Imagine you had to begin your life again, but this time you only had $1,000,000. What would you do with it? How would you plan your life? Would you spend some of it on a new house outright, or would you use a bit of it for a down payment on a better home, hoping its value would go up and cover the mortgage? Many people think that house prices will drop in the coming years, but that’s not certain.
Most people will suggest index funds because it’s tough to consistently beat the market. But I believe we can be more creative with your $1,000,000 wealth.
First, let’s consider your age and how much you can afford to lose without impacting your lifestyle. This helps us avoid emotional trading decisions.
If you can’t afford to lose anything, that’s okay. You can invest 60% ($600,000) in simple bonds like SHY, which offer a 3% return, giving you $18,000 yearly.
Then, allocate 7% ($70,000) to gold like GLD, which acts as a safety net against inflation, though its exact return is uncertain.
For a bit of excitement, let’s invest 3% ($30,000) in cryptocurrencies, spreading it across three of your favorites at $10,000 each. Remember, this is speculative and could lead to big gains or losses.
The remaining 30% ($300,000) can go into stocks. I like dividend-paying ones such as GE, MCD, and SBUX. Alternatively, consider an S&P index fund like SPN for stable returns with less work and volatility.
To minimize taxes and avoid timing the market, only add to your stock position instead of frequent buying and selling.
Overall, this portfolio could yield around $39,000 annually, with potential ups and downs from gold/crypto. Adjustments can be made based on your preferences and risk tolerance. For more risk, reduce bonds to 30% and add the extra 30% to stocks, potentially increasing the annual return to $51,000, though this comes with greater downside risk.
When I purchased my home outright, I enjoyed the peace of mind that came with no mortgage payments, complete equity and financial security. However, I passed up prospective investment possibilities and had less cash for emergencies or additional investments.
My mate, on the other hand, utilized her earnings to make a down payment on a larger property. She capitalized on prospective property appreciation and preserved funds for further investments, leveraging her mortgage to manage a larger asset with a lower initial expenditure. She did, however, have monthly home payments, market risk and debt to deal with.
Subsequently, whether you buy a house entirely or use cash for a down payment is determined by your financial objectives, risk tolerance and investment options.
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I think your plan is fine. However, I feel that 60/40 is too conservative for a 30-year-old, retired or not. I’m 39 and I invest more aggressively. I have less net worth and plan to work until at least 50.
Edit: I realized it’s a 60/40 split between domestic and international investments, not equities and bonds, like I initially thought.
When people have a million dollars to invest, they might explore options beyond stocks and bonds. Some of these “alternative investments,” like commodities, can be accessed through ETFs, which are like baskets of investments you can trade easily.