• Nicholas Pihl

How to invest $100 million

Updated: Apr 19

I don't ask this question to provide a "right answer" that will apply to everyone in the ultra-high-net-worth category. Instead, I hope to illustrate a larger point, that beyond providing for your personal spending needs, the way you invest it can support the impact you'd like to have in the world.

For most people, each additional dollar is worth less than the one before it. It's a case of diminishing returns. Oftentimes, the most enduring benefit of "extra" money comes not from spending it, but from using that capital productively to create a desired impact in the world. This is especially true when you're working with a $100 million portfolio, though this concept has relevance for smaller amounts as well.

The best use of your money depends on your personal values and the impact you'd like to have on the world. To that end, here are a few ideas, beyond the usual ideas (such as increasing your freedom, comfort, and/or security):

  • Philanthropy

  • Business

  • Art and Collectibles

  • Establishing a legacy for your heirs to express their own values

  • Political pursuits

  • Impact Investing

Impact Through Philanthropy:

Philanthropy is not an "investment" per se, because you don't get your money back. However, you can bring an investing framework to giving money away, and optimize for the type and magnitude of impact you want to have.

The trouble with this is that it can be hard to quantify the positive economic impact of your donations. While many charities do not provide these figures, The Gates Foundation has done exactly that. In their 2017 annual letter, Bill and Melinda claimed every $1 deployed by their charity yielded $44 in economic benefits. That dwarfs the best imaginable financial return from investing. I suspect that Bill and Melinda find far greater satisfaction from their efforts here than they would from turning their large pile of wealth into a larger pile of wealth.

Impact Through Business:

Some of the most impactful business people of the last century have left all of their chips on the table, concentrating the vast majority of their wealth in businesses they control. In recent history, you have Steve Jobs at Apple, Bezos at Amazon, and Elon Musk at Tesla and SpaceX (among others). These individuals decided their biggest opportunities to influence the world could be brought about through their businesses, and as a result, have facilitated dramatic economic and technological developments. While you could debate whether their impact has been positive or not (I believe it has been mostly positive, on balance), they've increased the resourcefulness of the world by introducing and distributing cost-saving, democratizing technological developments.

Apple produces tools that make it easier for more people to contribute creatively to the world, enabling endeavors that otherwise might not have been viable. Amazon's platform makes it easier for small businesses and start-ups to get to market, particularly through AWS which provides a vastly lower-cost, more scalable option for new software companies. Tesla presumes to benefit the environment by lowering carbon emissions, as well as increasing the proportion of time that cars spend in use vs sitting in a garage. SpaceX makes it cheaper to get to space, which will enable satellite-dependent technologies and businesses. In the long run, it may also make it possible to shift industrial production off-earth, where mining and manufacturing could have fewer environmental consequences.

These founders feel proud of the impact they've had on the world. For the most part, they've kept their wealth concentrated in these enterprises because this is the way for them to have the greatest impact on the world.

This can also be true for you, even if you're running a small, local business. The people you hire, the opportunities you create for them, the difference that you make in the lives of your customers....These are important, no matter the size of your business. So rather than sell everything and donate the money to charity, it might be the case that continuing to grow your business might be the very best thing you can do for your community.

You might even enjoy this more than most other options. The only remaining question is the degree to which you want your own financial situation tied up in the fate of a single company. Some people are okay with losing everything and rebuilding from the ground up. Others want to create a safety net for themselves, even if it means growing at a less aggressive pace.

Impact Through Art and Collectibles, Influencing Society's View of Value:

There are actually a couple possible routes to this. One is to collect things that you appreciate, just for your own enjoyment. Buying a piece of art and putting it on your wall is a good example. Beyond your pleasure from viewing the piece, you might expect some of your collection to gain value over time, similar to an investment portfolio. Making money, in this case, is a happy accident that offers a nice hedge on inflation.

