Late Bull’s 5-Year-Investment Plan: A Numerical Illustration

Introduction

“The Focus

The article changes the angle to Cohorts # 3 and # 4 from

Cohorts # 1 and # 2.

The main vehicle of protection is to go with ‘Stacking

Investment Packs [IPs] and the 5-Year-Investment Plan

[5YIP] (60 Months), and Investment Capital (IC)…

The numerical Illustrations with Various Assumptions are

the next installment, as Part II.”

(From “How To Protect Bull’s Nest Egg in their Late Age”, Jun. 3, 2023, Italics are emphases.)

The Assumptions

First, the Size of Nest Egg:

$1 million (in the current dollar) which is a half million (in 2011 dollar), according to the “72 Rule”.

Let us assume $1 M (in 2023 dollar) for simplicity, which is a “stock” in the Milton Friedman’s term, being constant in the entire period (age 66 to 85, and beyond) as Nominal money in balance sheet, not a “flow”, changing constantly as Real money in profits-and-Losses Statement.

Second, Interest Rates:

The Annual Interest Rates (3%, 4%, and 5%) or the Monthly Interest Rates (3%/12, 4%/12, and 5%/12). The representative rate is 4% or 4%/12 in the middle column.

Third, the investment vehicle is SPY (the ETF of the S&P 500 Index), which trades globally 24/7. SPY has a good track record during Mar. 2023 to May 2023, which slid less and recovered faster than the medium and small equities and their ETFs.

Fourth, the Dividends of the S&P 500 Index is estimated to be $40 per share, assuming the price of the S&P 500 is $4,000, in my article.

Lastly, I (in the last year in Cohort # 3) will parallel with 1) Six (6) (in Cohort # 3) and the younger Investors (in Cohort # 2 and # 1):

I will invest 0.6% per month (60 months) instead of 0.3% which Six (6) carries with our retirement assets, while the younger (26 – 65, # 1 and # 2) do the same with their earning income.

The 5YIP is the same, but some assumptions (i.e., the size of invest money or interest rates) are slightly different. The framework, nonetheless, remains the same so the younger investors can move to any older cohort without any difficulty.

As a result, I initiated as the starting illusionary investor (age 25) and ends as a “shadow” investor (in Cohort # 4) by investing 0.6% per month (60 months).

As of Friday (Jun. 2nd), my nest egg consists of a) 3 Online Savings Accounts (69%), b) TD Ameritrade Brokerage Account (17%), and Charles Schwab Brokerage Account (14%). Both TD and CS A/C’s have been trimming down since 2020 after I have very acutely traded over two decades. The Goldman Sachs online savings a/c’s (yielding 4.15% annually, daily compounded, and the FDIC protected) have replaced my two/three well-diversified portfolios in March 2020 when the National Bureau of Economic Research [NBER] declared the Pandemic Recession.

The 5-Year-Investment Plan [5YIP]

In the starting year, 2023, at age 66, Six (6) invested $5,000 every month. Table 1. shows his monthly investment capital [IC], with annual interest rate (3%, 4%, and 5%), compounded each month.

As of Dec. 2023, his IC was $61,112.31, which are $60,000 (invest money) and $1,112.31 (earned interest), according to Table 1

Click to enlarge

The Summary

I, at age 84, will continue to do trading in an immediate term (a few seconds to a few session) with the current Uptrend, starting on March 31st, and getting stronger every week and month to month. I have to recoup our lost years (3) and months (2+)..I will be at age 86 in 2025 (two years later), and enter into the last Cohort # 4 (105 – 86).

Then I will do a 5YIP, investing 0.6% of my assets. I can’t prove mathematically, but intuitively believe that going with a 5YIP is less risky because the so-called “tail risks” is lower than other portfolios. (Tail risks include events that have a small probability of occurring at both ends of a normal distribution curve.)

We don’t have a definition of millionaires but one million in the current dollar seems not to be very rich. According to the “72 Rules”, interest rate is the determinant of Real (inflation adjusted) money, converted from Nominal money.

In the long term, interest rates and inflation are moving very crossly: When inflation goes slow down, interest rates move lower. Inflation tends to be lower in the future, (perhaps a couple of decades in my opinion) because inflation has been overstated due to the Traditional Asymmetrical Growth Formula (TAGF) and other factors.

Therefore, we expect inflation and interest will go down in many years to come. So I reduced interest rate to 3% 4%, and 5% (in this article) from 4%, 5% and 6%, in the previous work.

Again, the “72 Rule” will stretch the length of years to convert Nominal dollar to Real dollar: 6%, 4%, and 3% need 12, 18, and 24 years.

Consequently our representative rate of 4% (18 years) is proper for this illustration.