Thing is you don’t need to be precise. I will always find it silly when people complain about the little things. It reminds me of that buffett quote, that if you have to start pulling a dcf to say an investment is good then it probably is not a good investment. May have been a munger quote. But the bottom line, these fat tails you are so concerned about is not going to derail the final result. Which is I am going to be rich. It’s not about motivation, it’s more like simple math. Don’t try to complicate it. So to reiterate, at the age of 50, your passive income should be way more than 150k!
How about thicc tails?
I like the idea of having an offer in hand before bringing anything up because if they are willing to keep paying me 30% under what I’m worth then that would be my cue to go even if the culture is right. I’m expecting a promotion (maybe not) which might come with a 10-15% raise early next year so I just need that extra 15% on top and I could use the other offer as leverage to get it done.
I use this same process to calc future net worth. The likelihood of a major downturn can potentially be the same as a giant upturn (just look at this year). I’m estimating around 3m by 45 and that’s with 8% annual growth and no change in compensation. I also adjust monthly. I’d work until 65 though but just cut it down to 40 or less hours a week for my last 15-20 years.
I’m thinking a mil and I’m done. I want to move to Washington though. California sucks balls. I didn’t think I flew half around the world to live in another third World country.
To the guys on here estimating their future net worth from a Finance 101 textbook — please do not have kids, get married, get sick, or anything else that you didn’t plan for. You will see how accurate your projections become.
Also, if you are early 30’s or younger, all you’ve ever seen is the market go straight up. It’s all you know. I get that it seems like the stock market is a broken change machine spitting out $1.13 a year consistently for every dollar inserted. But there’s no law that says it has to work like that. A 5 to 7-year relatively flat period will derail your target timeframe in double-quick time.
It’s a good a point. I’m actually glad I delayed my wedding. More time to rack up pre marital assets.
Just because we didn’t live through it doesn’t mean we can’t read about it. It is far cheaper to learn from the mistakes of others than experiencing it yourself!
As for a flat period. It would have actually been nice to go through a flat period to build assets. You make your money when the market is down not when the market is up! The decisions you make during a downturn is what matters the most! Right now there really is no place to go.
Couple key points on Nery’s projection:
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Your 5% scenario for your monte carlo is 7.5% and your 50% is 14.5%. That is ridiculously optimistic. Makes no sense at all. You should take a more conservative approach to your projection if you really want to be rich.
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Why not see the earliest you can retire and then put in a couple of shocks. Also, I know you probably don’t believe this but when you have kids they will cost money and you probably think you are not going to pay for their college now, but if you are making good money you’ll probably start a 529 or two (it’s pretty financially irresponsible not to do so if you have the cash).
It’s a cagr from starting point not percentage gain. The 32k per year contribution added 3 percent to what should have been roughly a 12.7 percent mean.
as for putting in shocks. the way to handle it imo is to put the terminal value and say it drops 30%. if you can live off the 4% off that terminal value then you are golden. thats why i always say, if you are at the top of the market cycle. id prolly hold off until a crash. i think i can live off 50k per year net of tax. if at my home country, around 25k.
as for the 529 plan. i dont like the lack of tax deductility. i prefer the flexibility than negating cap gains. also i dont really believe in education. im pretty sure i can teach far better than any teacher.
How exactly are you expecting to produce 10% annually in passive income? Or are you conflating investment gains with passive income?
im super confused. theres a diff between investmetn gains and passive income? spy total return is roughly 8 to 10% per year on average.
Well there’s certainly a difference between gains and income, at least as far as taxes go. I generally think of passive income as cash generated from a real estate investment property, or some other business investment that throws off cash.
The tails do matter. We are not just randomly flipping a coin a million times. You get one relatively short sequence of events. Investor outcome differs dramatically simply by birth date. There are decades where stocks do nothing. It doesn’t matter what the average is if you are one of those decades. These are not tail events - these are common occurrences. The sequence of returns matters just as much (and sometimes more)
truth. but if you only recognize 50k in taxes. say 25k in capital gains tax and 25k in dividends. they are fairly minimal. almost non existent.
that is truth in terms of simulation. but in all honesty. these simulations are silly. fat tails are opportunities to do something incredibly beautiful.
Good chat. I do this type of analysis for a living, and what I’ll say is that no matter how many ways you slice it you’ll never get it right. All the projections and financial masturbation you can suffer won’t produce an accurate output. IMO the best way to forecast personal net worth is to use a conservative number in the realm of 5-7%/yr for equity performance and you’ll be alright. Forecasting at 12%+/yr is madness. Truth is, if you’re relying on stock returns to retire you’re doing it wrong.
Build equity outside the market and use the market to maintain and keep pace with inflation. Use leverage to build a real estate portfolio. And as soon as you can shift from personal to commercial real estate you’ll know you’re on the right path. The goal should be to create as many passive income sources as possible. I’ve said it a thousand times, if you’re making inside of 150k don’t expect to retire at 45 with a golden nest egg from your automatic savings plan you put in place when you were 27. It ain’t happening.
Whoever was talking about kids is dead accurate. Your 30k/yr savings rate will sink like a stone when kids are in the mix. Now Nery sounds like the kind of guy who might just pull it off because he doesn’t mind living on cat food, but that isn’t the case for most.
And to the guy asking about the raise, take that 30% increase in a heartbeat!! Unless your current job at a 30% discount will lead to greater things, I’m in DOWs camp there. Your 40s and 50s are the time to sidestep for lifestyle and satisfaction. 20s and 30s you grind.
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I think my food budget total is about 600 a month. How much y’all spending. I’m not cooking it though! It’s a lot of fastfood and coupons. Lol. I’m like pretty sure none of you use coupons! Also I think a wife and 2 kids will reduce your taxes by 10 to 15k. 12.7% is definitely rosy though! also i think when you are younger, you gotta go balls deep on equity. its the minute you decide to retire when you should start raising bonds significant imo
1 to 3k a month on food lately due to covid delivery
This is in line with my expenses on food as well.
How big is the fam? That 600 a month is for me and the fiancé. So about 10 bucks a day for food per person. I run a pretty tight ship!