How would you modify your PP if you were very wealthy?

[Ad Orientem]

Congratulations! You just won your local Super Lottery.  After taxes, charitable donations (we will assume your name is not Scrooge) and spreading some around to immediate family you have been left with roughly $50 Million and change.  You are now a card carrying member of the much maligned 1%.  What do you do with it?  Would you just put it all in an HB PP?  Or would your investment strategy be adjusted taking into consideration your changed circumstances.  Maybe a somewhat higher risk tolerance.  Do you really need $12.5 Million in cash to sleep at night?  What about taxes now that you are in the top income tax bracket?  Muni bonds are not very attractive to most investors because the interest rate is lower than Treasuries which are generally safer.  But in the top tax bracket muni bonds may look a bit more attractive.  Would you put some in a PP and speculate with a large chunk?  And of course having a boat load of money is no fun if you can't spend a little.  How much would you set aside to live on?  And  how much, if any, would you set aside to just blow frivolously (book a world cruise... for your pets etc.)?

My main object here is to get an idea of how an investment strategy might change if you suddenly discovered you were a very high net worth individual (VHNWI), though of course it's always fun to day dream about lighting a $20.00 cigar with a $100 bill.

[TripleB]

I'd do something like the following:

1) $5M into PP

2) $5M into a small apartment complex with a mortgage (40% down, or whatever is the minimum required on commercial real estate)

3) $5M into a business that generates a good cash stream

4) $5M into a business that is uncorrelated to the business in #3

5) $10M in a home in Florida that qualifies for full creditor immunity

6) $10M in Florida Annuities (qualifies for full creditor immunity)

7) $10M spread across 5 to 10 countries, in safe deposit boxes


Alternatively:

$4M into the PP, $1M into a creditor-protected Florida house

$5M into Florida Annuities

$40M into a non-profit Libertarian organization that I found

[moda0306]

I think I'd put it in a PP, but heavily weight it towards ST treasuries, so maybe something like 50% in ST treasuries and the rest split between gold, stocks, and bonds.

The gold would be a mix of ETF, physical in-home, and physical in safety deposit box.  Like TB, I'd probably have gold and currencies in various safety deposit boxes in various countries.

I'd still buy savings bonds out of principal.

The ST treasuries would yield me almost nothing, but the bonds would yield about $250k per year, and stocks would yields about $167k per year... in interest and dividends, respectively.

I would probably take, though, a decent chunk and purchase homes in 2 or 3 locations of very different qualities, probably all in the U.S. to start, a few cars I like, give a bunch to my parents and sister, start my own smallish financial advisory & tax prep company and get my CFP, and travel and do things of various sorts all over the world.

[KevinW]

$2M to buy three homes in cash, to rotate between seasons.  Comfortable luxury condos, but not mansions that'd attract attention.  Two in the US and one in another country.  Probably Canada but maybe UK or Switzerland.  My wife might have a more interesting idea.

$1M to a "bug-out" PP domiciled in that foreign country using native accounts and physical bullion.

$24M (round number) to a conventional domestic PP following all of Browne's rules about institutional diversification.  Split among three blue-chip brokers:
Vanguard: TSM fund, Treasury MMF, individual bonds, GLD
Fidelity: TSM fund, Treasury MMF, individual bonds, IAU
Schwab: SCHB, SCHO, individual bonds, SGOL
The gold ETFs are a small part of the gold allocation for rebalancing; the bulk is in physical bullion and foreign storage accounts.
Withdraw 3%/year for living expenses.

Remainder ($13M): aggressive portfolio to be bequeathed to charity or future generations.  100% global small-cap value, or the closest approximation I can build out of cheap index funds.  Set it and forget it.

[gap]

My cash requirements would be less. I can get a higher return and Sharpe ratio with the rest and I still want to sleep at night. So I would put

X% in cash where X is much less than 25%. ((1-x)/3) % in the rest GLD, TLT, VTI(or maybe VT) i.e. a pseudo HB

[beafet]

$15 million into a PP
$25 million into a business
$10 million VP

[melveyr]

If I was obscenely wealthy I would have multiple PPs. I would have a UK PP, a Japanese PP, and a US PP. Perhaps others as well. I don't know how this would even work, but it could provide some nice benefits including currency diversification. I imagine I would spend a lot less time in the US if money was less of a constraint.

