You know, having $1 million should make
your life easier, but when that money
actually lands in your account, you
still have to decide what to do with it.
And suddenly getting it wrong feels a
lot more expensive. You could buy a
property, put it in the stock market, or
find someone who promises to handle
everything for you. You'll have no
shortage of people offering to help with
that last one. But what you want is
fairly simple. You'd like the million to
keep growing. You'd like to avoid losing
a huge part of it. and you'd like to
enjoy some of it before you're too old
to care. So, let's work through these
decisions, including what would have
happened if you'd put the whole million
into the market right before a crash.
Because a plan that looks great when
everything goes up still needs to work
when things get uncomfortable. So, let's
get to it, shall we? Number one, how
much of the million can you actually
invest? So, let's say you're 40. The
million is already yours after tax, and
you still earn enough to cover your
bills. Your home is separate, so this is
money you can actually do something
with. You would like it to give you more
freedom now and let you work less later.
[music] The temptation is to start
looking for somewhere to invest it,
right? But before you do, check whether
you're already paying someone else a
ridiculous amount to borrow their money.
If you've got 20,000 of debt charging
20% interest, that's roughly 4,000 a
year just to keep the same balance
hanging around. Clearing [music] it gets
rid of that bill. Finding an investment
that reliably pays enough to make
keeping the debt worthwhile is a much
harder assignment. A cheap fixed rate
mortgage is less straightforward. Paying
it off feels good and your monthly
expenses might fall. But if clearing it
uses up most of your cash, you could end
up with a paid off house and
surprisingly little money available for
anything else. You still own the value.
You just you can't ask the kitchen to
transfer you 10K when you need it. You'd
have to borrow again or sell the place,
which comes with its own costs and
complications. So, the interest rate
matters, but so does how much money
you'll have left afterward. [music] For
the million we're working with, let's
say the expensive debt is already dealt
with, and you're not about to buy a
house. This still doesn't mean that
every dollar should go into something
you might need to sell at a bad time.
Keep 60,000 aside for emergencies and
things you already know you'll need to
pay for. Your own number could be
different from that, but we'll go with
60. Someone with unpredictable income
and some children, they've got more to
account for than someone with low
expenses, no kids, and a dependable
paycheck. This money needs to be [music]
easy to get to. An insured bank account
within its protection limits, or a
short-term government bill can do the
job. You're giving up some potential
growth so an unexpected expense doesn't
force you to sell investments when
they're down. You'll probably question
that choice during a great year for
stocks. Everything else is going up and
this 60K is barely participating. But
then a bill arrives during a terrible
year and having it available. Well, it
suddenly feels like a lot less wasteful.
Now, of course, you could take caution
too far. Leave the entire million
earning nothing for 10 years with
inflation averaging 3% and it would buy
about what $744,000
would buy today. You haven't spent a
dollar, but you've still lost a
substantial amount of buying power. So,
keep the money that you'll need soon
accessible. The remaining 940,000 can go
to work for longer. But before we get to
the part that makes so many people
hesitate, [music] a moment to let you
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that's enough about us. Let's get to the
question that makes so many people
hesitate. [music]
Number two, should you invest the whole
million tomorrow? So, with that much
money to invest, it's tempting to go on
a buying spree because you finally have
enough to make the returns mean
something. But there's also a fairly
unpleasant thought in the back of your
mind. What if you buy everything today
and the market crashes tomorrow? Let's
look at that using something you've
probably heard of, the S&P 500. So, it
follows large American companies and a
fund tracking it lets you invest across
them without picking each stock
yourself. For this comparison, use the
full $1 million. You could put it all in
at once or invest 200K at the beginning
of each year for 5 years. That gradual
approach is called dollar cost
averaging. People often do it monthly,
but we're using yearly purchases, so
it's easy to follow what happens to
every chunk. So, we'll reinvest the
dividends and let the money waiting its
turn earn interest from short-term
Treasury bills. We'll leave out taxes
and fees and use dollars at the time
before adjusting for inflation. [music]
And to see how badly the timing could
go, let's make it January 2000, shortly
before the dot crash. If you'd invested
every dollar of that million, then well,
by the end of 2002, you would have about
626,000.
