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If you have $10 million to invest, count yourself as a high-net-worth individual (HNWI) with the freedom to choose from a multitude of investments.
This kind of money lets you do more than just retire early—you can build wealth to benefit future generations or support the causes that are important to you. But just be warned, properly managing this much money can be a big challenge.
Financial Goals, Investing Timeline and Risk Tolerance
The same basic principles apply to your investing strategy whether your net worth is $100,000 or $10 million. Investors large and small start from the same point, determining their financial goals, investing timeline and risk tolerance.
What Are Your Financial Goals?
How you invest depends on what you want to achieve, and that makes determining your financial goals the key to your strategy.
With $10 million in hand, there’s no need to worry about how you’ll afford retirement. Instead, the focus should be on preserving wealth and generating income to fund a comfortable lifestyle. Maybe you’d like to get involved in philanthropy. If you have children, you’ll probably want to leave them a rich legacy.
No matter what your goals are, outline your objectives and determine what level of returns and income you’ll need to achieve them.
What Is Your Investment Timeline?
Your investment timeline is a function of your age and your financial goals. Younger investors with a longer time horizon start out with a high allocation to riskier assets like stocks, and gradually shift toward fixed income over time.
With $10 million to invest, you have more freedom from the tyranny of investing timelines, making this a much less important component of your strategy. Nevertheless, it’s worth considering how long you have to achieve the goals you’ve set.
What Is Your Risk Tolerance?
Risk and return are directly proportional, and you must take on risk if your objective is high returns. Longer time horizons make it possible to assume more risk since there’s more time to recover from losses.
But emotional factors influence risk tolerance as well. How would you react if your portfolio fell by 50% or more in a bear market? Do you have the temperament to stand firm and stick to your investment plan, or would you be tempted to run for the exits? Are you a gambler prone to taking big risks for big potential rewards, or are you somewhere in the middle?
How you acquire your wealth may also impact risk tolerance, as some HNWIs fear that if they lose a lot of money, they’ll have no way to make it back. An entrepreneur who sells a business for a lot of money may feel differently.
Your Goals, Timeline and Risk Appetite Set Your Asset Allocation
Asset allocation is how you divide up your portfolio among different investment assets, like stocks, bonds and cash. To choose the right allocation, you consider your goals, timeline and risk appetite.
As investments fluctuate in value, you’ll need to adjust your asset allocation and rebalance your portfolio. You’ll also want to develop quantitative parameters to guide your investment decisions.
When the long-term investment strategy is in place, it’s important to stick to it through varying market decisions and avoid getting carried away by emotion 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 for every investment portfolio. But with $10 million to play with, you’ll enjoy more flexibility in your portfolio allocations than most investors could dream of.
Growth vs. Value
Many investors focus on different styles of investing, preferring either a growth or a value strategy. Growth companies are characterized by revenues and profits that grow faster than industry and market averages.
Value stocks are the opposite—they’re underappreciated companies that trade at prices lower than their fundamentals would suggest. These companies have strong balance sheets and return profits to shareholders.
If you have doubts about value investing, look toward renowned investors like Warren Buffett and Mark Mobius to see the results.
With $10 million to invest, there’s a pretty good chance you’d prefer to generate a stream of income to fund your lifestyle. Buying the best dividend stocks is one way to pursue this goal.
Look for stocks with healthy dividend yields, which is the dividend divided by the stock price. For example, a $5 dividend on a stock selling at $100 offers a 5% dividend yield.
The great thing about dividend stocks is that, unlike bonds, you enjoy an income stream without giving up the opportunity for capital appreciation.
Preferred stock offers the income and appreciation of dividend stocks, plus greater protection for conservative investors who are looking to preserve their wealth. However, they’re a bit different than common shares. As with the par value of a bond, the dividend is expressed as a percentage of par. The par value isn’t related to the market value in any way.
The name of this type of stock comes from the fact that preferred shareholders take precedence over common shareholders. Preferred dividends are declared and paid before the common stock dividend, and these shareholders are paid before common shareholders in the event of bankruptcy.
If you have a significant amount of money to invest, you may want to diversify among a variety of 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’re important for diversification because they move in the opposite direction of stocks.
