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date @@@.Mar.2017

■ Investment tips for footballers and the like (petty) bourgeoisie

You know what it's like: you made a million dollars in your youth kicking or otherwise abusing balls. Do you blow your fortune here and now in fast cars? Soon your bones won't take it anymore and no money will be coming in from this line of business. Or you are a software author that suspects that the cash cow program will not last forever. Is it possible to retire early and live off the amassed fortune — and avoid the dreadful spectre of working as a supermarket checkout cashier in your old age?

Once upon a time, being a millionaire was all the rage. Nowadays, you are just 999 million short of a billion. Nothing to write home about. Even if you set yourself a conservative spending budget of 50K a year (forget helicopters, yachts or silicon valley), you only have lolly for 20 years. And then there's the money wasting effect of inflation — meaning you can forget about storing the cash under the mattress. Keeping savings in a bank account, even a term deposit will hardly beat the inflation (if you are lucky and the bank doesn't go down in a bail-in and call you an inadvertent investor).

It all takes simple arithmetic. You set an annual expense target and see how much you need to grow your savings so as to live off the investment. Of course 1M is peanuts so you must consider investment to stretch it as far as possible. In the end you will end up penniless, but unless you want to build a pyramid or other mausoleum, you don't care — in the long term we are all dead <g> (apologies to the offspring). So you can see if you just match the inflation, it takes 20 years of spending 50K a year to burn the million. If you manage to beat inflation by 2%, you stretch to 26 years. The mathematical formula for the savings as a function of time is simply:

    x(t+1) = (1+growth)*x(t) - spending + income 0
savings per year with and without investment

Where is this 2% growth coming from? There are claims that historically (meaning actually as opposed to hypothetically), investing in stocks long term, returns 10% on average each year (there are similar results for the UK stock market index). There are ups and downs, but if you wait long enough, it grows. Personally I have never seen that kind of return so I am a bit doubtful about the assumptions in these claims. Also the trick is to buy the stock market index as a whole, individual company stocks are far riskier. It is easy to do this nowadays using index trackers and ETFs.

If you could actually get a 10% return on the million, and assuming 3% average inflation, hence net growth of 7% then you would get 70K to live each year and keep the capital indefinitely, a true bourgeois!

A friend recently said people waste their lives working in jobs they hate buying things they don't need to impress people they don't like — the materialist trap. The correct plan is to let the money work for you while you pursue things that really make you happy. A yacht is nice but you can get similar thrills on the cheap on a windsurf. Here is what I consider the bourgeois manifesto:

Optimal savings management is really an impossible problem to crack. So many stocks to consider; this tracker matched the market for 10 years, is it going to continue like this? Do I buy in dollars or euros? Do I buy to let property in London or in Bratislava? Do I buy small flats for students or luxury beach houses for rich tourists? How do you avoid double taxation if your investments spread national boundaries? The good news is nobody has a crystal ball, so don't despair. Whatever would be the "right" investment today wouldn't remain so 10 years down the road with ever changing market trends and taxation policies. The answer is to buy into everything. Calm, average return is the objective. And don't forget to spend some of it now and then!

ps. If you are in cyprus and own a yacht, and require experienced inexpensive able crew, I may be able to help :P

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