How To Invest $10 Million – Forbes Advisor

If you have a $10 million investment, count yourself as a High Net Worth Individual (HNWI) with a large number of investments to choose from.

With this kind of money, you can not only retire early, but also build wealth to benefit future generations or support causes that are important to you. Be aware, however, that managing this large sum of money properly can be a major challenge.

financial goals, investment schedule, risk tolerance

Whether your net worth is $100,000 or $10 million, the same basic principles apply to your investment strategy. Investors large and small start from the same point of determining financial goals and determining investment timelines and risk tolerance.

What are your financial goals?

How you invest depends on what you want to achieve. Determining financial goals is therefore key to strategy.

With $10 million in hand, you don’t have to worry about living expenses in retirement. Instead, you should focus on generating income to sustain your wealth and fund a comfortable lifestyle. Maybe you want to get involved in charity work. If you have children, you probably want to leave a rich legacy.

Whatever your goals are, outline them and determine the level of earnings and income you need to reach them.

What is your investment timeline?

Your investment timeline is a function of your age and financial goals. Younger investors with longer time horizons start with higher allocations to riskier assets like stocks and gradually move to bonds over time.

Investing $10 million gives you more freedom from the tyranny of your investment schedule and makes your strategy far less critical. Still, it’s worth considering how long it will take to reach the goals you set.

What is your risk tolerance?

Risk and return are directly proportional. If your goal is high returns, you have to take risks. The longer the period, the more time you have to recover from a loss and thus the more risk you can take.

But emotional factors also influence risk tolerance. How do you react when your portfolio drops more than 50% in a bear market? Are you willing to stand firm and stick to your investment plan, or are you tempted to run for an exit? Are you a gambler who takes big risks for big potential rewards or something in between?

How wealth is acquired can also affect risk tolerance, as some HNWIs fear that large losses will be irreversible. Entrepreneurs who sell their businesses for big bucks may see it differently.

Your goals, timeline and risk appetite determine your asset allocation

Asset allocation is the method of dividing a portfolio into different investment assets such as stocks, bonds and cash. To choose the right allocation, consider your goals, timeline and risk appetite.

As the value of your investments fluctuates, you need to adjust your asset allocation and balance your portfolio. We also need to develop quantitative parameters to guide investment decisions.

Once you have a long-term investment strategy in place, it’s important to stick with it through various market decisions and not get carried away by emotions in volatile markets.

How to invest $10 million in stocks

When most people think of investing, they think of buying stocks. After all, stocks are the foundation of every investment portfolio. But with $10 million in capital, you have more flexibility in allocating your portfolio than most investors could have dreamed of.

growth and value

Many investors look to different investment styles, preferring either growth or value strategies. Growth companies are characterized by revenues and profits that grow faster than the industry or market average.

Value stocks, on the contrary, are undervalued companies that trade at a lower price than fundamentals would suggest. These companies have strong balance sheets and return profits to shareholders.

If you have any doubts about value investing, turn to famous investors such as Warren Buffett and Mark Mobius to see the results.

Dividend stock

With a $10 million investment required, it’s quite possible that you’d prefer to generate an income stream to fund your lifestyle. Buying the highest dividend stocks is one way he achieves this goal.

Look for stocks with healthy dividend yields (dividend divided by stock price). For example, a stock sold at $100 and given a dividend of $5 has a dividend yield of 5%.

The beauty of dividend stocks is that, unlike bonds, they provide a source of income without losing the opportunity for capital appreciation.

preferred stock

In addition to the income and value appreciation of dividend stocks, preferred stock offers significant protection for conservative investors looking to preserve their wealth. However, it is slightly different from common stock. Like the face value of a bond, dividends are expressed as a percentage of face value. Face value has nothing to do with market price.

The name of this type of stock comes from the fact that preferred shareholders have precedence over common shareholders. Preferred dividends are declared and paid in advance of common stock dividends. These shareholders will be paid before common shareholders in the event of bankruptcy.

When investing large sums, it’s a good idea to spread them out across different styles while keeping your overall strategy in mind.

