Ep 17 - How I Would Invest $1,000,000 - 3 Approaches, 3 Stories, and 1 Question to Simplify Your Life

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 These aren't just slight variations on investing philosophy, but rather entirely distinct allocation strategies to solve or 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 neighbors' 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 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 U.S.

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 2.0 level if we have 1.0 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 financy 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 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.

After investing $600,000 in a broad-based ETF that covers global equities and establishes a long-term core investment, Chad might put $200,000 into emerging market ETFs through funds like VWO or EEM.

Again, not recommendations, just examples.

He might do this because historically emerging markets like India, Brazil, and China China have offered the potential for higher long-term returns due to the potential for faster economic growth, rising middle classes, and expanding infrastructure.

And yes, there is a certain irony here seeing as China is the second largest economy in the world right now.

However, these markets also come with much greater risks, including geopolitical instability, currency fluctuations, and less predictable regulatory environments, all of which Chad is comfortable with given his long time horizon and high risk tolerance.

That said, many of us investors stateside are still waiting for these magical emerging market funds to actually, you know, emerge.

Beyond that, Chad might allocate $100,000 to private equity or venture capital through specialized funds or online platforms.

The appeal of these investments lies in their potential, notice how I keep saying the word potential here, for higher long-term risk-adjusted returns compared to public equities, especially if you're gaining early exposure to high-growth companies before they go public.

However, the trade-offs, once again, are significant.

Less transparency, minimal regulatory oversight, and very limited liquidity.

I have dealt with numerous clients throughout my life who cannot get their money back from these funds when they want or need the money.

The mistake was if they needed the money, they should never have been in private equity or venture cap to begin with.

So we're obviously hoping to avoid this.

In some cases, your capital could be locked up for seven to 10 years or much longer.

So always read the fine print or have a professional do it for you who's not selling you the fund.

That illiquidity is precisely why private private investments are expected to deliver a premium return, because you're giving up access and certainty in exchange for potentially higher upside.

On top of that, fees tend to be much higher for these funds than for the public market alternatives, often with a 2 and 20 model, 2% annual manage fee, and 20% of profits.

To me, that's a joke, especially because these funds do not have a public public record of actually outperforming public equities over the long run.

On top of that, access is usually limited to accredited investors, those with a net worth over a million bucks, or annual income over $200,000.

It's a space that's as much about exclusivity and access as it is about returns.

As the saying goes, you pay for what you get.

or in this case, for what you might not see for a long, long time.

Finally, Chad might allocate the remaining $100,000 to crypto, assets like Bitcoin, Ethereum, or other tokens, depending on his comfort and understanding of the space.

Crypto potentially offers massive long-term upside potential driven by technological innovation, network effects, but as I've mentioned many times, comes with extreme short-term volatility, regulatory uncertainty, and risks that are still evolving.

For someone like Chad, this kind of speculative exposure fits within his high-risk, long horizon mindset.

It's just another frontier asset in his portfolio.

On the other hand, if Chad or you isn't into crypto and he's more of a Buffett guy, he could use that final 10% to build a concentrated portfolio of individual stocks.

A lot of people I know just love doing this.

For those going this route, just know that owning 20 to 30 well-diversified companies across different sectors is typically enough to reduce business-specific risk.

Beyond that, the diversification benefits tend to level off.

So know you don't need 300 stocks to be diversified across equities.

To recap Chad's aggressive allocations, 60% global equities, 20% emerging markets, 10% private equity, and 10% crypto or individual stockholdings.

And if you invest in this manner, you need to philosophically embrace volatility, have a low need for the portfolio to produce cash flow, and have a deliberate plan to maximize for tax efficiency and keep expense ratios low.

Now let's meet our second investor, someone taking a more balanced approach to investing a million bucks.

This approach is not about shooting for the moon.

It's about growing wealth steadily with enough protection to sleep at night.

