How I Would (and Do) Invest $1 Million

The strategy I use to invest $1 million dollars is the same one I would recommend to others. Depending on your age the numbers will be slightly different, but you can use the formula in this post to find out what allocation I would recommend.

. 5 min read. Financial Independence, Investing.

What would you do with $1 Million Dollars in order to live off it for the rest of your life? For that to work, you’d need to put your money to work for you in the form of investing it in some way. You could start a business, invest in real estate, invest in the stock – or just buy a bunch of lottery tickets. My preferred method of dealing with this amount of money that I use myself is one that requires the minimal amount of work.

I’ve written about Why I Don’t Want to be a Landlord, (tl; dr: Lots of work and worry), on the business side I tend to be extremely conservative from a risk standpoint; favoring the idea of starting a side business over going all in. That leaves stocks as the main focus for these funds.

How I Would Invest $1 Million @ Age 30 While Working

The answer to this question heavily depends on the age of the person investing. This is my answer for someone who is 30 years old and currently working.

FundPercentAmountFee %Yearly Fee
VTSAX
Vanguard Total Stock Market Index Fund Admiral Shares
US Stock
50%$500,0000.04%$200
VTIAX
Vanguard Total International Stock Index Fund Admiral Shares
International
25%$250,0000.11%$275
VBTLX
Vanguard Total Bond Market Index Fund Admiral Shares
Bonds
15%$150,0000.05%$75
VGSLX
Vanguard REIT Index Fund Admiral Shares
Real Estate
5%$50,0000.12%$60
Bitcoin
Cryptocurrency
2.5%$25,0000%0
Ethereum
Cryptocurrency
2.5%$25,0000%0

There are a few core funds here. 90% of this portfolio uses a simple Vanguard Three-Fund Portfolio method. This simple allocation with these specific funds allows for a lot of market coverage with a very small set of funds.

The total fees on this portfolio turn out to be 0.06%, or about $611/year. This fee amount is tiny! It may seem like a lot of money, but 0.06% is a minuscule fee. This fee is less than most people pay on $100,000! By managing your own funds, investing in Vanguard Admiral funds and choosing index funds as opposed to actively managed funds, this fee is minimized.

This is the allocation at 30, but what would the allocation look like at a different age? Here’s the formula used to calculate these:

  • 5% in whatever you want (in my case cryptocurrencies)
  • 5% in REITs
  • Age/2 in Bonds
  • 1/3 of what’s left in International Funds
  • 2/3 of what’s left in US Funds

This simple allocation requires only a few funds, is diversified, has the potential for explosive growth and adjusts to being more conservative with age. This mirrors my personal asset allocation as well. I’m currently in a little less bonds than I should be, but other than that this is close to spot on.

If you’d like to try entering your age and seeing what the allocation looks like, check out this Google Sheet with the formulas.

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) – 50%

According to Marketwatch, this is the 2nd largest fund in the world. Investing in this fund means you’re actually investing in 3,606 different companies (at the time I’m writing this). This fund is focused on companies here in the US. The US has the longest history of growth in its stock market, and it makes sense for this to be your largest investment

Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) – 25%

There’s a lot of world out there beyond the US, and you don’t want all of your eggs in that basket. If the US goes into a recession, it’s important to hedge your bets by diversifying with other countries. This fund invests 44% in Europe, 30% in Asian/Pacific, 20% in Emerging Markets (Africa, India, others).

Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) – 15%

Bond funds don’t get enough credit. They’ve been somewhat stagnant the last few years, offering lower dividends than you could otherwise earn in the stock market. Bonds add an amazing level of diversification to your account though, which lowers the volatility of your portfolio. Take a look at how the 3 funds listed compare over the last 10 years.

The smooth rise of the bond fund in the portfolio isn’t just helpful for variability, it also outperforms international funds over the last 10 years! If you looked back another decade during the 1997-2007 period, the US Stock Market and International stock market lines would be swapped, with the dot-com bubble and the international explosion.

Diversification

In both cases having a mix of US, international, and bonds performs amazingly well overall. This is due to diversification.

When I first saw the above chart I was completely amazed by it. It enabled me to see in the clearest of terms that what was the highest performer one year may be the lowest the next. The “AA” allocation is a diversified mix of multiple assets. You’ll see that this box is never the best performing and never the worst. By diversifying assets, you’re guaranteed to be in the middle of the pack. There are few times in the investing world where you can say something is guaranteed, but diversification is one of them.

The Last 10%

The above 3 funds only account for 90%, but what about the last 10? I consider this group to be the highest volatility area and being OK with that. Part of the reason I hold bonds is to account for this group.

Vanguard REIT Index Fund Admiral Shares (VGSLX) – 5%

REITs are Real Estate Investment Trusts which invest solely in real estate. These generally fluctuate a bit more than some other funds but have been on a tear the last decade and a half – minus a massive dip during that whole housing market collapse. Even since then they’ve spent some time near the top.

VTSAX actually holds a small percentage of REITs as well — 1.72%. If you’ve invested 50% in VTSAX + 5% in VGSLX, REITs will make up 5.86% of your portfolio. This isn’t a huge difference, but it’s important to know.

Cryptocurrency 5%

This last 5% is likely the most controversial investment on this list. One of my personal investment rules is that 5% of my portfolio is free to try moonshots on – things that might pay off, but might lose all value. I’ve used this 5% to invest in specific funds in the past (most recently Apple, Tesla and Southwest which all paid off). Now, I’m dollar cost averaging money into Bitcoin and Ethereum.

Which Account Should I Use?

