They say you have a 1 in 10,000,000 chance of winning the lottery.
Well, today is my lucky day, because I just won – yeah baby!!
Okay….maybe I didn't actually win.
We're just going to pretend I did for the sake of this post. 🙂
I once had a client ask me,
“Jeff, if you had a million dollars, how would you invest it?”
I’m not one who is usually into playing these games of pretend.
Sure, as a kid, I loved to pretend that I was He-Man and that the big cardboard box in our basement was Castle Grayskull. “I have the power!” <<<He-man quote. Fellas, don't pretend like you don't remember that! Haha….
But those days of “pretend” are long gone. That is, until today.
Today’s post is merely for the fun of it.
I'm pretending that I hit the jackpot and walked away with a cool mil.
For this pretend exercise, we’ll say that I’m netting a million dollars, and I have all of it to invest.
Just so we’re clear, this is not investment advice, so don’t take it as such. And just in case that isn't clear enough, read here. You have been warned.
How would I invest a million bucks?
In going through this pretend exercise, I'll also try to walk you through it as if you won the money, too. At least in the beginning. After the first couple steps, then it's all me. Let's begin….
Hello Mr. Check!
The big day arrives, and you finally receive your check: a big, fat $1,000,000. You drool over the zeros and the commas. You've never seen a bigger check in your entire life.
You take a second to breathe it in. You want to whisper nice things to the check, like, “Oh, check, you're so amazing”. Don’t worry, no one’s watching. I’d probably do it too. 🙂
Did you know you might be able to actually retire with $1 million? While it’s better if you have some time to invest the money instead of using it for retirement, it’s actually possible to retire with $1 million. Take a few minutes to read my case study right here on GoodFinancialCents.com: [Case Study] Can You Retire Early with Only 1 Million Dollars?
Even after you read that though, you may wonder if 1 million dollars is really enough to retire on. After all, the people in that case study actually had other assets in their favor. You may be wondering if you can actually retire with 2 million dollars! Well, I wrote that case study too. Check it out on Forbes: Can You Retire With $2 Million?
After reading through these case studies, you’ll understand why it’s so important to make sure you invest the money to keep up with inflation – especially if you’re a long way from retirement. You’ll also want to learn about some strategies to lower your risk . . . more on that in a little bit.
So what's the first step?
Step 1: Nothing
Okay, so here’s the first thing you do if you were to obtain $1,000,000 (or any large amount of money for that matter). Nothing.
What do you mean nothing?
I mean nothing.
You sit on it.
You sit on it for at least three, preferably six months, this is the best advice I can give for any large lump of money, even if you ask what to do with 500000 dollars! Sit on it, and save that money!
People tend to make rash decisions when they’re hit with a windfall of unexpected money. Most people’s tax refunds are spent before they’ve even got it. We don’t want this to happen with the $1,000,000.
Need a place to park all that cash so you won't do anything to it?
The first place I would look to is a group of Certificates of Deposit (CDs) or an online savings account. Going with CDs helps put an additional barrier between you and making a poor decision, because you are penalized for any withdrawals from the CD before it matures. An online savings account gives you more flexibility at the risk that you will withdraw the money to go on a spending spree.
You can get the highest interest rates for Certificates of Deposit and Online Savings Accounts at online banks, like our favorites Capital One 360 and EverBank. (And since they are online, you should be able to bank with them no matter what state you live in. Or decide to buy your mansion in. Whichever.)
I was once referred to a couple who received a $1.5 million dollar settlement. I told them the exact advice above. Did they listen? No!
Within the first 3 months of getting the money, they bought a brand new home, 2 new cars, gave their church $50k (I'm cool with this one and you'll soon see below), gave several different relatives $10k a piece, AND they quit their jobs. I was floored. We are NOT going to do what this couple did. Even investing in smaller amounts, even as small as investing with 1000 dollars or what to do with $20000, needs more thought put into it than this!
Step 2. Let’s Talk Debt
You have debt; we’re going to pay it off. Are we going to pay off all the debt? Not necessarily.
