What I Would Do with a Million Dollars Right Now

In Part I of the article, I discussed what I believe most people would do with $1 million that was either won or inherited.  And in today’s article, I will discuss what I would do with a million dollars.

As I previously stated, $1 million is a lot of money on the surface especially since the annual median salary in the US was $35,977 as of 2019.  But while the US has had low inflation for a long time, the true cost of goods has increased, which means that a million dollars won’t go as far as it used to.

The rest of the article will lay out what I would do with $1 million dollars of unearned money – money that I won in a contest or lottery, or that I inherited.  I am also going to assume that the $1 million is net of taxes. 

We discussed the average and median consumer debt in Part I.  However, I pay off my credit card debt on a monthly basis and I do not have any automobile debt, so while I assumed that our “winner” in the last article would pay off their debt of $67,000, I do not have any personal debt beyond mortgages on various real estate investments, so I would get to keep that money. 

Additionally, I own some residential properties in addition to my multifamily and commercial real estate investments, so I do not need to purchase a new home.  I also do not need a new automobile, so I would not go out and splurge on new cars. 

So many people don’t have a good idea of how to handle or manage money that it would be easy to get into a situation where they think that they have a lot more money than they actually have.  However, it is easy to overspend if you don’t know how to budget.  It’s a tough situation to be in, but it’s reasonable to see how it can happen.

I have a lot of financial discipline personally, which is because my mom taught me how to budget, how to save, and how to balance a checkbook.  My dad taught me how to invest in stocks.  And my professors in University and Graduate School, and my mentors after school taught me how to invest in real estate. 

Having that assistance in my youth and early adulthood has given me a lot of confidence about how I would utilize $1 million.  The truth of the matter is that I am constantly learning.  I am learning every day.  I work on “skilling up” all the time.  I want to be the best version of myself.  It isn’t always easy, but I follow proven leaders in their fields on discipline, finance, and personal development.

What I Would Do
Here’s what I would do with $1 million today.

What I would do first is set aside 10% (or $100,000) of the money into my bank account.  I would do this because I always try to keep approximately 10% of my net worth in cash or cash equivalents because I believe liquidity is important especially during downturns (or pandemics).  Without a cash cushion, you can get into trouble quickly.

After setting aside $100,000 into my personal emergency fund, I would still have $900,000 to do with as I please.  I will say that since the $1 million was unexpected, I would do a couple things to enjoy the money.  I would take another $100,000 and set it aside for future splurges on material items and experiences like travel.  I value experiences and travel over material things, however, I also recognize that many people I care about also enjoy material possessions.  This would leave me with $800,000 to do with as I please.

Candidly, I prefer increasing my cash flowing assets with money.  Extra income provides the ability to provide financial comfort and a cash cushion for life’s unexpected events.

With the $800,000, I would break up the investment into a couple of areas.  I would invest in the following three areas:

  • $100,000 into venture capital
  • $100,000 into the public stock market
  • $600,000 into private real estate investments

I am a big believer in diversification.  I never want to have all my investments in one place.  I did that before during the Internet bubble of 1999/2000.  I was 22 years old and had built up a decent sized portfolio of just over $200,000 for a 22-year.  The problem was that I invested on margin, which means that I had borrowed money to invest.  Prior to the Internet Bubble burst, my net equity was around $100,000…still, not too bad for a part-time trader who started with $1,000 when I was 16.  But when the bubble burst, I had to sell stocks that were dropping in price to pay back the margin.  When all was said and done, my $200,000 became $15,000, but with no leverage.  It was painful, as I had a plan to sell the stocks in the summer to buy my first house.  Little did I know how quickly things would change in the market, but it taught me a valuable lesson.  Diversify, diversify, diversify.

Even now, I refuse to invest in just one real estate deal with my investment dollars.  I would rather be invested in many deals. 

For me, cash flow is an important part of investing.  Real assets are important to me because they are a physical store of value that produce cash flow and potentially produce profits as well.

However, I also like the idea of getting large returns.  As such, with $1 million, I would take $100,000 and put that into a venture capital fund.  There is a chance that you can get a 3x to 10x return over a 10-year period with a reputable venture capital fund.  While I have invested in start-ups, I prefer making 100 small investments in start-ups rather than making one-off investments in one company.  I feel that the risk is reduced with a venture fund. 

