Comment by jasonhong | Hacker News Reader

Comment by jasonhong | Hacker News Reader

- Maxed out insurance (home, car)

- Set aside a large amount for taxes, invested it in US Treasury Bond (get an estimate of your taxes from an accountant)

- Got an accountant

- Read up on QSBS (this can save you a lot of money if you got stock when the company was small enough)

- Got a last will and testament drafted and signed. Also asked our probate lawyer about stupid things people do with money, so as to avoid those mistakes.

- Got a financial planner. Also asked about stupid things people do. (At your scale, probably ok to just do standard ETFs and bonds. Note that don't buy in all at once, diversify not just the investments but also by time, so you're not buying all into the stock market at once. This also gives you time to think and reflect about how you want to use your money and what legacy you want, while also getting some returns on investments)

- Set up a donor advised fund (you can donate stock directly to one and get a big tax break)

- Made a donation and got something cool named after two of my long time mentors

- Read book Silver Spoon Kids on how to talk to one's children about money (our financial advisor gave this to us)

- Read a lot about wealth and power in the United States, in particular sociologist and psychologist William Domhoff's "Who Rules America?" https://whorulesamerica.ucsc.edu/power/wealth.html (I stumbled on this by accident, but found it a fascinating read)

Time is on your side here, so don't rush into anything. I was really lucky to have a brother who already had high net worth, so he was able to give a lot of guidance and discussion of tradeoffs.

> Maxed out insurance (home, car)

This isn't a problem I'm ever likely to deal with, but what was the thinking behind this one? I'd have thought >$1 mil in net worth is the time to cancel any insurance you have (maybe not health) on the basis that you can self insure now.

The point of insurance is to protect your wealth in an accident. You actually buy more insurance as your wealth increases, at least I do.

In my opinion the point of insurance is protect your assets you can't afford to lose. Most people cant afford to risk losing their house so they have insurance. However, if you are wealthy enough and can afford losing it then it's statistically cheaper to not insure it since you are not giving a cut to the insurer.

People with wealth are targeted by scammers who file fraudulent claims against them. These fall under the liability portion of your insurance.

It's not about the house or car, it's about that $10MM in your bank people want to go after by claiming that you tripped them and they broke their back.

Definitely not. You want to insure against catastrophes as they can wipe out all your assets. This includes regular insurance (home, auto, health) and personal liability insurance AKA umbrella up to the value of your assets. If you hurt someone, the victim could seek large damages if they realize you are wealthy. Liability insurance can protect you against that.

But you can afford to replace your assets if a catastrophe strikes. Insurance won't help you if you die in a car accident, so you are taking out a negative-net-expected-value deal that protects you against a very slim selection of catastrophes. In my experience, probably protecting from risks that are less likely than dropping dead at random one day.

And taking the risk that the insurance company won't pay out for some reason. And creating more paperwork and recurring expenses to keep track of. $5 mil is a lot but it isn't enough to take eyes off expenses.

If you drive without insurance, hit someone, and kill or severely injure them, you will almost certainly lose most if not all of your assets in the subsequent lawsuit.

If you have a house and it burns down in a fire, you will spend hundreds of thousands of dollars or more replacing it.

If you get rid of health insurance, there is enormous potential downside risk.

If someone is on your property and injures themselves or you accidentally harm someone, they can sue you for millions.

Insuring against all of this and more is almost certainly under 1000 per year. That is a trivial expense for someone with that much money. Even shit ROI on a portfolio is yielding at least a hundred thousand per year in growth assuming this person no longer works. The more money you have, the more insurance you want because you have far more to lose.

Unless you're in the US in which case just your health insurance could cost you $1000+ per MONTH.

...and that's if you never use it. If you actually need health care, prepare to shell out about another $5-$10k until you hit your annual out of pocket maximum.

> Insuring against all of this is almost certainly under 1000 per year.

Um, no.

Average auto insurance premium is $1,470/yr. [0]

Average homeowners insurance is $1,130/yr. [1]

Average health insurance (in 2018, probably more now), was $440/mo., Or $5,280/yr. [2] (And average health insurance will leave a lot of exposure to costs, so you still have a lot of downside risk at that price.)

The idea that you could almost certainly insure against all of that for under $1,000/yr is...wildly inaccurate.

[0] https://www.thezebra.com/auto-insurance/average-auto-insuran...

[1] https://www.creditdonkey.com/average-cost-homeowners-insuran...

[2] https://www.ehealthinsurance.com/resources/affordable-care-a...

At 5M+ it doesn't really matter if you pay $1000 or $10000 for insurance.

Being indifferent to a recurring unnecessary 9k annual expense is roughly being indifferent to 9000 / +4% * 5m) = 4.5% loss of income from investments. If you're indifferent to too many decisions of this form, it's a good way to solve the problem of figuring out how to manage your assets

I concur with your statements. My guess is the poster accidentally omitted a zero, and likely meant $10k.

