in a position to simply move forward with our finances.


A very important point that few consider, albeit the spouse's view of what moving forward is, after one's demise, could be quite different. If the spouse is not 'hands on' with the portfolio, do not expect the spouse, in a portfolio more complicated than Couch Potato, to do anything other than head for professional help from the local bank or mutual fund salesman (I include the sharks from IG and Earl Jones in this category). 

I have gone through that transition as a result of a recent divorce. As sharp as my ex is, she is very much a newbie/non-interested individual when it comes to working out asset allocations and product selection of her portfolio. Keeping it to ETFs allows her enough confidence to manage what she now has without running to a full service advisor.


----------



## marina628 (Dec 14, 2010)

When I seen the TFSA balance I was thinking you can help us


----------



## tygrus (Mar 13, 2012)

Did you ever consider your kids might want to take over the business?

Also, pure retirment at age 50 is a mistake. After running a business for a few decades you are going to be bored as hell.


----------



## GoldStone (Mar 6, 2011)

marina628 said:


> When I seen the TFSA balance I was thinking you can help us


I thought the same. :biggrin:


----------



## MoreMiles (Apr 20, 2011)

tygrus said:


> Did you ever consider your kids might want to take over the business?
> 
> Also, pure retirment at age 50 is a mistake. After running a business for a few decades you are going to be bored as hell.


Mistake? How do you know? Maybe he had a business in worm / fishfood growing, with stinky fly magots crawling around... profitable but disgusting. One would not be bored from quitting it.


----------



## OnlyMyOpinion (Sep 1, 2013)

No, the disgusting part is getting them maggots on the hook - push, push, push, then 'pop'. Make sure you're close to the water, you'll want to wash your hands :biggrin:
(Sorry to digress)


----------



## gibor365 (Apr 1, 2011)

GoldStone said:


> I thought the same. :biggrin:


If anyone have 200K in 2 TFSAs, he doesn't need investment advise


----------



## Butters (Apr 20, 2012)

I've done the calculations. 2.4 mil is too much, you only need 2 mil.
I will gladly accept a cheque or email money transfer for the other 400k
haha just kidding (not really)

2.4 mil / ( 6k x 12 months ) = 33 years not including dividend or stock growth

Spend some time in costa rica, if you like it, look for a place! (Rent it to me in the summers)

I'm with the other guys, $200k in TFSAs is insane
don't we have a 31k max right now? you guys have triple the max!


----------



## james4beach (Nov 15, 2012)

The answer to this question is simple. Once you have more than enough money (which I think the OP does) you no longer have to take big risks. Your focus should be on preservation of capital and not stupidly losing it. Play it safe, don't get greedy for returns.

Put 800k into 3 big bank discount brokerage accounts (TD, Scotia, RBC maybe). Shop around and make each bank give you something nice for the privilege of getting your assets. At each one, maybe you put

500k into Government of Canada bonds
200k into CDIC insured GICs, provided you careful track max 100k per issuer
100k into standard index ETFs, like XIU

Then you carefully check your brokerage statements each month and confirm that your stocks and bonds are always marked as segregated.

And then you thank your lucky stars that you have this money


----------



## e86s54 (Mar 27, 2014)

Thanks everyone for the responses so far!

First, the biz was a semi-retirement step after a career in tech. I understand that many are very engaged in life and a 'cold turkey' retirement is not a good thing. My wife has been retired for a number of years now and I have been semi-retired for five (work about 8 to 16hrs/week). We have hobbies and interests and want to travel more while we are still young and get to the point that we'll miss winters. To me wealth is having time and low stress. Our past travels always seemed rushed. Now I want to spend the time to get a real sense of a place. Yes rent first, but we have a large dog and so long term renting becomes more difficult. I personally don't want the responsibility of owning in a foreign country and tied to a place, but we also like to feel at home.

The business IMHO has peaked and won't allow us to travel much. Time to sell and for a change in life. So initially I suspect we will spend more than $6k/mth, but once the kids are out of university, that should drop and continue as we get older. We live a good life and want for nothing, but at the same time, we are not extravagant by any means (we drive a Ford and a Kia). Down the road we will want to help the kids more (like with houses and such), but that would depend on our financial position and so I'm not stressing on that. They are smart and capable kids and will graduate from good schools and programs with zero debt. They need to figure a lot of things out before we start financing large purchases.

The stocks I invested in are tech related, extremely risky and I have since divested myself of most of them. Their market caps fully reflect their potential (and then some). Now that we are selling the biz and have the financial position to do live off of, I am looking at a relatively low risk, capital preservation plan with the house as my backstop. Having said this, being still relatively young, we would have time to rebound from a 2008 type of meltdown, so 60% equities seems to be the rule. ETFs in CND dividend stocks, along with some US & others. Having said all this, it seems I need a fee based planner. I'm frequently in Ottawa and Toronto...any suggestions/names?


----------



## My Own Advisor (Sep 24, 2012)

Sounds like you've done very, very well for yourself.

I like the post above, once you get into the millions (I guess, I'm not there yet) you focus on some growth but more capital preservation.

