For the skeptics, I have projected out my net worth as follows based on several assumptions:
1. At the end of 2017, I shall have $1,086,200. This figure was estimated earlier this year, and now looks a bit conservative. I now project somewhere between $1.15M and $1.19M to end 2017. I will stick with the lower figure though, since the stock market is somewhat frothy right now and can easily correct by 10% or so.
2. My personal rate of return is 10%. This is pretty conservative, in line with the stock market's historical performance, and I am roughly 100% in stocks. In fact, I would like to think this is somewhat conservative, as I aim to be leveraged 1.1 to 1.2 times under normal market conditions.
3. My annual savings is $140,000, growing at 8% per annum, while I am working. This is a conservative estimate, given my savings last year was $143,506.88. Note: this savings figure is income net of expenses. 8% is approximate nominal rate of my salary increase. This assumption is valid only while I remain working, which is estimated to be for the next five years (see next assumption).
4. I anticipate to retire in 2022, at the age of 38. This is a rather conservative estimate, assuming that I will not get promoted or retained at work, and that I will not feel inclined to seek employment elsewhere. I will probably retire a few years later than currrently projected if I do get promoted, which would expedite my path toward $1B.
5. My annual expenses are $12,000 growing at 3% per annum. Again, this is pretty conservative, given that my trailing 12-month expenses were $9.901.29. I assume somewhat higher expenses to allow for more discretionary spending during retirement for stuff like travel, as my current expenses are pretty close to bare-bone expenditures. 3% is the rate of inflation historically, which is also conservative given that I tend to make substitutions in favor of less expensive goods, more along the idea of a chained inflation.
That's it! Just 5 conservative assumptions. I am currently 33 years old at the end of 2017. From 2018 to 2022, retirement year (assumption 4), my net worth is projected to grow from the 2017 figure (assumption 1) organically by 10% (assumption 2) and inorganically by my annual savings (assumption 3). From 2023 and beyond, my net worth is projected to grow by 10% from previous year figure, offset by inflation-adjusted expenses (assumption 5). Projecting out to age 101, I will reach $1B net worth in 2085. See table below.
Living to age 101 may be a bit ambitious, but I believe I have a decent shot, given the rapid rate of medical advances and that longevity runs in my family and I eat a very healthy diet and exercise daily for about 1.5 to 2 hours.
Interestingly, I have spent the first 32 years of my life below a 7 figure net worth, and expect to spend 19 years (between 33 and 52) at a 7 figure net worth, 24 years (between 52 and 76) at an 8 figure net worth, and 25 years (between 76 and 101) at a 9 figure net worth.
I also played around with my assumptions, For example, if I should attain a 12% rate of return instead, I would get to $1B at age 90, a full 11 years ahead. Alternatively, if I were to get promoted and retire at age 46 instead, I would get there at age 94, about 7 years earlier. Cutting expenses won't help as much though. If I were to cut expenses to $8k per year (bare minimum for me), I would get there at age 100, just one year sooner.
Given the above analysis, it appears that the rate of return makes the most difference. I will focus on maximizing returns by keeping costs to a minimum, maintaining near 100% allocation to stocks (the asset class with the highest return historically), tilting toward value and small cap which have earned a premium historically, and juicing up returns through leverage by adding a little margin when stock prices are low.
What do you think? Are my assumptions reasonable? I would love to hear from you!
you should adopt more value-oriented strategy, this will help you reach your goal much faster, listen to Monish Pabrai videos on youtube
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