How would you invest a lump sum?

[Jeff]

Okay, here’s a dilemna of the good sort, and I’d like to ask for the input of the clever and thoughtful audience here at iTulip. Last summer, I sold my primary oceanfront residence (nice timing) and made an absurd profit. I took back a note for part of the sale and will receive a large lump sum in July.

How would you invest 4 million dollars if you got it in a lump sum? (Taxes are not an issue.) This is a real, live question and I’d appreciate any and all input. A wise man once said, “Today is the hardest day to make an investment decision. It’s easy to know what you should have done last year, or plan to do next year, but today, it’s really tough.”

[grapejelly]

Re: How would you invest a lump sum?

I'm assuming your investment horizon is many years...say 10 years.

50% in gold and silver, physical (very hard to accumulate $1 million in silver bullion, which tells you something about silver, doesn't it?)


25% in gold and silver mining stocks, a portfolio mostly of junior explorers, emerging producers, geographically diverse but avoiding places like Ecuador

25% in strong foreign currency sovereign bonds

[jk]

Re: How would you invest a lump sum?

I'm assuming your investment horizon is many years...say 10 years.

50% in gold and silver, physical (very hard to accumulate $1 million in silver bullion, which tells you something about silver, doesn't it?)


25% in gold and silver mining stocks, a portfolio mostly of junior explorers, emerging producers, geographically diverse but avoiding places like Ecuador

25% in strong foreign currency sovereign bonds

whoa!?! a little concentrated?

if you have $4million you don't really need to swing for the fences. why take so much risk by betting it all on, essentially, one scenario?

assuming, for a moment, that this $4million is all you have to invest, jeff, [probably wrong]:

30% in hsgfx - very good risk control, did great during the down market in 2001-2, tends to slightly underperform in rising markets, but so what?

20-25% pms - could be, e.g., 20% metal, 5% miners [tgldx is solid if you don't want to bother with individual stocks]

10% canadian income trusts - mostly energy but not necessarily all. get an energy play in a safe country with an income stream. the non-energy provides exposure to the $cad

10% other currencies- either straight currency plays and/or gradual accumulation of foreign income generating holdings - e.g. asian reits

30% tbills- dry powder for future purchases at better prices

you won't lose any sleep, you'll generate some income, you have an upside with inflation, you have resources for future purchases.

[Jim Nickerson]

Re: How would you invest a lump sum?

Okay, here’s a dilemna of the good sort, and I’d like to ask for the input of the clever and thoughtful audience here at iTulip. Last summer, I sold my primary oceanfront residence (nice timing) and made an absurd profit. I took back a note for part of the sale and will receive a large lump sum in July.

How would you invest 4 million dollars if you got it in a lump sum? (Taxes are not an issue.) This is a real, live question and I’d appreciate any and all input. A wise man once said, “Today is the hardest day to make an investment decision. It’s easy to know what you should have done last year, or plan to do next year, but today, it’s really tough.”

I'd hope I not holding a sub-prime loan for starters.

In July things will be different than now of course. It will be in what some consider the seasonally weak part of the year, and there is history to suggest that the 7th year of the decade has some tendancy for significant downward moves in the equity markets.

Pimco's Gross has suggested that interest rates will fall later this year, and Paul Kasriel thinks rates will be cut beginning in August. I suppose for those predictions to come to fruition, it suggests that something undesirable will be happening with the economy, and as I see it markets may well go down and likely not just here, but world-wide.

If you believe in Ka-Poom, then as I sort it out, the Ka is yet to arrive.

If I got $4M on 1 July, I'd put it in 3-month T-bills, and if I got it on 31 July, I put it in 3-month T-bills and wait for something to indicate an upturn of the markets--which might not lie right around the corner.

If the markets continue to go up world wide as they have til now, then come July, I certainly would not put any new money into equities.

Jeff, you should ask this question again in July, and at some point come back and tell us what you ultimately decide.

[Finster]

Re: How would you invest a lump sum?

Okay, here’s a dilemna of the good sort, and I’d like to ask for the input of the clever and thoughtful audience here at iTulip. Last summer, I sold my primary oceanfront residence (nice timing) and made an absurd profit. I took back a note for part of the sale and will receive a large lump sum in July.

