What would you do with one million dollars? Here is what you SHOULD do (and what you shouldn’t)

One million dollars. Does that amount still fill you with grandiose visions of gold, cash, and private jets like it did when you were a kid? I remember that was a common question to ask your friends – What would you do with one million dollars? – and the brainstorming session was always pretty inspiring.

Nowadays I’ve realized couldn’t follow through on my crazy goals. No putting my whole school on a boat or having a mansion big enough to go-kart around inside.

If you can’t take your entire middle school and put them on a cruise ship like in Breaker High than what can you do with one million dollars?

Retire??

Well, you can still do a lot of things but not as much as you would hope.

Today we’ll walkthrough:

  • Why one million dollars isn’t usually enough money to live out your dreams
  • What you can achieve by investing it
  • Or by paying down your mortgage
  • Or getting into real estate investing
  • And what fun stuff you could buy with it

What?? Once I have one million dollars I still have to do more??

The dream was a lie. Being a millionaire just doesn’t carry the same weight it once did. Could you just retire off that money? Maybe. But you’d be constantly checking your bank balance and pinching your pennies to make it last.

A long time ago, the concept of a million dollars meant a lot of money. Salaries were only a few thousand dollars and houses were worth like ten thousand.

Remember those good-old-days?

Yeah, I don’t either but I know they existed at some point.

Back then being a millionaire would definitely give you a lot of power. You could probably just make into a pile of cash and live off of it for the rest of your life, or buy a whole neighborhood of rental houses to pump cash into your pockets.

Now, humble bungalows in my hometown sell for about $1.3M and crapholes are close to a million. Those one million dollars would really just give me a place to live and probably not even a nice one.

This is a real place. Terrifying

Buying a house would be great but if you want something more impressive – like an early retirement – you have to take that money and do something amazing with it.

So how close DOES one million dollars get you to the lofty dream that is FIRE?

Just meeting your money? One million dollars of index funds

Okay, so let’s pretend I’m still young, naive, and bushy-tailed. Maybe, like many, I don’t quite believe that yes, I can retire this early. But I’ve heard that investing is smart, so I’m willing to dip my toes.

Or maybe I just want something easy on the way to retirement.

You can:

As we’ve discussed earlier, index funds aren’t sexy but they work really well. So with some very simple planning your one million dollars should be able to give you $40,000 per year for the rest of your life.

That’s based on the 4% rule which says you can pull that much money out AND invest in indexes AND adjust your withdrawals for inflation AND not run out for a very very long time. It’s a thing. You can read about it.

Is $40,000 enough to live off of? According to the Department of Labour, no, but it would certainly cover most of your living expenses. Actually, if you really wanted to, you could probably figure out a way to live off $40,000 per year, but its hard and might be less fun than having more money.

Investing money is like planting a money tree (image)

So if you had a million dollars, should you just invest in index funds? You could. But be careful to not inflate your cost of living or quit working too early.

One million dollars? Pay off your mortgage! Smart, right?

If you were to ask your parents, I’m sure they would wag their finger and say “pay off your mortgage!” That was the sage advice of their day, but these days it’s a pretty lazy, fearful, and unimaginative way to use your money.

Not all debt is bad debt. Mortgages are pretty great actually (as I’ve described before). You get a huge loan with a pretty low interest rate. It may not feel low when you’re paying thousands of dollars a month, but really it is.

It certainly feels good to pay off your mortgage, even if its not the most efficient.

Think about it.

Investing in the S&P 500 gives you about 7% return inflation adjusted. (And an index fund would more or less match the S&P 500.)

Your mortgage is likely around 3%, so by paying it down, you’re effectively making 3% on your money. (And that’s not even inflation adjusted.)

Would you rather make 3% or 7%?

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So paying off your mortgage isn’t great. It’s not bad, but it’s not great either. I recommend it for certain people – those who get stressed out by debt or if they’re paying very high interest for some reason – but as a whole, you’d be losing out.

So whats a better idea, huh?

Want something harder and better? Buy Rental Properties

Another way to spend your million dollars would be to invest it all into real estate. I’ll look at rental housing because it’s more predictable than speculative things. Housing appreciation is nice but it’s all over the place and hard to cash in on. Rentals make for pretty easy article-math. Plus, you know that was my main path to FIRE.

I have found that my rental houses net me about 11% return per year and my super-mortgaged houses are above 20%/yr. Some months are higher and some are lower which creates some interesting situations but overall I count the number as 11%.

Buying rental houses nets you lots of income with some headaches (image)

Mortgages are also money magic so you could transform that one million dollars into around four million dollars of housing assuming around a 20% downpayment and some money for fees, repairs and breathing room.

That would get you quite a few nice houses in nice neighborhoods. Or you could buy a few cheaper ones in cash. Either way, once you match my 11% return, your million dollars should be bringing in $110,000 per year.

Managing a bunch of houses is certainly more of a headache than index funds, but you get more out of it.

The department of labor says that the average family spends about $60,000 per year, so investing a million dollars in real estate would have you covered but it would add a little stress to your retired life.

Does it seem like a good way to spend one million dollars? I think so if you can handle the headache.

**As a note, I wouldn’t recommend anyone has 100% of their money in real estate. If your repairs stack up you might implode!**

What would a normie do with one million dollars? Buy a boat!

Okay, so some of you know about my lightning rod dream of sailing the Caribbean with my family. So maybe this is a little self-indulgent. But on your way up to a near-FIRE life, you could jump ship and start living like a normal person. Spending your money on outrageously cool stuff.

