Comments on: The broke actuary … http://7million7years.com/2010/03/08/the-broke-actuary/ How to make 7 million in 7 years ... Thu, 24 May 2012 09:20:05 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: The Ideal Perpetual Money Machine …- 7million7years http://7million7years.com/2010/03/08/the-broke-actuary/comment-page-1/#comment-4828 The Ideal Perpetual Money Machine …- 7million7years Wed, 10 Mar 2010 08:21:03 +0000 http://7million7years.com/?p=4355#comment-4828 [...] it seems that creating a mix of bonds and stocks and then picking some magic withdrawal rate (e.g. 4%) is [...] [...] it seems that creating a mix of bonds and stocks and then picking some magic withdrawal rate (e.g. 4%) is [...]

]]> By: Adrian http://7million7years.com/2010/03/08/the-broke-actuary/comment-page-1/#comment-4827 Adrian Tue, 09 Mar 2010 20:48:54 +0000 http://7million7years.com/?p=4355#comment-4827 @ Rick - TIPS are a great alternative ... they protect your capital and allow it to keep up with inflation. But, you would need to use the Rule of 40 to 100, as returns are so low :( @ Rick – TIPS are a great alternative … they protect your capital and allow it to keep up with inflation. But, you would need to use the Rule of 40 to 100, as returns are so low :(

]]> By: Rick Francis http://7million7years.com/2010/03/08/the-broke-actuary/comment-page-1/#comment-4826 Rick Francis Tue, 09 Mar 2010 15:13:18 +0000 http://7million7years.com/?p=4355#comment-4826 Adrian, I suspect you believe that the perpetual money machine can be created with real estate? However, if you can't ever dip into principal you can't use real estate either because there may be some years where occupancy is low and costs are high enough that you have negative cash flow forcing you to sell a property to cover expenses. The only asset you could use would be TIPs as you know the real return rate. It strikes me that dipping into principal is not fatal as long as it is done infrequently and by a small enough amount. That suggests a large cash buffer. We could also look for real world examples- say trust funds or endowments that have been managed for many years. What distribution rates do they sustain and what assets to they own? -Rick Francis Adrian,

I suspect you believe that the perpetual money machine can be created with real estate? However, if you can’t ever dip into principal you can’t use real estate either because there may be some years where occupancy is low and costs are high enough that you have negative cash flow forcing you to sell a property to cover expenses. The only asset you could use would be TIPs as you know the real return rate.

It strikes me that dipping into principal is not fatal as long as it is done infrequently and by a small enough amount. That suggests a large cash buffer. We could also look for real world examples- say trust funds or endowments that have been managed for many years. What distribution rates do they sustain and what assets to they own?

-Rick Francis

]]> By: ill liquidity http://7million7years.com/2010/03/08/the-broke-actuary/comment-page-1/#comment-4825 ill liquidity Tue, 09 Mar 2010 07:44:31 +0000 http://7million7years.com/?p=4355#comment-4825 2. If the business grows at 4% per year, then, regardless of the dividend payment, the equivalent monetary value of the company could be sold off to keep the invested equity constant. It is better if a company doesn't pay a dividend if it means growing the business faster. Some companies even increase dividend payments knowing that growth options are limited. 2. If the business grows at 4% per year, then, regardless of the dividend payment, the equivalent monetary value of the company could be sold off to keep the invested equity constant. It is better if a company doesn’t pay a dividend if it means growing the business faster. Some companies even increase dividend payments knowing that growth options are limited.

]]>