You’ve been lucky to lock in a 30-year mortgage at less than 4% in the last couple of years, there’s no sense paying that off. That’s cheap money.
We could talk about making double payments at a later time, but for the mere sake of paying off your principal, I don’t think it’s necessary.
Credit card debt gone, wouldn't it be nice to not have those pesky $100 credit card bills rolling in each month, rather you could start investing with 100 dollars instead of putting it toward that credit card that keeps gaining interest! Department store card gone. Student loan debt….. That’s a tough one, too. I’m leaning more towards paying it off. I’ll let you decide. Any other debt that has double-digit interest rates, gone. Pay it off and be done with it.
Just because you paid off the debt does not give you the right or permission to go out and charge more debt. You just won a million dollars for pete's sake; why would you need more credit cards?!
Need help with developing a debt payoff plan? Check out our post on the top 11 personal finance software. One free product to look at from that list: Personal Capital You really shouldn't need a piece of software to help you pay off your debt when you've just been handed a check for $1,000,000… but just in case, it doesn't hurt to take a look. Personal Capital will help you put all your accounts (debts and assets) into one place. This way you can make a real plan for all of your money.
Step 3: Boost up your emergency fund.
As you have a large influx of cash, why not keep at least 18 to 24 months of monthly expenses in a high-yield Money Market account? Think of it as the Ultimate Emergency Fund. Best places to hold that huge sum? Online banks like Capital One 360and EverBank. Or, you might throw it into a Certificate of Deposit with Discover Bank.
It’s probably more cash than you’ve had in your entire life sitting there doing nothing, but that’s okay. You’ve now turned a new leaf. It’s a new you, so enjoy it.
Step 4: Give it Away
You'll notice that I didn’t refer to myself in any of the above. That’s because other than a mortgage and a car note, we have no debt. If I had $1,000,000 to invest, I would not have any debt to worry about being paid off, plus our mortgage is a 15-year 3.375% and we’re making extra payments. I’m not in a hurry to pay that off.
Our emergency fund currently is between 12 and 18 months for household expenses. Once again, I’m okay there. So, what do you do? Now, this is more for me and my background, so don’t feel like you have to oblige, but the first thing I would spend out of the million is give 10% straight to our church, otherwise known as a tithe.
Yes, I would write a check for $100,000 to our church straight off the top. You might call “BS” on this. You might think I’m just saying that to sound like a good Christian. If I was writing this post a year ago, it would be hard for me to try to argue that. You can even watch this video, where a couple of years ago I thought a client of mine was nuts for wanting to keep tithing while trying to pay off debt.
In the past year, my wife and I have finally, and I mean finally, started tithing where we give 10% of our gross income to our church. It took us awhile to finally grasp the concept, but we've finally got it.
Would it be a hard check to write? Uhhhh, YES!!! But I believe that our church and God’s will can do much more with it than I could.
Step 5: Peer to peer lending.
This might come as a shock to many readers, especially because I’m a “financial planner.” Maybe you think I would buy stocks, maybe you think I would buy mutual funds. I would, but I would actually start with peer to peer lending.
How much? A very good chunk. I would put $250,000 into both Lending Club and Prosper, splitting them in half, so $125,000 a pop. I initially started a lending club account back in 2008, and to this day I’m averaging about 9%. Not too shabby and, with reinvestment, an easy way to make money without having to manage it all the time.
For the sake of diversification, I would try both. Sitting on 8% to 9% yield with very little volatility, or as some planners refer to it, standard deviation, is pretty hard to beat. If you are interested in a more technical breakdown head over to my review of Lending Club and Prosper review to see how you can leverage their offerings to your benefit.
Step 6: Bonds, bonds, and more bonds.
To say that this interest rate environment has been an interesting one over the last couple of years is an understatement. Trying to get a high yield on a bond these days is about as realistic as trying to get an In-and-Out Burger in the Midwest. It ain’t going to happen!