Knowing what to invest is only part of the picture, you also need to know where to invest. I’m only going to touch on this now (because it’s a huge topic), but it’s important to invest in the most tax-advantaged accounts you can. For bonds, this means 401k if you have one. Knowing which accounts to use could make as much a 20% difference (or more) in your total value later on. If you’d like to make 20% more with your investments, it’s worth understanding why you should use specific accounts.

My Rules For Investing

These are my personal rules for investing that I follow. These rules help prevent me from making stupid, irrational decisions based on emotion.

  • 5% of my portfolio can be played with — never risk more than that.
  • For the other 95%, don’t buy anything you don’t plan on holding forever.
  • Rebalance assets every year by investing more into areas that are below the target percentage.
  • Always buy things in the most tax efficient account (401k, Roth IRA, etc).
  • Invest as much as possible each month.

I’ve had these rules for the past 10 years and I’ve yet to break them. My personal investment growth during that time has exceeded my dreams. These guidelines with time on your side is plenty to build an impressive portfolio.

Keep Learning

Was this post helpful to you? The concepts in this post are explored in much more detail in Minafi’s Minimal Investor Course which helps guide you from beginner to investor. This course digs into much more details on topics like asset allocation, diversification, taxes, rebalancing, account types – with hands-on exercises to help understand these topics. If you’re wanting to learn more and get started executing on the investments listed in this post, sign up!

Summary

Let’s recap. Here’s the rundown of the funds I would put in my $1 million portfolio.

  • 50%, $500,000, Vanguard Total Stock Market Index Fund Admiral Shares
  • 25%, $250,000, Vanguard Total International Stock Index Fund Admiral Shares
  • 15%, $150,000, Vanguard Total Bond Market Index Fund Admiral Shares
  • 5%, $50,000, Vanguard REIT Index Fund Admiral Shares
  • 2.5%, $25,000, Bitcoin
  • 2.5%, $25,000, Ethereum

This post was inspired by and entered in the How to Invest a Million contest. Check it out to see some other portfolios and on October 1st vote for your favorite.

What would be, or is in your $1 million portfolio?

17 comments

  1. Somewhat similar to mine, but because I am older (and not used to the newer bitcoin type of investments) I do have some differences.

    At 53 here is my allocation of our $1m (all vanguard index)

    17.5% s&p
    17.5% foreign
    17.5% small cap
    17.5% REIT
    30% bond.(increased from 20% 3 years ago).

    Rebalance twice a year.

    Not unhappy with results

  2. The simplicity of life that lottery winners could have hey! Just too bad they are always at the other spectrum with no money in one year. As for your allocation it has some fun stuff in there but personally I’m on the dull side and stick to my three fun (Canadian) portfolio with VAB VCN VXC . Regardless the knowledge that a person can do it themselves and spend such a crazy low management fee should be spread around more. Great post

  3. When I was 30 I didn’t own any bonds. I wouldn’t recommend it for others who are 30 either – at least not in retirement accounts. With a 29+ year investing horizon stocks are the way to go. Now, once someone gets closer to retirement, bonds start to make more sense. Besides that point, and the Bitcoin*, I like it.

    *BTW, I understand your thoughts on this. While I don’t believe in Bitcoin, I do have about the same % allocated to start-ups as an angel investor. Just as risky but just ties more into my comfort/familiarity zone.

    1. Ahh interesting feedback! I’ve seen a lot of portfolios that don’t invest in bonds for this reason too. What would you think about bonds in a portfolio for someone who is 30 and hoping to retire at 40?

      1. It would depend on their need for returns. Would the lower returns of a stock/bond mix achieve their goals? Also depends on their ability to tolerate the risk. For example could their handle a large correction and still meet a 3-4% drawdown rate to live on? And lastly it depends on their willingness to accept the risk.

        Yet another one of those “it depends” situations. 🙂

  4. Bitcoin!?!
    Ethereum?!?

    I understand that Bitcoin has soared prior to its bubble and with China putting more restrictions, I can only see this causing it to dip faster.

    I know this is a hypothetical so we can do anything with the money, but I am curious why not use 5% as venture capital. I think it would be a whole lot more FUN plus the upside might outpace crypto. Just a thought.

    1. Haha, I know I know. Crypto isn’t something I’m all in on like some people, but 5% is enough I don’t lose sleep at night – and still feel good enough to cash in when something good happens.

      5% as venture capital sounds really interesting to me though. What would something like that even look like? I’m not too familiar with how I’d invest in that category. Any tips?

  5. What’s your take on investing thru Betterment ? Loss cost investing using algorithms etc…do you invest thru an E trade or TD Ameritrade to avoid management fees?

    1. I prefer to investment myself through Vanguard rather than use Betterment/Wealthfront. The one advantage they have to me is tax loss harvesting, which I do some of on my own in my Vanguard account.

      A 0.40% fee + the expense ratios for the funds you’re in will make the difference between paying out 1.20% percent of your gains in fees vs 13.50% in fees. (for 0.04% fees vs 0.50% fees over 30 years). In other words – even with Betterment, you’re paying 10% of your gains for their service. For it to be beneficial, the tax loss harvesting would have to exceed that amount, and I don’t see evidence that I can point to that says that’s the case (it could be, but it would depend on the market).

    1. Thanks! I’m on the fence on the “trust” side of crypto too – well much more leaning towards not trusting it. I think that could eventually shift as there are less speculators and more people just using it – but it’s hard to say when/if that’ll happen.

      Using a mid-cap in that area is much more reasonable idea.

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