Simple Excel calculation
Aug. 5th, 2023 09:46 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
izardHere is some very basic excel math:
Imagine an average American guy who is super-dedicated to building wealth. He is so average guy that he starts working when he turns 18, retires at 68 and earns median US salary. He manages to invest ~50% of his after tax income ($20k annually) at steady conservative after inflation rate of 4%. In the end he builds wealth of ~$3,215,000. $1,000,000 he saved and $2,215,000 compound interest. Nothing fancy here, this is a staple of all investment consulting sales pitches. American dream at it's finest: everyone can become a millionaire by retirement, by the power of compound interest.
Here is the equity part of the story. How much $ would it take for a rich parent to pass the same wealth to his son who was born on the same year as the average guy? This second guy won't be saving and investing at all, but he would have a birthday gift of N dollars his parents started investing at the same rate on his behalf when he was born. How large must be N to have $3,215,000 at 68 years old?
Just $200,000.
Imagine an average American guy who is super-dedicated to building wealth. He is so average guy that he starts working when he turns 18, retires at 68 and earns median US salary. He manages to invest ~50% of his after tax income ($20k annually) at steady conservative after inflation rate of 4%. In the end he builds wealth of ~$3,215,000. $1,000,000 he saved and $2,215,000 compound interest. Nothing fancy here, this is a staple of all investment consulting sales pitches. American dream at it's finest: everyone can become a millionaire by retirement, by the power of compound interest.
Here is the equity part of the story. How much $ would it take for a rich parent to pass the same wealth to his son who was born on the same year as the average guy? This second guy won't be saving and investing at all, but he would have a birthday gift of N dollars his parents started investing at the same rate on his behalf when he was born. How large must be N to have $3,215,000 at 68 years old?
Just $200,000.
no subject
Date: 2023-08-06 11:42 am (UTC)Where will they get a steady conservative 4%?
no subject
Date: 2023-08-06 05:15 pm (UTC)Right now T-Bills pay over 5.25%/year.
If T-Bills pay less than 4% then it is better to rebalance into stocks (e.g. S&P 500) and get over 8% per year.
Why passing wealth to children?
Date: 2023-08-06 05:18 pm (UTC)Passing wealth to children - demotivates children from their own success.
Why do this?