3 Ways to Invest $1,000,000

Tyler Gardner (0:00)

These aren't just investing strategies. These are reflections of different lives, values and definitions of enough. And that's the whole point. There is no one size fits all portfolio, because there is no one size fits all life. And anyone who tells you otherwise is trying to sell you something. The right approach starts not with numbers, but with universally applicable questions.

Hello, friends, this is Tyler Gardner welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be. In this week's episode, we're asking literally the million dollar question. Once you hit that millionaire status, once you achieve this illustrious milestone, and once you have amassed that magical number that for some reason continues to just make people feel like they've somehow solved the money game, well, what now? How do we invest that million dollars to continue to thrive? How do we invest that million dollars so that the allocation strategy ultimately aligns with our stated goals, risk tolerance level, and time horizons? In this episode, I will show you three approaches to investing a million bucks. And if you hang around until the end of the episode, I will even share with you exactly how I invest my own money and why I invest my own money in the way that I do. But before we get into it, let's start with the hopefully obvious refrain by now, There is no one size fits all. Personal finance is and always will be personal. And what works for me may not work for you. And what works for current you may not work for future you. So even though the goal of this episode is to provide an in-depth exploration and analysis of three key investing philosophies and concrete approaches, all of which can be used by any person at any time, you always, always want to make sure to do your own research and to appreciate your own respective time horizons, risk profiles, and ultimate goals and values. And before we get into specifics, a quick note, not from a sponsor, but rather from my legal department. This is not advice. I have no licenses beyond my driver's license, and I didn't even get that until I was 21, because I was scared to drive, but that's for another episode. I am literally just a guy in the woods of Vermont, who has been given the privilege and opportunity to spend some time with you, thinking through the universal questions of how we spend our money and our time. These approaches should be viewed as nothing more than food for thought. All right. And now that my legal team is satisfied and has officially signed off on the episode, let's get to the good stuff and explore how we might actually invest a million bucks. Depending on who we are and what we might want to accomplish with that money. The three approaches we'll take today are all radically different and address wildly disparate goals and outcomes. These aren't just slight variations on investing philosophy, but rather entirely distinct allocation strategies to solve for entirely distinct challenges that face all of us. And, though the answers are not universal, the questions absolutely are. When do we want the money? How much do we want or need it to grow? How much do we want to protect the money? How much risk are we looking to take on? And how comfortable are we investing on our own? In the first case, we'll be exploring the aggressive growth approach, meaning this investor most likely has a high risk tolerance, a 20-year-plus time horizon, other income that will sustain them throughout the inevitable short-term market volatility, and a comfort with investing and asset allocation strategies. Or they're just a wonderfully content minimalist who needs very little to get by each day. Remember, this is why we cannot compare our number to our neighbor's numbers. As I can be very happy myself walking my bloodhounds in the woods most days, and capping it off with an episode of Curb Your Enthusiasm or reading a book on my porch. And most of that is free. But that's just me. In the second case, we'll be exploring a slightly more balanced approach. Meaning, this investor most likely has a mid to high-risk tolerance, understands the need for diversification across asset classes, meaning a mixture of stocks, bonds, real estate, and alternatives, and wants their money to start producing some supplemental income, but also appreciates the need for continued growth and tax efficiency. And in the final case, we'll be exploring a conservative approach, from the type of investor who values principal protection and capital preservation over growth and illiquidity. Primarily because they've already most likely reached their magic number and are able to live off of the interest alone and truly don't want to risk any erosion of their investments. Or maybe this is the type of investor who has already been through immense market turmoil and does not want to ever risk losing their investments or their principal again. This investor most likely has seen it all, is close to or well into retirement, and appreciates that at this point in their life, they'd like their money to work for them. They'd like to live off of the income from their assets, and their biggest fear would be taking on too much risk. So let's meet our first investor, and I will call him Mr. Aggressive himself, Chad Slater. Chad is a 32-year-old former product manager at a mid-stage startup, who cashed out equity after an acquisition and is now working remotely from Bali. Chad isn't interested in yield. He's interested in freedom, asymmetry and optionality, meaning he doesn't need liquidity and access to these investments anytime soon as he's got relatively low expenses, no dependence, and he's built for high-octane, long-term thrill-seeking upside potential. His catchphrase? If it doesn't 10x, I'm out. Oh, and a little known fact about Chad. He did once pay for his rent with an NFT before the world realized those weren't worth anything. Chad's approach is perfect for someone with the emotional bandwidth to handle not just a little turbulence, but an entirely turbulent ride. Someone who's okay seeing 10% to 20% weekly swings in their net worth. His portfolio in turn reflects that. He's invested in global equities, frontier markets, private venture funds, and yes, perhaps even a slice of crypto. He optimizes for tax efficiency with ETFs and avoids touching gains to let compounding run wild. He's not playing defense. He's playing to win big or not at all. So specifically, here's how Chad might invest his million bucks. He might allocate $600,000 to a low-cost tax-efficient ETF like VTI for US stocks or VXUS for international markets. These funds give him low-cost, broad exposure to the global equity market while minimizing taxes, since they rarely distribute capital gains and carry very low expense ratios. Now, before moving on, I don't ever want to talk to the 2 level if we have 1 listeners, which I know we do. An expense ratio is perhaps the single most important term and concept you need to know for investing on your own or through an advisor, because it's the fancy, finance-y, jargony way of saying, the amount of money you are charged on an annual basis expressed as a percentage of your gross investment. Let's put this in perspective. If you invest $100,000 in an actively managed mutual fund that charges you 1% per year for that fund manager to pretend to beat the stock market, you will be paying $1,000 a year just to be in that fund regardless of its performance, win or lose. So whenever we want to check our annual performance, we want to make sure we're checking our returns net fees, meaning after advisor fees and after fund fees have been taken into account. And it should come as no surprise, most advisors never talk to you enough about fund fees that can slowly and surely erode your long term wealth. And even though there's always no one size fits all, I personally look for passive managed index funds like Chad or ETFs that have an expense ratio of 0.05% or less. And that number is entirely arbitrary, it's just the number I like. Most of my own investments charge 0.03% to invest in them. All right, back to Chad, back to 2.0.