How would you invest 4 million dollars if you got it in a lump sum? (Taxes are not an issue.) This is a real, live question and I’d appreciate any and all input. A wise man once said, “Today is the hardest day to make an investment decision. It’s easy to know what you should have done last year, or plan to do next year, but today, it’s really tough.”

Nice dilemma, Jeff. But a little more info would help. Do you want to get income from your investment? Put it in a warm place and let it rise for twenty years? Bequeath it to your grandkids? Have any debt that could be retired?

...

[grapejelly]

Re: How would you invest a lump sum?

whoa!?! a little concentrated?

if you have $4million you don't really need to swing for the fences. why take so much risk by betting it all on, essentially, one scenario?

I look at it this way. 3/4 of my portfolio is in wealth preserving, conservative assets: precious metals and good foreign sovereign bonds. The remaining quarter is speculative in nature -- but that sector has been doing very sell since about 2002...

General type stocks I am not sure of....and my concern in natural resources is a recession that would dampen demand.

[DemonD]

Re: How would you invest a lump sum?

Here is what I would do with 4 million:

With 2 million, I would do a CD ladder. Assuming complete ignorance here, a CD ladder is where you buy a CD for 6 months, where you would invest $333,333.33 in a CD once a month for six months, then by the end of the sixth month the CD has matured. Take the interest and put them in savings, or use them for further investing, or use it to buy something fun. Then take your original principle (the 333,333.33) and roll it into another 6 month CD.

500k, I'd buy a tax free muni bond fund. For me, this would be the Vanguard California Tax Advantaged bond fund. Cali muni bonds are tax free for CA residents.

500k to either a range of high quality blue chip stocks, or just buying a value index fund.

500k to precious and base metals (physical). Part of this I personally would use in consulting with someone who has worked with high-net worth individuals in terms of how and where to buy, storage options, etc. While many on itulip seem comfortable holding physical, history and safety show that it would be prudent to really plan on how to do this. One good option is to hold a lot of physical silver. Silver coins look just like regular nickel and other base-metal based coins and make you much less of a target, plus if the poop hits the fan it will be easier to trade silver coins for water, bread and milk than it will be gold coins.

450k to foreign bonds, cd's, or savings accounts, highly recommending the australian and new zealand dollars, the euro, and the pound.

50k in some extremely high-risk investment, or in something that you really like ("buy what you know"), or heck buy a share of BRK-B so you can receive a prospectus from The Oracle of Omaha every year. Maybe a small-cap mining company, maybe a biotech that's close to breaking the rules and starting something new and drastic, maybe a fast growing computer company, or even start your own business. The point is this last 50k would be sort of like "play" money or even betting money, you could even put it all on red at the bellagio and see how it turns out. Even if you lose it all your CD ladder and bond fund would replace the lost cash within the year.

[Jeff]

Re: How would you invest a lump sum?

Wow. Thanks for the input. Jim N. has hit the nail on the head as to where the bulk of the rest of my money is- very short term treasuries. It’s boring but yields around 5%, and that provides enough income for us.

The $4 million should ideally throw off 4 or 5% for what are entirely discretionary expenses. There’s no debt to retire.

[raja]

Re: How would you invest a lump sum?

Jeff,

Ignoring the issue of whether Treasuries are right or wrong for your or anyone's portfolio (this has been discussed at length) . . . since you are already in them you might want to compare TIPS to T-bills,.

1) TIPS are for 5, 10, 20 or 30 years. But they can be sold at any time on the market. You can buy and sell easily at the Treasury Direct website. No commission to buy, and, I believe, $45 to sell.

2) To figure out the profit comparision between TIPS and T-bills, subtract the fixed coupon of TIPS from the T-bill rate. If this number is greater than the CPI, TIPS are better . . . and vice, versa.

For example, the April 10-year TIPS paid 2.28%. The last 3-month T-bill paid 4.97. So if the CPI is above 2.69, TIPS are making more money. (As you may know, TIPS are indexed to inflation, so you add the fixed coupon to the CPI to get your rate - adjusted every 6 months.)