Meet Nina Ellington, a 41-year-old former creative director, turned part-time Pilates instructor living in Austin, with her rescue dog and a color-coded spreadsheet affectionately named Money Master.

She's been through a few market cycles.

She doesn't panic when things get bumpy, but she's also not here for chaos.

Nina wants growth, but not at the expense of her peace of mind.

Namaste, my friends.

Her goal is clear.

Generate enough upside to outpace inflation and retire comfortably down the line.

But she's also realistic.

She may need to access part of this money in 10 to 15 years, maybe even sooner.

So she's building in some guardrails now.

Because a 20 to 30% drop would be more than just uncomfortable.

It could derail her plans.

So Nina's portfolio is built for resilience as much as it is for returns.

This portfolio will be a careful blend of global equities for growth, bonds and munis for downside support, and REITs, real estate investment trusts, and short-term treasuries to generate modest, flexible cash flow.

She doesn't want to beat the market.

She wants to outlast it.

She doesn't need her portfolio to be exciting.

She wants it to be intelligent.

Her investing comfort is high, but she also respects uncertainty.

She's read Dalio, she dabbles in Bogle, and she's probably got Morgan Hausel on audiobook during her Pilates sessions.

Nina's timeline is a medium term, her risk tolerance is moderate, and her real goal is autonomy, not adrenaline.

So let's get specific.

Here's how Nina might invest her million bucks.

She might start by having 40% in global equities through the funds that Chad used, either U.S.

or international.

But then she might have 20% of her money in bonds, a blend of intermediate treasuries and municipal bonds for some potential tax advantages.

She might then have 15% in real estate investment trusts or other income-producing real estate.

Then she might have 10% in alternative investments like gold, hedge fund strategies, or structured notes.

Don't worry, there are funds that take care of all of these.

And the remaining 15% in cash or short-term treasuries for greater flexibility and potential opportunity.

So how does this approach differ from Chad's approach?

Well, to start, Nina has far greater liquidity and access between the bonds, the cash, and the public global equities.

She has far less of her money locked up in long-term strategies, and she even has some downside protection hedge plays with the gold and alternative investments.

The alternative funds can and usually do cost more, again, higher expense ratios, than the public equities and bonds because most of these funds do require or utilize a manager to choose when and how to invest that money versus tracking a passive index like the S ⁇ P.

So if you invest in alts, just make sure you know what you're paying and whether you value that fee for what that asset class might be able to do for you on the downside.

Usually, alternatives are what's known as a non-correlated asset class to stocks and bonds, meaning that when stocks and bonds move one way, alternatives can and sometimes have moved in another way to mitigate your downside risk.

Again, you also don't need much in your portfolio to smooth the ride.

Even a 5% to 10% holding can greatly help in big market downturns.

And many investors do sleep better at night, knowing that they have some funds invested in the equivalent of Fort Knox.

This type of portfolio echoes Ray Dalio's all-weather thinking, where risk is diversified, not just your dollars.

It also pulls from stoicism, the idea that you don't control the markets, only your response to them.

The balanced approach is the equivalent of the humble portfolio.

And it's certainly not designed, I can't echo this enough, to beat the S ⁇ P 500 every year, but it might at least keep your heart rate down as your portfolio is exposed to endless ridiculous headlines.

And quick note, again, for the 1.0 listener here, remember if you are invested this way, balanced across growth equities and fixed income, you cannot compare your portfolio to the S ⁇ P market returns as you're not 100% invested in stocks.

It's not fair to you and it's not fair to your portfolio.

Your anticipated reward will always reflect your risk exposure.

So don't beat yourself up if you're not beating the market and don't beat your advisor up if they're not beating the market as this type of approach is not designed to get the same return as a portfolio consisting of 100% stocks.

Additional note, most target date retirement funds seek a strategy similar to this one.

and they tend to get more conservative as you get older.

Personally, I don't love this approach because it assumes all 50-year-olds are exactly the same and have the same goals, the same risk tolerance, and the approach is slightly conservative for my liking.

