As my fellow Canadians would know, the catchy hit from The Barenaked Ladies in 1991 asked the question, “If I had a Million Dollars”. Many of the answers in the song now seem out of reach given inflation (especially trying to buy a house in Toronto). This week I found myself asking what I would do with $500 million. Many of you will know that I’m an avid supporter of the Toronto Blue Jays and like many fans we cheered along to the 14 year, $500 million deal that Valdimir Guerrero Jr signed with the Blue Jays last week. Born in Montreal, where his father was a member of the amazing Expos team from the early 1990s, he signed with the Jays as a 16-year-old and will now retire as a Blue Jay. A note to the Blue Jays front office, please sign Vlad’s daughter to a deal now! It’s some pedigree.
With Vlad signing his contract, he has ensured multi-generational wealth for his family. So here are a few thoughts for Vlad and his family:
Taxes
Vlad’s contract for $500 million if earned in Ontario, would incur around $270m in tax over the next 14 years. Of course, the players have access to very smart tax planners, and this is revealed when looking deeper into his contract. The contract includes a whopping $325m signing bonus! There are two reasons the deal is structured like this 1) Vlad is a resident of Florida for tax purposes and his signing bonus is only taxable there (with no state income tax) 2) a signing bonus protects him from any work stoppages. If the player’s union votes for a strike at any point over the next 14 years, he will sacrifice salary during that period but not the pro-rata signing bonus.
Asset Allocation
We use a goals-based approach to building client investment portfolios, with strategies divided into three categories: income, growth and preservation. How would we design a portfolio for Vlad and his family?
For the next 14 years, there is little to no need for income strategies. He will be taking home sizeable paychecks each year and no need for income from his wealth. In terms of growth, 14 years is a long time, and Vlad can persevere through some market volatility. Public and private equity would be very suitable for his situation. Finally, preservation, or purchasing power maintenance, is important for the family. They are wealthy today and will be very wealthy over the next 14 years. Inflation is the one force that can erode into the purchasing power of the family and real assets would serve as a good protection mechanism from that.
Back to 1991
As mentioned earlier, the Barenaked Ladies released the hit in 1991. Coincidentally that was right around the time when the Blue Jays went on to record back-to-back World Series victories (1992 and 1993). Let’s assume we could go back to 1991 and advise Vlad on how to manage his wealth on this basis. If you had $1 million back in 1991, how could you have invested and what would that be worth today?
First, the growth strategy. The S&P 500 Total Return Index was 363.44 at the close of business in January 1991. An investor would have an annualized 10.8% return over the next 34 years (including reinvested dividends). We should assume that the returns would be much higher had he invested in private equity funds.
Secondly, the preservation strategy. Gold was $392.50 per ounce back on Jan 1st, 1991. $1 million would have bought you 2,548 ounces of gold. Today $1 million would only stretch as far as 297 ounces. Investing in the yellow metal would have returned approximately 7% annually over the next 34 years. Since 1991, the U.S National Debt, which currently stands at $36 trillion, has grown at an annualized level of 7.4% while the U.S. money supply (M2) has grown at an annualized level of 6.1%. Over this period, gold has acted as a good store of value, as the supply of money has increased.
A portfolio of 50% gold and 50% S&P 500 would have earned around 8.9% over the 34 years. That would have been very strong growth with purchasing power preservation.
Silver Slugger and Golden Glove
In short, Vlad should be investing in growth strategies and asking for his Gold Glove and Silver Slugger awards in physical metal.
My very best,
