Just turned 30. Invested most of my savings (20k€) into Bitcoin several years ago, and then converted everything to Ethereum in the pre-sale. Those 20k€ are worth roughly 1M€ pre-tax at the current rates.
Started a fintech startup three years ago and we are close to a liquidation event that would net ~1.5M€ pre-tax.
Right now, though, I have less than 10k€ in my bank account. Would be also really curious to hear how to convert that money into sustainable passive income.
Spending 3k€ per month for the next 30 years would be about 1M€. Seems like having <5M€ is far from the "go bananas" type of wealth, but it can definitely be enough to achieve FI.
Is there a specific reason you're keeping so much of your wealth tied up in Ethereum? (Not that clued up on it, perhaps there isn't a big enough market there to sell it yet?) It seems to me like having all of your eggs in one basket. Wouldn't it be better to convert a decent portion of it to cash and invest that in a nice mixture of stock and bonds?
Ethereum seems to have great potential to multiply its value in the next 12-24 months. I think the probability of ETH going from 1B$ -> 2-5B$ market cap is far greater than BTC going from 10B$ to 20-50B$ due to several factors.
My line of thinking has been that in order for the 4% to be meaningful, you need to start with at least a million. Saving a portion from the salary and getting 4% annualized growth just wouldn't have ever achieved the type of financial wealth I had in mind. YMMV.
But now I feel like the time has come to diversify and start reducing the risks. Going from 20$ to 10$ per ETH definitely hurt.
You do realise you're gambling, right? There's nothing wrong with that, but be honest with yourself about the risks of having nearly all your money in one instrument (ETH) which could easily wildly fluctuate up or down. If you honestly think it's a bet worth making, go look up the kelly criterion.
This is always a good reminder. Then again, had I not done that investment or cashed out earlier, that 20k€ would be nowhere near 1M€. There simply doesn't exist many ways to achieve 50x ROI in <5 years. Seems like majority of people are happy with lower yield plans, but I personally would have not achieved my goals without some aggressive increase in wealth.
Hard to say what I would be saying had I lost everything though. It's easy for me to rationalise the decision now that it paid off. And yes, we have to remember to look at the graveyard too.
The non-linear utility of money puts an interesting twist on things though. The effort and risk one should take to achieve additional wealth seems to reduce logarithmically after a certain point. I guess that point seems to be further for me than most people, but I feel it's close now.
If someone won the lottery for $1m and proceeded to dump their entire proceeds back into lottery tickets, you'd rightly think that they were insane. Yet that's exactly what you're doing.
You don't have to liquidate your entire stake. Heck, you could keep a full 100k in Ethereum—if it has a run-up on the scale of Bitcoin, you'd be making millions. But you wouldn't have all your eggs in one basket.
I definitely understand the desire/impulse to make big bets, but as with any gambling operation it's important to consider when you cash out. Right now you're betting $1m on the potential to make $50m, when you could have a guaranteed $900k with the potential to make $5m.
Comparing an educated crypto investment with a negative EV gambling game seems a bit too farfetched. I'm quite considerate and picky investor, and did extensive research beforehand.
I do get what you are saying, but I think this is over-simplifying things. There were a lot of interesting facts and conclusions available to be made early on about the possibilities.
Again, extremely hard to say what the odds of failure still are and were in the past. And hard to say what my stance would be had I lost the initial investment. It's easy to rationalize the investment in hindsight.
The annoying thing about survival bias is that the survivors who took the largest risks often get the greatest rewards, and then carry the most influence.
So someone who sank her entire life savings into LTC a couple years ago, would sound more worthy than this person.
And, depending on how credulous the reader is, someone who went into debt to buy a few lottery tickets, and was lucky enough to win, could trump both of them.
I had the opportunity to hear major german bank disappoint affluent customers by telling them that, in stark contrast to the past, there is no risk-free 4% in the stock market any more (when using the basic strategies available retail like investment funds etc). If true, you might have to play a more active role and "run a business" instead of "invest some".
It sounds like they're pushing an agenda (everything else is terrible; buy our products).
No asset is "risk-free" but it's certainly possible to get risk-adjusted returns of 4% in the stock market. Even if you include 2008, you would average 4% over any 30 year period.
At a minimum, you can get ~2% in treasuries. There are even savings accounts offering 1% returns.
They said risk-free would be -0.4% or something. I suppose they would have been biased to say "buy our funds", and they didn't really push any other products except maybe real estate. Everyone was bummed out.
> Spending 3k€ per month for the next 30 years would be about 1M€
That is only withdrawing the principal without taking into account the real interest/yield rate you can make off the investment. That money would probably last longer or yield more for the same time period.