Instead of assuming that interest rates are something to brag about, I thought I would tackle this area of investing as if interest rates were somewhat normal. If you’re curious, I define “normal” as you can go out and get a one-year CD paying you something north of 3%.
In that case, I definitely would have a larger percentage of municipal bonds, the tax-free kind, in my portfolio. In addition, I would also add some short to intermediate corporate bonds, some mortgage-backed securities, and perhaps some bank loans and convertible bonds as well, but I'd allocate about $250,000 to this piece of the pie.
What type of bonds would I buy? Frankly I’m lazy, so I wouldn’t do the time or research to choose individual bonds. It’d be too much of a headache. I lean more towards the mutual fund side of things. There are a lot of good mutual fund bond funds that have done really well over the last several years. Just to diversify, I would also consider buying some bond ETF’s.
This piece of my portfolio is meant to be the boring part that makes me want to yawn when I think about it. Plus, this makes the wifey happy because she doesn't have to worry about me making any stupid stock picks. Been there, done that, too many times.
Step 7: Actively Managed Mutual Funds.
Let it be known that I’m not a passive investor. Indexing is personally something I’m not a big fan of. Disagree? That’s cool. We can have a debate another time. So with $100k, I would allocate it to 10 to 12 different mutual funds. I anticipate that the allocation will be somewhere in the 60% to 70% stock range, with the rest being in bonds. Notice how heavy I am in my bonds? How ironic for a guy in his mid-30s to be so conservative?
Seeing previous younger clients receive big inheritances and how they are more interested in protecting vs. growing is a contributor to me feeling this way. I'm almost positive I would be just the same with most of the funds.
Another option I would consider is Betterment. Even though they use passively managed ETF's, they do make active changes to their portfolio. You can get more information about them at our Betterment.com Review page!
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Step 8. Stocks
I would buy some individual stocks with part of the money, but I wouldn't allow myself to be too crazy. This would be considered my “slush fund” where I wouldn't be affected if I lost my butt on some horrible stock trades. Trust me. It would happen.
If you need a place to trade stocks, I would look at E*TRADE or Scottrade. Both are solid, reputable firms that have good trading platforms.
Step 9: My Business
Other than peer-to-peer lending, I don’t really entertain any non-traditional investments like private real estate partnerships or any of that type of private equity stuff. Living in the Midwest, I’m not as exposed to this as someone living in the big city, so that’s why you see a lot of more traditional investments in the portfolio.
The other non-traditional asset in which I would invest is my business. Whether that be new technologies to help me streamline my financial planning practice, or investing into ways to grow my online business. If my stock picks end up being dogs, I would definitely shift some of that money over here.
That's How I Would Invest. What About You?
As of right now, this is how I would invest $1,000,000. Chances are if you talk to me in three weeks, it would be somewhat changed. That’s wise, right? Here’s a bigger question:
“If you had $1,000,000 to invest, how would you do it?”
Love to hear your thoughts.
Make sure to check out some of our great investment reviews we have for your reference to make sure you know the most you can before you begin your investment journey!
Excellent post…I love your advice on tithing, very few people will suggest that.
A lot of people will not agree but let’s look at it in a different scenario. Someone wins $100 & gave the 10% or more to the church, people will be like that’s ok but obviously the more zeros added all the more our finite minds will tend to resist without realizing that the same percentage is given. This is called “Proportionate Giving”, hence Jesus said in Luke 21: 1-4
1 Jesus looked up and saw the rich putting their gifts into the offering box, 2 and he saw a poor widow put in two small copper coins. 3 And he said, “Truly, I tell you, this poor widow has put in more than all of them. 4 For they all contributed out of their abundance, but she out of her poverty put in all she had to live on.”
Grace to you all…
I would prefer to pay off all debts, including my house. If you have a $700 mortgage payment and it is gone, than that would reduce the emergency fund needs by $16,800 for a 24 month emergency fund. So I would pay it off. At least that is what I plan to do.
Thank you for the article,
DM
That’s a good strategy DM. In addition to the fact that paying off the mortgage will free up $700 per month for savings and investing. Not to mention the peace of mind that comes from living in a debt-free home.
