Vsamk Authors 10-K Diver

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10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll help you work out how much money you need to retire.

2/

The goal is simple.

You want to accumulate a *large* portfolio of assets.

How large?

Well, you should be able to quit your job. And you and your family should be able to live comfortably for decades -- just off of the income generated by this portfolio.

3/

This is the crux of the "FIRE" movement.

FIRE stands for "Financially Independent, Retired Early".

The basic philosophy is: keep your spending needs low. Save a large portion of your income. Invest these savings. With luck, you'll be able to retire early.

4/

FIRE advocates have a rule they love to cite: the 4% rule.

The 4% rule says: your annual expenses in retirement should not exceed 4% of your portfolio.

You can use this rule to calculate how large a portfolio you need to accumulate before you can quit your job and retire.


5/

For example, suppose you and your family need $40K/year to live comfortably in retirement.

Then you need to accumulate a portfolio that's at least $1M.

Another way to say this is: your portfolio should be at least 25 times your annual expenses in retirement.
ALL , FINANCE
10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'll help you understand Markov Chains.

In life, and in investing, we often come across situations where luck/chance plays a major role.

And Markov Chains are often a great way to model and analyze such situations.


2/

Here's what prompted me to write this thread.

Earlier this week, I conducted a Twitter poll.

In the poll, I posed a question that required a bit of probabilistic reasoning.

The good news: over 10,000 people responded.

The bad news: ~87% got the answer wrong!


3/

Here's the question I asked.

Imagine we have 2 volunteers: Alice and Bob.

We give them each a fair coin.

We ask Alice to keep tossing her coin until she sees a Heads immediately followed by a Tails (ie, the pattern HT).

4/

We ask Bob to keep tossing his coin until he sees two consecutive Heads (ie, the pattern HH).

The question is: on average, who will take more tosses to get to their "target pattern" -- Alice or Bob?

Or will they both on average take the same number of tosses?

5/

More precisely:

Suppose Alice takes A tosses on average to get her HT.

And Bob takes B tosses on average to get his HH.

Then, which is the bigger number: A or B?

Or are they both the same number?
ALL
10-K Diver
10-K Diver
@10kdiver
1/

Get a cup of coffee.

In this thread, I'd like to share with you a simple way to measure and track your progress towards financial independence.


2/

Financial independence is an end goal.

To define this goal properly, you need to answer 2 key questions.

(i) When would you consider yourself financially independent? And,

(ii) In how much time do you want to get there?

3/

Typically, financial independence means:

a) You won't have to work another day in your life for money, and

b) You and your family will still be able to live comfortably to the end of your days.

4/

Let's say you want to reach financial independence in the next 10 years.

How much money do you need to amass by that time?

Well, suppose your family's expenses are ~$60K per year now.

If inflation runs at ~2% per year, 10 years from now, your annual expenses will be ~$75K.

5/

Let's say you want your expenses to be under 3% of your portfolio at that time.

This is called the "3% Rule".

It means your portfolio's size should be about $2.5M (as 3% of $2.5M = $75K).

For more on the 3% Rule and such:
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