Nearly 375,000 has disappeared from your
account balance, even with dividends
reinvested. Now, that's a performance
worthy of starting an investment advice
channel on TikTok about. So, what about
buying it gradually, though? By the same
date, you'd have made three purchases of
$200,000. Your shares would be worth
around $419,000, which doesn't look
great on its own, but you'd still have
about 478,000 waiting outside the stock
market, including the interest it
earned. Put those together and you have
roughly $897,000.
You're down, but you're nowhere near as
far down as if you'd invested everything
immediately. But let's keep going. Okay,
another 2 years pass and now it's the
end of 2004. Investing everything at the
start would have left you with around
$889,000.
But buying 200K each year would have
left you with about 1.18 million,
including the interest still in cash.
Buying over time worked out very well
here. Your later purchases bought shares
after prices had fallen and the money
waiting to go in avoided some of that
damage. At this point, spreading out the
purchases looks like the obvious choice.
But move the starting date to January
2003 ahead of several strong years and
the story starts to change. Put the
million in immediately and by the end of
2007 you'd have roughly 1.82 million.
But buy 200,000 each year instead and
you'd have about$1.4 4 million being
cautious has left behind about $47,000.
The waiting money earned interest, but
it missed much larger gains in the stock
market. Now, these dates were
deliberately chosen to show contrasting
outcomes. Nobody standing in January
2000 or January 2003 had the next 5
years printed on a chart, and these
year-end values hide the swings that
happened in between them. [music]
Looking across a wider range of history,
Vanguard found that investing
immediately beats spreading out
purchases roughly twothirds of the time
in the comparisons studied. Its main
[music] test used a much shorter 3-month
buying schedule so that it isn't a win
rate for our 5-year example. But still,
it helps to explain why waiting isn't
automatically the careful choice. If
markets rise while you're getting ready,
you keep buying at higher prices. There
can be a very real cost to avoiding the
discomfort of investing all at once. But
on the other hand, if putting everything
in would make you sell in a panic after
the first big drop, well, a fixed buying
schedule might help you to stick with
it. The important part is actually
following the schedule, including when
the news makes the next purchase feel
like a terrible idea. You don't need to
stretch it over 5 years. That long
schedule makes the difference easy to
see, but it also leaves a lot of money
waiting for a long time. For the plan
that we're building, we'll invest the
long-term portion once we've decided how
much risk to take. If you'd prefer to
spread the purchases out, pick the dates
in advance and then give the process an
end. Just remember that buying gradually
doesn't protect you forever. Once the
money is in, it's in. A crash after your
final purchase can still hit the whole
amount, which brings us [music]
to what you're actually buying. Number
three, where does the money go? All
right, let's go back to our original
million and the 60,000 we've kept
available. Put 600,000 into broad stock
funds and 340,000 into highquality
bonds. [music] Together with the
reserve, that's a full million accounted
for. But, you know, those proportions
aren't some kind of magic formula.
They're a starting point that we can put
through a bad scenario and see whether
you would actually be comfortable owning
it. So, the 600,000 in stocks gives you
a stake in businesses that can grow over
time. You can spread that out across
companies around the world, so the whole
plan doesn't depend on one country
having another great decade. The S&P 500
was useful for looking at timing, but it
doesn't have to be the only thing you
own. And adding more funds isn't
necessarily adding more variety. You
could buy a technology fund alongside a
broad US fund and discover that you've
bought a lot of the same companies
twice. It's worth checking what you own
underneath the fund names. The bonds are
there to give you something steadier
alongside the shares. You're lending
money to a government or a company which
agrees to make payments and repay the
loan when it comes due. But the word
bond doesn't tell you how safe that
arrangement is. A struggling company can
offer you a very attractive interest
rate [music] because there's a real
chance you won't get everything back.
