How to Invest $10 Million for Income

Mutual Funds with High Minimums

Wealthy investors should consider mutual funds that have high minimum investment requirements, in part because they tend to have lower fees. Plus, mutual funds help investors generate income from earned dividends on stocks and interest on bonds in the portfolio. A number of brokerage firms offer funds for investors able to meet high minimum requirements. Here are four examples:

Vanguard Consumer Staples Index Fund Admiral Shares

The Vanguard Consumer Staples Index Fund Admiral Shares (VCSAX) has a minimum investment requirement of $100,000. Vanguard warns this fund has high volatility and investors should only invest a small percentage of their portfolio in this fund. It’s expense ratio is 0.11%.

Calamos Convertible I

The Calamos Convertible I (CICVX) has a $1,000,000 minimum investment requirement. This fund primarily invests in convertible U.S. company securities with a range of credit quality and an assortment of sectors. Additionally, since this fund invests in convertible bonds, it has equity and fixed-income attributes. Its expense ratio is 0.92%.

AQR Large-Cap Defensive Style Fund

A minimum investment of $5,000,000 is required to get into the AQR Large-Cap Defensive Style Fund (AUEIX). While the fund functions similarly to a standard large-cap mutual fund, it tries to profit from a bull market and may experience less downside when the market dips. Its expense ratio is 0.39%.

Vanguard S&P Mid-Cap 400 Index Fund Institutional Shares

This equity fund (VSPMX) has a $5,000,000 minimum investment requirement. It invests in stocks listed in the S&P Mid-Cap 400 index, which represents 400 medium-size U.S. companies. Its expense ratio is 0.08%.

Hedge funds

Dividend-Yielding and Preferred Stocks

High-net-worth investors seeking income should also consider securities available to less wealthy investors. For example, dividend-yielding shares pay out a portion of profits to stockholders. This is where the income generation comes into play. Dividend payouts usually occur quarterly, though some occur on a monthly or annual basis. But keep in mind that some dividend payments are non-recurring. While dividends are usually distributed as cash, some companies provide extra shares as a dividend.

You could also purchase preferred stocks, which offer dividend payouts as well. Preferred stock generally comes with a fixed dividend rate. Dividends to preferred shareholders are paid before dividends to common shareholders.

It’s important to note that since you have more capital to work with, your recurring income may be a more substantial amount. For instance, if you have 100,000 shares of a stock that pays out 10 cents per share quarterly, you may receive a quarterly check of $10,000.

Exchange-Traded Notes

High-net-worth investors who want to minimize risk may want to consider investing in an exchange-traded note (ETN). ETNs can yield significant returns if the borrower is reliable and the market plays along. Instead of an independent pool of securities, an ETN is a bond that’s issued by a financial institution. The company then promises to pay the investor or ETN holder a return on an index over specific period of time. Then, at maturity, the financial institution will also return the principle amount to the investor.

There are three main reasons high-net-worth investors would want to consider an ETN for
income. The first reason is that the issuer promises to pay an exact return on an index, minus expenses. Therefore, the ETN may closely match the returns of a given index yielding a predictable cash flow. While exchange-traded funds (ETF) may be able to accomplish the same, ETNs come with a little more certainty.

The second reason you may want to invest some or all of your $10 million into ETNs is that they offer niche investing. As the Financial Industry Regulatory Authority points out, “Some ETNs provide exposure to familiar, broad-based indexes, while others do so to less familiar asset classes or newer, more complex, or even proprietary indexes.” This can give investors a chance to profit off sectors they may never otherwise have accessed.

Lastly, ETNs minimize the taxes you will owe. ETNs don’t usually hold any of the assets that are linked to the note. As a result, ETNs avoid the tax implications of trading in and out of an exchange-traded fund or an indexed mutual fund. As an investor of an ETN, you’re not subject to the short-term capital gains taxes created by those products’ frequent tax events. You only pay taxes once, when you sell the note and profit off it.

The Bottom Line

If you have $10 million sitting in the bank, there are plenty of investment options. Most of these options can help you generate income now and in the future. Keep in mind that some investments are a good fit for beginners, while others require more experience and expertise. Each type of investment offers a different level of risk and reward. Investors should consider each type of investment before determining an asset allocation that aligns with their goals.

Investing Tips

• Consider talking to a financial advisor about how to invest a multi-million-dollar nest egg for income. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.

• If your investments pay off, you may owe the capital gains tax. Figure out how much you’ll pay when you sell your securities with our capital gains tax calculator.

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