Also, I would definitely have a VP that consisted of tax free municipal bonds and directly owned timberland. I have always been interested in the idea of owning timberland. I like how it can function similarly to a zero coupon inflation protected bond, where you get to pick the maturity date (harvest). Very tax efficient. Plus you get to feel like a king strolling through your forest  ;)

EDIT: Didn't see that Clive already had the same idea 

[clacy]

I'm not sure why so many people would want to invest in businesses.  Remember that businesses carry a certain amount of liability depending on how they're structured, and for certain they require a lot of time/effort assuming you don't want your $5-25mm investment to vanish.

IMHO, the point of opening a business is ultimately to get rich.  In this scenario, you already are rich.  Sorry for the rant.....


As for what I would do:

$25mm in a family trust for my kids (60% US PP and 40% international with this portion held outside the US)
$15mm in a trust for my wife and I (same split US/international)
$5mm in real estate ($2.5mm in a Florida homestead)
$4mm in a variable portfolio including US and international REIT's and some additional asset classes that aren't in the PP.

That would leave $1mm for toys and vacations.  I would draw 4% from my variable portfolio as income and live a fairly modest lifestyle outside of 3-4 very nice vacations each year.

[Ad Orientem]

Interesting responses so far.  My own ideas on this subject keep changing.  But as of this moment I am inclined towards...

$12 Million in a standard HB PP based in Switzerland, and denominated in Francs.

$35 Million in a portfolio that takes tax efficiency into consideration and is somewhat more growth oriented...

40% VCADX - Intermediate term California munis
30% VTI - Total US stock market
10% VEU - Total international stock market ex US
10% VNQ - REIT ETF
10% IAU - Gold

And finally $3 Million for general mad money.  I can't see myself going off the deep end in spending, but there are some things I would enjoy.  A nice apartment in the city plus a beach front condo someplace that is perpetually warm and sunny.  And a little leisure travel would definitely be in the plans as well.

[dualstow]

I've often thought that if I had more than a few million, I would not be able to sleep at night. Not out of guilt; I think that the money would consume me instead of the other way around. I'd worry about kidnappings, for example.

So, step one would be to get rid of most of it: relatives, charity, and perhaps buy a building or two (yes, they come with their own problems).
With, let's say $3 to $5 million left, I'd keep a standard HBPP and live off the treasury & cash interest, plus the stock dividends.

Half a million or so in a vp would be fun, but why modify the pp That would make it something other than the pp, no matter how much money you have.

[Snowman9000]

Physical gold presents the biggest difficulty.

I agree with the diversification among institutions and countries.

Any taxable trade is significant, so you don't want to rebalance often.  Munis look good, but don't perform like treasuries, so pick your poison.  Overall, the PP wouldn't change much except for the logistics.

[MachineGhost]

More money == bigger problems.

I don't see that the PP needs to be changed other than broadening out the "Real Asset" component into direct
ownership of farmland, timberland, colored diamonds, rare stamps and semi-numismatic gold coins.  All have a history of performing well when gold buillion was not able to.

Offshore diversification and privacy/creditor protection would certainly become affordable and prudent, but just because you're suddenly rich doesn't mean that those high expenses no longer matter or that you can buy your way into trust.  I wonder how many of the super-rich no longer act thrifty because they no longer feel like "sweating the small stuff".  Fees and taxes will always kill investment performance.  I'd go with a domestic umbrella insurance policy, LLC, etc. long before dealing with unverifiably trustworthy third-parties offshore.  Offshore is an "old boys club" when it comes to finding allegedly "reputable" institutions and people, a huckster economy for everyone else.

MG

Congratulations! You just won your local Super Lottery.  After taxes, charitable donations (we will assume your name is not Scrooge) and spreading some around to immediate family you have been left with roughly $50 Million and change.  You are now a card carrying member of the much maligned 1%.  What do you do with it?  Would you just put it all in an HB PP?  Or would your investment strategy be adjusted taking into consideration your changed circumstances.  Maybe a somewhat higher risk tolerance.  Do you really need $12.5 Million in cash to sleep at night?  What about taxes now that you are in the top income tax bracket?  Muni bonds are not very attractive to most investors because the interest rate is lower than Treasuries which are generally safer.  But in the top tax bracket muni bonds may look a bit more attractive.  Would you put some in a PP and speculate with a large chunk?  And of course having a boat load of money is no fun if you can't spend a little.  How much would you set aside to live on?  And  how much, if any, would you set aside to just blow frivolously (book a world cruise... for your pets etc.)?

My main object here is to get an idea of how an investment strategy might change if you suddenly discovered you were a very high net worth individual (VHNWI), though of course it's always fun to day dream about lighting a $20.00 cigar with a $100 bill.