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Gee's Bend Quilts by Mary Lee Bendolph, 2018

Curriculum / Personal Finance / Personal Finance and Index Investing /

[16/61] - Magic Multiple

  • Magic Multiple algorithm via the Rule of 72
    • Allocation: (age * 1.5)% allocation to Total Stock Market and (100 - (age * 1.5))% allocation to Small Cap Value.
    • Assumes 10% average long-term return on Total Stock Market and 12% average long-term return on Small Cap Value (nominal, not real).
    • Minimum allocation to SCV is 20%, maximum allocation to TSM is 80%.
    • Assumes retirement at age 65.
    • Python code: mm = lambda age: 2**((65-age)/(72/((10 * min((age * 1.5)/100, .8)) + (12 * max((100 - (age * 1.5))/100, .2)))))
    • Estimated return to a maxed-out Roth IRA ($6000/year) and maxed-out 401k ($19,500) @ retirement at age 65
    • Age Magic Multiple Maxed-out IRA @ 65 value Maxed-out 401k @ 65 value
      mm(15) 259.7 $1,558,200 -
      mm(20) 139.5 $837,000 $2,720,250
      mm(25) 76.1 $456,600 $1,483,950
      mm(30) 42.1 $252,600 $820,950
      mm(35) 23.6 $141,600 $460,200
      mm(40) 13.5 $81,000 $263,250
      mm(45) 7.8 $46,800 $152,100
      mm(50) 4.6 $27,600 $89,700
      mm(55) 2.7 $16,200 $52,650
      mm(60) 1.6 $9,600 $31,200
      mm(65) 1 $6,000 $19,500
    • Cost of Each Year of College at Washburn - 4 classes per semester @ $1100 per class (-$8800/year) => -~$4 million from retirement
      Age Magic Multiple Opportunity Cost @ 65
      mm(19) 157.86 -$1,389,168
      mm(20) 139.58 -$1,228,304
      mm(21) 123.5 -$1,086,800
      mm(22) 109.33 -$962,104
    • Cost of one coffee at age 19: $-2.70 * mm(19) = $-426 (!!!)

Instructions:

Click "completed" when done reading.

      
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