Corporations and governments issue bonds to fund their operations. They have a face value—also called par value—a coupon rate and a maturity date.
Say a company issues a 20-year bond with a coupon rate of 6% and a par value of $1,000. If the coupon is paid annually, the bondholder receives $60 per bond every year over the tenor of the issue. If the bond is held to maturity, the principal is repaid at the end of Year 20. Many investors choose to trade bonds in the secondary market before they mature.
There are many types of bonds. U.S. Treasury notes, bills, and bonds are considered equivalent to a risk-free investment and their rates are used as the risk-free rate in financial calculations. Maturities range from weeks to as long as 30 years. While Treasurys are a secure source of income, rates are very low.
Standard & Poor’s, Moody’s, and Fitch assign credit ratings to bonds. Taking corporate bonds as an example, these can range from AAA bonds of the highest quality to high-yield bonds, also known as junk bonds. These bonds are high-risk, issued by companies that may have trouble repaying the obligation, and thus pay much higher interest to compensate for the risk.
Municipal bonds are issued by state and local governments to pay for public projects. Munis can be a very attractive source of income since interest is free from federal and state taxes most of the time.
How To Invest $10 Million in Real Estate
For the high-net-worth investor, real estate can be particularly attractive. It can yield high returns and is an excellent source of diversification. However, the market can be volatile and prone to bubbles.
There are several ways to invest in real estate. Rental properties can be an excellent source of income, but few wealthy investors will want to be involved in managing them and management-related costs can reduce returns. Some investors enjoy renovating and reselling residential properties. This is likely to be attractive only to the real DIY type, as it demands considerable know-how.
Investors who want exposure to real estate without the additional headaches that come with owning real property and real estate investment trusts (REITs) could be the answer.
A REIT is a company that owns, manages, and finances real estate—every type of property from shopping malls to office buildings to apartment complexes. Public REITs trade like stocks and are highly liquid. Best of all, REITs are obligated to pay out 90% of profits as dividends to shareholders, offering both income and capital appreciation.
REITs of all stripes are very sensitive to the state of the economy. Investing in REITs focused on health care or residential properties are likely to be less volatile than those focused on economic-sensitive projects like shopping malls and office buildings.
How To Invest $10 Million in Alternative Assets
Alternative investments asset class includes everything from hedge funds, venture capital, and private equity to collectibles like art, antiques, or wine. Many of them are available only to qualified investors, as designated by the Securities and Exchange Commission, but that won’t be a stumbling block for an investor with $10 million in assets under management (AUM).
Alternatives exhibit a low correlation to traditional asset classes, so they offer valuable diversification benefits. They tend to weather volatile markets well, and some, particularly oil and other commodities, can offer a hedge against inflation. Most of all, alternatives are desirable given their potentially higher returns.
Of course, higher returns come with elevated levels of risk. Many hedge funds, private equity, and venture capital funds are unregistered and unregulated. Transparency is low, and many are relatively illiquid. Investment minimums are high and most have lockup periods during which investments can’t be redeemed. All these features make alternatives unsuitable for the average investor.
Hire an Advisor to Help You Invest $10 Million
Any investor with $10 million to commit should strongly consider hiring a wealth manager. A portfolio of this size can be challenging to watch over and demands a professional with significant knowledge and experience.
HNWIs typically work with private wealth managers employed by leading financial institutions. A wealth manager of this caliber will have extensive qualifications and experience and will be backed by a team of professionals including attorneys, accounts, tax specialists, estate planners and others
At this level, you can expect your wealth to be managed holistically, with a platoon of professionals to manage the big picture. You’ll also enjoy a bespoke level of service that may extend far beyond simply investing your money. Naturally, white glove treatment doesn’t come cheap. Fees are typically based on assets under management.
Your personal wealth manager will act as the quarterback for the team deployed on your behalf. While qualifications and experience are vital in making your choice, emotion and personal rapport also play a major role.
Ideally, your wealth manager will be with you for the long term, involved in some of the most significant decisions your family makes. With a relationship built on trust, the right professional can help you preserve and grow your wealth for future generations.
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