The worse advise I’ve ever read! Let’s assume you earned $1million, and didn’t win the lotto: Consider the $1million your new base foundation /emergency fund and lock box it. Now keep working hard and wisely invest and cover expenses with 100% of the new money you earn for the rest of your life to include but not necessarily limited to the following : (1) Live the rest of your life DEBT FREE = pay off all debt 100% ( Financial Peace University) – including your low interest mortgage, and student loan debt (which doesn’t qualify for forgiveness), all credit cards are to be paid in full in advance monthly – forevermore. (2) buy stock in the greatest companies and hold according to the principles of Warren Buffet. (3) buy and flip SFR homes at foreclosure auctions (4) start a “hedge fund!” This way, you might turn $1million into $1Billion! How many billionaire’s can say they started with a million?
@ Dale Wait, my advice is the “worst advice you’ve ever read” and yet you think people should take the money and flip homes from foreclosure auctions and then start a hedge fund.
You’re just kidding, right?
There’s a very, very good chance that the God you believe in (or any god) doesn’t exist. So it makes me very uncomfortable that you would advise tithing. Seems like a waste of money, to me. There are some very good charities that could do a lot more with that money.
Since you’re a Christian, anyway, doesn’t that mean that all you have to do to get into heaven is believe in Jesus? Why score extra brownie points?
@ Tommy It’s much more that just believing in Jesus. It’s about living out my life to be a disciple in His word.
It took me years to finally understand this and I’m still a work in progress. I’m thankful for His grace as I need it daily.
While I’m a Believer in Christ as my savior I also agree with Tommy, Paul makes it clear we must “believe” during the age of grace you speak of. Anything “including giving money” is an act of the flesh and will never please God, he only accepts you and is pleased with you as you are “IN CHRIST” not any works of the flesh. It took me years to get this doctrine sorted out and realize God doesn’t need our money, religion does and religion is always a negative in the bible. Give cheerfully, whether it be $1 or $100,000 would be the best advice. Good article though.
Hi Jeff – I don’t disagree with what you’re saying. I’m just saying what I would do with $1 million, and that would include giving 10% to my church. Paul instructs us in that direction with “Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.’ – 1 Cor 9:7. I would go with 10%, but you’re free to give as you feel led, whether it’s more or less.
We believe we are saved by Grace through Faith Jeff H. but according to James 2:14-26 “Faith without works is Dead”. Christians are not saved by good works but it should manifest automatically out of us since we are in Christ & the Holy Spirit is working in us. The church is the only agency on earth which God uses for the advancement of His kingdom and to call out the lost sheep.
Tommy you’re religiously challenged…. You have no idea what you’re talking about
Hello Jeff,
Why Tithe? Because I can’t afford not too!
They say there is very good chance God is not real. There is that same very, very, good chance that he is!!!
FOOD FOR THOUGHT
If you try Him and hes not real then what have you lost?
If you don’t try Him and he is real (I can attest to it that he most certainly is) what then have you lost?
@Jeff as you know it is not you who they hate but he who is in you. He that is in you is greater than he who is in the world!
Thank you for the financial advise!
-3nMe
Most churches do help fund other organizations and out reaches which is why I give (when I can) . Most if not all the money allocated is used to fund which ever foundation they put it towards unlike a lot of other “non profit ” organizations where maybe .10c from every $1 might actually make it to where it is ment to be.
Giving to a church doesn’t make the church rich or line the pastors pockets (if they are actively living out the works of God).
It is also a tax relief at the end of the year.
Good points Paul. I’d also like to add that if we assume that any charity or church we give to is corrupt, it justifies not ever giving. That’s going too far in the other direction. We should give in good faith, and leave it between God and the recipient as to where it goes from there.
