Two Thirds, One Third
A simple way to split the money the week it arrives.
"The week the money lands, split it: two thirds into bonds and low-cost index funds, one third for the risky stuff."
Meet Jason. He spent nine years building his venture-backed startup, sold it, netting $15 million after taxes, and never changed his risk profile.
For the nine years I spent building my company, 100 percent of my net worth was at risk. I grew used to living that way. Then the sale closed, $15 million landed in my bank account, and my risk profile should have changed that day. It didn't. I went 100 percent in on risk again.
Three months after the sale, I invested $6 million into a new venture of my own before eventually shutting it down. I put another $3 million into angel investing and lost 90 percent of it. And I spent $4 million to chase speculative real estate that went to zero.
Add it up and $13 million of the $15 million found its way into risk. The first real chance I ever had to take risk off the table, and I barely took any.
I knew better, low-cost index funds, bonds, all of it. Knowledge was never the problem. The problem was that nobody ever said the one thing I needed to hear: you already won. The day the money arrives, the financial game is over, and you won it. The only way to lose is to keep making risky bets.
The honest answer is that I should have put all of it in bonds and low-cost index funds. But I know the allure of risky bets, because I've been there. So here's the off-ramp: cap the risky stuff at one third of your net worth. The other two thirds: low-cost index funds and bonds. Worst case, the risky third goes to zero, like it did for me, but you're still set for life with the remaining two thirds sitting in safe investments.
More than a decade later, I still have to work and earn money to live, which is not where a $15 million windfall is supposed to leave you. This wouldn't have been the case if I had simply done two thirds into bonds and low-cost index funds, only one third for the risky stuff.
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