What to do with 5M in cash?

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Rufenian

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Hello everyone! By being an early employee in a Startup I've obtained a big capital boost and traded tech stocks and crypto in 2021 and ended up with 5M in liquid cash (after tax). In my 30s now, married, no kids, no property.

I quit my job and never had a pension which I now see was a big mistake. Now I want to protect/grow my wealth without working for someone else but I can't create my own pension. We're gonna have a baby and I wanna be at home to look after it. My wife is in medicine and doesn't want to leave work.

I was thinking of setting aside 1M for a house, interior upgrade and car. Maybe leave 250k individual stock or crypto momentum trading a few times a month. But don't want to be seen as a trader by Revenue?

Not sure what to do with the rest (~3.75M) besides lumping it all into JAM/ETF.
I want a pension but don't wanna open a company and move my assets to be that of the company otherwise I don't have a way to generate income unless I become a landlord? Or do I even need a pension now since I went over 2M? Maybe I should just buy high yield dividend stocks instead for some annual income and leave the rest in an ETF?

All the advisors I go to simply try to sell me their hedge funds which under perform the SP500 and cost five times the TER of a major ETF...

Thank you for any reccomendations!
 
First piece of advice would be to stay away from the majority vulture tied financial advisors in this country. They are agents/brokers for investment and hedge funds so any advice they offer will be heavily influenced by their commission and most likely not in your interest.
 
A pension is a good way to invest for the long-term but only if you have pensionable income, which you don't appear to have at the moment. So forget about pensions for the moment.

Buying a house to live in is a very good investment as any increase in value is exempt from CGT and the "income" or use of the house is not subject to income tax.

You need to identify the main risks to your wealth.

I would guess that the main risk would be overconfidence. "I made €5m through my trading and judgment so I must be brilliant" and then you start trading stocks or continue to trade crypto and you then lose a big chunk of your money.

It's probably hard for you to appreciate but the boring ownership of a diverse portfolio of directly owned blue chip stocks is your lowest risk, long term investment. No management fees. A bit of work once a year doing a tax return.

But you might find that too boring after the rollercoaster of crypto. But try to deal with that and you will do well in the long-term.
 
ETFs have hassle, but if you bought all in one go, a once every 8 years deemed exit tax event isn't too much bother for a retired millionaire
 
Don't worry about having a traditional pension. It doesn't really matter where you get your money from as long as you have money to live off in retirement. You have €5m in cash which will work for you over the years.

You need to plan out your future. You have a huge amount of money but you are not working. Is your wife's income enough to cover the cost of lifestyle or do you also need some of your €5m pot as well. What is the life of a retired 31 year old look like? What are you going to do with your time?

On the investment side, you need to invest in shares. Taxed at 33% and your tax allowance can use up dividend income.

You will find every option is open to you at €5m. But always keep your investments liquid. I have clients who went into PE investments over a decade ago and their money is still locked up. The funds have done well but they can't cash them in.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Brendan Burgess said:
ownership of a diverse portfolio of directly owned blue chip stocks is your lowest risk, long term investment. No management fees. A bit of work once a year doing a tax return.
Click to expand...

Thank you for you reply! That seems to be the consensus here, to manage a private portfolio of stocks. Interestingly in contrast to other advice I've received which is either dumping lump sums into; JAM or an All World ETF or an extortionate Hedge Fund. It makes most sense tax wise for sure.

I guess I never though about it implementing it, how would I build a blue chip portfolio; copy the allocations of the top 20 or so companies from an All World ETF's holdings and rebalance quarterly?
 
I’ll offer a counter opinion to the basket of shares approach so. There are lots of AAM threads worth a read on shares versus ETFs too.

