CD's? Mutual Funds? Savings Accounts? interest income help?

Question

A scenario was brought up where if you had 2 million what would you do?  My first thought was to put it in annual CD's and live off the interest (Assuming compounded and after being taxed on it, would be about 80k a year income.) and then Will the rest once a goner.  Is this even a good idea though? I mean a bank insures 100k max right? So to be safe, that would mean you'd have to make CD's in over 20 banks of CD's right? (It doesnt matter how many accounts, the max they cover in one bank is 100k?) With the goal that at the end of each year, before the interest is removed, it would have to be less than or equal to 100k right?
Is there a better way to do this and have your money SAFE?
Just a concept thought, nothing thats really happening BTW :(
But geez, wouldn't people with money over 100k in a single bank be concerned?
Lots of topics to cover I know but thanks to all with thorough answers.
The formula I came up with was Pe^RT and used something safe, 5% so 2mil/22 banks at 5%

dluo · Accepted Answer

How to invest $2M that falls from the sky into your lap depends entirely on the specific objectives and constrains of the individual, no single set of advice is good for everyone. From your question, I deduce the following:

1)The investor has below average risk tolerance – the focus is on income, CDs, FDIC insurance, and the need to be safe with the money; not capital gains and maximization of returns.
2)The gains from the principle will pay for the living expenses of the investor, which will average around the inflation adjusted amount of 80K per year. This is the liquidity requirement.
3)Nothing is said about the age or time horizon of the investor, I’ll assume 30 years for the lack of anything better. 
4)No legacy requirement – the investor don’t care about leaving any money after death.

Short of splitting you CDs between some 20 banks, the absolute safest investment is US government bonds. Since risk = return, savings bonds don’t pay much. It will however, more than suffice for the above assumptions: Drawing down on principle, the anemic real returns of 1.22% per annum will deplete $2M in 30 years. 

Not a problem since the 10 year TIPS just sold at the yield of 2.749% last week, and the new 30 year bond sold for 4.838% in May.

I would go with TIPS, since the principle grows with inflation.

For more risk and return, try diversified bond funds, but your principle will be protected 100%.

leeanne · Answer

So some research first. Check on history, performance and fees. I'd but a bunch in Vanguard Total Stock Market. I get the whole blooming market and won't lose more than the whole market does. Perhaps an emerging markets fund might do well but recently it appears that all markets are down. If you can get into dividend paying stocks/funds that's an added bonus. You could also go "safe" and put it in a high-interest savings or money market account for a while until you find what you're really comfortable with. Try to go with a company that has low fees as that can eat away your profits fast.

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CD's? Mutual Funds? Savings Accounts? interest income help?

2 Answers