Oh, and I hate bonds.

See episode seven if you want to know why.

But if you really just want balance, peace of mind, low cost, set it and forget it, and have faith that a computer is adjusting your portfolio each quarter or each year based on your age, the target date funds are very hard to beat.

To recap Nina's approach and philosophy, growth still matters, but downside protection also matters and can be achieved via asset class diversification and occasional rebalancing is necessary to stay at your desired level of exposure to different levels of risk.

And now let's meet our third and final investor, Marge Buttersworth, our most conservative investor of the three.

She is 67.

widowed, sharp as attack, and proudly managing million dollars on her own.

She raised three kids, ran the household books with an iron fist, and now spends her mornings walking the dog and reading financial newsletters with her coffee, including my newsletter, to which she once responded directly to me, dear Tyler, TL, DR, get to the point more quickly next time.

Her only true investing mentor is Warren Buffett, and that's the only person she'll ever need to listen to.

So let's break down how Marge's money is actually working for her, because it's certainly not sitting in a dusty savings account, and she's definitely not YOLOing into meme stocks and donkey coins.

Her portfolio is built to pay her reliably, not stress her out.

She has worked to create this money and she now wants to enjoy the time she has left without having to think about how or where to generate cash.

First, about half of her money, up to 50%,

is in something called a laddered portfolio of treasury bonds and tips.

You can think of this like planting a row of apple trees that mature one after another each year.

She buys U.S.

government bonds with staggered timelines, some maturing in one year, others in two, others in three, and so on.

That way, she always has money coming due without having to sell anything.

And tips, or treasury inflation protected securities, are like regular bonds but with a little bonus.

They adjust for inflation, helping protect her spending power over time.

This part of her portfolio remains relatively safe, especially as she is addressing the two key dangers that I have addressed with bond investing, inflation risk via tips.

and interest rate risk via a ladder of bonds versus just buying and holding a bunch of 10-year bonds.

Next, Marge might put 20%

into blue-chip dividend-paying stocks or funds.

These are often referred to as dividend aristocrats or kings.

And these are companies that have a long history of not only paying dividends, but raising them every year.

Think of them as the grown-ups of the stock market who are just a little too tired to go out past 7 p.m.

She uses ETFs like VIG or SCHD, which are basically bundles of these relatively reliable companies.

These stocks give her regular payouts, like a paycheck from her portfolio, and a little potential growth to keep pace with rising costs.

Additionally, these stocks, and this is why I love dividend stocks, tend to be a little less risky than growth stocks, because even in market downturns, most of us still tend to need our toothpaste, our discount retailers, and our healthcare, sometimes even more so.

Then she's got 20% of her money in real assets and private lending, like farmland investment funds, private credit funds, or rental properties.

These are things people pay to use, like land, buildings, or capital.

And they usually pay higher returns in exchange for a little less liquidity.

But remember, she's got the liquidity covered with the bond ladders and the dividend stocks.

This part gives her slightly more yield, and it's not as tied to the stock market's mood swings.

This is called, once again, non-correlation, and it's a good thing for stability in your portfolio.

We want asset classes that do not respond to triggers in the same way over time.

Note, if you are having trouble finding funds or opportunities that reflect the above, real estate investment trusts tend to accomplish a similar result and are slightly more accessible and liquid.

Lastly, Marge would probably have 10% in cash-like options with high interest rates, like money market funds, high-yield savings accounts, or very short-term T-bills.

This is her I Want to Sleep Well at Night bucket, money that's always there when she needs it, earning something respectable while staying safe and accessible.

Put together, this is a portfolio built like a really good retirement cabin.

It's sturdy, warm, and fully stocked.

Additionally, it gives Marge predictable cash flow, keeps her principal protected, and lets her live her life without checking the stock market every morning.

Her portfolio is Benjamin Graham's margin of safety brought to life, and it echoes Warren Buffett's rule number one,

never lose money.