How to invest $10 million in bonds

Bonds can be a source of both income and stability. They are important for diversification because they move in the opposite direction of equities.

Corporations and governments issue bonds to finance their operations. It has a face value (also called face value), coupon rate, and maturity date.

Suppose a company issues a 20-year bond with a coupon rate of 6% and a face value of $1,000. If the coupon is paid annually, bondholders will receive $60 per bond each year over the term of the issue. If the bond is held to maturity, the principal will be repaid at the end of 20 years. Many investors choose to trade bonds on the secondary market before maturity.

There are many types of bonds. U.S. Treasury notes, bills, and bonds are considered equivalent to risk-free investments and their rates are used as risk-free rates in financial calculations. Maturity ranges from a few weeks to up to 30 years. Government bonds are a safe source of income, but interest rates are very low.

Standard & Poor’s, Moody’s, and Fitch assign credit ratings to bonds. Corporate bonds, for example, range from top quality AAA bonds to high yield bonds, also known as junk bonds. These bonds are riskier and are issued by companies that may have trouble repaying their debt, so they pay much higher interest rates to compensate for the risk.

Municipal bonds are issued by state and local governments to pay for public works. In most cases, interest is exempt from federal and state taxes, making Munis a potentially very attractive source of income.

How to invest $10 million in real estate

Real estate is particularly attractive to high net worth investors. It can generate high returns and is an excellent source of diversification. However, markets are volatile and prone to bubbles.

There are several ways to invest in real estate. Rental properties can be a great source of income, but few wealthy investors want to be involved in managing them, and management-related costs can erode your bottom line. Some investors enjoy renovating and reselling residential properties. It requires a lot of know-how, so it will only appeal to serious DIY types.

Investors seeking exposure to real estate without the added headaches associated with owning a property or real estate investment trust (REIT) could be the answer.

A REIT is a company that owns, manages and finances all types of real estate, from shopping malls to office buildings to multi-family homes. Public REITs trade like stocks and are highly liquid. Best of all, REITs are obligated to pay 90% of their profits as dividends to shareholders, providing both income and capital appreciation.

All Stripe REITs are very sensitive to economic conditions. Investments in REITs focused on healthcare and residential real estate are likely to be less volatile than REITs focused on economically sensitive projects such as shopping malls and office buildings.

How to invest $10 million in alternative assets

Alternative investment asset classes include everything from hedge funds, venture capital and private equity to collectibles such as art, antiques and wine. Many of them, as specified by the Securities and Exchange Commission, are available only to eligible investors, but assets under management (AUM) are no obstacle to his $10 million investor. .

Alternatives are less correlated with traditional asset classes and therefore offer valuable diversification benefits. They tend to weather volatile markets well, and some, especially oil and other commodities, can provide a hedge against inflation. Above all, alternatives are preferable given the potential for higher returns.

Of course, higher returns come with a higher level of risk. Many hedge funds, private equity and venture capital funds are neither registered nor regulated. They are less transparent and many are relatively illiquid. Investment minimums are high and in most cases there is a lockup period during which the investment cannot be redeemed. All these features make the alternative unsuitable for the average investor.

Hire an advisor to help you invest $10 million

Investors committing $10 million should strongly consider hiring a wealth manager. A portfolio of this size is difficult to monitor and requires professionals with extensive knowledge and experience.

HNWIs typically work with private wealth managers employed by large financial institutions. Wealth of this competence Her manager has extensive qualifications and experience and is supported by a team of professionals including attorneys, accountants, tax experts, property planners and more.

At this level, you can expect your assets to be managed holistically by a group of experts who manage the big picture. You can also enjoy a bespoke level of service rather than simply investing money. Naturally, the white glove treatment doesn’t come cheap. Fees are generally based on assets under management.

Your Personal Wealth Manager acts as the quarterback for the team assigned on your behalf. Qualifications and experience are essential to selection, but emotions and personal trust also play a role.

Ideally, your wealth manager will be involved in some of the most important decisions your family makes and will be with you for the long term. A home helps preserve and grow an asset for future generations.