And even a government bond can fall
sharply in price if you need to sell it
before it matures. And that is
particularly important with bonds that
won't repay you for decades. Changes in
interest rates can move their prices far
more than you might expect from the
supposedly boring part of your
portfolio. So for this example, we'd
lean toward highquality bonds with
shorter or medium repayment periods.
Some inflation linked government bonds
could also help with rising prices,
although they could still fall in market
value before maturity. If you spend in
euro or another currency, pay attention
to that, too. A dollar investment can
hold its dollar value and still leave
you with less to spend after converting
it. The money you'll need soon should
reflect the bills you're going to pay.
You might look at all of this and think,
"That's it. A million dollars and the
answer is still funds, bonds, and some
cash." Well, I mean, having access to
more complicated investments doesn't
mean you have to use them. A private
deal might lock up your money for years,
cost more, and be much harder to sell
when your plans change. Being invited
into it doesn't make those problems
disappear. Or take rental property.
Spend 400,000 on one and you've put 40%
of your million into a single space
before buying costs and repairs. That
could work out well, maybe, but you've
made a much bigger bet on one building
than any individual company in a broad
stock fund. Borrowing reduces the cash
you need up front, but it also adds
repayments and makes changes in the
property's value matter more to you than
the money you've put in. So, property
can belong in the plan, yes, but it
needs to offer enough to justify the
concentration and the work involved. You
don't have to become a landlord simply
because you can now afford to become
one. You also don't have to hand over 1%
a year without asking what you're
getting on a million. That's $10,000 in
the first year alone, potentially before
the fees inside your investments. Now,
here's why that deserves more attention
than the percentage suggests. If the
million grew at an assumed 6% a year for
20 years, it would reach about 3.21
million. Reduce that return to 5% and it
reaches about $2.65 million. [music]
That percentage point has made a
difference of roughly $554,000.
Now, these are example returns, but the
compounding works against you just as
effectively as it works for you. Good
advice can be worth paying for,
especially when taxes or complicated
finances are involved. So, ask what the
advice costs, what it includes, and
whether you need to keep paying the same
way every year. And before buying those
funds, check which accounts make sense
where you live. Taxes on payments and
sales along with restrictions on access
can change how useful the same
investment is to you. Number four, what
happens when the plan gets hit? So far,
the million is neatly divided up and
everything has a reason for being there.
But let's see how it feels after a bad
year. Say the shares fall 40% and the
bonds fall 10%. Keep the cash flat for
this example with no spending or
interest added. So, your 600K in shares
is now 360,000.
The bonds are down to 306,000. [music]
Add the 60K reserve and you're looking
at $726,000
altogether. You followed a diversified
plan and you still lost 274,000.
That's the number to sit with before
investing. If seeing it in your account
would make you sell everything, you
probably need less in [music] stocks.
It's much easier to make that adjustment
now than to discover your limit after
the money has already fallen. And don't
count on bonds always going up when
shares go down. In 2022, the S&P 500 and
the 10-year US Treasury bond series used
for this research both lost about 18%.
That's a longerterm bond example, but it
shows why I've got bonds, too, doesn't
mean every bad stock market year is
going to be covered. But now, let's make
this situation more personal. Your
income stops, and you need 40,000 to get
through a year. This is where that
$60,000 reserve starts to earn its
place. You can cover the expenses
without immediately selling shares after
their fall. It buys you time to find
income or adjust your plans. It can't
promise that the market will recover
before the reserve runs out, but if the
problem lasts long enough, you'll still
have decisions to make. But having time
to make those decisions, that is so
valuable. Aluxer, also think about what
could happen to your income and
investments together. If you work in
technology, own shares in your employer,
and invest heavily in technology funds,
a bad period for that industry could hit
almost everything at once. Your job
doesn't appear on the investment account
screen, but it belongs in the decision.