I would, personally, probably keep 50% in equities and in stocks. Likely keep a number of blue-chip stocks, the ones you find at the top of XIU or VTI. Think banks, pipelines, utilities, telcos and energy companies that make the world turn.

Probably use some ETFs as well, like XIU and VTI for diversified safety.

The other 50%, probably a GIC ladder or something. "Safe" stuff that in a market downturn won't cause any panic.

As for the fee-based planner, I've been fortunate to meet some folks at PWL Capital (through writing the blog). I have a bunch of respect for them, I wouldn't hesitate with that type of book to talk to them for some guidance.


----------



## tygrus (Mar 13, 2012)

3 mill throwing off 5% dividends is a cool $150k a year for doing nothing. It sounds like a dream.

The only thing is the daily fluctuations in the stocks and most people watch them a lot. It can be stomach churning to watch a correction take hold on those equities. Most corrections are in the 10-15% range which means you could watch $300,000 disappear in a week.

Equities should be no more than 30% of your portfolio and I don't see any reason to change that even after you sell.


----------



## MoreMiles (Apr 20, 2011)

tygrus said:


> 3 mill throwing off 5% dividends is a cool $150k a year for doing nothing. It sounds like a dream.
> 
> The only thing is the daily fluctuations in the stocks and most people watch them a lot. It can be stomach churning to watch a correction take hold on those equities. Most corrections are in the 10-15% range which means you could watch $300,000 disappear in a week.


+1

Most people, especially men, will claim they have the tolerance for it on paper. When it really happens, if feels totally different. Unfortunately, those who advocate riding the roller-coaster here do not have any 'real life' experience of losing $300k in one week and still sleep well.


----------



## MoreMiles (Apr 20, 2011)

Also your lifestyle will be about the same if you have $3 million or $6 million... But it will be definitely different if you only have $1.5 million... So that is why it's important for capital perseveration and not growth once you made it. Stocks can make you double or half... Why take such a chance when a double cannot even make you live better but a half makes you change your life?


----------



## fraser (May 15, 2010)

MoreMiles....this is exactly why I decided to go with professional management instead of a DIY approach.

I was able to retire early thanks to, among other things, cashing in my tech stock options at $45-$54. The stock subsequently tumbled and went as low as $12. It was the financial advisor who recommended that I sell most of the options in order to protect my retirement. The stock was touted to go to $70. It was a good call. It was based on the premise of capital preservation and the fact that would not have the future earnings power to easily replace lost capital. I guess it depends what life stage you are at and you attitude towards risk.


----------



## marina628 (Dec 14, 2010)

When you have money in hand for retirement capital preservation is the main goal.I gave myself 5% of the money from sale of the business to play the markets but the other positions are mostly dividend and cash.I have PSW costs of $3000 a month that would definitely go up if anything happened to my husband so currently trying to make a new budget for our family to allow for that.I don't think my husband will die but he has some serious back issues with bulging disc and some days he struggles with keeping up this place.He is only 47 and ready to move into a condo ,not a option for me in more ways than one.


----------



## e86s54 (Mar 27, 2014)

Thanks to all again. It seems its fee based FP vs. a very simple & low risk approach as 'MyOwnAvisor & James4Beach' outline. Thanks to 'MyOwnAdvisor' for the PWL info. I have already checked them out and will likely call them when I get closer to closing the deal on the biz.


----------



## james4beach (Nov 15, 2012)

Just be careful. Any time you suddenly come into a lot of money there's a big risk of screwing up the money management. Now is the time to start doing a lot of reading on different types of investments... you're going to have to educate yourself very fast. This is a difficult task, but you have to learn about this if you're going to be sitting on over $1 million

Even if you go with a professional planner, be extremely critical of ANYTHING they suggest. Ask lots of questions, understand exactly what they are suggesting... and then go and read about it in great detail on your own. Don't agree to do anything until you have read a lot about it and come to your own decisions.

Remember this is your money, and the only person who can truly care about it with the attention it deserves is you. Anybody working at a planning firm is going to have his own biases and may even have certain products or services that they're skewed towards. It's extremely rare to encounter someone who doesn't have a conflict of interest, somehow.

I don't mean to sound overly dramatic but you really have to be very cautious, very critical, and very wary of your next steps.

Beware of anything that:
- sounds complicated
- isn't clear
- you can't read about or research independently
- is nonstandard
- sounds suspicious
- promises safety and also promises good returns


----------



## e86s54 (Mar 27, 2014)

Thanks James...wise words indeed.

I'm trying not to be too pressured over this. If I'm not ready when the business closes, I'm just going to park it until I am. Right now I'm a little overwhelmed with the amount of info. Its like I need to take a class in investing 101. Do you have any reading (books or online content) that you can recommend?


----------



## RBull (Jan 20, 2013)

I agree with the other comments about keeping it conservative and taking your time with decisions. 

Good luck with the retirement and keeping the finances conservative. You're starting from a great position. 

With the name I thought you might have an M Coupe. I like mine.


