Ask HN: Just cashed out for 2M. What now?

[newseller]

I'm posting this from an anonymous account, for obvious reasons. I just sold my company and have 2 million dollars in the bank. What now? I basically have nobody to consult. It's a business I bought for 90k that just kind of swelled up really fast, and I'm really not set up to manage this kind of money. I'm canadian, the economy seems to be going to hell down south and I'm sure it's gonna hit here soon and I have no idea who to take advice from.

My bank is trying to get me to put all my money into money market mutual funds while I wait, my accountant tells me I should diversify, get some cashable GICs while I wait, and start looking into stocks, as well as investing in insurance companies since they usually guarantee your investment (so long as they don't go bankrupt). I used to just put all my money into a high interest savings account at ING and collect the 3% (which is good enough for me to live on at this point).

Any advice to offer? Any good reading (canadian-specific would be good)? Any good software for mac to manage all this? :)

[cperciva]

The $1M-$10M range is difficult -- it's more than most people know how to manage themselves, but it's not enough to allow you to hire someone to be your full-time money manager.

Based on what you've said and not said, I'm presuming that you (a) have set aside money to handle any income taxes which you'll have to pay, and (b) don't have any immediate plans for how to spend your windfall; and your main concern at the moment is simply where to park the money so that you'll have it available once you figure out what to do with it.

If I'm right about that, your primary concern should be to hedge risks -- that is, to eliminate as many possible ways that your money might vanish. Given that the biggest risks are (a) an asset price crash, and (b) hyperinflation, I'd suggest a diversified portfolio: Keep some money in cash or near-cash assets (bank accounts and cashable GICs), but split most of the money between bonds (or, equivalently, GICs) and stocks. That way, if the stock market collapses you'll have some losses but you'll still hold on to the money you put into bonds/GICs; and if inflation spikes you'll still have they money you put into stocks (since inflation makes fixed-income bonds worthless but proportionally increases the value of stocks).

If you're feeling really paranoid, you might want to split your money between Canadian, US, and European bonds and stocks, just in case something weird happens and the Canadian economy falls apart while the US or European economies don't -- but my impression right now is that the Canadian economy is doing better than the US or EU economies, so I'm not sure that I'd bother with this myself.

Of course, I'm not a real financial advisor, and it's quite likely that there are factors specific to you that I haven't considered -- so really you ought to be talking to an independent financial advisor. Do your own research first, and don't feel that you have to follow their advice -- but listen to what they recommend and the reasons they provide for their advice. Make sure that you're talking to an independent advisor, too, and not just a shill for your bank's funds -- if you need help finding one, I'm sure your lawyer can point you in the right direction (and unlike your bank, your lawyer can be trusted to provide a fair recommendation).

I hope that gives you some starting points for figuring out what to do -- I'd be happy to talk more if you want to send me an email (google me for my email address, and put HN into the subject line so that I know it's someone from here).

[tjmc]

This is good advice. Also:

1. Eliminate any outstanding debt. Mortgage, credit cards, car loans etc

2. Consider buying a place to live outright. Saving rent or mortgage interest is better than earning the equivalent in interest because it's tax free.

It's a very good time to have spare cash as there are a lot of bargains around. Take plenty of time and do your research.

[skmurphy]

He doesn't need a full time money manager, there are capital management firms that work based on a % of the total portfolio (not on trades, so they are motivated to grow your investment). They put your money into a larger portfolio they manage and you pay institutional transaction rates. I have used Ferguson Wellman for more than 15 years for this and been very satisfied: they are a category of firm to investigate to manage a portfolio.

[LukeG]

Don't manage your money yourself!!!!!

$2M is absolutely enough to find a "full time" money manager - there are many private wealth management folks with minimum asset levels of 250K or less.

Make sure your adviser is a VALUE INVESTOR, especially one who suggests investing in low-cost index funds. Almost no "active" managers beat low cost index fund performance in the long term.

Next, get a job and let that $2M grow.

[dreamz]

I just read this article yesterday - what a timing!!!

You MUST read it as well, it's regarding "Sudden Wealth Syndrome" and may be you should consult Stephen Goldbart and Joan DiFuria.

Having too much money can be a problem : http://inhome.rediff.com/money/2009/feb/18having-too-much-mo...

What is The Sudden Wealth Syndrome? : http://www.mmcinstitute.com/sws.html

http://www.mmcinstitute.com/who.html

[bullseye]

Congratulations!

I had a loosely similar experience, and here are a few things I would recommend based on what I did, and wish I had done:

Tell as few people as possible, preferably just your immediate family. Resist the urge to talk about it with friends and associates. This includes offering to buy every acquaintance drinks or dinner. Pretend nothing has changed.