In fact, as you point out it can last indefinitely with an after inflation and tax ROI(real yield) of 4% which converts to ~3k/mo. You would have to plowback excess returns on good years and withdraw part of the principal on bad years. Plus readjusting your expectations from time to time.
One of the best investments you can make is to get a financial education. You don't need to get a pedigree to show on your job interview, you should go only after the knowledge which will be cheaper.
And lastly a diversified mix of stocks, long term bonds and short term notes will earn you that passive income. Now that you are young take a little more risk and shift your allocation gradually towards short term debt as you age.
Why does it have to be risk free? Did you make your money not taking risks? Taking calculated (not stupid) risks helps you get decent returns above 5% quite easily.
Put half of it in a low fee index fund, and half in stocks you believe in. Those stocks are higher risk, but can have a much higher (or lower) return than the index, i.e. risk 20% of your capital for a potential 50% gain. You can add bonds to the mix if you want.
And I would. Look, it all comes down to what you're comfortable with and how you've made your money. Some people are terrified of losing even a penny. Others don't care if a stock goes down 20%, if long term the business is solid / healthy and the price makes sense.
If you're looking for stock tips on the internet, then yes, half in picked stocks is quite risky. If you're willing to put in the work to do the research by plowing through SEC filings, reading annual reports, trying out the product the business is selling, in sectors you know and understand (i.e. tech for us) and you have common sense, then it's quite reasonable. You won't always get it right, but you can at least do better than others who haven't done their homework. That also means saying no to 90% of the stocks you could invest in.
Muni bonds are the best way to go for that. You can still nail 4% plus after inflation and taxes there. You're not going to get risk-free anywhere, there's no such thing.
Sure - so you're factoring capital appreciation in to the total return for your 4% after tax number? Which would imply that you're not holding these to maturity though right?
Is capital gains tax payable on those coins? If I were in your place, I would probably attempt to find a way to realise that gain (i.e. by relocating to a tax friendly country for a while) without having to pay capital gains tax. Make sure to not throw away your windfall.
In Finland, the capital gains on cryptos are realised once you sell them for floating currencies (ie. USD or EUR). We pay 34% tax on the profit.
For example, I'd pay (1M€ - 20k€) x 34% = 333k€ of taxes on capital gains. I'm not sure how the taxation works if you try to dodge it by relocating to a more tax friendly zone. I've heard some horror stories about Finnish companies moving to Estonia for tax benefits only to be taxed with fines for the gains that the company made while it located in Finland. Would the same rationale apply for personal capital gains?
You can freely trade between cryptos, for example between BTC and ETH, without triggering the capital gains. The moment you leave cryptoland, I believe they use the first-in-first-out (FIFO) principle to calculate the profits.
In Belgium (where I live), these gains are tax free. So that is one country you could potentially move to to avoid the tax. The same applies for the UK, Malta, Cyprus (non dom regime) and Monaco. If I were you, I'd consider doing the perpetual traveler thing for a while (i.e. while having a base in Malta, which is cheap) and cash out + reinvest in stocks. After a few years, move back, and then pay capital gains tax on those future gains.
You can leave most countries without realising the capital gain, even if you've built it up within a country. This is why certain people move to a country without capital gains tax to sell their company. Obviously I don't know Finnish tax law, but within the EU it's generally the case (for now). Have it checked by a _GOOD_ tax lawyer, if that's what you want to do.
Building up capital is important - once you have it there's a lot you can do.
Wow, this advice is very valuable. I'll definitely investigate. Thank you.
Another interesting discussion is the ethical side of things. I do feel some obligation to pay back to my home country for things it has provided (free education, healthcare, etc.), many of which were financed with tax income.
But paying the whole amount from current and future gains would be tad too much. Also, would it be possible to achieve higher and more direct impact with dodging the taxes and distributing that money via philantrophic means? Just some questions I'm thinking about in the whole picture.
1. If you intend to move back at some point, it doesn’t matter. Say you generate €75-100k a year from that million in the future, you’ll be paying 25k a year in taxes anyway. The more capital you have, the more you can generate, hence the more tax you can pay in the future. Pay 333k now vs 25k a year over the next 50 years. But building that first €500k-1m is hard, imo.
2. Always give back. For example, I gift €X,000 every year to local good causes. Yep, I get a 45% tax deduction for it, but I also use it as a way to give back. You’re not going to spend one euro to save 45 cents in tax, if it's not something you believe in.
You can also give back by investing in Finnish companies.
3. If you’re interested in Belgium (low cost of living, high quality of life, free health insurance, relaxed society, high taxes but not on capital), I can intro you to my tax lawyer. He’s awesome.