How do you feel about real estate? My grandfather made his money on real estate; a motel, vacation rentals, knowing when to sell his properties etc. When he retired he had a nice chunk and he and my grandmother lived on amazing 6% all their cd’s made at the time. After my grandmother died my grandfather had to deal with the sudden drop in cd rates and ended up eventually having to live off of his principal, which really took a huge chunk out of his funds in a short amount of time. Now that he has passed and I’ve inherited what was left I’ve decided to follow in his foot steps and dip into real estate. Started small by purchasing and renovating a short term rental vacation home in the poconos. Also plan to renovate my grandfathers house (on a NC beach) and rent that. In my opinion the ONLY way to ensure your money grows is real estate, IF you invest in the right locations. I just started renting my property 3 months ago and have already covered my taxes and HOA’s. I got a great deal on the property and in a few years it will be all profit. My grandfathers house is mortgage free so once I cover the renovations it’s 100%profit – taxes.
The only thing that is (usually) guaranteed to go up is real estate. My daughters college fund is a beautiful ski house in the poconos lol. And my sons will be the next property I buy.
Do you recommend real estate investing to your clients?
Hi Kristen – I agree with your take on real estate. It’s an excellent investment IF you buy below market (which takes some skill), and can make a profit on the cash flow from the rents. Buying real estate based solely on the idea that the value will go up isn’t enough by itself. If you’re losing on the cash flow, you may be broke long before the value rises enough to be sold at a solid profit. And not all property in all markets rises, at least not quickly.
That said, owning real estate outright if for people who have the time, knowledge and desire to actively manage it. For all others, real estate investment trusts (REITs) are the better way to go. And let me add that if you are investing in real estate, you still need to diversify. Put some money into stocks, bonds, and safe assets like CDs. You want to cover yourself in case real estate hits the skids!
Hi Jeff,
My family from the other country want to wire the money in my bank account to invest $1,500,000 here in the U.S. to buy a big house to live, 2 new cars and 2 more houses for rent and a vacant land.
Questions:
1. When my money is in my chase bank is it safe for like 3-6 months before I can acquire the property?
2. Is it a wise decisions to invesy money in realty?
Sounds decent but why not invest in a solid stock or even a portfolio of dividend stocks that could pay you income for years to come.You could also invest in real estate properties that could generate monthly income as well.
Russ Thompson; that sounds stressful – yes I too, am 43 and think about all of those things.. thank you I do not have kids and no future tuition; however, I truly believe when we are at the age to retire it will cost $100,0000 per year just to live a mediocre life. Sadly the years of the 6% cds are gone and when you reach a certain age risk tolerance is low.. I really like this post and am going to examine it more in depth. Thank you..
Jeff,
A few thoughts.
1. A million dollars at 6% spins off $60,000 a year. Try getting 6% safely these days compared to the 80’s when I would use the same example. Basically it is impossible, a quick search finds 5 year rates at 2%.
2. COLLEGE: My personal situation; 3 kids, wife insisted on private grade school $3 k yr., and high school 8k yr., do the math. That was the college fund.
COLLEGE!
My oldest is in at roughly $40,000 a year my cost that deducts the $12,000 she got as an academic scholarship. Second kid, a senior in high school may go to the state college $24,000 (2015 tuition + room, board etc.) or Vanderbilt $60,000 K year! Vanderbilt would be over a quarter of a million dollars. I’ve still got a third kid behind them. College is a bubble with a diminishing ROI, which will POP. You heard it from me first. But know college makes a million dollars drain like a sieve. By the way I went to that state school in the 80’s tuition was around $9,000 a year.
3. What will my and my wife’s health care cost when I am 78? I’m in my early 50’s. What if it costs $24,000 a year?
A million dollars may seem like a lot of money, but when the government is taking taxes at 45% combined state and federal; taxing dividends and capital gains higher, (your only easy passive income source to build) it eats away.
I have worked since my 20’s to invest in stocks and save, live within my means, keep cars forever, etc. You have to stay in stocks, equities, in order to make a million dollars grow enough just in order to “keep” a million dollars so it will be there when you retire.
Seem more the question i ask myself the answer are right there. Right now i face debt and i would like more answers to budget and make my millions to invest.
