Cogent as always, Rich Carreiro wrote:

- quote -

Don't forget the original poster specified that he needed investments that
were sufficiently liquid that he could sell $100K on any given day, which
is 10 percent of his $1 million portfolio. Yet he pays lip service to
"preservation of capital." Toward the end of the thread he claims to have
made the million by age 30. Yet the original post described a hypthetical
investor who was 55 years of age. He stresses not leaving a "paper trail"
for the IRS. Yet other posts suggest he's just trying to defer taxes.

There are three possibilities, it seems to me. First, this guy is just
yanking our chain. Second, he's legit but he has a poor command of
investment basics and English composition. Third, he's involved in some
kind of illicit activity and he can't consult a real financial advisor.

If he's not up to no good, Rich had it correct the first time around: But
Treasuries and be done with it.

"raylopez99" <raylopez99[at]yahoo.com> wrote
- quote -

No, we don't all agree on this. You're mixing apples and
oranges when it comes to investing.

I suspect you meant something other than "deferring tax"
above.

I think you're a little too eager and optimistic that there
are ways to keep the government from taking its share for
services rendered to you. Perhaps your problem is with the
United States system of business and government? Asking
where you can live so as to keep more of your money etc.,
but maybe not enjoy all the other benefits of U.S. business,
living, etc., is not an unreasonable question and does come
up now and then. Many ex-patriots seem pretty happy.

"raylopez99" <raylopez99[at]yahoo.com> writes:

- quote -

It would take 20 seconds for an IRS agent (and near-instantaneous for
an IRS computer), seeing that you got $1000 in dividends from Fund (or
stock) XYZ to divide that by the publically-published-by-the-fund
distribution per share to get the number of shares you have, and then
multiply that by the publically available price of the fund/stock to
figure out how much money you have in the fund.

And IRAs won't save you since IRAs have to report their 31 December
value to the IRS every year.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

"raylopez99" <raylopez99[at]yahoo.com> wrote
- quote -

Ray, IMO you're really out in left field here. Someone with
$10 million is not likely to surf the net or come here for
advice. They can afford a financial advisor.

Also, someone with a million dollars to invest most
certainly would be served well by these online tools.

- quote -

Ray, I think you really need to work on your wording. If
Monte Carlo methods seems to be the most reasonable model to
you to use, fine. But the method is not "infallible." It is
only as good as its assumptions, which aren't all that
different from other models which use historical returns.
The assumptions Monte Carlo uses are huge.

<snip offensive epithetRay, I regret the use of an epithet at the end of your last
post. It is inappropriate. I don't care what religious
culture you or anyone else here is, and none is more special
than any other.

If you have a million dollars to play with, I suggest you
hire a for-fee financial advisor, to reinforce many of the
points in this thread, which I sense you are hesitant to
accept, mostly out of lack of investing experience.

Whatever you do at this point, don't make any quick
decisions about investing outside of say a money market fund
at this point. Take at least six months to get a handle on
some of the points being made here.

Elle wrote:
- quote -

Useful to me. :-)

- quote -

Yes, like the amount of money invested is typically less than $1M
(i.e., can you see anybody putting $10M into a stock mutual fund? Not
unless he's George Soros where $10M is like $10k for the rest of us),
and I don't see illiquid vehicles like real estate (outside of trusts)
listed.

- quote -

Yes, I do that.

- quote -

are pretty infallible in my book. Here is a typical example, good for
refining the rule of thumb that you should never withdraw more than
3-4% from a fund per year (for a perpetual fund):
http://www.moneychimp.com/articles/v...montecarlo.htm

- quote -

Thanks Elle. I'm not a professional like you, but I did earn 1M before
age 30 which is pretty good IMO. Jew boy does good.