I would also invest $100,000 into the public stock market.  This is more for liquidity rather than any other reason.  Even in the stock market, I look for value stocks that have stable and increasing dividends.  Despite the fact that growth stocks have been the best performers over the 2010-2022 bull run, I still like the idea of buying a strong company with good cash flow that can pay dividends to shareholders.  I feel like my investment is more secure in those types of value companies.

With the last $600,000, I would 100% invest in a number of well-chosen real estate investments that fit my investment thesis.  I would diversify based on asset type, geographic location, and Sponsor.  My personal investment thesis includes industrial properties, medical-related properties, and multifamily workforce housing at this moment in time.  I would invest on my own and with other Sponsors. 

With $600,000 invested in six to twelve real estate deals, I know for sure that I could earn cash flow in the $30,000 to $60,000 range annually. 

If you look at the internal rate of return (IRR) over a 5-year period, I am fairly confident that I can make between a 10% and 15% annualized return each year.  As such, the annualized return would end up being between $60,000 per year and $90,000 per year when taking profits upon a sale or refinance into consideration. 

The equity multiple on a 10% IRR would mean that over a 5-year period, I would get back 10% per year plus my initial equity.  As such, I would earn $60,000 per year times 5 years ($300,000) plus my original $600,000.  That would mean that I made $900,000 over a 5-year period.  $900,000 divided by $600,000 indicates that my equity multiple would be 1.50x.

The equity multiple on a 15% IRR would mean that over a 5-year period, I would get back 15% per year plus my initial equity.  As such, I would earn $90,000 per year times 5 years ($450,000) plus my original $600,000.  That would mean that I made $1,0500,000 over a 5-year period.  $1,050,000 divided by $600,000 indicates that my equity multiple would be 1.75x.

The table below shows the breakdown of what I would do an unexpected $1 million.

ItemWhat I Would Do
Emergency Savings$100,000
Wants (Material)$30,000
Wants (Experiences)$70,000

The premise I start with is that cash flow can improve your life.  It provides a cushion for your living expenses while also enabling you to buy things that you want, upgrade your lifestyle, and with good cash flowing investments, you also have the ability to reinvest both cash flow and returns into new, additional cash flowing deals. 

My goal is to prepare the future for my family.  I’m trying to make it easy financially for my wife and children if anything were to happen to me.  I’m the one who takes care of the investments for the family, but I want my family to know that they have liquid assets, physical assets, and financial investments.  Investing is my way of showing my family that they are taken care of financially.

I do this by having multiple streams of cash flow coming in from investments in the Americas and Europe primarily.  They would need those investments if my active income dried up, so I need to ensure that passive cash flow covers their lifestyle. 

And more to the point, I don’t expect to go anywhere, and I have a passion for investing.  As such, I plan to keep investing over time to further increase my active income and my passive income.  And then that way, I have the ability to take care of my retirement and all of my expenses while also being able to do the things that I want to do going forward.

I want to make sure that our kids are taken care of, but I also want them to strive in life.  On the other hand, I also want them to know that there is a backstop, which allows them to follow their passions.  In the future, there will also be a place for them in the family business if they desire to be involved, which would enable them to grow the business and continue to grow the cash flow for future generations.  I have so many friends who were brought into the family business and were given the opportunity to build upon the family assets to ensures success for the family long term and to also assist the causes they care about with time and money over time.

It is unfortunate how many people don’t understand the basics of money and that they believe that if they received an inheritance that it would last for a long time.  It could, but you have to have the right understanding of money, the right advisors, and the right people in your life. 

My advice is to take the time to learn about finance, money, the economy, and investments.  There are a lot of people who could try to take advantage of you if you come into a sudden inheritance or sudden lottery winning or even if they just get a big legal settlement or they get a big bonus from work.  In the end, you are responsible for yourself, your family, and your money, so take the time to learn as much as you can so that you can be in charge of your money.

I like seeing people get good solid advice from reputable advisors who can point them in the direction of good investments, but even more than advisors, you have to watch out for yourself.  More often than not, the majority of people who’ve just come into money end up spending the vast majority of the money, and not saving enough to invest to improve their lifestyle.

With a million dollar investment, you could retire on that or set yourself up for better things.  And that’s the fact of the matter.

It is wise to educate yourself and connect with people and organizations that can help you grow further.

Until next time, let’s continue growing our cash flow and net worth together! -Robert

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