My strategy part two
--I call this part "No fear/no greed"
eeek, midnight my time, one last post then off to bed.
(this is continued from the rant about compounding in the
previous post)
Back to those nifty numbers I was cooking up in my spreadsheet.
Rather than using a steady rate, I used diminishing returns
--after all, you must take less risk as your pot grows.
We are going to make a leap right here--we have to assume that
large percentage gains are possible by trading stocks, at least
for a few years. I am assuming that if a correction comes, at least
the first correction will attract the buy-the-dips crowd. Also,
there is a chance that US stocks' PE's are going to do what the
Nikkei did--so this bull market may run a bit longer. Plus, by
picking only a few individual stocks, hopefully you are again
limiting your market risk.
Some of my assumptions may be really lame, I don't know. I have
not had anybody debate me on it, and it is pretty much up to my
trading skill.
So...a few years of great returns are neccessary. After that you
can freak out and get scared, make more conservative bets etc.
The way I cooked the numbers was to give myself returns which each
year are about half what they were the previous year.
$70,000 starting point
$175,000 150% return <<<These first few years are the NO FEAR part
$306,250 75%
$421,094 37.5%
$505,313 20%
$555,844 10% <<<These last few years are the NO GREED part
$600,311 8%
etc
At the end of the second year 70k has grown to 175, at five
years you're at half a million, then next year you gain ten
percent on your money, followed by eight percent from then
on. At 14 years you are over a million.
Is this as phony as the Mutual Fund pitch, not if you think
you can succesfully trade for these types of gains. Plus the
magic comes first--after all, why wait thirty years. The only
thing those mutual fund company charts show is that you have
to have money to make money, sorry, boring--and like I said,
if it took so long to accumulate that money, you will surely
chicken out before the last few years which make the difference.
Here are the numbers for straight 30% gains:
$70,000
$91,000
$118,300
$153,790
$199,927
$259,905
$337,877 <<<note that after the seventh year, you only
$439,240 have half of what the other scenario gave you,
$571,012 so you can see how long the wait is for much
$742,315 lower returns.
$965,009
$1,254,512
Punchline:
Time is not your friend, I listed my fears above maybe they
are unwarranted, but I think it is very true that unpredictable
events take a lot of money off the table. If you have to wait 30
or 40 years for seemingly reasonable returns to grow your investments,
you are more likely to get wiped out.
Somebody getting ready to retire tommorrow could get wiped out
if he is 100% in stocks and the market crashes.
Okay, enough said, let's see if I can do it. Remember, 1. I'm usually
at least 50% in cash, so I don't worry about a market crash. 2. I am
assuming I can trade for terrific gains these next few years, might
not happen, but wont know til later. 3. Trading with less risk and
getting diminishing returns each year is the magic--you are in bonds
those last few years. |
