Personal Finance

I'm 47 and just sold my business - what should I do with the $6.5 million I'm suddenly sitting on?

Chris MacDonald

Published: November 9, 2024 8:34 am

Imagine you’ve just sold your life’s work. It could be a business you’ve nurtured for years, or an investment fund or group of properties you’ve built up over the years. You’re sitting on a boatload of cash – sounds nice, right?

For one commenter on an intriguing Reddit post that got plenty of attention, that was the case. This particular user found themselves sitting on $6.5 million in a municipal bond fund after doing just that, selling their business. But with the key question of what may be best to do with that capital, and how to manage these funds (via a money manager) and specifically harvest tax losses, resulted in plenty of comments.

Tax loss harvesting is certainly an important topic, and one that’s worth diving into. It’s a complex one as well, but I’ll try to stay high level with this discussion.

Let’s dive into what to make of this specific question, and what readers may want to know about this subject and where someone like this should go for advice. 

Key Points About This Article:

• Those fortunate enough to be sitting on a pile of cash after a big life event may certainly want to consult with a financial expert for what to do with the capital and other investing strategies. 
• Tax loss harvesting is one such strategy that is worth diving into, so let’s do just that in this piece. 
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Understanding Tax Loss Harvesting

Tax loss harvesting is one such strategy that, when understood and executed properly, can offer significant tax benefits to investors. That goes double for high-net-worth individuals like our Reddit friend who recently sold his business.

At its core, tax loss harvesting is a method of improving your after-tax returns by selling investments that have declined in value to offset the capital gains from investments that have appreciated. Think of it as a way to make the most out of a less-than-ideal situation. If you have an investment that’s underperforming, selling it not only removes a laggard from your portfolio, but also provides a tax benefit by reducing your taxable income.

For high-net-worth individuals (HNWIs), the impact of tax loss harvesting can be substantial. When you’re in a higher tax bracket, capital gains taxes can take a significant bite out of your investment returns. By strategically realizing losses, you can offset these gains and potentially save a considerable amount in taxes. This isn’t just about nickel-and-diming; we’re talking about savings that could amount to tens of thousands of dollars—or more—depending on the size of your portfolio and the extent of your gains and losses.

The DIY Appeal, And Its Downsides

There’s something inherently satisfying about taking control of your own investments. For many high-net-worth individuals, the do-it-yourself (DIY) approach isn’t just about saving money on advisor fees. Rather, it’s about autonomy, understanding where every dollar is invested, and aligning your portfolio precisely with your personal values and goals. This particular Reddit user embodies this mindset. He’s confident in his ability to craft a simple, effective investment portfolio and let it grow over time. The appeal of managing his own wealth is clear. He may be able to retain full control over his future, while avoiding the annual advisory fees that could tally up to tens of thousands of dollars.

When you’re dealing with a portfolio as substantial as $6.5 million, advisor fees can be significant. An annual fee of 0.6% to 0.75% (as this user suggests could be in play for his portfolio) could translate into $39,000 to $48,750 every year. Over a decade, that’s nearly half a million dollars. By managing his investments himself, this person could potentially keep that money invested and compound his wealth over time to a much larger amount. That’s worth considering.

Moreover, DIY investing allows for a personalized approach that might not always be available with an advisor who manages numerous clients. You can tailor your investment choices to match your risk tolerance, investment horizon, and ethical considerations. If you’re passionate about certain sectors or want to avoid others, you have the freedom to make those choices directly. This level of control can be particularly important for individuals who have strong convictions about where their money should be invested.

Alternatives to Consider

For those who don’t want to go the financial advisor route, there are options available. Alternatives such as rob-advisors or other investing platforms that provide free and easy-to-use information for investors to build their own models and investing criteria can be useful. Such platforms are very useful, and I can attest from personal experience, can provide a great deal of value. For those seeking diversification, a range of exchange traded funds (ETFs) can often fill the diversification void many investors are after at rock-bottom fees. Indeed, these are among the best vehicles available to most investors looking to stay invested in equities but manage their risk, at least in my view.

Tax loss harvesting can be great, but active investing funds typically take a larger percentage of one’s funds in terms of fees. Those need to be considered when thinking about one’s wealth building journey over the long-term.

Whether it’s actively tax harvesting (which can be done with index funds as well during periods of volatility) or doing estate or tax planning, advisors can certainly play a very helpful role along the path to financial freedom. Of course, it’s important to know just how much an investor is paying for these services, and generally paying out of pocket (by the hour) for advice can be a better route than going the percentage route for many with large portfolios. 

Time, Energy and Peace of Mind

Let’s be real – time is a finite resource. We all want to maximize our time doing the things we love. And for many, investing is not that activity that can provide the sort of life experiences we’re chasing after – paying someone to take care of things like tax loss harvesting can certainly improve an individual’s quality of life, and that’s worth something. The time, energy and peace of mind that can come from having someone manage the dollars and cents can indeed be worth it to some, and many like this Reddit poster may see a greater value in such services, perhaps.

But for those just starting out looking to compound one’s wealth over the very long-term, I’d encourage such investors to consider ETFs and passive investing approaches first. Whether it’s equity or fixed income funds, there’s something for everyone out there that will fit the risk profile of the individual. At the end of the day, that’s what matters most.