----------



## Edgar (Mar 24, 2014)

e86s54 said:


> Thanks James...wise words indeed.
> 
> I'm trying not to be too pressured over this. If I'm not ready when the business closes, I'm just going to park it until I am. Right now I'm a little overwhelmed with the amount of info. Its like I need to take a class in investing 101. Do you have any reading (books or online content) that you can recommend?


50 Shades of Grey... but that's probably not what you meant


----------



## Time4earlyretirement (Feb 21, 2014)

Bonds, infrastructure and blue chip equities, aim for a 3-6% annual yield never worrying about stock prices so long as the companies generate income, and live life happily with morning swims and home cooked meals from Whole Foods.


----------



## fraser (May 15, 2010)

I started reading some of Gordon Pape's book such as Sleep Easy Investing. Easy read. I also very much liked Milvesky/McQueen's Pensionize Your Nest Egg.

e86s54...not certain where you live. You might want to include Philips, Hager, and North in your search. They have been acquired by RBC however there appears to have been little change in regards to the service-at least at the client level. There are several levels of portfolio management offerings. They also have some excellent complementary professional services that you would not typically obtain from a run of the mill financial advisor.

Apart from the usual cautions, we felt that we needed a combination of a good company and a good adviser. We took our time at it. I especially wanted an adviser that my spouse felt comfortable with. Talked to a few duds along the way!


----------



## e86s54 (Mar 27, 2014)

RBull said:


> With the name I thought you might have an M Coupe. I like mine.


Yeah I had a couple of Zs and finished with an M coupe a few years back. Had to sell it before something bad happened...didn't feel normal driving it unless I was doing 160!


----------



## My Own Advisor (Sep 24, 2012)

@e86s54,

There are a number of great investing books...

Consider:

Millionaire Teacher by A. Hallam,
Milvesky/McQueen's Pensionize Your Nest Egg is very good,
The Behavour Gap by C. Richards,
MoneySense Guide to the Perfect Portfolio by D. Bortolotti,
Stop Over-Thinking Your Money by P. Banerjee,
The Investment Zoo by S. Jarislowsky.
Your Retirement Income Blueprint by D. Diamond.

Combined, those books should give you a wealth of knowledge on a wide variety of topics.

Happy reading


----------



## RBull (Jan 20, 2013)

e86s54 said:


> Yeah I had a couple of Zs and finished with an M coupe a few years back. Had to sell it before something bad happened...didn't feel normal driving it unless I was doing 160!


LOL, I've driven a few times at the track. Proper place to quell the need for speed.


----------



## Pluto (Sep 12, 2013)

I think you got some great advice, like the fee only FP, and maybe two of them for a second opinion. But you also consider your self a DIY kind of guy. there seems to be a need there that you might want to fulfill by managing a small % yourself. I think if you get more experience with DIY you will be in a better position to evaluate the advice you got from the pros, and get a better understanding of the challenges they face. 

I recall from some newspaper articles years ago about a Toronto school teacher who all on her own ended up with a multi-million dollar account. All she did, apparently, was buy Canadian bank stock with her savings. More recently there was an article about a retired Canadian bank exec who claimed she put all her savings in Canadian Bank stock because she wants to live off the dividends in retirement. I'm not saying you should, or shouldn't do what they did, if you did manage some money yourself, but its not a bad idea to kick around because you get dividends and some appreciation potential. The latter - appreciation potential - depends partly on, of course, when you buy. Buy during a meltdown. Canadian Banks are safe to buy during a meltdown. You get more shares, a higher yield, and appreciation as they snap back from the downturn. 

The other bit of advice you got that is great is take your time. There is nothing wrong with cash and a meager interest rate as you consider your options. You might find that as you take your time, the market tanks and you end up with a fabulous buying opportunity.


----------



## gardner (Feb 13, 2014)

RBull said:


> I've driven a few times at the track. Proper place to quell the need for speed.


Your auto insurer would freak out, though.


----------



## Time4earlyretirement (Feb 21, 2014)

Pluto said:


> I think you got some great advice, like the fee only FP, and maybe two of them for a second opinion. But you also consider your self a DIY kind of guy. there seems to be a need there that you might want to fulfill by managing a small % yourself. I think if you get more experience with DIY you will be in a better position to evaluate the advice you got from the pros, and get a better understanding of the challenges they face.
> 
> I recall from some newspaper articles years ago about a Toronto school teacher who all on her own ended up with a multi-million dollar account. All she did, apparently, was buy Canadian bank stock with her savings. More recently there was an article about a retired Canadian bank exec who claimed she put all her savings in Canadian Bank stock because she wants to live off the dividends in retirement. I'm not saying you should, or shouldn't do what they did, if you did manage some money yourself, but its not a bad idea to kick around because you get dividends and some appreciation potential. The latter - appreciation potential - depends partly on, of course, when you buy. Buy during a meltdown. Canadian Banks are safe to buy during a meltdown. You get more shares, a higher yield, and appreciation as they snap back from the downturn.
> 
> The other bit of advice you got that is great is take your time. There is nothing wrong with cash and a meager interest rate as you consider your options. You might find that as you take your time, the market tanks and you end up with a fabulous buying opportunity.