Great article. I would include a 15% allocation to TIPS.
Good advice until the active management part. You prefer underperforming the market(s&p 500 vanguard etf, VOO) 95% of the time while paying 10x in fees? Makes a ton of sense.
@ Mike Have you done research yourself on the 95% underperforming the market or are you just basing that off something your read online?
While I agree there is a lot of crap out there, I’ld rather do the research and find the 10-20% that out perform the market by a considerable margin.
It’s more like some outperform for some of the time. Over the long run, according to what I’ve read and people I know, what Mike said is perfectly correct, even if the 10x cost isn’t always exaggerated. Furthermore, that 10-20% is manipulated more often than not and is not as much as you think even for some of the time. Just a fair warning…of course, you don’t have to believe me.
I mostly agree with Jeff; however, I would heavily invest in K-20 education, both private, and public, because while it is not first necessary to be educated, in order to possess significant wealth, the un-educated fool, is usually the first, to lose his/her shirt, right? (with a few exceptions). Finally, the only reason why I would wait to spend the money, is if I did not already have a written plan of action, for how to invest the proceeds (and most of us were not planning to win the lottery, or become trillionaires, to begin with, right?) LOL (:
Jeff! I love this idea for a podcast. However I think you really blew it in two ways (1) I am stunned that you – as a dad of 3 – didn’t mention setting a good chunk of the $1 million aside to pay for college!!
(2) parking the funds is a great idea, but unless you spread that money over the FDIC limits you could potentially lose everything over $250,000 (the current limit) if the bank goes under.
Hmm…a million dollars! I would diversify it all in dividend growth stockes called Dividend Aristocrats, stocks that have been able to increase dividends for over 25+ years.
I would then use the dividend income to help pay off any debt or help build an emergency fund. I’d never have to sell any of my shares to receive the income. And the income would increase every year to keep pace with inflation.
Interesting article. My biggest question is about how according to the comment date almost all of the comments could have been written almost two years before the post???
I have to say that my list would be a bit different than yours, but not necessarily better. Perhaps not at all better, and possibly not nearly as good. But it would be safe and productive for me. As I think you would agree, one of the basic things to do is always understand what you are doing yourself. The next Bernie Madoff could be just around the corner.
Your giving decision is makes sense to me. And I think it makes cents as well, even though it cannot be our purpose. Indirectly, when we help others our attitude leads to our own prosperity. Perhaps we cannot prove it objectively, but I believe it.
Good success!
Jeff, Please tell me that you would just “blow” a little on something really unnecessary and frivolous?
@ John Okay, fine….you got me! I would definitely treat my wife and I to a secluded beach vacation because she totally deserves it with our 3 crazy boys.
Just wondering what you might do if you were single and subject to only the $100,000 FDIC insurance limit – perhaps use CDARs or have 10 accounts at 10 different banks?
Common mistake about FDIC insurance: It’s $100,000 per account type, so you have many account in a bank that are insured up to $100,000 (individual checking, savings, joint checking, trust accounts, etc.). In fact, I think you can have up to $1,400,000 in multiple accounts at one institution and it would all be FDIC insured. Talk to you bank manager for more info.
Good advice, especially the ‘parking’ part. If there was a way to keep that windfall out of the papers, I’d do it. Otherwise, every Tom, Dick, and Harry would be at your doorstep.
Personally, we would continue to tithe to our church and other ministries, although with that amount, we’d need to be selective where to give. We would up our six month reserve to a year-reserve.
Then, we have two rental houses, so I would pay those off and probably purchase four more – giving us six, with passive income which is taxed at a lower rate.
Other than our rental houses, we have no debt. I hear what you’re saying about not wanting to pay off a house with that low of interest rate. But, we prefer no debt. Having the rental houses with passive income makese sense to us.
I’d probably invest some in storage units or in some other income-producing business.
The rest of the initial cash we’d probably put in a trust to be used to fund Christian ministries.