For the first 3 months of this year, the CPI has been

2007

2.08%

2.42%

2.78%

the average being 2.42%. So T-bills have performed slightly better.
However, last year the CPI averaged 3.24%, and the TIPS coupon was about 2.5%, so T-bills would have had to pay 5.74% to be better, which they didn't.

At one point I did an analysis of TIPS and T-bills for the last 7 years, but I can't find it now. However, my recollection is that TIPS outperformed T-bills every year except one. (Don't hold me to this . . . )

TIPS coupon rates look like they are headed down, perhaps due to inflation fears, so bear that in mind if you decide to invest in them.

[Uncle Jack]

Re: How would you invest a lump sum?

TIPS are bogus investments. You're relying on the same government that under-reports inflation to accurately adjust your bills and bonds based on that same under-reported number. You're better off with a T-Bill rotation and hedging inflation with another item, like gold.

This is not a recommendation for the $4MM, just a response to the posting about TIPS. I've already told Jeff about the Portfolio Modeling Tool for iTulip Select Members, which can be found in that section of the forum.

[BK]

Re: Any thoughts on VFISX vs Treasury Direct

Any folks have an opinion on VFISX for Cash vs Treasuries via Treasury Direct?

I'm sure there are a couple of strong opinions about this option?

[raja]

Re: How would you invest a lump sum?

TIPS are bogus investments. You're relying on the same government that under-reports inflation to accurately adjust your bills and bonds based on that same under-reported number. You're better off with a T-Bill rotation and hedging inflation with another item, like gold.

Uncle Jack,

As a holder of TIPS, I would certainly be concerned if they were "bogus investments".

Do you have any figures based on past performance showing that T-bill rotation is more profitable than TIPS?

I did an analysis awhile ago, and although it is not available to me now, I recollect that that TIPS came out better over most of the last 7 years . . . .

Or, is your opinion based on the what you believe will be the future performance of TIPS?

Thanks

[grapejelly]

Re: How would you invest a lump sum?

I consider precious metals the safest of all investments. Bonds are risky but you can't avoid them. They are risky because of sovereign risk, paper risk, taxation, etc.

[Uncle Jack]

Re: How would you invest a lump sum?

The "bogus" part that I referred to was their tie to the inflation index, and I clearly stated so. I did not mean that they are bogus in the sense of non-existence.

Actual numbers comparing TIPS to T-Bills? No, and that was not the comparison I was making.

I specifically said that if you wanted to hedge against inflation, you'd be better off adding gold to the portfolio with the T-bills instead of relying on TIPS that are tied to an under-reported number from the government. Take that back 7 years and see how you might have done.

[Finster]

Re: How would you invest a lump sum?

Wow. Thanks for the input. Jim N. has hit the nail on the head as to where the bulk of the rest of my money is- very short term treasuries. It’s boring but yields around 5%, and that provides enough income for us.

The $4 million should ideally throw off 4 or 5% for what are entirely discretionary expenses. There’s no debt to retire.

You ought to be able to get both significant income and keep up with inflation. In another thread, I posted a synthetic "TIPS" portfolio, but one oriented towards a smaller overall size and the convenience of all ETFs. For a fairly conservative, income-oriented, $4M portfolio, I'd allocate as follows. This is listed by ETF where applicable, along with with objective descriptions for substitution as desired.

400,000 Gold Bullion & Coins
200,000 Platinum Bullion & Coins
200,000 SLV (Silver ETF)
100,000 DBC (Diversified Collateralized Commodity Futures)
100,000 DJP (Diversified Collateralized Commodity Futures)
100,000 GSP (Diversified Collateralized Commodity Futures)
100,000 IGE (Natural Resources Stock Fund)
400,000 TLT (Long term UST)
800,000 SHY (Short term UST)
200,000 IEF (Intermediate term UST)
100,000 SPY (S&P 500)
100,000 VXF (Dow Jones Wilshire 4500 Completion Index (mid&small-cap US stocks))
300,000 DVY (Equity Income Fund)
300,000 IYR (Real Estate Equities Fund)
400,000 EFA (International Stock Fund)
150,000 EEM (Emerging Markets Stock Fund)
50,000 EWC (Canadian Stock Fund)

This would amount to quite a reduction in UST overall and short term UST in particular, but the other elements help the principal and income keep pace with inflation. Of course it can be seasoned to taste ...