Strategy for 25 year old with £1m...

[DiamondEcho]

This is a film that might help illustrate what happens to people and their broader lives when they make and sometimes lose their money young. It follows the ups and downs of a handful of floor-traders on the Chicago Mercantile Exchange. It is about as close to what I witnessed with those around me in London as I can imagine. It's not a financial or trading film as such (IMO), that's the stage, but more re: how people deal with success/failure, and wealth/the loss of it.

Floored [2009]
Trailer: https://www.youtube.com/watch?v=lW37sEkXMMc
Film [1hr19m]: https://www.youtube.com/watch?v=tCcxr-fyF4Q

[mc2fool]

E.g. by doing (serious) voluntary work or getting into international development or into research on subjects beneficial to humanity (endless list!), etc, etc, etc. As has been said, everyone is different

The former might work but you need useful skills beyond wealth to be an asset even in voluntary work, well at least if it's more than helping run the annual village fair cake stall or some-such.
International development requires substantial specific skills too, otherwise you're no added-value over hiring locals where ever the projects are taking place. Research [etc], similarly I doubt any research would be taken particularly seriously unless you had accumulated the quals/credentials to have your findings recognised. But, agreed everyone is different, identifying what will bring you fulfilment is a personal thing and not straight-forward to divine.

Yes indeed, and all things to work towards. I wasn't suggesting that one could just leap into the deep end of any of those unprepared and at a day's notice, but if you are already "safe" financially you are in a position where you can go off and get the necessary skills/experience/qualifications/whatever to be able to do something fulfilling and beneficial which can also be free of the need to earn money.

I agree you have to have a reason to get out of bed each day, but I don't think you need a "rare cast-iron self-discipline", just an interest in and a passion for something.

[Chrysalis]

Thanks for further thoughts. Can't restructuring access after 25, and I think an optimistic stance should be taken- no reason to think they won't be essentially sensible, if not perfect to the extent of making some mistakes!

[TUK020]

Perhaps divide into 4 'pots'
A) Property: 250k? place to live, avoid need to pay rent
B) Invest in self: 50k? fund a further degree, MBA. Anything that adds to personal productive capacity
C) Blow money: 50k Take an entire skiing season, buy a Porsche. Get some fun, but keep it ring fenced amount.
D) Long term income top up. Invest the remainder. Transfer 20K/yr capital amount into ISA. Use SIPP contributions to mop up any higher rate income.

[Chrysalis]

@tuk that's the kind of thing I was thinking about. First degree costs will also have to come out of it which could see for about 80k....dividing it up as per different objectives is helpful if only to make it seem less overwhelming.

[Longtermyieldman]

I've had friends rudder-less in life, or completely bugger the 'rich-kid' scenario in the knowledge their annual inheritance income is there to salvage the day. IME waaay better a person finds their niche, into their 30s+ say, told they have to find their own way, then later finds they are being thrown a safety belt for their future.

I can understand this.

I'm from a pretty poor background which, although I can sometimes be lazy, instilled in me the urge as a young adult to crack on and make money until I'd amassed sufficient to make me feel "safe" - job done.

If I'd known I was to be gifted a seven figure sum within a few years there'd have been no real imperative to progress and could've made me a real waster - lazy, entitled, Trustafarian material - safe in the knowledge that I was already, well, "safe".

If so, I'd have missed out on the journey that made me the money: an interesting path that led me to meet some exceptionally smart people and experience some fascinating situations, downs as well as ups, helping instill some smarts and humility in me that I may not otherwise have gained and which are as valuable to me today as the money earned along the way.

A nice problem to have, Jabd2001, but also a tricky one.

Like you, I'm from humble beginnings. Cue cliches about single parents, social housing, petty crime and short lifespans.

While I agree that the prospect of trust-fund income can turn spoiled rich kids into wasters as feckless as any long-term benefit dependent, I also think that poverty caps a person's likely wealth in later life.

Early on in my adult life I bought a property that increased a lot in value during my period of ownership but that had high service charges. So I sold, and crystallised a profit. Had I been from a financially secure background, I would have held it. Today it is worth about 10x what I sold it for. Likewise there were career opportunities I rejected because the bird in the hand outweighed the two in the bush. With parental money to fall back on if needed, I would have taken a couple of them, both of which would have led to multi-million pound capital gains. I would also have invested earlier in myself, for instance in getting an MBA.

I don't have kids, but if I did have, I would definitely not give them any kind of guaranteed passive income, nor any assets. However I would provide them with a safety net, conditional on their own endeavours. This, I think, is one of the factors that allows the offspring of the wealthy to perpetuate that advantage. They can hold out longer for the jobs they will excel at, take more chances with entrepreneurship and invest more readily in their skills.

[saechunu]

While I agree that the prospect of trust-fund income can turn spoiled rich kids into wasters as feckless as any long-term benefit dependent, I also think that poverty caps a person's likely wealth in later life.

Early on in my adult life I bought a property that increased a lot in value during my period of ownership but that had high service charges. So I sold, and crystallised a profit. Had I been from a financially secure background, I would have held it. Today it is worth about 10x what I sold it for. Likewise there were career opportunities I rejected because the bird in the hand outweighed the two in the bush. With parental money to fall back on if needed, I would have taken a couple of them, both of which would have led to multi-million pound capital gains. I would also have invested earlier in myself, for instance in getting an MBA.

You make some fair points.

However, my view is that life's goal is not to amass the greatest riches but to find and sustain the greatest happiness.