Having started investing after 08', the only time worth buying Canadian banks seems to be some type of world financial crisis, and even then, does not come without risk. I think when that opportunity comes, I wouldn't hesitate to dump money and heavily overweight financials, but it seems like other than that, there are usually equal risk solutions with higher yields and/or higher capital gain appreciation. But generally I think anyone retiring now, who did a buy and hold strategy since the 80s, would have come out a winner.


----------



## 50/50 (Mar 30, 2013)

Pluto said:


> The other bit of advice you got that is great is take your time. There is nothing wrong with cash and a meager interest rate as you consider your options. You might find that as you take your time, the market tanks and you end up with a fabulous buying opportunity.


I sold my business that I operated for 22 years. I never hurried to do anything , and I keep over 1 mil in 1 year gics. I kept my same investment plan that I had all along. Regular investing and keep cash for buying opportunities.

I know i am better at working then investing so I went back to work operating equipment for the winter months .This generates the extra income and keeps me busy.


----------



## e86s54 (Mar 27, 2014)

Thanks everyone...much reading and research to do!


----------



## lonewolf (Jun 12, 2012)

I would stay away from the stock market most lose money. From 1929-1932 the dji dropped 89%

Play it safe with GICs from credit unions & a small amount of junk silver coins in case of currency crises

Warning the mood of the masses can effect the thinking of even the most advanced of intellect, The mood is "risk on" based on the extreame margin debt on NYSE & other sentiment readings. You have done amazing be aware that the optimism of the masses will directly effect you resulting in being to optimistic for risk on.


----------



## james4beach (Nov 15, 2012)

I'm gonna mention this again... when you have this much money, you don't have to take any big risks with it. One of the only reasons investors typically go heavily into stocks is that they _need_ high returns. They're desperate for them. If they don't get high returns, they're screwed and they won't be able to retire. This is why people come here day after day asking about yield, and dividend-paying stocks, etc.

You're not in that position. Focus should be on preservation of capital so you don't lose what you have.

Your house is already an asset that's exposed to market risk (the price can drop). So you've already got $750k of assets at risk. This is also your inflation protection... so as far as risk-taking goes, problem SOLVED. You've got $750k of market exposure and inflation protection.

The house is 24% of your net worth. That's already HUGE exposure to a single asset. You've got your risk exposure and your potential reward.

I strongly believe the remaining 76% of your net worth, the liquid $2.4 million, should be totally in "fixed income" (more specifically: high-interest savings, government bonds, GICs). No stocks. Not a single stock.

Think about it, your allocations will be 24% in risky assets that produce returns, and 76% fixed income. That's only slightly more conservative than what's typically recommended for your age.


----------



## andrewf (Mar 1, 2010)

I think I would disagree. There is risk to not having an allocation to equities. They provide a nice diversification benefit for real returns.


----------



## Toronto.gal (Jan 8, 2010)

lonewolf said:


> 1. most lose money.
> 2. From 1929-1932 the dji dropped 89%


1. MOST is quite an exaggeration, don't you think?
2. You sure know history; quite the period you picked. Here are the others:










*J4b:* for you to suggest 'zero stocks' to a multi-millionaire no less, does that mean that you think we're nearing another 1929, or that many companies are at risk of going bankrupt?


----------



## lonewolf (Jun 12, 2012)

Toronto gal good to hear from you again. Excellent point I will debate why this chart is fools gold for the average investor. Something a sales person @ the bank would never say to a possible client.



Let me ask you this question.
How would you have liked to have been the average investor that invested in the best performing mutual over a 10 year period the mutual fund had made solid double digit gains over this time period ? 

I remember reading this a few years back regarding the best performing mutual fund for a 10 year period for that time frame. The average investor lost money by buying high & selling low.


It takes a lot of money to keep the market well oiled, The above chart of the dji does not show the cost of all the oil used to keep the market running smoothly.

The dow chart is like fools gold of the gold rush. There were few that made it rich finding the gold & a ton of money was spent to keep the gold rush oiled,

The average player will lose @ the poker table.


----------



## the-royal-mail (Dec 11, 2009)

I agree generally with james' comments but perhaps the OP could consider something like a Canadian Index Fund as a cheap alternative or supplement to GICs? Buy some GICs and some cdn index funds? I've done well with that approach in one of my accounts, quite happy with the performance and the fees are very low. Just an idea. 

I do agree that turning over something like this to an advisor is basically giving them a free cut of your money. Right away they'll be trying to sell you all sorts of stupid insurance and various mutual funds. And yes, they'll probably try to talk about you with all sorts of information about tax. If you need tax advice, talk to your accountant. Guard your money and don't be pressured to sign anything in any office. They want your money. You should keep your money and I think that's what james is saying.


----------



## AltaRed (Jun 8, 2009)

james4beach said:


> I'm gonna mention this again... when you have this much money, you don't have to take any big risks with it. One of the only reasons investors typically go heavily into stocks is that they _need_ high returns. They're desperate for them. If they don't get high returns, they're screwed and they won't be able to retire. This is why people come here day after day asking about yield, and dividend-paying stocks, etc.
> 
> You're not in that position. Focus should be on preservation of capital so you don't lose what you have.
> 
> ...


