Professional portfolio managers will tell you that it is much more difficult to adequately invest and manage a $1 billion portfolio than it is to manage a $100 million portfolio, though large-size portfolios are always challenging because of the difficulty in identifying enough different investments to provide adequate distribution of risk. Your best approach to managing a large amount of money, even if it isn't more than $1 million, is to make extensive use of professional advice. Ask for tax advice from your accountant or tax attorney, and ask for investment advice from your investment adviser, certified financial planner or professional portfolio manager.
Take your time to make investment decisions. Leave your money in a money market fund until you have a specific investments in mind, ones you have fully researched and feel will realistically meet your investment needs.
Determine your investment goals; taxable or tax-exempt income, conservative or aggressive price appreciation, socially-responsible investing, safety of principal, short-term or long-term hold.
Divide your cash into 10 or more equal parts in order to diversify your portfolio among several different investments so you are protected from having your entire portfolio suffer if a surprise problem arises from one investment.
Use dollar-cost-averaging or some other stepped investment process to move your money slowly into the market, particularly if you have a large enough amount of cash to deploy that you run the risk of your transaction moving the market price of your stock.
Maintain a 5 percent to 20 percent cash position, depending on economic conditions and market sentiment.
- If you require conservative investments with income, consider keeping 50 percent to 80 percent of your money in U.S. Treasury bonds and high-quality corporate bonds. High quality municipal bonds would be appropriate if you need tax-exempt income. If you want price appreciation and are able to daily monitor your investments, high-quality common stock can form the majority of your portfolio. Dividend-paying common stock can add income.
- If you are managing your own money, you have a certain amount of freedom regarding your investment decisions. If you are managing a trust fund or money in a corporate, association or government fund, you must be careful to abide by the existing investment plan. Managing money for others requires that your investments are conservative, in keeping with the Prudent Man Rule, which asks "what would a prudent man do?" Even though this rule seems vague, if you end up in court due to a disagreement over your investment decisions, the Prudent Man Rule will surely be part of the judge's decision.
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