>If someone is on your property and injures themselves or you accidentally harm someone, they can sue you for millions.

That was a bit of stretch, no? I agree with the other points.

> That was a bit of stretch, no?

No, healthcare costs plus lost wages and other damages for injuries can get into the millions quite easily, and slip and fall injuries are a real legal liability of property owners.

It really isn’t. I’m an advisor and work almost exclusively with clients who have $10mm or more. At that point if you get in an accident or hurt someone and someone finds out that you’re wealthy, there is a reasonable chance they will come after you. I’ve seen it happen and heard it anecdotally.

A $5mm umbrella policy with one of the best insurance companies in the US is like $500/year. I just went out and got a quote on it last week. The best part is if that were to happen, the person suing will have to go up against the insurance company’s lawyers, who are most likely very good.

Even if the probability of that happening was in the low single digits, would you really want to run the risk over $500/yr?

Do not underestimate the value of umbrella coverage. Cheap to get. Expensive to ignore.

> But you can afford to replace your assets if a catastrophe strikes

No, you can't, unless your income is large compared to your assets and not dependent on them.

$1M liability with car/home insurance is less than $500. Anyone with a 401k should have it.

If you end up in a bad situation, getting liquid enough to pay out a big judgement will kill you with taxes.

Deep pockets make you an attractive target for lawsuits.

Because you're a larger, more profitable, target if you're found at fault.

It's absolutely not about the replacement cost of stuff. It's about protecting your assets from lawsuits.

Indeed, for example, mandatory auto insurance in my state is primarily to cover liability.

Insurance makes lawsuits against property it covers -- more likely, because insurance increases chances of plaintiff to get paid.

So your theory is that slightly wealthy people do not have insurance policies?

Agreed, insurance is a tax on the poor.

The part about not buying into the market all at once as wrong and has been known to be wrong for decades.

Several studies to that effect are linked from the Wikipedia page on dollar cost averaging.

I disagree with you: You're talking about what happens under a rational behavior.

If you get a lot of money suddenly, that's not the case. If you invest it all at once in the market, and get by chance high returns quickly, you could start gambing (investing) very quickly.

that sounds like its own problem to address, not a reason to avoid investing your money.

You misread. The advice was to invest over time to get used to the idea, so by the time it’s all invested, they are comfortable with and calm about that size of investment.

No. That was the secondary reason given in the next sentence, not the main reason.

You’ve misread.

“Note that don't buy in all at once, diversify not just the investments but also by time, so you're not buying all into the stock market at once.”

This is the recommendation.

This also gives you time to think and reflect about how you want to use your money and what legacy you want,”

This is the main reason, comfort/acclimation.

“while also getting some returns on investments”

This is saying you’ll get better returns than cash, so the price of structuring your investment for comfort will be somewhat mitigated. It’s not advising DCA or suggesting outperformance of or parity with investing everything up front.

Diversifying by time is DCA.

If it was the main reason it wouldn't be "also".

what's the point in diversifying in time if one believes one cant time the market. the only point i see is "piece of mind" in case the market tanks you wont feel so bad.

If one believes

a) one can't time the market b) the market (as a whole) trends up over time

doesn't this means that on average the best time to invest money is as soon as you can (of course there are other reasons to take you time, but I don't see how "diversifying by time" is a good reason as it would seem to imply market timing)

> "piece of mind"

Small typo, I guess you meant "peace of mind".

yes, need to stop trying to write after midnight

It is because if you can't time the market you don't know whether you are in a slump or in a rally. If you stretch your investment in time you partially avoid a possible crash after a rally when you got in just before the crash.

On the order of 25+ years I don't see why this would make much of a difference. See Bob, the world's worst market timer: https://awealthofcommonsense.com/2014/02/worlds-worst-market...

I really enjoy your point :-) but I see things differently. I think stretching your investment means you learn about how markets and investment really works because you will make a lot of mistakes during a period of time.

Rushing into market means you will make less mistakes, but bigger ones.

I like this observation that you can take time to ease into it. A lot of the risks of investing passively are really on the individual and the right mental approach is extremely important too.

Umbrella Policy if you live in California.

Thank you! This is quite good detail. I especially appreciate that you told me what you did - versus what I should do :-)

Insurance is maxed out. Agree that putting tax money in super safe savings method is good.

Got an accountant, not sure it's the right one but not a bad one.

Working on trust and all associated works.

Interviewing various RIAs. Not sure about DAF - I get it but may wait to donate money.

Great book recommendations!

The only question I have for you and others is - what about diversifying? Details on my 'wealth increase' is that company illiquid stock turned into liquid stock; so did you focus on diversifying or patience?

So weird I disagree with everything listed there. Just invest in the SP500 and don’t spent money on BS.

that is what everyone is basically saying...

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