Those with a high net worth have more flexibility, and less need to follow the typical 'rules of thumb'. Certainly the OP is in a position to do as you suggest, but the OP also has the flexibility to take a strong position in the equity markets. That is the paradox of having high net worth. In this specific case, the OP could easily put a lot of the money in low beta, low volatility equities. 

Specifically, I am talking about Consumer Staples stocks, investment grade preferreds and a few high quality REITs. This can all be done with a proper selection of ETFs, at least for the US portion. In Canada, this is a little harder to do but BMO has a low volatility ETF as an example. Preferreds are probably best done via an actively managed fund (MAPF by jhymas - see www.prefblog.com) rather than the passive ETFs which tend to be loaded with straight perpetuals and have/will underperform. Even REITs can be captured by the equal weighted ZRE ETF by BMO.... or simply buy something like REF.UN, FCR and an apartment REIT.

The point is the OP can have an equity allocation via low beta, low volatility equities and not risk capital meltdowns to the same degree as the cap weighted indices.


----------



## james4beach (Nov 15, 2012)

Toronto.gal said:


> for you to suggest 'zero stocks' to a multi-millionaire no less, does that mean that you think we're nearing another 1929, or that many companies are at risk of going bankrupt?


I think the stock market is much closer to an all time high than an all time low (on valuation), but that's really not what's motivating my thought. I just don't see why the OP should take the risk. What's he shooting for? To boost the $2.4 million to $3.0 million? What difference does that make, really? The converse is much worse for him, I would think. People always neglect to analyze the down-side.

Imagine a graph where there is a line at $1 million (a good point for retirement) and another line at $2 million (great for retirement) and the OP is at $3 million net worth. Then there is a big thick line at X, a level you absolutely refuse to fall below.

Now it becomes a risk management exercise where you absolutely want to stay above X. The OP will have to calculate what X is depending on lifestyle, cost of life style, etc. And whether he will keep living in the house, or if they're willing to sell the house and move to an apartment. Then model market catastrophe using 50% decline in stocks and housing and make sure you don't breach X. Sure... maybe this will lead him to determine that he can handle some stock exposure. This is tricky to do right.

Let me help out, actually. Here are the questions to the OP:
a) do you envisage continuing to live in the home, or are you willing to sell the home and start renting? Really what I'm asking is whether your 750k home value is liquid, or if we should take it out of the equation because you're living in it.
b) what is that line in the sand value X that you absolutely need for the rest of your life? e.g. can you live the rest of your lives off of $2 million?



> the OP can have an equity allocation via low beta, low volatility equities


I think this is fiction (that certain types of stocks are safer). All of these areas melted down just the same as the broad market so I would still model -50% decline on all of these.

REITs crashed. Preferred crashed even worse, plus they're illiquid. You weren't paying attention during 2008? Everything melted down the same, blue chip "high quality" or not... that's kind of the whole point. You can't hide from risk exposure. When risk assets fall, *they all fall about the same.*


----------



## fraser (May 15, 2010)

We were in a very similar situation. We went with a firm that specializes in higher net worth individuals. We have been very pleased with the outcome.

For a time we dealt with the wealth management folks-fee for service-at our bank. We paid the fees, but did not get anywhere near the Imperial service that was advertised/promised. We have found the value for money proposition much higher with the wealth management firm and our stress level is much lower. There are a number of these firms out there. The advisor can be as or more important that the firm. We went with one that has a long history of managing pension funds.


----------



## lonewolf (Jun 12, 2012)

The funny thing is the responsible, creative minds that don't conform to the norm know how to get the most out of their money for long term happiness. (this is the type of person that can make money in the market if they do their home work & don't really need as much money for happiness

The type of person that can develop & follow a method to make money on the street no matter the market is also creative enough to figure out to live the life of O riley (sp) for pennies on the dollar.

The investors that follow the norm & lose money in the market, often spend like the herd & never have enough money.

Iam not talking about any cheaters in the above i.e., insider traders or those that do not play the game fairly


----------



## marina628 (Dec 14, 2010)

I am in the position of the OP after selling bulk of biz 18 months ago so I have some real time experience on what we did.Capital appreciation was my main goal so the bulk 75% we placed in HISA because we really did not feel locking in with GIC even for a year was the best thing when HISA was paying the same.We bought TD,BNS ,CM ,ENB,CNQ AND T with 20% of the money and gave myself 5% to buy individual US stocks and play a bit on riskier stocks.Even with keeping 75% in a HISA my ROI on 100% of portfolio is 7.983% for first 12 months and may do better this year.


----------



## andrewf (Mar 1, 2010)

I don't think OPs are so wealthy that they can accept zero to negative after tax real return.


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... You weren't paying attention during 2008?
> Everything melted down the same, blue chip "high quality" or not... that's kind of the whole point...
> When risk assets fall, *they all fall about the same.*


I can't help wonder if you were paying attention as the "all fall about the same" does not appear to be true.