The second approach is to actively purchase art that you think will appreciate over time. Maybe you seek out new and emerging artists to buy their work. Maybe you even act as their patron, financing their lifestyle and their creation of these works, while assembling a portfolio of art for yourself. The search for these artists, and your interactions with them, can be rewarding, as can the feeling of having contributed to the creation of these works. But the primary motivation is investment, which can feel competitive, even adventurous, and may not always align with enjoying art for art's sake.

That said, there's personal satisfaction to be had in using your investment capital to enhance the beauty of the world, while still earning a decent return. I personally think we could do a better job of this in American society. Most of us could learn a thing or two from visiting a city like Paris, where it feels as though everything is designed to be as beautiful as possible. Both approaches to collecting art promote this higher purpose.

Financial Legacy for Heirs:

This differs significantly from the previous categories because it means handing over control of your resources to people you trust to make good decisions with it. I think there are good ways and bad ways to do this.

A bad way would be to set up a trust fund for your kids without preparing them to handle it well. It is often the case that receiving a huge amount of money will stunt your personal and professional development. There's a lot to be said for earning your own money.

A good way is to raise your kids with good values, good work ethic, and to teach them how to handle money responsibly. Buffett says, "I want my kids to have enough money to do anything, but not so much that they can do nothing." You want to free them up so that money isn't limiting their impact, whether that means giving them the resources to start their own business, attend grad school, or develop their career as an artist.

Another good way is to create an enduring charitable foundation where future generations can decide for themselves how to direct resources for continued, positive impact. This is potentially a rich experience that helps families stay connected around a shared purpose.

Political Pursuits:

This may or may not mean running for office, financing a campaign, or covering your cost of living when working in a low-paid or unpaid position. You might just contribute money towards whatever type of political reform you'd like to see. Lobbying your government can be a high-leverage activity for creating the change you want.

Impact Investing:

The final option, as I see it, is to provide capital to businesses who are doing things you deem worthwhile. It can be tremendously satisfying to contribute to the success of the next generation of entrepreneurs, and participate in the businesses they create.

All of this is just food for thought. Obviously I'd like for you to acquire $100 million and face this decision for real. But for now, what are the things I've mentioned so far that stand out to you? Is the philanthropy angle interesting? Would you rather be a titan of industry, even a local one? Do you want to set up an ongoing gift that outlasts your own lifetime, or would you rather see that money put to use while you can see its impact?

I encourage you to take some time and reflect on this, because your answers may offer some clues to what you should be doing with your money here and now.

Lastly, I'd like to share what I think I would do with the $100 million, so that I can share what this might look like in practice. Big picture, I'd like to create some financial security (and comfort) for my family, and to do some useful things for others.

First, just to be honest, I'd absolutely buy a bigger house, a nicer car, take more trips, buy more art, go out to eat more often, and all of that. On a practical note, this stuff is expensive, which means I'd need to invest at least some of this money just to support my own lifestyle. Probably, that's something that anyone in this position would need to do, just to cover their bases and free themselves up to focus on impact. The next couple paragraphs deal with these practicalities.

Assuming annual lifestyle expenses of $500,000, I'm guessing I'd need a portfolio of around $20,000,000 to provide this income. I doubt that I'd actually spend this much before pivoting towards impact, but if I had $100 million, who's to say this wouldn't be my annual budget? Let's go with it for now and assume that I see substantial lifestyle inflation in this scenario.

On that $20 million portfolio, I'd maintain probably 5 years of cash and bonds, about $2.5 million. That leaves $17.5 million to provide income and long term growth, of which I'd allocate $4 million to real estate investments, $10 million to equities, $1.5 million to gold and commodities, and maybe $2 million to cryptocurrencies and digital assets. The function of this portfolio is jointly to provide for income and preservation of purchasing power, as well as diversification against adverse events that would impair the principal of the portfolio. For instance, if there were geopolitical or social events that led to a permanent decline in the value of the US dollar and US assets, I'd want exposure to other currencies, as well as assets that exist outside the traditional financial system. I see this scenario as unlikely, but with $20 million available for lifestyle enhancement, the potential opportunity cost isn't impairing other goals. This takes care of comfort, freedom, and security.