In your case I’d be careful of letting the tax tail wag the lifestyle dog. The supposed complexity around ETFs is meaningless to you - you can and should pay an accountant to deal with your tax returns and forget about it, they’ll easily pay for themselves. Then do you really want to be lying on a beach somewhere wondering how for example Intel’s current woes are going to impact your nest egg, spending hours considering how to rebalance your portfolio every year or two, thinking about US estate taxes and what forms need completing, dealing with shareholder communications etc? Can you handle the stress and heart ache of realising the decision you made to choose Intel and Vodafone over Microsoft and Amazon has cost you a few hundred thousand Euro? Trading your personal time and head space to make your pile of beans, which you’re unlikely to ever need to spend, that little bit bigger?

If you had more money you might start a family office and let them worry about all that stuff for you, for a price! You don’t have that option and you don’t want to go the advisor route, so my advice is to put what you don’t need into one or two Index fund ETFs spread across a few brokers. Forget about it and go enjoy your good fortune, check in with your accountant for a few minutes each autumn. Consider the cost of the tax differences (which could well be gone when your estate sells it in 50 years) the cost of this easier less stressful life.
 
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Rufenian said:
I guess I never though about it implementing it, how would I build a blue chip portfolio; copy the allocations of the top 20 or so companies from an All World ETF's holdings and rebalance quarterly?
Click to expand...

Just pick a 10 to 20 of the top companies and forget about them.

No need to rebalance unless one does so well that it distorts your portfolio.

You will need cash from time to time, so sell the best performer and that will reduce its dominance of your portfolio.

And don't be reading up about Intel while you are on the beach or at home. Some of your shares will collapse. Some will do ok. Some will do well.

Brendan
 
Brendan Burgess said:
And don't be reading up about Intel while you are on the beach or at home.
Click to expand...
I’m able to do that and I guess you are too, it is not a common trait however, the average person will absolutely be thinking about this on the beach and most will end up trading on emotions. Another reason I do not like this advice - it doesn’t work well when average human beings are in the loop.
 
Zenith63 said:
I’ll offer a counter opinion to the basket of shares approach so. There are lots of AAM threads worth a read on shares versus ETFs too.

In your case I’d be careful of letting the tax tail wag the lifestyle dog. The supposed complexity around ETFs is meaningless to you - you can and should pay an accountant to deal with your tax returns and forget about it, they’ll easily pay for themselves. Then do you really want to be lying on a beach somewhere wondering how for example Intel’s current woes are going to impact your nest egg, spending hours considering how to rebalance your portfolio every year or two, thinking about US estate taxes and what forms need completing, dealing with shareholder communications etc? Can you handle the stress and heart ache of realising the decision you made to choose Intel and Vodafone over Microsoft and Amazon has cost you a few hundred thousand Euro? Trading your personal time and head space to make your pile of beans, which you’re unlikely to ever need to spend, that little bit bigger?

If you had more money you might start a family office and let them worry about all that stuff for you, for a price! You don’t have that option and you don’t want to go the advisor route, so my advise would be to put it all into one or two Index fund ETFs spread across a few brokers. Forget about it and go enjoy your good fortune, check in with your accountant for a few minutes each autumn. Consider the cost of the tax differences (which could well be gone when your estate sells it in 50 years) the cost of this easier less stressful life.
Click to expand...
You can also outsource all of this too and get someone else to do it for you.
 
Steven Barrett said:
You can also outsource all of this too and get someone else to do it for you.
Click to expand...
I wouldn't outsource ETF or Trust Management as that's all done for you within the funds.

But going with an 100% equity portfolio would require initial help. As Brendan suggested to simply pick 10-20 diverse blue chip stocks and forget about them. But I wouldn't know the correct diversification or allotment percentages and then the rebalancing, as ETFs rebalance constantly vs. my self managed index of equities. I wouldn't know when to rebalance; When they drop out of the top 20 MCAP? When they drop 30%?

It does seem a lot riskier running your own equity index as companies do rise and fall fast in some cases and how do you know if they will recover eventually, an Index will recover but Enron, would not or most of the companies during the dot com crash for example.
 
Rufenian said:
I wouldn't outsource ETF or Trust Management as that's all done for you within the funds.