Picking the arbitrary dates of Oct 1st, 2008 and Apr 1st, 2009, for Canada I get:

Stantec - 2% drop
Fortis - 9% drop
Bank of Nova Scotia - 37% drop
Bank of Montreal - 25% drop
Teck B - 72% drop
Kinross Gold - 30% gain
Goldcorp - 30% gain

There seems to be a wide range between a 72% drop and a 30% gain.


Picking a few of the extremes in the US:

Bank Of America - 82% drop
Walgreen - 10% drop
Newmont Mining - 22% gain.



Cheers

*PS*

Remembering about some others ...

Metro - up 19.6%
Loblaws - up 5.7%
The Jean Coutou Group - up 4.3%
Empire - up 22.3%


----------



## Toronto.gal (Jan 8, 2010)

james4beach said:


> *1.* I think the *stock market is much closer to an all time high than an all time low*
> *2.* People always *neglect to analyze the down-side*.....still model -50% decline on all of these.
> *3.* To boost the *$2.4 million to $3.0 million? What difference does that make*, really?
> *4.* *You weren't paying attention during 2008?* Everything melted down the same, blue chip "high quality" or not...


*1.* In fact, we have been hitting new all-time highs, *but* let's not forget that the current highs came after the crisis of our lifetime. Hence it was more of a market recovery+, than an impressive out of nowhere landing on the moon, that according to some, is now ready for a crash landing at any nanosecond. As well, the numbers are also not that far from pre-crisis levels, ie: the 2nd last bull market that hit a pinnacle in Oct./07 [granted that there are other significant differences between then & now as a result of the crisis, ie: stimulus, etc.]. 

*2.* Maybe, but then it's also fair to say that you perhaps neglect to analyze the upside & recovery side of things. You don't believe that there will be an even bigger shift from bonds to stocks in the next few years? While waiting for a correction at this time is not a bad idea, there is still plenty of value to be had, and those are not found in the bond/GIC/HISA markets, not even for young multimillionaires, not at current rates, and not when there is no shortage of solid investments that give you at least double of what those offer, even without a 100% guarantee.

*3.* That question says a lot about you & your investment philosophy, which for a 30 something with your knowledge, is a bit puzzling. 

*4.* Again, you make no mention of the upside. And 2 answer your question, I was paying full attention in 2008, as many others were; my regret was simply not having done so sooner. In fact, I took control of my investments in 09 because of what I observed in 08. 

You almost make it sound as though there are no good investments outside the guaranteed types, and that most companies out there [if not all], have just "one puff of smoke left" in them. When you mention crashes, you also make it sound as though investors never made any realized gains, and that portfolios crash from one day to the next. 

Here are some good investment quotes 2 remember.
http://business.financialpost.com/2014/03/04/warren-buffetts-23-best-quotes-about-investing/


----------



## AltaRed (Jun 8, 2009)

Fearmongering is not helpful. There are many low beta, low volatility stocks. 

Consumer staples for sure. The ones already mentioned, plus US stocks like PG. XLP (the SPDR Consumer Staples ETF) dropped about 20%

Less so, but still reasonable... pipelines and utilities. TRP was down about 25% for example, ENB hardly hiccuped.

Prefs, as represented by CPD (not necessarily a good choice to represent prefs due to the number of straight perpetuals) dropped about a third. I intend to, and do hold, a number of prefs in my portfolio for income purposes. FixedResets especially, rather than straight perpetuals, are less volatile.

Added: There is no reason the OP cannot have an equity allocation with low beta, low volatility stocks with perhaps half the price volatility of the total market.


----------



## Toronto.gal (Jan 8, 2010)

lonewolf said:


> The average player will lose @ the poker table.


*Lonewolf:* welcome back. :moon:

True, but we're not talking about poker here.


----------



## peterk (May 16, 2010)

Toronto.gal said:


>


Awesome chart. I had no idea that stocks went flat for a full 20+ years between 1962 and 1982.


----------



## GoldStone (Mar 6, 2011)

peterk said:


> I had no idea that stocks went flat for a full 20+ years between 1962 and 1982.


They went flat in nominal terms. The chart looks much worse in real (inflation-adjusted) terms. 70s and 80s were years of high inflation. Inflation peaked at 13.5% in 1981.


----------



## GreatLaker (Mar 23, 2014)

peterk said:


> Awesome chart. I had no idea that stocks went flat for a full 20+ years between 1962 and 1982.


Some consider that period to be the worst ever for investors, because in addition to stocks being flat, inflation was high, eating away at your fixed income values and destroying purchasing power. The great depression was worse for economic conditions, but for investors the drop in stocks was offset somewhat by deflation and the recovery came quickly.


----------



## lonewolf (Jun 12, 2012)

Toronto.gal said:


> *Lonewolf:* welcome back. :moon:
> 
> True, but we're not talking about poker here.


 Toronto gal

I play the market like a poker game

Just like in a poker game the money put into the stock market is going to work its way to the strongest players after the house collects its playing fee.

