Re:The Real Silicon Valley
by arbuge on Tuesday December 18, 2012 @06:17PM
(#4940226)
Eh? Having $1.2m beats having 200k any day... If 6% muni-bonds are a good investment (I personally have no idea), then presumably the guy with the $1.2m portfolio could buy them too... why is the 1% CD his only investment option?
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Point is having FU money, for most people it's $3mil at today's current interest rate to generate $30K which is annual young person's cost of living in a big metro.
If you can cut your cost of living down $12K, then only $200K is needed.
Careful with that. That ignores inflation, which as a great man once said, is the most pernicious tax of all. Inflation is currently around ~1.8% per year. Money in a 1% CD is effectively losing 0.8% per year.
If you're happy with a $30k return on a $3m portfolio, you need to get a 2.8% return in today's inflation environment.
If you're happy with a $30k return on a $3m portfolio...
-- You should never be happy with this. IMHO.
Interest rates on investments take into account estimated inflation, so the $30k already takes into account likely inflation (but would not take into account higher-than-expected inflation).
Hell no. You invest in a 1% CD, you get 1% absolute return, even if inflation is raging in the double digits.
Edit: I assume you mean that over time interest bearing account rates rise with inflation. That's true in general, but as the current situation shows, there's no guarantee they're actually even above the inflation level at any point.
He means that if you keep spending all of your investment's returns, you'll end up with a fixed income of $30K (1% of $3M) that, due to inflation, will have less purchasing power as the years go by.