RL

Thanks Rich, that analysis seems sound. I'll keep it in mind. The
only wiggle I can add, that might still justify picking a
'tax-efficient' fund rather than a non-tax-efficient fund (and I think
we all agree that deferring tax is not such a big deal, if at all, from
an investment point of view, in that the real rate of return is roughly
the same for 'tax-efficent' versus 'non-tax-efficient' funds, putting
aside the 'step up basis' inheritance issue at the death of the fund
holder), the only wiggle is this (and it is a metaphysical wiggle):

It seems to me that if the IRS does not know, because they don't get
that many year-end distributions from you, how much money you have
invested (since an IRS agent, if she gets a 1099 from QQQQ, which
according to Morningstar has a tax cost ratio of 0.10%, where you have
$1M invested, might see $1k in a year end distribution, but if you had
the same $1M in Fidelity Magellan fund, which has a 1.34% tax cost
ratio, the IRS would see $13.4k per year on average) the better off you
are, to the extent the IRS targets 'rich' people using their secret DIF
function. But this argument is metaphysical since nobody really knows
what the DIF function is. But in my mind the less the government
"readily" knows (readily, since they can find out anything about you if
they spend enough time or money), the better off you are.

RL

"raylopez99" <raylopez99[at]yahoo.com> writes:

- quote -

If things get to the point that the govt actually does that, what
makes him think the govt won't also require financial institutions
to report account balances to the govt? So unless this person
is going to stick his $1mil in his mattress (in which case why
ask about investments at all), he's not going to be able to hide
it from some hypothetical future don't-let-the-millionaires-escape
government. And like I and others have already said:
(1) Non-muni bond funds will report to the IRS every year.
(2) Muni bond funds won't (aside from reporting realized
capital gains from fund turnover), but if your friend
isn't cheating he'll have to report the exempt income
on line 8b of his 1040.
(3) Non-muni zeros report OID to the IRS every year.
(4) Muni zeros don't, but the taypayer must report the
muni OID in 1040 line 8b.
(5) Most equity mutual funds have at least the occasional
distribution, and on top of that, your friend doesn't
want much in equities in the first place.

So, absent the mattress approach, he's not going to be able
to hide much of anything from the IRS year-to-year (unless
he cheats, of course). And if the "don't let the millionaires
out of the country" outcome he worries about happens, you can
be sure any such law will require financial institutions to
report account balances to the govt, since such a law would
be unenforceable without such a provision. So given that his
"not have a paper trail" asperations are hopeless if he wants
to (a) invest the money but (b) not put it all into non-dividend
paying equities, he'd probably be best served, even in the
context of his privacy paranoia, of investing it wisely without
regard to "paper trail" considerations. And if the "paper
trail" stuff is really that important to him, perhaps he shouldn't
investing the money in financial instruments in the first place.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

"raylopez99" <raylopez99[at]yahoo.com> wrote
- quote -

Depends on what you mean by "useful."

All these calculators rest on certain assumptions.

With all the calculators, the user should be willing to
adjust the parameters to mimic his/her situation. For
example, if one is 45 years old and retired, fudge the input
to reflect a lower risk tolerance than someone 45 and
planning on working another 20 years.

I recommend experimenting with all the calculators at the
aforementioned site to help build a philosophy for one's
portfolio. No one calculator may be adequate to one's needs.
A lot is taste. A lot is guesswork, since the models tend to
use past returns to predict future performance, and we all
know that's not an iron-clad guarantee of anything.

I trust you will continue to lurk here and learn more.
You've got a good start, and you're asking good questions,
but I sense some naivete, as well...

Ignoramus20015 wrote:
- quote -

I would add to ignoramus20015 (DC!, makes sense) the legal reasons that
the person is a privacy freak. He fears the DC gov't (Fed) will close
borders to those with money (though nowadays $1mil is not that much
money; from the net: 'In the year 2002, there were 17.1 million
Millionaires in the US By 2013, the number of millionaires will triple
due to inheritance.')

BTW, I notice most calculators are geared to people investing $100k
not 1000k. But the most useful calculator was on the IFA website:
http://www.ifa.com

After plugging in all the numbers on the short screen, I came up with
the model portfolio of "Ivory", the most conservative, which has 84% of
the portfolio in fixed income (!), 6% is in large cap stocks, and the
remaining 10% is in other things. This actually sounds like my friend
would go for it--to date I don't think he's bought a single stock ever.