You have to know when to hold them or fold them when playing poker just like in the market.

If the market is showing you a strong hand i.e., price pattern, cycles, sentiment or what ever you put money on the table just like a poker player would put money on the table if given a strong hand.

Putting money on the poker table without a method that gives the player an edge is not investing it is gambling

Putting money on the table without a method to play the market is not investing it is gambling

The other players @ the table in a poker game are after your money just like they are in the stock market, In the stock market your playing against some of the richest, most power full men in the world that are after your money that will bluff you into giving it to them.

If you have money sitting on the poker table or the market table & can not figure out who the sucker is it is probably you.


----------



## james4beach (Nov 15, 2012)

I don't want to get too caught up on market returns and timing. (But it's worth being aware that yes, there can be 20 year or even 50 year periods where the market returns NOTHING for you).

My comments are really about risk and down-side assessment, not about chronic under-performance. Of course you should consider both upside and downside. I suspect that most people focus on the upside without considering the downside too much. I strongly believe in modeling your downside by using -50% drop in risk assets (since this seems to keep happening, repeatedly).

I think there's value in being able to say: in a worst case scenario, my net worth won't drop below $ X. In fact when I get home tonight I'm going to re-run that calculation for myself.


----------



## My Own Advisor (Sep 24, 2012)

James,

Can you provide some examples where over 20-years, (let alone 50-years), the equity market returned nothing?


----------



## richard (Jun 20, 2013)

Have you considered what type of (temporary) drop in your portfolio would be acceptable to you? If you've multiplied your TFSA and you recognize that you can't keep playing that game forever it seems like you understand the market pretty well and you're comfortable with risk. You may need to remind yourself at times that you're investing for a different goal now. You could live off of safe interest but you are also in a position where you can take on more risk than that without harming your lifestyle. Those who can afford the most risk are usually the ones who need it the least. So there is no absolutely perfect answer for this.


----------



## richard (Jun 20, 2013)

My Own Advisor said:


> James,
> 
> Can you provide some examples where over 20-years, (let alone 50-years), the equity market returned nothing?


Jeremy Siegel has apparently reported that the maximum time to break even was under 6 years after dividends and inflation, so that might be hard to find


----------



## lonewolf (Jun 12, 2012)

The average investor plays the market "risk on" by increasing risk to their portfolio, some of the mistakes made are to much money on the table, playing without a method that gives them an edge or following the herd instead of a method that gives them an edge.

The true professional plays the market "risk off" by decreasing risk to their portfolio, by the proper use of money management playing when high confidence low/risk to high/reward opportunities.


----------



## fraser (May 15, 2010)

I think that portfolio design, and therefore risk, is very much a function of age and the size of your asset base. We retired early, we will not have the opportunity to replace monies lost. We still hold a good portion of equities based on an estimated 25 year window. If our asset base was quite low, we would be much less inclined to any amount of risk. There is a threshold at which capital preservation and self preservation as it were wins one over to being very conservative. Everyone has a unique profile of these variables.


----------



## james4beach (Nov 15, 2012)

My Own Advisor said:


> Can you provide some examples where over 20-years, (let alone 50-years), the equity market returned nothing?


I linked to the chart and article in my post. It comes from Shiller's seminal research, where he points that the market can have very long periods of poor real returns (irrational pricing) even though the fair value of the market does steadily grow over time.


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> .... My comments are really about risk and down-side assessment, not about chronic under-performance.
> 
> Of course you should consider both upside and downside. I suspect that most people focus on the upside without considering the downside too much....
> 
> I think there's value in being able to say: in a worst case scenario, my net worth won't drop below $ X. In fact when I get home tonight I'm going to re-run that calculation for myself.


Agreed ... though for me a balanced view is key as people seem to focus on one only. If something drastic happens, their focus swings completely onto the other.

My dad was an example where he initially wasn't interested in equities, my uncle's experience convinced him to buy one stock. Unfortunately, it tanked so that for the next thirty plus years it was 100% allocation to guaranteed investments.

In later years, the guaranteed investments paid too little for long enough that he broke down and had some invested in equities. The better results made him forgot it was his bias/decision for this allocation. He then complained that his financial institutions didn't offer him equities when he had ignored any suggestion of considering equities.


Cheers


----------



## james4beach (Nov 15, 2012)

I know I seem nuts about this "risk" and down-side thing, but it comes from experience and watching others. I practice what I preach.

I've seen this drama repeat itself many times now: markets are great, so people join in the fun. They're thrilled with their returns and totally happy with their stock-heavy allocations. High stock exposure doesn't seem like a problem, until markets weaken. Once markets weaken or enter a bear, now people watch their portfolios tank, and to their horror, their net worth is declining faster than they anticipated (you don't think of this when stocks are flying high like they are now). Add on top of that a job loss... which can definitely happen in tandem with a weak market... and suddenly you're strapped for cash, because you didn't keep any cash around. Now you're liquidating your portfolio at the worst possible time, which of course kills any possibility of long-term investment returns.