Great points. Ultimately, it seems to boil down to deferring tax to the future instead of the present resulting in higher gains for everybody, and having the freedom to choose on how to give back. Both of which seem like the obvious after further consideration.
I'm really curious about your story. Would you be interested in continuing this discussion over email?
Note: this does not apply to Americans, because they are taxed based on citizenship, not residency. But even within the US you can save taxes by moving states (i.e. by being based in Texas or Seattle when selling your company, vs California). I believe Mike Arrington did this.
>Speculation is rampant that the move has allowed Depardieu to shift his legal residence to Belgium to dodge the 75% tax on income over $1.27 million that Socialist President François Hollande will apply as of 2013 as part of his response to France’s debt crisis.
Two things stand out:
1. Depardieu is avoiding a hit on his future income. The story is from 2012 talking about a future French tax hike in 2013. Avoiding tax on past income i.e. unrealized capital gains would be much harder I believe.
2. The story doesn't mention capital gains at all. I'm specifically interested in cases where people have successfully avoided a capital gains tax.
As long as the country you live in does not levy an "exit" tax of some sorts (on the individual, not the company), you should be able to move. Only the individual shareholder is moving, you are not moving the company abroad.
Hey, I bought zero bitcoin because by the time I looked at it - when the price was still in two digits - I thought the bubble had come and gone and there were rumors of an impending government crackdown. So you did 15k better than I did!
So easy to say in hindsight, right? I try not to be too hard on myself about past decisions. I bet you did the best decision you were capable of doing with the information you had at the time.
If you only have 10k€ in the bank and not a second "survival" account with around 10k€ then this should be your backup fund. Make the money as easily assessible as possible. It should be at least 3 months of expenses, and I personally spend less than 10k in 3 months but still have that goal.
I just switched from Wealthfront to Betterment, because their software does a good job of helping you with this. It asks you what you're using the money for, when you'll need it, and about your tax situation. It'll automatically provide different investment options based on what you answer. So, for your situation you could put some of it into an income producing "goal", and put the rest into something more growth oriented.
https://www.nutmeg.com in the UK are quite good. I can provide a referral : you get 3 months fee-free (and an additional £100 if you invest >£15k) and I get a small bonus.
With bitcoin, I'm kinda sure there was never any certainty, only faith; for a few, that worked out very well. But bitcoin has always been a gamble, a very unstable and easily influenced investment product, with unsafe and corrupt trading platforms.
I didn't have any magical crystal ball, like no one else did. The key transition point was moving the Bitcoins into the Ethereum. For me, Vitalik's early posts convinced me that Ethereum wasn't just another altcoin and it had great potential.
I didn't have any debt at that point and the traditional model of saving portion of salary and getting 4% annualized growth wasn't going to achieve the wealth I had in mind. So cryptocurrencies seemed like it had the huge upside potential I wanted and the worst-case scenario would have been that I'd lose the initial 20k€. I'm fairly opportunistic and risk-seeking. YMMV.
Hard to say what the probability of failure (ie. Bitcoin collapsing or the value of Ethereum being far less than the pre-sale price) has been.
Typically the best / simplest way for sustainable mostly passive income is rental property. Lots of how to guides out there. Mortgage rates are really low at the mo if you want to leverage.
I did some calculations about owning your own apartment vs renting. At least in Finland with the current housing prices and interest rates, the difference in a 25 year period between owning and renting was surprisingly small. Personally, I'm happy to pay rent and have the money in more liquid assets as well as enjoy more freedom and being debt free.
I assume renting out would only be worse with the additional risk of having bad tenants.
Here in Finland, the status quo seems to be that you obviously save for your own apartment as the first thing. From purely financial gains perspective, I couldn't find the rationale.
But isn't it always good to own the property you live in ? If instead of paying $1000 a month for rent, you pay that $1000 a month for a loan for your own apartment you still have the same money to invest that you have now but you will eventually own the place you live in and free that money up. Of a big amount of that monthly payment will be interest, but at least not all of it is gone. This only works if you can actually finance a place for similar money as it would be to rent, which i am not sure of.
This depends on the country. Property isn't exactly passive income, when compared to other types of investments.
For example, in Belgium, stamp duty (a transfer tax) upon acquisition of a property is 10%. It takes a long while before you generate that back in rental yields.
Nearly everyone had a beatable blackjack, counting deposit bonuses, back in the day. They called it "Casino Whoring" or "Bonus Whoring." I started my poker bankroll that way and later moved into professional poker (HUSNGs).
