This is not troll question.. I'm seriously curious and thinking about this..
If toto win few millions, or somehow u suddenly inherited a big sum of money, what will you do with the money? Put into govt bonds and earn the rates? Property? What's the best move?
I did a bit of fantasising about this myself a couple of weeks ago
when the Powerball jackpot cracked the half-billion-dollar mark.
So the first thing is to get the obvious boring stuff out of the way. First, you always take the cash upfront. Powerball's stated jackpot (and all the other lotteries over here, I dunno about in Singapore) is based on taking roughly equal annual payments over three decades, but they use a low discount rate that makes "take the cash and invest it yourself" a better option. That takes the pot down from $560 million to $380 million.
Second, taxes. In America, this is a thing: you're going to pay about 40% of that pot straight back to the IRS in taxes. Depending on whether you live in an awesome state or a lame state, you might have to pay a state-tax nut on top of that as well. So that takes the pot down from $380 million to about $230 million.
But that means you still have $230 million burning a hole in your pocket.
There are a lot of externalities you have to think about here - hangers-on, scammers, clingy family, avoiding dodgy investments, walking-around money, how to suppress your urge to walk into the nearest Ferrari dealer and say "I'll take one of everything". These are the sort of things that wealth advisers charge thousands an hour to talk about, and I'm going to constrain myself to investment philosophies.
There are basically two investment approaches you can take when you get to nine figures. At this point, you're dynastically wealthy. You can pretty much set up your own charitable foundation or seed your own hedge fund. And most importantly, you can set your family up for life for at least a couple of generations if you're so inclined.
Option 1 is the ultra-conservative route. Buy a nice house, then stick the rest in govvy bonds. You'll pull about $3 million a year in tax-free interest, and really $3 million a year will set you up quite nicely, and you'll never have to worry about the money going boom.
There are a few big downsides to this, though. The first one is that there's no inflation protection here. Eventually, inflation will turn that $3 million a year into... well, still $3 million a year, but it won't buy you nearly as much. And until Singapore launches inflation-linked bonds, there's nothing you can do about that.
And the second problem is that there's no opportunity for capital growth. So you can live off the principal, but you'll be missing out on the opportunities to compound your portfolio and really establish a nice big legacy.
So what I'd do is option 2: a 50-50 stock-bond mix.
I'd keep away from private companies, from hedge funds, from asset managers, all that sort of rubbish, and stick to public companies because that's what I know best.
50% of it in bonds is a very conservative allocation, so you'll still never have to worry about the money going boom; but the 50% allocation to global stocks gives you plenty of opportunities for capital growth. Dividends are so generous right now that you'll actually earn more income from the stocks than the bonds, and you'll get serious compounding capital growth as well.
The portfolio could grow at 5-6% per year with not too much risk; your worst drawdown, even in the depths of the GFC, was only 25% top to bottom, and you'd have earned it all back by midway through 2010.
And the best bit - you'd still have $3 million a year of (totally passive-income!) walking-around money. $3 million buys a lot of nice holidays, and what's the point of having a quarter billion dollars in the bank if you can't take a nice holiday occasionally?