As a species we evolved in environments of scarce resources, genetically programmed to acquire ever more to ensure survival, and may not be best-suited to handling great abundance. We increasingly see this with food and diet where an abundance of calories in excess of requirements is leading to widespread ill health for many people.

I know a few very wealthy people (private tropical island scales of money) who seem pretty miserable, and who appeared happier when they had much less wealth but still sufficient to be comfortable. A problem appears to be alienation from and a lack of trust in others, affecting relationships, isolating them. It might not be the money, but it might well be. Friendly chit-chats and day-to-day interactions can become thin on the ground when you're gated away from the rest of the world, whether by physical means or by virtue of your own mindset and regard for others.

On which note, this was an interesting read:

Science confirms rich people don’t really notice you—or your problems
https://qz.com/816188/science-shows-the ... er-people/

"One percenters of the world may not be terribly concerned about societal income gaps, but they should care about a significant disadvantage to having a bigger stockpile of cash than everyone else: a diminished ability to experience the benefits of strong interpersonal relationships, which may be the most rewarding part of the human experience—even the secret to happiness, according to a 50-year study from Harvard. Humans are built to thrive in a community, and without it we are at increased risk of loneliness, which is harmful to one’s health, and can play a role in heart disease, depression, and even premature death. Privilege comes at a cost."

I remember seeing Eddie Izzard (correction: Harry Hill!) 20-odd years ago talking about the "curve of fashion". As you move along the curve from the unfashionable to the fashionable end you approach the point where the two ends of the curve meet. Here, any movement further along the curve takes you from hyper-trendy to looking like a tw@t. Maybe for many people it's like that with money, able to reach a point where although you desire more, obtaining it has negative consequences for your own wellbeing.

[Chrysalis]

Hi
Given that there is no choice about this, discussions about its desirability aren't that helpful - what I am interested in is how to handle the situation as it is, not how I'd perhaps prefer it.
The narrative of the rich wastral is a very powerful one, but perhaps overly negative. I personally think that there are wastrals across the wealth spectrum, it's not necessarily the existence of wealth that causes poor money management...I've actually done quite a bit of reading of academic research about lottery winners, which actually was quite reassuring - many people using their windfalls for all sorts of interesting and useful purposes...
Of course I have worries, but I also think there is no reason why my children shouldn't be as able (or not!) as I am at handling money. It's just harder for me to imagine being young and wealthy as opposed to middle aged and wealthy!

[mc2fool]

Given that there is no choice about this, discussions about its desirability aren't that helpful - what I am interested in is how to handle the situation as it is, not how I'd perhaps prefer it.
The narrative of the rich wastral is a very powerful one, but perhaps overly negative. I personally think that there are wastrals across the wealth spectrum, it's not necessarily the existence of wealth that causes poor money management...I've actually done quite a bit of reading of academic research about lottery winners, which actually was quite reassuring - many people using their windfalls for all sorts of interesting and useful purposes...
Of course I have worries, but I also think there is no reason why my children shouldn't be as able (or not!) as I am at handling money. It's just harder for me to imagine being young and wealthy as opposed to middle aged and wealthy!

It seems to me that you can't really make any investment strategy or money management proposals yourself without knowing what your kids' intentions are, and they may not know that themselves until the time comes (and maybe not even then!).

You know, I'm sure we can all be optimistic and come up with a series of "good and sensible" suggestions -- and very varied ones -- as to what they should do, from the immediacy of using the money to set up their own business, to the ongoing of setting up an income flow to free them to follow a career more focused on their passions than on earnings, to the long term of treating it as a pension fund to be untapped for several decades, and lots of other, as you say, interesting and useful purposes in between, each of which could have very different investment strategy and/or money management aspects.

As such, it seems the only thing you can really do is try to inculcate good common sense into them, and an aversion to slow horses and fast women, so to speak

[Chrysalis]

@mc2fool yes of course you're right. Interesting to get a broader range of reactions than just what's in my head. They are old enough that I have some idea as to their likely reactions in the short term, but less idea how it might change their long term decisions and experiences. The hardest thing for me may be biting my tongue/stepping back and not interfering too much. I do hope that they get some experience of work, and notion of career direction, early enough not to be unduly shaped by ideas of vast wealth (one of my jobs is to chunk it down so that they see that it's a very useful, but definitely not infinite, amount - it will enable choices but decisions will still need to be made regarding housing, education, earnings and spending priorities)

[Chrysalis]

Just rereading this and want to thank everyone for their thoughtful insights (I didn’t work out how to use the rec button until after I started this thread!)

I do agree with everyone who has said that the bigger issue for them will be working out who they are, and coming to terms with feeling/being in a different financial situation to their peers. One will likely feel guilty/anxious about it, the other may be somewhat over excited and perhaps find the temptation to give money away hard to resist. It will be an interesting journey for sure.

From 18 they are entitled to receive the income, which will be of the order of current PhD stipend rates. So I think they will always feel ‘safe’ and this may blunt their drive and ambition to make money. That’s ok I think, as long as they find meaningful activity/work to give their life purpose. One I have no worries about in that regard, he is smart and very self motivated and has a strong passion (for the natural world) which will give him loads of opportunities to make a difference. The other is more cautious and less driven, but sensitive and thoughtful and also has a level of social awareness which I hope will provide motivation and purpose in his life. He’s just not quite as focused, yet.

Back to wuffle’s point above, I do hope that the money won’t adversely affect their ability to find the right life partner. I totally agree that divorce is best avoided is possible (unless of course the alternative is worse, which I guess is why people divorce!) but, really this is even more out of my hands than the rest of it!