I turned $100 into approximately $3500 with the whoring. My expected value was something like 2900--I got lucky enough to beat the table in addition to earning the bonus.
Many of them were something like "deposit $200, get $200 bonus, have to bet $xxxx before you can withdrawal" with approximately a $190 expected value if playing $1/hand blackjack, perfect play.
I didn't think it was any surprise to the casinos that they were beatable--I assumed they just relied on them as a loss leader.
Would love to hear your general thoughts on Modafinil. One of the things they say is that it has minor side-effects and that tolerance builds up really slow, if at all, in comparison. What's your take on it, empirically?
First a warning, because I've seen many misconceptions: Modafinil is not a sleep replacement. Especially not long-term. Do not use it that way. Its anti-sleep property is that it suppresses many parts of the urge to sleep. It does not provide any of the effects sleep provides.
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Well, I've always had issues with sleep: I have an 25 hour circadian rythm, so before modafinil I often just let it run and wake up an hour later every day. I thought modafinil might be something useful to help me experiment with my sleep. Note that I did not get a doctor's receipt, so I imported the drug myself. (I'm not in the US; it's not a felony where I am.)
You say "in comparison"-- I must say that I do not have much to compare it to. The only other substance of this kind that I feel an effect of is caffeine, and it's on a completely different level, in all ways.
Side-effects I noticed were mostly dry/chapped lips, reduced appetite and diarrhea-- the last of which seems not to be very common.
In terms of its nootropic effects, I'm normally very bad at focusing on stuff for long periods of time, and for some periods it helped me focus for long times on tedious things. Or it helped me focus on cleaning the house really well, reading the internet thoroughly and avoiding what I had to get done. But if I used it and spent a night studying, I would remember the material studied very well. This concentration effect was also the quickest to fade after longer use.
The main effect is its anti-sleep property is that it suppresses many parts of the urge to sleep. It does not provide any of the effects sleep provides.
Right now I don't use it, because I am not working on anything that would benefit from it, and the side effects are not worth it to me right now. Also, melatonin has helped me with my sleep rythm issues for some time, so I don't need it for that.
I did not notice any addictive effects whatsoever. There's no high you get from it, nor a low after you stop, perhaps besides sleeping a bit longer for a few days.
I recall reading that unusually-timed melatonin supplementation worked for at least one person.
From HPMOR notes:
>Around a year ago, some friends of mine cofounded MetaMed, intended to provide high-grade analysis of the medical literature for people with solution-resistant medical problems. (I.e. their people know Bayesian statistics and don’t automatically believe every paper that claims to be ‘statistically significant’ – in a world where only 20-30% of studies replicate, they not only search the literature, but try to figure out what’s actually true.) MetaMed offered to demonstrate by tackling the problem of my ever-advancing sleep cycle.
Here’s some of the things I’ve previously tried:
Taking low-dose melatonin 1-2 hours before bedtime
Using timed-release melatonin
Installing red lights (blue light tells your brain not to start making melatonin)
Using blue-blocking sunglasses after sunset
Wearing earplugs
Using a sleep mask
Watching the sunrise
Watching the sunset
Blocking out all light from the windows in my bedroom using aluminum foil, then lining the door-edges with foam to prevent light from slipping in the cracks, so I wouldn’t have to use a sleep mask
Spending a total of ~$2200 on three different mattresses (I cannot afford the high-end stuff, so I tried several mid-end ones)
Trying 4 different pillows, including memory foam, and finally settling on a folded picnic blanket stuffed into a pillowcase (everything else was too thick)
Putting 2 humidifiers in my room, a warm humidifier and a cold humidifier, in case dryness was causing my nose to stuff up and thereby diminish sleep quality
Buying an auto-adjusting CPAP machine for $650 off Craigslist in case I had sleep apnea. ($650 is half the price of the sleep study required to determine if you need a CPAP machine.)
Taking modafinil and R-modafinil.
Buying a gradual-light-intensity-increasing, sun alarm clock for ~$150
Not all of this was futile – I kept the darkened room, the humidifiers, the red lights, the earplugs, and one of the mattresses; and continued taking the low-dose and time-release melatonin. But that didn’t prevent my sleep cycle from advancing 3 hours per week (until my bedtime was after sunrise, whereupon I would lose several days to staying awake until sunset, after which my sleep cycle began slowly advancing again).
MetaMed produced a long summary of extant research on non-24 sleep disorder, which I skimmed, and concluded by saying that – based on how the nadir of body temperature varies for people with non-24 sleep disorder and what this implied about my circadian rhythm – their best suggestion, although it had little or no clinical backing, was that I should take my low-dose melatonin 5-7 hours before bedtime, instead of 1-2 hours, a recommendation which I’d never heard anywhere before.
