I'd take the 5K to supplement my income. Spend a couple of years to buff up my retirement and buy/pay off a house. Then retire.
There is really no reason to pick the 5k
if you're 40 there are so many places to invest in and get a much better return
mastermix3000 posted...
There is really no reason to pick the 5k
if you're 40 there are so many places to invest in and get a much better return
You can make 6% a year for the rest of your life?
You can make 6% a year for the rest of your life?
Am I missing something here? At $5k a month, it'd take 83 years to accumulate a million, which is not at all likely for a 40-year-old to see. The million seems like an overwhelmingly obvious choice to me.
Money is worth more now then it is in the future.
Do you know what usually comes after a recession?
The only way I could really see the million being the better choice is if you either want to blow it all up front because you're of the mentality of "I want to live and enjoy my life while I'm young!" Or, if you want to tie all of your money up in investments, just for the possibility of making more in the future, but then you don't get to enjoy ANY of the money until you're older.
adjl posted...
Am I missing something here? At $5k a month, it'd take 83 years to accumulate a million, which is not at all likely for a 40-year-old to see. The million seems like an overwhelmingly obvious choice to me.
I really must see how you figured that out because it makes my head hurt trying to figure it out.
Yay for US education system!
Easy choice... The million.. Money is worth more now then it is in the future. Invest that million today and the investment income, interest, dividends etc. have the potential to far outweigh 5K a month.
Kyuubi4269 posted...
Do you know what usually comes after a recession?
Are you disagreeing with my statement?
Peterass posted...
Kyuubi4269 posted...
Do you know what usually comes after a recession?
Are you disagreeing with my statement?
Yes, inflation follows recession thus cash gains value.
Peterass posted...
Kyuubi4269 posted...
Do you know what usually comes after a recession?
Are you disagreeing with my statement?
Yes, inflation follows recession thus cash gains value.
Kyuubi4269 posted...
Peterass posted...
Kyuubi4269 posted...
Do you know what usually comes after a recession?
Are you disagreeing with my statement?
Yes, inflation follows recession thus cash gains value.
But his statement was that the million would be the better option because cash gains value.
His opening statement was that money is worth more now, which is incorrect considering how we're coming out of a global recession, not going in to one.
Whatever happens to the economy, we aren't going to see negative inflation.
This is pretty dependent on what you think you can earn through re-investment income.
Let's start with a few carry through assumptions:
- consistent start date of Jan 1, 2018 for your full million, or your first $5000 monthly payment.
- 20% capital gains tax (only taxes are on re-investment income).
- Each $5k monthly payment is immediately re-invested at the rate.
Understand that this is quite simplified, but I think it's good enough for the purposes here.
Base Case Assumption: 5% annual re-investment rate.
In this case, we are earning 5%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2046, where the $5k a month becomes better.
![]()
Downside Case Assumption: 2% annual re-investment rate.
In this case, we are earning 2%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2037, where the $5k a month becomes better.
![]()
Upside Case Assumption: 7.5% annual re-investment rate.
In this case, we are earning 7.5%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2100, where the $5k a month becomes better - but this is so late that you're likely dead or near dead at this point and will have wanted access to the capital before this point.
![]()
Honestly, with $1 million in capital, investment options become quite broad - and it's not overly difficult to find reasonably safe hedge funds that can return 7.5% net of fees per year with ease - and a $1 million subscription is typically big enough that a hedge fund will consider it.
Obviously, either option is quite nice if invested responsibly, and "free money" like this is a wonderful option.
If I made any mistakes please let me know and I will happily update this - I rattled this off reasonably quickly and need to get back to work at the moment.
His opening statement was that money is worth more now, which is incorrect considering how we're coming out of a global recession, not going in to one.
wolfy's advice is definitely oversimplified and borderline dangerous
there are significant liquidity issues amongst a million other concerns i have with wolfy's analysis
not to mention wolfy's reductive explanations on inflation, holding cash, and investing in gold
lesidesi posted...
wolfy's advice is definitely oversimplified and borderline dangerous
there are significant liquidity issues amongst a million other concerns i have with wolfy's analysis
not to mention wolfy's reductive explanations on inflation, holding cash, and investing in gold
You made a wonderful analysis on the returns of the million dollar investment compared to the partial payments of the 5k/month. But isn't the NPV or PV important to consider which investment is worth more? The million dollars today would only decline in value in the future, likewise with the 5k investment. But I'm not a finance major so, eh heh.