Designate a percentage as money you will not touch... ever. Find a financial planner, which you trust, and have them help you identify low risk investments. Then, forget about this portion.

I don't know how old you are, but assuming you are not at retirement age, begin considering your next move. Consider options that don't require 2mil to get started. ;)

This doesn't mean you can't take a well-deserved break, but don't talk yourself into early retirement. This may be more difficult than it seems, so seek motivation in this area wherever you can find it. The fact is, 2mil is certainly nice, but if you stop now, you'll go through it quicker than you think. Treat it as a cushion, not a windfall.

Good luck!

[jrockway]

Keep in mind that $2M will generate over $100,000 a year in interest. So it is definitely possible to retire forever on this amount of money.

[pg]

Here's the conventional advice. Start with it all in cash, in some form you feel is sufficiently safe from disasters. Gradually over a couple years bleed it into some combination of stocks (by default in a low-cost index fund) and bonds. The usual rule of thumb is to put your age percentage in bonds. I.e. at age 30 you should have 30% bonds.

[fnazeeri]

Brilliant! My advice is to stay in cash (or equivalent). Have patience. Wait 2-4 years and see what happens with the economy. Forget about the cash in the bank (I'm assuming you're well below normal retirement age). Set aside an amount of "play" money. Go play golf or hike Kilimanjaro or whatever works for you. Ignore "advisors" who tell you that you should invest in such-and-such. After some time, you will find things that interest you and that is what you should work on / fund. Invest in / spend time on things you love.

BTW, contrats. Nice job!

[agotterer]

I'm not saying rush into any investments. But waiting 2-4 years is the wrong move if you are looking to get in the market. A lot of very good stocks are on serious discount either right now or in the coming months. No one knows when the economy is going to stop declining and turn around (some economists are pointing to under two years). Be smart, do your research and try not to miss out on some money making opportunities.

And also congrats on your sale!

[tc]

My advice is to stay in cash

Which would be fine as long as you aren't at all concerned about the very real possibly of hyperinflation. Be sure to pick your currency wisely.

[petercooper]

Your mention of Kilimanjaro was too much for me to miss this one. I discovered an old acquaintance of mine recently started up a Kilimanjaro hiking company ;-) http://www.expeditionkilimanjaro.com/ - awesome guy, would recommend traveling with him.

[forkqueue]

I'd very definitely disagree with the above - I'd say it's pretty certain that most of the West is going to go through a reasonably severe inflationary period, judging by economic history at least. Even if it doesn't, with interest rates so low cash is going to do nothing for you.

FWIW, if you know where you want to live for the next ten years or so, buy a place outright for cash. Worst case scenario, if house prices continue falling you've still got a roof over your head mortgage free.

It's probably worth putting some of your money in gold too as a hedge.

I'd certainly agree with the 'play' money idea as long as your family circumstances allow.

[d13hard]

Brilliant! My advice is to stay in cash (or equivalent).

you'll need it to pay the IRS + state their 50% (if for example, you are a california resident). oddly enough lots of people forget about this simple fact. depending on how the deal is structured, there is a good chance that your tax bill is $1 million. oh by the way they then adjust your next year's taxes upwards and want quarterlies...so leave some money for those (you will get most of it back since your gain is non-recurring)

but still, you're a millionaire.

edit: whoops! i see you say you are in canada. well i suppose the tax situation is likely comparable....

[smanek]

I'm a fan of the Taleb approach to investing. Put most of your money (~90%, I would say )into bulletproof stuff (Savings Account, CDs, etc), and put a little into risky things. You should be able to get at least 5% ROI on the safe stuff (in the long run, obviously considerably less than that right now), which should guarantee that you'll never fall below middle class, come what may.

To counteract the current market insanity, I would strongly consider buying some inflation indexed government bonds (called TIPS bonds, in the US) with my 'safe' money. In case of inflation they could help, with no real risk (short of the collapse of the government). I know most people are worried about deflation, but I still have nagging inflation worries.

As for the risky stuff, I think Detroit real estate, corporate bonds, and some dividend issuing stocks are seriously undervalued right now. I personally put a little into NRF, which is issuing ~30% dividends per year (at its current stock price). Detroit real estate isn't likely to recover soon, but I think over the next two decades or so you could potentially make a killing.

[nandemo]

I don't think that's Taleb's approach. His point is not simply to put a little into things like dividend issuing stocks. These might have a very good historical long-term return, but we cannot assume this will still be true tomorrow.

The point is to be exposed to good "black swans": far out-of-the-money options, or biotech and YC companies, for instance. These could potentially give you a very large return. In theory this would be already priced in, but too many people assume models which don't allow for very large returns.

That said, his main message is not so much how to make money, but rather how not to lose it all.

[sak84]

I am confused. Why are you asking people what to do with your money when we know nothing about you?