Ah, the dreams about what I would do with $1 million. All of your advice is good, but the best is to just wait before spending any money. I would guess the majority of people who receive a windfall don’t do this and then regret it later.
Great advice here. I have had a few financial windfalls, and though I blew through $100,000 before I even turned 21, I did end up doing some more productive things with my next income. I have written 10% checks to church on those windfalls as well, and it was one of the best things I have ever done. So I think it’s great that you have made the decision to give in that manner.
Totally agree. One other thing to consider that I’ve discovered by donating a lot of money to religious/charitable causes. God controls every atom of course and donating doesn’t guarantee what I’m going to say I’ve experienced, but it’s more than just placebo or correlation: Things start going really well for you after you start being generous. This rarely takes the form of money just coming from nowhere, more often, from expenses just not happening.
This is grace, the favor of the Lord, given be design to a faithful giver (sometimes, that is; understand you do not control Him).
Sure, there’s a psychological component. Once you have the guts to give it away, you’re grasping so much less, you spend less, and realize the rewards of spending (STUFF!) aren’t cracked up to be. No surprise because God intended our minds to be the way they are and molded them that way throughout the universe’s creation.
I would also say to Jeff, you have a lot of credibility in my book, having obviously figured out that one most important thing, before health, spouse, money and children. Blessings and peace.
I like your step #1. Wait. I’d also add pray and seek council for tax advice. Not sure if I’d personally go deep with P2P lending as I can’t stomach the idea of charging such high interest rates to others. Overall good advice.
For Step 8 (invest in stocks): sure, you’ll have some bad trades, but it’s important to remember that is factored into a diversified portfolio of excellent stocks. If you hold 30 positions of value stocks showing strong fundamentals you’re likely to beat the market overall. If you want long-term growth with part of your million dollars, it’s hard to beat the stock market.
“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” – Peter Lynch
Thanks for the Peter Lynch quote. First time I have seen it.
Great post! I liked the He-Man reference especially. I am of the same mind when it comes to what-if scenarios, but it is nice to dream sometimes.
Hey Jeff,
My one question for you is about the debt. Why wouldn’t you pay ALL of your debt off. What are the benefits of still paying your mortgage payment and your student loan payment? Thanks.
@ Matt I could see student loans, but I don’t the point in paying off a mortgage when you have a rate in the low 3’s. Especially if I could invest into something and net more even after taxes. But that’s just me…..
Great post, Jeff. The reality is that most of us are going to win a million or two in the lottery: it’s our career earnings paid out over the next 20 years. And while it’s not as much fun as one check with a lot of zeroes, the same techniques you advise here will work for one paycheck at a time over 20 years.
I have a question about P2P lending that might be a separate blog post: How do you scale it up to $250K? It seems like a huge analysis workload– even if you just push the “I believe” button on their spreadsheets. Splitting between LC & Prosper is smart, but that forces you into twice as many loans. Even so you still end up buying a big chunk of the loans you choose– $125-$250 per loan instead of “$25”. And then they’re relatively short-term loans, so every quarter you end up having to reinvest 8-10% of that $250K in new loans. More work. Lots of risk that’s not readily apparent to the retail investor.
It’s difficult to assess whether the P2P work & risk are worth the extra yield. Hard choice. 9.6% for extra work and sector risk, or 5-7% in a small-cap stock index ETF… or in a large-cap dividend stock ETF. I don’t have a pat answer.
@ Nords That would be pretty difficult to scale up with P2P with that amount. I do know that Lending Club does offer separate portfolios starting off at $100,000 to get in, so I imagine that’s where I would start.
I wasn’t completely sold on P2P lending 3 + years ago when I first opened my Lending Club account. I’ve been amazed on how my return as been over the last couple years and it’s really super easy to manage. It’s obviously not right for everyone, but I do suggest it to clients even now for those that are comfortable with an online investment.
Thanks– I’ll take a look at LC’s separate portfolios. I’ve been wondering how people handle the workload.
I am curious to know how your P2P lending accounts are going since your post two years ago. This sounds interesting on many levels, but concerned a bit about the risks.