How much money makes you wealthy? That's a philosophical question, I suppose. I imagine answers would vary wildly among Americans. Financial wealth is relative, but let's take a stab at it, shall we?

In West Michigan it's $197 million. Recently, a West Michigan woman hit the winning numbers for the Powerball Jackpot for a whopping $310 million (before taxes). BANG! One minute you're buying coffee before heading in for your night shift and the next you're independently wealthy.

She discovered she was a winner on her break that evening. "I quit automatically," she explained to the media while accepting her winnings at a Lansing press conference. "We're simple people, we don't know how to deal with money."

Say hello to the high life. Her plan, according to the lucky winner, was to build some homes for her family so that they all might live close together. I'm guessing that she'll have about $195 million left at that point. Then what? Casino? Boat? Bigger house? That'll leave about $194 million, I'm guessing.

You get my point. That's a lot of money for small town, rural-America lifestyle. To paraphrase Journey, ''just a small-town girl, born and raised somewhere southwest of Detroit," our lucky winner is now presented with the challenge of handling this wealth and leaving a legacy for her heirs. What should she do? "Invest", most would say. But how? "Put it in the market" even more would say. "Stocks, bonds and cash is the way to go" or "a balanced portfolio and let it ride" or "buy some blue chips" would be among the advice I'd expect from those not accustomed to dealing with this sum for an individual investor. What then? (For more, see: Should Balanced Funds Be Part of Your Portfolio?)

Put the First Things First

If you're going to quit your job it would be wise to plan for income using your total financial portfolio. An investor should solve for the desired annual income and work it backwards. Dividing the desired income by 4.5% is a good start (i.e. - $500,000 / 4.5% = $11 million). That's a nice living for most. With our income secure and dream homes satisfied we still have $183 million to go for this example. (For more, see: Winning The Jackpot: Dream or Financial Nightmare?)

Investment Options

With our income satisfied we now have the opportunity to put our newfound riches to work. But how do we do that?

Each investor is different but let's use a growth style portfolio as our assumption for this fictitious investor. Let's assume our time horizon is long ... longer than most, right? For this example let's say it's infinite. We don't expect to ever use all this money. There are portfolios that are constructed in this manner. We have only to look at the largest endowment funds in existence here in the states: Harvard University's endowment, which holds a whopping $37.6 billion and is managed by the Harvard Management Co. Consequently, it's often considered the standard for other endowments to follow.

Harry Markowitz gave us modern portfolio theory, but it doesn't make sense here. When endowments invest money they can receive a premium for illiquidity (i'll explain in a minute). With this much money, a lot of doors are opened when it comes to investing. Most retail investors have become accustomed to investing in stocks, bonds and cash for decades due to the nature of their investment options offered within a qualified work plan. With its size, HMC and can walk through any investment door they find favorable ... or just make a door if they think the available options are sufficient to fulfill the endowment's investment objective. Money talks. With our assumed portfolio of $183 million, wouldn't we want more options than the capital traded markets that returned next to nothing for 10 years between 2000 and 2010? Yes, of course. Especially, since we are already living on a fixed income of $500,000 (our previous income example). (For more, see: How to Invest Like an Endowment.)

Performance

The performance numbers are pretty shocking for Harvard's endowment, which is often benchmarked to a domestic 60/40 portfolio (60% stocks vs. 40% fixed income). This would be similar to the portfolio of a retiree or moderate growth type investor in the retail channel. The Harvard endowment's 40-year performance number is 12.3% vs. the 60/40 benchmark of 9.3%. The all-equity S&P 500 didn't even return that much over the last 40 years. (For more, see: The Evolution of Money Management.)

It may surprise you to know that the endowment was 20.4% in publicly traded equity in 2014. That's it — a fifth. Most retail investors who were in a growth style asset allocation portfolio 75/25 saw a return of 5%.  They were 75% in diversified equity and the Harvard Endowment crushed them by returning 15.4% with just 20.4% allocated to publicly traded equity.

Endowments have an opportunity to invest in illiquid or relatively illiquid asset classes due to the longevity of the portfolio. This provides sufficient opportunity to invest much differently than the retail investor with say, $1,000,000. The time value of money can produce a premium for the investor which leaves the investment on the table for longer but could be worth it in the long run. Harvard's endowment has equity investments that are privately held positions and not traded on an open exchange. Harvard Management Co. can also invest directly in real estate or commodities. Private positions such as these can provide a non-correlated upside to investing in the capital markets. However, illiquidity in down markets could further compound losses. The Harvard endowment has outperformed the capital markets consistently for over 25 years.

This is where these examples apply to both the fabulously wealthy and regular Joes: This type of investing was once only available to the wealthy elite and institutional money. But with the advent of liquid alternative funds, even the normally wealthy can diversify like billionaires. Ask your financial advisor if options to invest outside capital markets are available and suitable to you. (For more, see: ETFs for Alternative Asset Classes.)

The Bottom Line

Private investors now have many more options to invest like billionaires. Portfolio construction today can consist of many different asset classes that could help an investor achieve their desired return all while aiming to take less risk on the monies invested. Ultimately, your own personal risk tolerance, investment objective and time horizon should be considered first when investing your hard earned or "falling from the sky" money. Each investor should seek the help of a professional tax, estate or financial advisor. (For more, see: 5 Reasons to Use a Financial Advisor.)

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset allocation does not ensure a profit or protect against a loss. Past performance is no guarantee of future results. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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