You’ll have a lot of money if you get close to retirement and boats are pretty cool.

You can throw parties like they did on Wolf of Wall Street, and also ride around on weekends with your family. It’s like going for a hike but more luxurious.

One million dollars could buy you a pretty nice boat too. I did a little research and found that I could even get a new spiffy Trimaran. That’s one hell of a boat that could hold some epic parties.

I would LOOOOVE to own that boat.

One million dollars buys you a Trimaran! Three hulls must be better than one right?!

I will never end up buying it though. Why? I’m too practical.

How does it stack up against our other one million dollar options? We know that we are just spending the money outright, so I wouldn’t expect a great outcome, but let’s compare the numbers:

  • You won’t be making money off of your investments so treat it as a loss of up to $80,000.
  • Your boat will be another thing to maintain and they are notorious for being expensive so that’s about another $18,000 a year of expenses.
  • You have a great party location so maybe you can save some money. Let’s call it positive $100 a week for 50 weeks a year (if you even live somewhere the weather cooperates).
  • All in all, spending that money is a loss of about $93,000 per year.

Definitely not retirement friendly.

This isn’t a knock on boats. I love boats but I would prefer to have the time to choose to go sailing than working most of the week and have a pretty party vessel awaiting my arrival.

So what have we learned?

Having one million dollars is nice but won’t allow most people to live the FIRE life without a little extra effort or some more saving.

It would however still be awesome to have one million dollars.

You can use your million dollars to earn you a passive income, pay down your debt or blow it on something fun. Either way you can enjoy it for the rest of your life!

TL;DR

  • We learned that having one million dollars doesn’t exactly mean what it used to.
  • You can’t just live off a stockpile of money, you have to do something with it
  • You could invest it in index funds, and earn about $40,000 per year
  • Pay off your house and ‘make’ about $30,000 a year
  • Invest it in real estate, and earn about $110,000 per year (plus some stress)
  • You could “invest” it in a pricy thing like a boat, and lose about $93,000 per year

So that’s what I would do if I got a million dollars. What would you do with your million? Leave me a comment.



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8 thoughts on “What would you do with one million dollars? Here is what you SHOULD do (and what you shouldn’t)”

  1. The payoff debt vs. investing trade off is a tough one for me.

    On a much smaller scale, I am working to repay student loan debt and start investing more. I have trouble deciding whether to pay more to my student loans (4% avg. interest) each month or put more into my 401k/brokerage. Personally, I feel compelled to payoff the debt mote than I do to invest.

    Reply
    • I get it completely. Statistically, it’s way better to invest, but statistics don’t make you feel better when you didn’t pay down your debt and your investments are declining. I would say you should at least be putting a little money towards your retirement every month just to keep yourself thinking about it and ready for when you have more money to invest. If you pay off your debt it’s certainly not bad, plus if you feel better that’s what’s most important.

      I don’t pay off my 4% debt, but I had an odd 8% mortgage I signed up for which I’m almost done paying off 🙂

      Also if you don’t have much cash month-to-month, paying off debt to increase your cash flow is smart, to make life a little less scary 🙂

      Reply
  2. Speaking from experience I learned that 1 million dollars isn’t all that much. At 19 years of age I received a car accident settlement of around that value. To be honest I wanted it gone out of my hands. I sat on it for months not spending a dime to let it soak in. I then bought a house for half of its value outright (no mortgage). It is worth it then to do it in my opinion. I took risks investing in business with no prior experience. I failed miserably but it was the best education I could have ever gotten. I bought a car, bought my parents a vehicle. I also fixed up the house we are living in. I partied like a rockstar for 6 years. To this date my net worth is equal to what I started out with. No loss, no gain. I did acquire though the wisdom of a middle aged man. The greatest teacher, failure is.

    Reply
    • Oh wow, good story! Paying off a mortgage is definitely not bad, but let’s say it’s less optimal than investments.
      You sir have gotten yourself a very expensive education at least 🙂 Maybe better than an MBA?
      At least it sounds like you came out happy! That is was really matters in the end I suppose.

      Reply
  3. I turned 65K into 160K from November 2019 to today from investing in individual stocks. Went all in with TSLA, sold in the 700s and bought 14 different stocks when the market bottomed. I hope to get to $1M one day…

    Reply
    • Tesla is a risky bet from my eyes but right on brother! You’ll get there. I do recommend going in on indexes though.
      You’ll feel like a genius after your tesla bet but no one is right all the time unless you buy an index 😛

      I invested in individual stocks for years and ended up converting over to indexes after burning a lot of research hours choosing my stocks 🙁

      Reply
  4. The Trinity Study (aka 4% rule) does not conclude that a portfolio will throw off 4% returns *indefinitely*.

    It concludes that a withdrawal rate of 4% over the course of 30 years has a 95% chance of success.

    Big difference, especially if you plan to be retired for longer than 30 years.

    Reply
    • Fair point, he also says it’s only 95% confidence interval for 30 years of retirement (longer being worse).
      My point is that it has such a strange rule set that it’s not a golden standard, just a nice rule of thumb. Even in Bengen’s seminal paper he states that you can easily beat it (such as by going stock heavy during a recession, or with belt-tightening). To me that makes it easily 4% indefinitely.
      Fair point though, maybe I should update this to make that clearer.

      Reply

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