This is the kind of portfolio you could hand to your 75-year-old uncle or your early retired tech friend who just wants to read books, ride his bike, and get dividend checks while drinking cherry coke.

And that's why we like our dividend stocks.

This strategy particularly works for Marge because it aligns with her values and her reality.

She's done accumulating and now she is focused on preserving.

Her tolerance for risk is low, but her desire for autonomy is high.

She wants to live on the yield, not worry about the principal.

And for someone like Marge, this is a perfect portfolio.

So there you have it.

Those are three radically different ways to put a million dollars to work.

Chad Slater is going all in on aggressive growth, chasing long-term upside with global equities, venture bets, and a sprinkle of crypto.

Nina Ellington is finding her sweet spot in the middle, balancing growth with resilience through stocks, bonds, real estate, and just enough cash to stay nimble.

And Marge Buttersworth is focused on what matters most to her, income, peace of mind, and never touching her principal, just clipping coupons from her bond ladder and dividend stocks.

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 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.

How much risk can you stomach?

How soon will you need the money?

Do you want to grow your pile, protect it, or make it pay you?

And most importantly, what do you want your wealth to do for you?

And if you've made it this far, I offer you the quasi-reward in as much as you might think this is a reward that I promised.

Here is exactly how I invest my money at 42 years old.

But first, a few quick notes about me so you understand where I'm coming from.

I have no dependence other than 200 pounds of Bloodhound.

I have a low interest rate on my mortgage.

I live a very simple life that requires about $50,000 a year of disposable income.

I am highly risk-tolerant, and I am well-educated in investments as I managed money professionally.

And after all that time managing money professionally, I learned the following.

You'd be a radical ding-dong to overcomplicate what never needs to be overcomplicated, because I can control tax optimization.

I can control risk exposure, and I can control costs.

So I do all three and I do it as simply as possible.

I am currently invested 60% in a US S ⁇ P 500 fund that costs me 0.03% per year.

I am currently invested 20% in a growth fund that costs me 0.05% per year.

I am currently invested 5% in an emerging markets fund that costs me 0.03% per year.

5% in an international developed markets fund that costs me 0.04% per year, and the remaining 10% in a money market fund.

The S ⁇ P Fund and the Growth Fund establish my 80% core investment so that whatever else I do around the margins, I have something that I will rely on for the next 40 to 60 years of my life.

The international equities are simply for low exposure elsewhere, even though I'm becoming relatively confident that we no longer have non-correlation with most foreign markets.

and the 10% money market fund is actually new as of a year ago based on my now having quarterly tax payments as I can't afford to risk that money for future growth.

In other words, I am 90% stocks and 10% cash equivalents through tax-efficient, low-cost funds.

Or in other words, I am doing exactly what Warren Buffett is going to do with his entire estate plan.

And if you don't believe me, just read his 2014 letter to shareholders where he specifically shares that his entire estate will be invested 90% in an S ⁇ P 500 fund and 10% in short-term treasuries.

In closing, take a second and picture yourself within this episode.

Does one of these characters speak more closely than the others to where you currently are in life and how you want to invest your money?

Answer the questions yourself.

Picture where you might be on the curve, between risk and reward, between growth and security, between chasing more and enjoying what you have.

But I leave you with one final note, and I speak from experience.

Once you have a million dollars, you still are going to wake up tomorrow morning.

Life goes on, and the true art is not figuring out how to invest it.

or even how to get to it, but rather how to one day allow yourself to forget about it.

As the true privilege of having money is never having to think about it ever again.

Thanks for tuning in to your money guide on the side.

If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights.

And if you are interested in receiving some quick and actionable guidance each week, don't forget to sign up for my weekly newsletter where each Sunday I share three actionable financial ideas to help you take control of your money and investments.

You can find the sign-up link on my website, tylergardner.com, or on any of my socials at Social CapOfficial.

Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.