Do you want to just hold on to this money and live off the interest?

Do you want to make more money by working?

Would you like to invest in the stock market?

Are you risk-averse?

Are you willing to move?

Are you charitable?

etc.

Basically, I'm not sure this is the right type of place to ask this question if you are going to tell nothing about yourself and what you aspire to be in life.

[smanek]

I would highly recommend Philip Greenspun's investing and early retirement articles, which explain how he dealt with a similar situation.

http://philip.greenspun.com/materialism/money

http://philip.greenspun.com/materialism/early-retirement/

[inerte]

Here's what I would do if I got 2 millions reais (I am brazilian ;)

- Pay some debt close family members have (parents, brothers)

- Buy an apartment, in the same price range I've been looking for in the last couple months (150k tops). Would not buy something more expensive, "just because I can";

- Put everything else in the bank. 80% in the most conservative investment the bank has. 15% on middle stuff;

- Travel the world for several months, maybe a year;

Then come back, and look at the money again.

I think one of the most important things you should do, is simply to not spend much money in the near term. 2m is lot, but it's not enough to live like James Bond. You can't sustain a lifestyle of champagne with hookers while cruising the Mediterranean on yatches. Not for more than 6 months anyway.

Going for a 600k house also looks dumb to me. Or anything else too expensive that you wouldn't buy if you didn't had the 2m. Like a Ferrari.

You've gotta give time to adapt to your new richness ;) You've gotta understand that you simply aren't used to have a lot of money. Not that I am personally... but I have read stories about lottery winners going to Vegas or blowing all the money on frivolities just because they now can do it. It's the last thing I want to happen to you!

And congratulations :)

[vaksel]

You should avoid telling the people you know about this, since everyone will hound you for a handout if they find out. At the minimum under value the thing,

2 mil = you can afford to buy the person a car and you are an asshole for not doing it.

500K = you can tell them no, since you "need" the money to buy a house.

[fnazeeri]

Check this article on HN about the same issue (Ariba founder dealing with $1BB exit):

http://www.rediff.com/money/2009/feb/18having-too-much-money...

[maximumwage]

My advice: don't listen to suggestions from random people on the internet (though I like a lot of the suggestions in this thread). Talk to other successful sellers and a diverse selection of wealthy people and find out what they did with their money. Also, Gurbaksh Chahal's book "The Dream" has a good overview of the emotions involved in becoming rich, from the perspective of someone who sold his companies for millions of dollars.

[gojomo]

Go to AngelConf!

http://angelconf.com/

[cperciva]

I don't think this is really answering the submitter's question, but once he moves past "how do I manage this pile of cash" and on to "what do I do with all this money", I entirely agree with the sentiment -- Canada needs more angels (and VCs, and really everybody else, too). It would be nice if some day the question for Canadian companies was if they would go South instead of when...

[hedgehog]

1. Congratulations!

2. Ignore financial advice from random people on the internet (feel free to include me in this category). Also beware advice on complex schemes that will eat you alive with management fees.

3. Spend your time doing what makes you happy.

4. If you need time to think about life and the next project, I recommend heading to Guatemala to check out Tikal and the ATM caves across the border. After that you can head out to the Cayes and drink beer in a hammock until you feel like doing something else.

Misc thoughts:

For everyone besides this guy, #3 doesn't actually require that much money. $20k - $30k buys you time to travel, work on your own projects, and wait for the right opportunity. I spent 2008 doing this and I'm pretty satisfied with that decision.

Also: About six or eight years ago I sat next to the CEO of a successful chain of auto shops on a flight somewhere (I forget where I was going but it was Mark Carr of Christian Brothers Automotive). His advice for this situation: take some of the money and buy a house because you'll always need somewhere to live and bankruptcy laws typically protect the home you live. This helps you get the next thing started and, should it go awry, keeps you off the streets and protects some of your assets.

[alecco]

  > For everyone besides this guy, #3 doesn't actually require that much
  > money. $20k - $30k buys you time to travel, work on your own projects,
  > and wait for the right opportunity. I spent 2008 doing this and
  > I'm pretty satisfied with that decision.

Yes, and there are many nice places out there in the world where you can live on even less than that for temporary rentals. A 4 continent around the world ticket costs about $2000 and be sure to pick a good airlines network for the destinations you want. Or just pick two or three places and stay there 4 to 6 months at a time, or longer.

You can definitely spend time on your future projects while traveling, many places have free wireless internet. We used to hack on BBS systems, so even 512k Internet can let you do a lot of stuff. If connection stops working, go hiking or canoeing or off to meet a pretty girl/guy/whatever you like.