And it worked.
I can’t #&$ing believe that #$%ing worked.
(EDIT in response to reader questions: ”Low-dose” melatonin is 200microgram (mcg) = 0.2 mg. Currently I’m taking 0.2mg 5.5hr in advance, and taking 1mg timed-release just before closing my eyes to sleep. However, I worked up to that over time – I started out just taking 0.3mg total, and I would recommend to anyone else that they start at 0.2mg.)
It's a very subjective question. Modafinil makes me feel Not Tired. That's pretty much it. Not amped up, not hyper focused, just very awake. If you're having trouble focusing because your tired then this is a huge improvement. But I don't think it's much better than just being actually well rested.
Tolerance didn't seem like a huge issue, but I also wasn't taking it every day.
Tolerance does happen with modafinil, but sensitivity increases again very rapidly for most people, so if you don't take it every day you might never start noticing it.
The expected value for this bet is $1,000,000,000/4,294,967,296 ~= $0,23.
Say, it takes 10 minutes to make the bet. That would compute to the average gain of 6*$0,23 = $1,38/hour.
This disregarded the $100,000 paid to the top 20 as well as the possible psychological effects from making such bet, such as a positive outlook on life for the duration of the bet, etc.
It really bugs me that the article has 4,294,967,296 as the odds, so I can't help but correct it. They don't have the odds calculated to 10 significant digits. We don't have enough data on the teams to get anywhere close to that level of precision.
They made the naive assumption that all games are independent events and that all games have exactly a 50% chance to go to either team. Then they computed 2^32, which is STILL massively incorrect even with those assumptions because there are 63 games, not 32.
The $0.23 definitely doesn't properly value the effect of how few actual chances a person has in a lifetime to make a billion dollars, much less for such a trivial amount of time and effort (average American watches three hours of tv per day).
There have been four $580m+ lottery wins in the US in the last 18 months (powerball & mega millions). $2.4 billion split among eight people. The odds were beyond absurd, and yet these people still won. Granted, I like my odds better in the lottery than Buffett's wager.
>The $0.23 definitely doesn't properly value the effect of how few actual chances a person has in a lifetime to make a billion dollars
You're right, it probably over values it due to the marginal utility[1] of money and the non-zero value of the risk premium[2]
You have as many chances at winning a billion dollars as you want. All you have to do is make lots of smaller bets strung together. It may seem impossible to string 30 winning red/black roulette bets (starting with a dollar), but actually the odds of winning a billion dollars that way are roughly the same. Technically speaking Casinos don't have the capital to support the super large bets, but you could easily transition into 50/50 bets in the equities markets. There is enough capital there to give you a shot at a trillion dollars. All you have to do is take it.
You don't have many (zero?) opportunities to trade 10 minutes of your day for a chance at a billion dollars. Particularly without spending any meaningful amount of money or taking on any meaningful amount of risk. The substantial problem with the stock market and casino versions, is you'll have to constantly put your ever larger winnings at risk with each cycle upward. This introduces an extraordinarily massive risk factor - to real assets - to the equation, that you're not accounting for.
>This introduces an extraordinarily massive risk factor - to real assets - to the equation, that you're not accounting for.
No it doesn't. It's identical, except that rolling your bets gives you the additional option which can only be considered more valuable.
And interestingly in this case, Buffet will actually provide the same opportunity if it comes to it. If you get the first couple rounds of the bracket correct, Buffet will be right there with a check offering to buy you out of your position.
I was in the audience!
It was a great session - you're a funny guy, explained the concepts well, and there was some really interesting real(or alternate :p) world use-cases for all this stuff.
My girlfriend has Ankylosing spondylitis. The exact cause of the continued inflammation is unknown. It has been hypothesised that the cause is a gut bacteria feeding off of gluten/starch/sugar/etc.
We are super excited about trying out an elimination diet with Soylent, but knowing the real possibility of placebo and other factors, such as stress, we are trying to come up with a systematic way to measure the effect of Soylent diet on the wellbeing.
Do you have any advice on how to go about conducting such a (food) experiment, what and how to track things and anything else to consider? Thanks!
Unfortunately, it's pretty tough to do it as just one person. All of my models assume you have a population of patients that are tracking their diets. With one person, you probably are best off just tracking your foods, medications, and how you feel (numerically, say [0,10] or something). Then after a while you can do a regression based on how much of a given item you think you have in your system.
It took some time to get used to, but now I don't even notice it. Totally worth the adjustment period. New people always seem to comment how orange/warm my screen looks.