Thanks to all,

RL

- quote -

If I just won a million, I'd skip the next 10 years of working and retire
now.

Elizabeth Richardson

- quote -

Perhaps the OP wants to hide the fact that he has the money, perhaps
he obtained it illegally, or hid from ex-wife, or something like
that.

i

"raylopez99" <raylopez99[at]yahoo.com> writes:

- quote -

Non-muni zeros get reported to the IRS every year -- 1099-OID.

And assuming the person is actually following the law, the imputed
interest on muni zeros needs to be reported every year on Form 1040
line 8b (and on Form 6251 if they are so-called "private activity bonds").

And what is the person so afraid of re: the IRS that he's willing to
let this "paper trail" thing so distort what he's willing to invest in?
Seems to be a rather extreme (and unwise) case of letting the (tax) tail
wag the (investments) dog.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Thanks Rich. Actually I notice that T-bills are not a bad option.
Most of the on-line websites (though I liked IFA website) recommend too
much invested into stocks. I think I'll keep to SHY and ETFs for about
20%, and the rest into CDs or a tax-efficient munibond fund (no paper
trail).

As for no income/ no cap gains--that's the principal behind zero coupon
bonds, if you forget the cap gain payout at the end. That's what I was
trying to say: I don't want distributions before the end of the term
(10 years in the hypo) since I want to not have a "paper trail" in the
interrum. But I don't mind a paper trail at some point, preferably at
the very end of the investment period (recall the hypothetical person
is not trying to avoid paying taxes illegally, just to lie low while
the money is growing).

RL

As far as I know, all investments that pay dividends or interest or
where you sell any assets, are reported to the IRS in one form or
another. I am not 100% sure, but even if you own stocks in your name
(ie, hold a stock certificate), the divs paid to you trigger a 1099
form. (I have some stock certs, but that company does not pay
dividends, so I am not sure).

Wanting to preserve capital and not wanting the IRS to know, leaves
you pretty much with the only choice of using a safe deposit box and
storing cash in it. You would lose on inflation every year.

I believe that if you held money in a non interest paying account, the
IRS would not be notified about it, it may be a little more convenient
than a SD box.

You can also buy precious metals on ebay or in other avenues, and sell
them when necessary. That does not create much of a paper trail, but
may not fit your stated goal of capital preservation, as this amounts
to speculative buying, not certain income.

i

"raylopez99" <raylopez99[at]yahoo.com> writes:

- quote -

[snip]

- quote -

You realize that a bond fund will always have distributions and
so will be reporting to you to the IRS each and ever year?

Likewise for owning bonds directly. So the "not leaving a paper
trail" and "owning bonds" objectives are direct conflict with
each other.

- quote -

So you don't care about income, you don't care about capital gains,
and the "focus" is on preservation. Given all that, why not just
put it all T-Bills and be done with it?

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

I would use the free online asset allocation tools linked at
http://home.earthlink.net/~elle_navorski/id4.html for ideas.

Suppose one wins the lottery and has 1 million cash to invest. What
model ETF/mutual fund portfolio should this person invest in?

Here are some additional facts. Assume the person is 55, has kids, is
very interested in not leaving a paper trail with the IRS (so a
tax-efficient fund is preferred with few year end distributions; though
the person is not a tax scofflaw just a privacy freak), is moderately
tolerant of risk (but doesn't want just Jumbo CDs); time frame before
the person has to withdraw money is 10 years minimum.

Also expense ratios should be less than 0.50% if possible, no brokerage
recommended offerings (other than Charles Schwab maybe), no REITs
(person is covered in that area), CDs ok (laddered), bonds OK but only
in a mutual fund and short duration, from Vanguard preferably.

The number of funds should not exceed 12--but bear in mind the funds
should be liquid enough so that on any given day say $100k could be
bought or sold with no problem.

Again the focus is on preservation, not capital gains. Income is
actually not that important, in that there's no need to withdraw income
from the $1 mil while it is growing, at least for the first 10 years.
No annuities.

Any ideas?

Thanks in advance.

RL