If I Had $1000000: Managing and Investing Large Sums of Money

There are many different mind frames that are out there for investors. Some tend to look for income generated from their efforts. Others look for capital gains so that they can more control their income tax recognition. Others look for significant opportunities and then invest heavily in these investment opportunities. All different strategies can be ultimately successful and an investor can make money in a variety of different ways. The best strategy for investing depends on your investment horizon and risk tolerance. One additional factor that can go into play is the amount of capital that you have. How you do so will depend somewhat on the investment capital that you have.

If I were to have a million dollars, how I would manage it would fluctuate widely form how I would if I had lower amounts of money. Managing large sums of money is very different than dealing with smaller amounts of money. For one, you have more to lose with larger amounts of capital. Secondly, you have less of a need to make a significant amount of money as you already have a large reserve of capital.

Many turn to capital preservation as a way of investing once they have a large amount of capital. Often this is done through a large allocation of their investment capital towards treasury bonds and corporate bonds which produce a steady amount of income. Many times managers of large sums of money also maintain a large cash holding. The goal with having a large amount of money is often to maintain that capital as opposed to earning lots on it.

While investing for capital preservation is often a good idea for older investors, many younger wealthy investors would only see an erosion of their purchasing power over time due to inflation. A pure capital preservation strategy may be the wrong answer for some of the investors with large capital amounts to handle.

As such, for larger amounts of capital we recommend that investors engage in a dividend growth portfolio by investing primarily in companies that pay dividends that escalate each year. By doing so, there’s a rising stream of dividends that they can move their money around if they do not need this money or can use to support their lifestyle. Companies that have a proven track record of raising dividends typically are reliable companies with wide economic moats that allow them the ability to outperform other businesses.

The benefit of having a large sum of money is that no one idea needs to capture your entire capital balance. Investors can pick and choose between a variety of different methods. Diversification is the key and you don’t want to have too much invested in any one stock. Some wealthy investors even turn to index funds as an vehicle which often paces more actively managed funds.

Managing large amounts of money is challenging, but so is any form of investing. Be sure to diversify with an eye towards capital preservation when you do.

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