Oh, I second that other advise by inerte:

  > - Pay some debt close family members have (parents, brothers)

Try to minimize the potential emergencies of close ones, you don't need to pay them off completely but get them in a path where they can restore themselves to financial freedom. This is happening a lot already. Beware, don't bail out anybody on mortgage, specially if highly leveraged, they have negative equity, or have interest-only mortgages! There are laws to protect them and your money will get wasted for nothing. Perhaps help them after they file bankruptcy (IANAL.)

Whatever you do, have a good time! :)

[rsgrafx]

I'm glad I read this post.. because even though I wouldn't mind having this kind of money. Peace of mind is worth a lot more to me. My biggest goal in life is to travel so if If I were only to make enough money to accomplish this every other year.. I'd be perfectly fine with my life. Maybe its because I'm only 28.

Also I totally agree with having a home base somewhere.

Congratulations on your fortunes sir as well. I hope you do great things with your new fortune that uplifts your spirit. I know plenty of people in your now current tax bracket that are miserable. Take the year off like this guy suggested travel, gain a new perspective. Gain some new ideas plan them out then get back in the game.. but have an out to do the same thing again 5 years from now.

[jwb119]

"Be fearful when others are greedy, and be greedy when others are fearful." -Warren Buffett

I dare you to find many greedy opinions out there today.. Everything I read is decidedly fearful. Full text of the article is at http://www.nytimes.com/2008/10/17/opinion/17buffett.html (I realize its slightly less applicable to Canadians)

[nazgulnarsil]

a lot of people are talking about "taking time off to think" but not really being more specific than that. This is not just a vacation, this is a vitally important step. Assuming you can make 3-5% off the 2M you are set for life. Now comes something that few people have ever been able to do: actually decide (with a huge degree of freedom) what your time on this earth means to you. It may sound silly now, but you have just been reborn. You are no longer subject to the same rules of life that most are. You are literally a different person, though you may not know it yet. Take things slow, like a baby taking first steps. And don't think that this all involves naval gazing. Look at the other people in your life and what their relationships means to you. They have to start all over with a new You as well. It can be rough on people.

Not taking this seriously is the prime reason new wealth often loses it. Everything else is details.

[cwb]

Congratulations! Invest a little in yourself:

1. Get a good doctor and dentist; commit to yearly full check-ups.

2. Develop a life-long exercise habit that you can perform anywhere. No weights, minimum props. Get help from (i.e. pay) army/special-forces trainer initially.

Now is probably a good time to do this, if you haven't already.

[mattmaroon]

Well, avoiding the deeper money management issue and addressing your savings comment, I don't know what sort of depositor's insurance you have up there, or much about Canadian banks at all (other than that BMO owes me $100) but if it's anything like the US right now, I'd spread it out. I think our FDIC limit now is $250k for individuals, it shouldn't be too hard to find 8 banks. If your banks up there have no government-backed depositor's insurance, I'd take a trip stateside (if that's legal and it extends to foreigners, which again I don't really know).

Putting all of your eggs in one very shaky basket would seem to be a bad plan at this point.

Also, I would float me $200k to help me jump start this Ponzi scheme I have an idea for. I'll give you back $300k in a month.

[dkokelley]

Something to note, while in the US the FDIC coverage is $250k, that is a temporary limit to help stabilize banking and reassure depositors. Also, for whatever portion you decide to keep in a bank, have the banker talk to you about titling. An account for John Smith is covered up to $250k, but an account for John and Jane Smith is covered up to $500k, and a trust for John and Jane Smith with 3 children is even more.

What I would do is put $1 million away and use the remaining $1 million to buy 11 more $90,000 businesses.

[stuntgoat]

If you ever want to help the most people per dollar spent, take a look at micro-nutrient need in developing countries. Several smart economists ran the numbers and found this is the most cost effective way to help the most people. Check it out:

http://www.copenhagenconsensus.com/

[oldgregg]

1) Stay liquid (ING or loonies-in-a-shoe-box) 2) Wait until the markets bottoms 3) Buy Minnesota

A year or two from now people with cash reserves are going to clean up.

[pj]

Do absolutely nothing for a year. Assume your life is just as it was.

$2M can really mess with your mind. It's not really enough to live forever. But it is enough to live on for a long time. If you are careful, you could invest it and live on the interest. If you aren't careful, you could invest it and lose it.

But remember, you don't know what is going to happen. It's cash for now. I would suggest you just sit on it for a year. Think. What do you want your future life to be like?

How do you want to live the next 5 to 10 years.

And be prepared to get bored. If you aren't working and learning and doing things, you get bored. Save the money for your next startup. In the meantime, live on the interest and stay liquid until you /know/ what you should do with the money.

[dylanz]

1) Buy property in a location you could see yourself growing old in. 2) Take a Permaculture Design Course. 3) Live happily and take trips to places that happily meet your vices.