And there's something to watch when
markets go well, too. Suppose those
$600,000 of shares rise 40% while the
bonds and cash stay [music] flat. You've
now got $840,000 in stocks out of 1.24
million altogether. Stocks have grown
from 60% of your money to almost [music]
68%. You haven't chosen to take more
risk, but the portfolio has changed
anyway. Bringing it back toward your
original mix is called rebalancing.
here. Getting back to 60% would mean
moving $96,000 out of stocks and into
the other parts of the plan. You don't
need to fiddle with it every week. Pick
a review schedule, consider the taxes
before selling, and use new money for
withdrawals to help where possible. The
idea is to keep a good run from leaving
you with a much bigger bet than you
signed up for. Those rules, they're
easier to follow if you write them down
before anything dramatic happens. During
a crash, there will be plenty of people
explaining why this is the time you
should abandon them. And number five,
how much can you take out and still keep
your freedom? So, after all of that,
you'd probably like to spend some of
that money, right? Fair enough. Having a
million that you're frightened to touch
isn't very much fun either. The easy
calculation is to assume it earns 7% and
decide that you can spend 70,000 a year.
But that return won't arrive like a
salary. and the years when it doesn't
arrive can cause lasting damage if you
keep spending as though it did. Take a
million and withdraw 50,000 at the end
of each year. If it gains 20% in the
first year and loses 20% in the second,
you'll finish with 870,000.
Now reverse that order. Lose 20% first,
then gain 20% with the same withdrawals.
[music] You finish with 850,000.
You got the same two returns just in a
different order. and you're 20K worse
off. Without withdrawals, both would
have ended at 960,000.
Taking money out after the early loss
left less invested to benefit from the
recovery. That's why an average return
isn't enough to tell you how much you
can live on. Now, research tries to
account for this by testing how
withdrawals hold up across different
possible futures. Morning Star's 2025
study arrived at a starting rate of 3.9%
under its assumptions. So on a million,
that's 39,000 in the first year before
your personal taxes. But pay attention
to what that number actually means. The
study allowed for spending to rise with
inflation and aimed for money to remain
after 30 years in 90% of its modeled
outcomes. It didn't promise you you'd
still have your original million. And at
40, you might need this money for much
longer than 30 years. You can't simply
take a retirement figure and assume it
covers the rest of your life. Now,
fortunately, in our example, your
earnings still cover the bills. You've
got room to enjoy some of the portfolio
without immediately depending on it for
everything. So, say you take 20,000 a
year to begin with before tax. That's 2%
of the starting million. [music] It
could let you earn a little less, take
more time away, or finally do something
you've kept postponing. It's a smaller
demand on the money than 39,000, though
it still does need reviewing. And if
that spending is optional, you could
reduce it after a bad year. Having that
flexibility means you don't have to keep
selling the same amount just because
last year's budget said [music] so. You
can fund the spending through interest,
dividends, and planned sales. You don't
need to hunt for investments that pay
out exactly what you want to spend. A
large dividend isn't much comfort if the
shares lose value or if the company
later cuts the payment. What matters is
how much you have left after taking the
money out and what that remaining money
can do for you. You also have to decide
what keeping the million even means. Do
you want the balance to stay above $1
million or do you want it to keep buying
what a million dollars buys today? Are
you comfortable spending it over your
lifetime or do you want to leave a
substantial amount behind? Those answers
affect what you can take out. There
isn't one percentage that makes all of
these wishes happen at once. You can put
a lot of thought into this and still buy
before a decline. You can keep your
costs low and still have a disappointing
year. Someone taking a much bigger risk
might make far more than you, at least
for a little while, but the money has to
support the life you want, including the
years when investing doesn't go
smoothly. So, if it gives you more time,
makes you less dependent on your next
paycheck, and keeps enough invested for
the [music] future, you don't need every
decision to be perfect for that million
to make a real difference. All right,
that's a wrap today, Alexer. We'll see
you back here next time. Until then,
[music] take care, my friend.