"I want to get rich and am willing to gamble"

[edtost]

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In theory stocking up on high Beta companies should offer superior returns since the variance (which equals risk) is higher but I doubt it would.

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shouldn't finance mods know better than to regurgitate academic BS that not even the academics believe anymore?

[eastbay]

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Stinky Pete said this in the my daughter is a millionaire thread. There are probably a few of us who feel this way. Say a guy could put away at least 40k a year and was willing to take on a lot of risk, at least for the next ten to fifteen years. What would his portfolio look like?

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if you can put away 40k/year you don't need to gamble to get rich.

Barron

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Your idea of rich and mine are different.

eastbay

[Evan]

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Stinky Pete said this in the my daughter is a millionaire thread. There are probably a few of us who feel this way. Say a guy could put away at least 40k a year and was willing to take on a lot of risk, at least for the next ten to fifteen years. What would his portfolio look like?

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if you can put away 40k/year you don't need to gamble to get rich.

Barron

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Your idea of rich and mine are different.

eastbay

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It's not going to set any records, but 40k/year does pretty nicely.

If you adjust the 40k yearly for 4% inflation and assume an 8% return, it looks like this:



At the end of 30 years you'd have about 7.5 million. If you discount that for the 4% inflation you get $2.3 million is present dollars.

[Evan]

Here it is with another line added to show present value:

[DespotInExile]

I'm with Eastbay. "Rich" starts at $5M in liquid financial assets, with housing paid for. $10M is where you are uncategorically "rich".

And $40k a year doesnt get you there.

[DcifrThs]

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I'm with Eastbay. "Rich" starts at $5M in liquid financial assets, with housing paid for. $10M is where you are uncategorically "rich".

And $40k a year doesnt get you there.

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why don't you just start with "kind of rich" with a fair degree of certainty and go from there?

is there some reason you want to get an extra 7mil? can you not live well off a $2.5mil portfolio?

i mean i understand the drive, but going from nothing to "uncategorically rich" in a short time is a strange goal and maybe i'm just not wired to think like that [img]/images/graemlins/confused.gif[/img]

Barron

[Jeff W]

Here are some spreadsheets to play around with major equity classes:

1972-2006 Asset Class Returns

Efficient Frontier Results

Not my spreadsheets, so I won't vouch for their accuracy, but I'd guess they're close enough for government work. Barron has looked at spreadsheets from this source before and says the Sharpe Ratio calculations are off.

There are surely ways to jack up your return/risk even farther, but all the asset classes in those spreadsheets can be implemented via low cost funds/etfs that eliminate company-specific diversifiable risk.

On Risk: The Std Deviations actually understate the drawdown risks of the various equities because of higher than normal kurtosis in equity return distributions. So, if you play around with 100% Emerging Markets or similar allocations you better be prepare for soul-crushing downswings.

[bav]

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This is quite simple. Own very few assets, make them risky ones, and own them on margin/leverage (raw land, small cap stocks, biotechnology...

I am not sayings its a good strategy. But it is the strategy that will achieve your rich or bust goals.

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Right. Just like how you win an investment contest. If you invest like a sane person, in the 3, 6, or 12 months a typical investment contest runs your $1M play portfolio will be up a few percent and you'll be near the median. You can't win that way. To win, you have to be stupid and invest in the most leveraged, riskiest things you can find, and get lucky. You'll either end up 5000% or broke. And it's much more likely you'll end broke.

That's probably not REALLY what you have in mind to do with your $40K/yr, is it?

[maxtower]

The risk you have to take on to get to $10mil is probably not worth it in the investing world. You would need to put all your eggs in one basket several times and double up.

I would think the money would be better spent using 40k to start a company each year. You basically get 10 tries to hit it big.

[Evan]

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Just like how you win an investment contest. If you invest like a sane person, in the 3, 6, or 12 months a typical investment contest runs your $1M play portfolio will be up a few percent and you'll be near the median. You can't win that way. To win, you have to be stupid and invest in the most leveraged, riskiest things you can find, and get lucky.

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The funny thing is you don't really have to do this. Obviously it varies with size. If you're talking about something with millions of entries then it's a different story, but I've won two of these with low 3 figure entries without doing anything retarded. You gain a lot of ground by not shooting yourself in the foot in the first week.