But going with an 100% equity portfolio would require initial help. As Brendan suggested to simply pick 10-20 diverse blue chip stocks and forget about them. But I wouldn't know the correct diversification or allotment percentages and then the rebalancing, as ETFs rebalance constantly vs. my self managed index of equities. I wouldn't know when to rebalance; When they drop out of the top 20 MCAP? When they drop 30%?

It does seem a lot riskier running your own equity index as companies do rise and fall fast in some cases and how do you know if they will recover eventually, an Index will recover but Enron, would not or most of the companies during the dot com crash for example.
Click to expand...
You should read this key post:

Key Post - How to invest directly in shares

Before you invest in shares Buying your own home is your investment priority If you don't own your own home, then buying a home is your priority. There are great tax advantages and there are other non-financial advantages as well. If you are a few years away from having a deposit or if you...
www.askaboutmoney.com
Whatever about periodically rebalancing a diversified portfolio of shares from time to time you should forget about trying to time the market.
As I said before you could just keep it simple and buy one or more already diversified conglomerate stocks (or index tracker ETFs as others have suggested if you don't mind the slight downside on taxation) and forget about having to manage anything.
 
Portfolio theory and academic evidence supports the idea that you need at least 30 stocks to achieve an appropriate level of diversification. I assist a family member (at arm’s length) who has an all-equity portfolio with a discretionary fund manager. It’s around 50 stocks and looking at the June valuation it’s up 134% net of all fees over the last 10 years.
 
Rufenian said:
I wouldn't outsource ETF or Trust Management as that's all done for you within the funds.

But going with an 100% equity portfolio would require initial help. As Brendan suggested to simply pick 10-20 diverse blue chip stocks and forget about them. But I wouldn't know the correct diversification or allotment percentages and then the rebalancing, as ETFs rebalance constantly vs. my self managed index of equities. I wouldn't know when to rebalance; When they drop out of the top 20 MCAP? When they drop 30%?

It does seem a lot riskier running your own equity index as companies do rise and fall fast in some cases and how do you know if they will recover eventually, an Index will recover but Enron, would not or most of the companies during the dot com crash for example.
Click to expand...
Enron was in the S&P 500 and a Global Stock Index.

The purpose of using someone like a discretionary fund manager is they do all that for you, constructing the portfolio and buying and selling. It really isn't a case of buying the top 20 companies and holding them.

For example, the top 20 companies in the S&P 500 by market cap in 2004:
  1. Microsoft
  2. Exxon Mobil
  3. Pfizer
  4. Citigroup
  5. GE
  6. Walmart
  7. Intel
  8. Cisco
  9. Johnson & Johnson
  10. IBM
  11. AIG
  12. Berkshire Hathaway
  13. Proctor & Gamble
  14. Coca-Cola
  15. Bank of America
  16. Wells Fargo
  17. Paramount Global
  18. Merck
  19. Chevron
  20. Verizon
Microsoft, Berkshire Hathaway, Walmart, Exxon Mobil, J&J, P&G are the only ones still in the top 20 today and the first two are the only ones in the top 10.
 
ClubMan said:
You should read this key post:

Whatever about periodically rebalancing a diversified portfolio of shares from time to time you should forget about trying to time the market.
As I said before you could just keep it simple and buy one or more already diversified conglomerate stocks (or index tracker ETFs as others have suggested if you don't mind the slight downside on taxation) and forget about having to manage anything.
Click to expand...
Thank you for the post, I'll review it thoroughly.

I can learn to manage it, no point leaving money on the table.
 
Gordon Gekko said:
Portfolio theory and academic evidence supports the idea that you need at least 30 stocks to achieve an appropriate level of diversification. I assist a family member (at arm’s length) who has an all-equity portfolio with a discretionary fund manager. It’s around 50 stocks and looking at the June valuation it’s up 134% net of all fees over the last 10 years.
Click to expand...
Not too sound rude but the returns seem small in comparison to an SP500 Index; Since mid-2014, the S&P 500 has produced a total return of 233.6%.
Investing in a trust like JAM/ATT/PCT would have made better returns and probably cost less in fees.
 
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