The way to prevent this is to calculate the scenario of a bear market and not over-expose yourself to stocks and risk assets.


----------



## uptoolate (Oct 9, 2011)

The OP was asking about reading material and one of the best books available IMHO is available on sale next week (June 4) for 1.99 for the kindle edition. This is Bill Bernstein's 'The Four Pillars of Investing'. Pointed out on the Bogleheads Forum. http://www.bogleheads.org/forum/viewtopic.php?f=10&t=140108

I would definitely be careful turning this over to a commission based financial advisor. It is hard to argue that the 'industry' doesn't exist to make your money their money. I'd also be putting a good portion of the money into low cost equity holdings. This would be especially true of any money earmarked for the children or charitable giving down the road. One can stay on the conservative side but to avoid equities altogether wouldn't be the way I would go. At the end of the day, a great problem to have.


----------



## tygrus (Mar 13, 2012)

The OP has a nice nest egg there, the problem is getting it to throw off a nice dividend without too much risk. If invested in a GIC or something, thats about $70k/yr pre-tax. Nice but certainly not a rich lifestyle. You would think having that kind of cash would throw off at least double that return. A corporate bond can yield in the 6% range and thats fairly safe.

I have added a bit of REITs to my own portfolio and they seem faily solid. They are not really tied to a product or commodity like most businesses. Their return is rent and thats a pretty safe place to be rather than trying to find the next apple or blackberry which have fickle consumers and products that eat themselves every year.


----------



## AltaRed (Jun 8, 2009)

tygrus said:


> A corporate bond can yield in the 6% range and thats fairly safe.


 What investment grade corporate bonds yield 6% YTM?


----------



## tygrus (Mar 13, 2012)

AltaRed said:


> What investment grade corporate bonds yield 6% YTM?


Well at one time about 6-8 yrs ago, GM did. My parents held one for 3 years and came out nicely. But nobody suspected back then they were in trouble.


----------



## the-royal-mail (Dec 11, 2009)

I realize this is off topic but I just wanted to support james' good point above and add that is also a good reason why your emergency fund should be in cash and not invested in stock market. You'll have far bigger worries than inflation and cash "wasting away in a savings account" when your RE, investments and jobs have all gone south. At that point it will be pure, cold cash that is needed most. Make sure you keep enough on hand.


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> I know I seem nuts about this "risk" and down-side thing, but it comes from experience and watching others. I practice what I preach.


Maybe it's my jumping in/out of the thread or incomplete reading ... but from my perspective, it's not so much "nuts" as what appears to be an overemphasis.




james4beach said:


> ... Once markets weaken or enter a bear, now people watch their portfolios tank, and to their horror, their net worth is declining faster than they anticipated (you don't think of this when stocks are flying high like they are now).


True ... but if the OP is depending largely on a combo of guaranteed investments as well as dividend income (which for Canadian companies was typically maintained as-is in 2007/2008), is a 50% drop in share price for say a year, the end of the world?




james4beach said:


> ... Add on top of that a job loss... which can definitely happen in tandem with a weak market...


 ... which is important to those reading this who are employed but from the OP's plans, this won't be the OP.




james4beach said:


> ... suddenly you're strapped for cash, because you didn't keep any cash around. Now you're liquidating your portfolio at the worst possible time, which of course kills any possibility of long-term investment returns.


I will have to check the thread as I don't recall anyone recommending the OP stick to 100% equities.

IAC - another part of the risk equation is what the investor is comfortable with. IMO, if the investor can be panicked into liquidating at the wrong time, regardless of their cash position - then it's a risk not worth taking (or someone else should be pulling the trigger). 




james4beach said:


> ... The way to prevent this is to calculate the scenario of a bear market and not over-expose yourself to stocks and risk assets.


Agreed ... which is why I mention balance instead of just the down or just the up sides.


Cheers


----------



## lonewolf (Jun 12, 2012)

Looking @ the chart T gal posted of the dji

It looks like the dji has gone parabolic from the start of the chart to where it is now. 1929 was part of the parabolic arc. Would be nice to see a chart with an ellipse or a parabola of the price action. If it is parabolic & the parabolic arc gets broken the down side is far greater then I think most realize.


----------



## Cal (Jun 17, 2009)

andrewf said:


> I think I would disagree. There is risk to not having an allocation to equities. They provide a nice diversification benefit for real returns.


Agree. I look at the money in the home as money tied up providing no income, that means the other money should be put to better use than a GIC that is taxed higher as well.

That's enough money to diversify well in equities. It's the best way to invest in dividend producers, as you don't need to aim for yield as some do, the OP can select very high quality companies and minimize any potential downside, in which his case would be only if the company were to have a dividend cut, as they may have enough to not need to worry/rely about the stock prices as much.


----------



## richard (Jun 20, 2013)

The latest post from CCP, http://canadiancouchpotato.com/2014/06/06/how-to-estimate-stock-and-bond-returns/, shows that *historically* adding 10-20% equities to a bond portfolio will reduce the risk.

But really, if you can afford to live with a temporary loss and you want to shoot for more you can afford to take more risk.


----------

