Powerball

Not sure what a post above meant by "Index funds are a smart choice" because there are indexes that track everything from large baskets of U.S. equities to individual stock sectors to emerging markets to various types of bond holdings to baskets of commodities, etc. But when most people say "an index fund" they typically are talking about something that has a large basket of U.S. equities, and I don't think people realize the inherent risk in stock market investing because we have been in such a broad bull market for so long.

IF (this is not a prediction) the bull market ends, or we get a stagflationary period (which we might be entering -- high inflation, poor economic growth), the notion people have that "stocks only go up a lot over time" might get tested. For example, the 1970s were stagflationary, and the S&P 500's average price return was 1.6 percent at a time when yearly inflation averaged 7.4 percent. So in real terms, you went a decade where you lost a lot of money if you had just parked a billion dollars in an S&P 500 index fund (which didn't exist then, so it wouldn't have been an option in reality) and thought it was smart. It's not even that, though. ... It's that people don't think in terms of RISK versus potential reward. Equity investing has inherent risk.

Even if we don't get a prolonged period like that in the future, on a risk / reward basis, any time you invest in equities (even large cap U.S. equities), you are leaving your money twisting in the wind. We are in a runaway (bubble-like) bull market in the era of central banks pumping up risk assets as a side effect of propping up all the debt they have enabled. But within that, the S&P 500 still had a year in 2022 where it was down nearly 20 percent (sandwiched by years where it was up more than 20 percent). MOST people don't handle that kind of volatility well in reality when they look at their statements, which is why so many have a penchant for buying near highs and selling near lows. If you had a billion dollars blowing around that way and you sawthat your account balance was $200 million less than it was at the beginning of the year, would you really sit there cool as cucumber, secure that stocks only go up over time?

You said, "conservative." Conservative would look for a much better risk-adjusted return (something as close to ZERO risk as possible), even if there isn't the potential upside of the returns equities might produce. If you take the annuity in these lotteries, they are essentially paying you 5 percent a year. At the moment, a 10-year U.S. Treasury Bond is paying close to 4.4 percent, so if you believe that the U.S.won't ever default on its debt the way most people do, you can come reasonably close to that 5 percent right off the bat in what many people consider a completely risk-free fixed income investment. AAA Corporate Bonds (like a 10-year average maturity) that are considered very safe are paying 5.16 percent right now, so you can essentially replicate what the annuity pays yourself by taking the lump sum and really parking the money consertaively.

 

One other thing that is interesting to me (probably not to any of you). ... You actually could invest a billion dollars in "index funds," because the number of large cap equity index funds has turned into such a big business with passive 401(K) investing. You'd probably have to sprinkle the money around to a number of funds because they will limit you. But hypothetically, let's say you had a billion dollars in cash and thought, "I'll invest it in the stock market!" . ... you'd find out how difficult it is to deploy that much money in a targeted way. It's one of the hardest things successful money managers deal with when people discover them after their returns have been good and their assets under management grow. ... They might have 5 really good ideas at any given time, but way more assets under management than they can invest in those handful of ideas, which leaves them feeling forced to deploy the money in 50 oher things that they have much less conviction about.

 

Sign first, then put it in a safety deposit box.

 

Colorado is first name, last name initial, hometown. Won't accept LLCs.

I'd try to get Ben D., city in Delaware.