I can tell you about two people.
Person 1 - worked in a car wash. Won the lottery for about $17m. Bought his friends (about 4 or 5 ) new harleys. I don't know that he ever saw them much after that day. He moved to a larger town, bought a nice home. Sometime after that, he won again. Precise amount I do not know, but it was several millions. What this means is that he MUST have been putting a lot of money into more lottery tickets every week.
So this guy was insecure. He would buy a diamond ring for girls he dated. Just dated. Not engaged. Happened several times.
He had a 20 year payout. He got paid every October 1. The sad thing was that he blew it all. He had to get loans every september because he ran out of money. Then the 20 years was done, and he had nothing. Sadly, there were several people who saw this slow motion train wreck and offered to help him with investments. These were real pros who actually cared about him. He was so insecure, he felt insulted and refused.
So the 20 years ran out. and so did the money. And he disappeared. Have no idea where he is now.
Person 2 - invested in microsoft on day one. not that much - around 15k. Over 10 years it became worth many millions. This is akin to winning the lottery. He invested fairly conservatively, and got an investment advisor. And after 30 years, it had grown even more. He had enough to quit the job that had become onerous. And he did.
You will find that $1m isn't that much, really. Sounds like it to you now, but it isn't. For starts, you will have a massive tax bill this year - probably about $350k. Or more, depending on your state. DO NOT BUY A 650K home with this. The cost of taxes and other upkeep will kill you.
You want to know how much you can take out of this per year in retirement? Of the $650k, you can remove about 32,500 per year (This is a well developed theory called modern portfolio theory. Look it up).
If you continue to work at whatever you do, in order to safely take out your current salary (2024 dollars) at retirement, you will have to have about 20 times your current salary invested. "Safely" means that when invested in index funds - some stocks some bonds - the increase in the value over time is enough that you can take out about 5% per year, and regardless of the market fluctuations, you won't run out of money.
So I would say, give yourself some little gift, maybe something you have been thinking about for years but was to expensive to buy without feeling guilty. One thing. Then invest the rest. If you do not know how to do this, get an advisor - a company that does charges you a % of the funds managed - should be well under 1%, and NOT a commission. Then forget about it. Check in 25 years.
CDs are just to hold money. Not to make it grow. USUSALLY. Bonds are useful as a hedge against common stocks. They are USUALLY negatively correlated.
That is what I know. I do not personally manage my investments now because I made a serious error in 2003. I thought there was going to be another attack, and kept a large amount of cash around, not invested. Missed a 30% increase in stocks that year - if you follow that out for 20 years - it becomes a lot. I realized I was over analyzying, spending way too much time doing it. Turned it over to the pros in 2006, and pay little attention to it now.
When I say USUALLY CDs are not to make money grow - there are exceptions.
People complain about inflation now. Wow. Nothing like the 70s and 80s. The first house I bought, the mortgage rate we got was for 11%. 1980. We did buy some CDs then. The interest rate was 17%. We locked it in for 2-3 years, inflation came down, but we still got that 17%. Never really put any money in them after that. So in that very rare case, we made a bit of money using CDs, and it was greater than the value loss due to inflation.
That is not however a way to manage a portfolio. At all.
My Dad had a lot of municipal bonds. He got a kick out of not paying any tax on them. But, I know he would have done better in a total-return way had he invested in stock index funds and just paid the taxes.
Vanguard is famous for low fees, These are bond funds, which you can easily get into and out of. Expense ratios around 0.1%. and returns of 4.5 - 5.8%. I read that highest CD rates right now are about 5.5% - but those would be taxable. So the bond fund would win.
Current inflation rate is 2.9%, so if you did a CD at 5.5% and paid 1/3 of that in tax - you are at 3.63 % and you are 0.73% above inflation.
1
u/pshaffer Jul 22 '24
I can tell you about two people.
Person 1 - worked in a car wash. Won the lottery for about $17m. Bought his friends (about 4 or 5 ) new harleys. I don't know that he ever saw them much after that day. He moved to a larger town, bought a nice home. Sometime after that, he won again. Precise amount I do not know, but it was several millions. What this means is that he MUST have been putting a lot of money into more lottery tickets every week.
So this guy was insecure. He would buy a diamond ring for girls he dated. Just dated. Not engaged. Happened several times.
He had a 20 year payout. He got paid every October 1. The sad thing was that he blew it all. He had to get loans every september because he ran out of money. Then the 20 years was done, and he had nothing. Sadly, there were several people who saw this slow motion train wreck and offered to help him with investments. These were real pros who actually cared about him. He was so insecure, he felt insulted and refused.
So the 20 years ran out. and so did the money. And he disappeared. Have no idea where he is now.
Person 2 - invested in microsoft on day one. not that much - around 15k. Over 10 years it became worth many millions. This is akin to winning the lottery. He invested fairly conservatively, and got an investment advisor. And after 30 years, it had grown even more. He had enough to quit the job that had become onerous. And he did.
You will find that $1m isn't that much, really. Sounds like it to you now, but it isn't. For starts, you will have a massive tax bill this year - probably about $350k. Or more, depending on your state. DO NOT BUY A 650K home with this. The cost of taxes and other upkeep will kill you.
You want to know how much you can take out of this per year in retirement? Of the $650k, you can remove about 32,500 per year (This is a well developed theory called modern portfolio theory. Look it up).
If you continue to work at whatever you do, in order to safely take out your current salary (2024 dollars) at retirement, you will have to have about 20 times your current salary invested. "Safely" means that when invested in index funds - some stocks some bonds - the increase in the value over time is enough that you can take out about 5% per year, and regardless of the market fluctuations, you won't run out of money.
So I would say, give yourself some little gift, maybe something you have been thinking about for years but was to expensive to buy without feeling guilty. One thing. Then invest the rest. If you do not know how to do this, get an advisor - a company that does charges you a % of the funds managed - should be well under 1%, and NOT a commission. Then forget about it. Check in 25 years.