The remaining $80 million is less about my hedonistic enjoyment, and more about personal impact.

I think the area that I understand the most about, and can have the highest impact in, is my business. I'm estimating that maybe $10 million should be reinvested in making this company everything I think it can be, helping hundreds of people develop better relationships with their money and their life opportunities. Over time, maybe the business grows more, attracts and trains talented people, creates more value for clients, and even shapes the way that other advisors run their businesses. There's a rewarding sense of mission that comes from doing business this way.

Besides running my own business, I get a lot of energy from interacting with entrepreneurs, and I'd like to help support their endeavors. These are creative, interesting, and hard-working people. I'd like to spend more time in this world, serving as an investor, as well as an advisor and coach. Done well, angel investments can produce an attractive financial return, and could grow the resources available for this purpose over time. It would be gratifying to re-cycle this capital through multiple generations of entrepreneur, paying forward these opportunities to people who want to make a difference. Maybe $10 million goes here initially.

I also find a lot of value in art and beauty. I'm unsure what it would look like to put money towards that. I'm uncertain whether my preference would be to buy art as an investment and put a nice collection together, or if it's better to invest the money more traditionally and use the proceeds to fund arts programs in schools. Or something like that. Maybe $10 million goes here.

Conserving nature is also important to me. There's nothing so tranquil as being in nature, standing in the midst of an awe-inspiring view. I'm uncertain whether it's better to lobby government conservation efforts, or just buy the land up and place it in a conservation trust. This would be something to research, but for now, I think dedicating $10 million of my (as yet imaginary) $100 million is worthwhile.

Lastly comes philanthropy. Given good, high impact opportunities, I think the math skews in favor of giving more money away sooner, not later. If I've funded my other priorities adequately, I see no reason not to give away most or all of the remaining money. Of course, as someone who hasn't given away this kind of money before, I think it would be smart to take some time and think through what the best opportunities are for making a difference. My inclination at this time is that increasing the opportunities for kids born into disadvantaged situations is pretty compelling. I think I'd prefer to do that in America rather than abroad, because I think this is the place where those kids can grow up to have the biggest impact on the world. Maybe $40 million goes here.

One of the things I've ignored here is creating a multi-generational legacy. At this point in my life, leaving an inheritance isn't that important to me. Reflecting on my 20s, I think it would have limited my potential to have received a large lump sum of money. With all of my needs provided for, with no financial incentive to work, I think I would have applied myself less, worked less, and not taken some of the risks that have been most helpful for developing my character and self-confidence.

Looking down the road to a point where I have kids of my own, to the extent they get anything when I'm gone (and they'll get plenty from me when I'm alive, too), they can have what's left over from that $20 million lifestyle portfolio. Hopefully that's far enough in the future that they'll have gotten their feet under them, developed good judgment and good values, and won't be impaired by this financial windfall. I'd probably design some sort of trust and estate plan to ensures that this happens.

Reflecting on my own uses for this money, something that stands out is the degree to which you can have the desired impact through investing, whether that's reinvesting in your business or providing capital to other entrepreneurs. Even patronizing emerging artists, you might end up with a few pieces worth a lot of money later on. If you're doing worthwhile things, it's almost impossible not to make money. As long as you're smart about it.

The big takeaway, I think, is that the areas you allocate capital to are a reflection of your priorities. Using money to protect wilderness means I value nature conservation. The charities you pick will indicate what you think is important. You're also free not to donate any money at all to other charities, especially if your personal impact is greatest when your resources are concentrated in a business.

What I hope is valuable for everyone reading this, is a framework for how to think through questions around your money and your values. Making good use of your money isn't only about spending it well, and getting a high rate of return. You can also use it as a tool to make more of the impact you want to have on the world. I view that as rewarding and noble. I'd like to see more people think that way.

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