What would you do if you won the 2010 World Series of Poker – Part II?

Last week I gave some unsolicited advice to those who may have finished 6th, 7th, 8th, or 9th in last years’s World Series of Poker – Main Event – pocketing a tidy sum in the range of $1.2 to $1.5 million.

Sounds like a lot, but not if you are aiming to retire on a helluva lot more than $57k a year (plus a $60k ‘one off’ spending spree’) …

… so, what if you finish 5th, where the prize money jumps to a tidy $1.9 million?

Well, where this poker-listings article suggests that you could buy a 1977 Learjet 36A, it’s probably not a smart idea if you want to use it more than once or twice 😉

Well, you now have a $95,000 spending spree on your hands (of course, you don’t have to spend it all), and you could just retire and live off $90k a year.

Job done!

But, if you are still chasing that $7 million in 7 years, then you still need to follow the advice from last week’s post … but, I would tend towards investing more in real-estate (commercial RE with a good spread of tenancies) and, I would not risk too much of such a ‘once in a lifetime’ windfall in my new/existing business (it’s best to start/stay lean ‘n mean, anyway).

But, if you come 4th (picking up a tidy $2.5 million, in the process) then you can afford to live this $100k lifestyle (and, still have $125,000 – once off – to splash around to help you celebrate). Similarly, if you make it all the way to the final 3 before busting out with $3 mill. jangling in your pocket …

Next week, I’ll tell you what to do if you come 1st 🙂

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5 thoughts on “What would you do if you won the 2010 World Series of Poker – Part II?

  1. A 5% drawn-down rate on the pot of gold is a little on the risky side if you want the money to last.

    After looking at a bunch of data, I feel that a draw-down rate of 2-3% is too conservative, but 5-6% to aggressive. 4% or so seems right. I know, only 1% off from your value but over time it makes a huge difference.

  2. @ Jake – Aah! The Myth of the [insert drawdown rate of choice: 2.5%, 4%, 5%, 7%, etc.] Drawdown … a great subject for a future post. Thanks! 🙂

  3. I’m not fan of draw down models either. If you have to spend your capital to avoid eating cat food (or the cat) or are working with a very limited time period fair enough. But with a sufficiently long time horizon, my view is that any draw down rate is dangerous – in fact I would be uncomofortable if my nest egg was not growing at at least the rate of inflation (after taxes and spending).

    Another way of looking at it is that if you are relying on draw down of capital for living expenses you are very vulnerable to adverse events. No thanks – I’d rather sleep soundly at night.

  4. To be clear, the Grand Theory of Draw-Down, assumes / hopes that the your pot of gold grows net of inflation.

    Using rounds numbers for an example. Lets say inflation is 3%, you grew your pot of gold 8% over the past 12 months, or 8-3=5% net of inflation. Now you can draw-down up to 5% of the money without reducing the real value of your principal / pot of gold.

    However your investment earnings will fluctuate – you will have good or bad years – yet you will want to have a constant life-style – so unless you want to live on cat food this year and caviar the next, you should seek to even out the $ you can extract each year. So people with too much time on their hands have looked at past market performance or done monte-carlo-simulations to see if you could predict a fixed draw-down rate at which you sustain your principal. I.e. can I define a percentage rate that I can take out of my investment once a year without gobbling up the principal after accounting for inflation?

    The answer is that we don’t know. If I knew the answer, I could make so much money, I could hire Bill Gates as my pool boy.

    However, using the analyses I described above, 2-3% seem too conservative – you end up growing your principal net of inflation, while 5-6% is too high – you gooble up your principal and will run out of money before you kick the bucket.

    So I am not proposing eroding the pot of gold, I want to maintain it but not necessarily grow it more than really required.

  5. Pingback: The Myth of the Safe Withdrawal Rate …- 7million7years

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