Poll of the Day > $5,000 a month or $1 Million?

(+) Yeah! (+)

http://www.msn.com/en-us/money/savingandinvesting/dollar1-million-or-dollar5000-a-month-which-would-you-choose/ar-BBzHred?li=BBnbfcN&ocid=wispr

Let's say you're 40 Years Old...which option would you take? $5K a month for the rest of your life or a Lump Sum (Tax Free) of $1 Million Dollars?

that's $60,000 a year for the rest of my life. I could easily live off of that.
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$5k a month.
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5k a month. I'm a relatively young man.

Zangulus posted...

I'd take the 5K to supplement my income. Spend a couple of years to buff up my retirement and buy/pay off a house. Then retire.

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5k monthly.
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A million. Invested properly, that money probably earn you more than 5k a month.
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$1M, as I can choose to either save it or make an investment on an enriching venture.
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Am I missing something here? At $5k a month, it'd take 83 years to accumulate a million, which is not at all likely for a 40-year-old to see. The million seems like an overwhelmingly obvious choice to me.
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Right, punched something in horribly wrong. I think I somehow managed to do 1000/12 instead of 200/12. That makes more sense, and the monthly option is better.
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There is really no reason to pick the 5k

if you're 40 there are so many places to invest in and get a much better return
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mastermix3000 posted...

There is really no reason to pick the 5k

if you're 40 there are so many places to invest in and get a much better return

You can make 6% a year for the rest of your life?
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JOExHIGASHI posted...

mastermix3000 posted...

There is really no reason to pick the 5k

if you're 40 there are so many places to invest in and get a much better return

You can make 6% a year for the rest of your life?

6% average (adding interest in to savings increases amount gained and amount in savings increases interest rate gained.)
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If the 5k is untaxed, that's the better option I think. But if they're both taxed, I could make more with the million than monthly income. Technically 5k will make you more money over the long term but that's assuming you're not investing that million immediately.
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JOExHIGASHI posted...

You can make 6% a year for the rest of your life?

so this is essentially why everybody is picking that option?
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Easy choice... The million.. Money is worth more now then it is in the future. Invest that million today and the investment income, interest, dividends etc. have the potential to far outweigh 5K a month.
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I'd take the 5k a month, I could focus that money on Bills and antyhing else important, then work more of a part time job to have spending money for myself, but that's just me....
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adjl posted...

Am I missing something here? At $5k a month, it'd take 83 years to accumulate a million, which is not at all likely for a 40-year-old to see. The million seems like an overwhelmingly obvious choice to me.

I really must see how you figured that out because it makes my head hurt trying to figure it out.
Yay for US education system!
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5k

I don't care to "invest the million", seems like a lot of work when the 5k is plenty to live off.
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Peterass posted...

Money is worth more now then it is in the future.

Do you know what usually comes after a recession?
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Kyuubi4269 posted...

Do you know what usually comes after a recession?

Are you disagreeing with my statement?
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Honestly, it takes slightly less than 17 years to accumulate $1 million when you get $5k per month. If I'm 40, that means all I need to do is live until I'm 74 to double the million, very possible, even probable, since I live a very healthy lifestyle.

However, the million could be invested, as has been noted, however that requires some work and is never a sure thing. Additionally, you still need to pay capital gains tax on the investment income, whereas you don't need to pay this if you're just getting 5k per month, tax free. Additionally, I could invest a portion of the 5k (I probably%u200B would, into my 401k) if I wanted to, so it's not like taking the million would be the only way to increase the overall value of the money.

The only way I could really see the million being the better choice is if you either want to blow it all up front because you're of the mentality of "I want to live and enjoy my life while I'm young!" Or, if you want to tie all of your money up in investments, just for the possibility of making more in the future, but then you don't get to enjoy ANY of the money until you're older. Or, the hybrid choice, take 500k and live it up right now, then put the other 1/2 in retirement savings. But even the , once you blow the 500k, what do you do for money until you retire.

I think I'll take the 5k.
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Million, easily. It would take over 16 years to make that 5K into a million. I'm not even 40 and I'm at the point where 5K a month is a pay cut (if i stopped working), so I could invest the million, work for a few more years, and then have even more.

Hell, I could use the million to buy a couple houses and rent them out for more than 5K a month.
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GameReviews posted...

The only way I could really see the million being the better choice is if you either want to blow it all up front because you're of the mentality of "I want to live and enjoy my life while I'm young!" Or, if you want to tie all of your money up in investments, just for the possibility of making more in the future, but then you don't get to enjoy ANY of the money until you're older.

There's also the aspect of needing liquid assets to set up a business or buy a house now, which would make a monthly stipend useless.
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Foppe posted...

adjl posted...

Am I missing something here? At $5k a month, it'd take 83 years to accumulate a million, which is not at all likely for a 40-year-old to see. The million seems like an overwhelmingly obvious choice to me.

I really must see how you figured that out because it makes my head hurt trying to figure it out.
Yay for US education system!

Punched 5*200 into a calculator to double-check that I was getting the zeros right, then divided the resulting 1000 (a million) by 12 to get the number of years. My mistake was using the result of my double-check instead of the number of months, because I approached the problem in a weird way and didn't adjust the rest of my approach accordingly.

Correct calculation: 1000/5=200, 200/12=16.7
What I did: 5*200=1000, 1000/12=83.3

Peterass posted...

Easy choice... The million.. Money is worth more now then it is in the future. Invest that million today and the investment income, interest, dividends etc. have the potential to far outweigh 5K a month.

That is a consideration. In 17 years' time, the $5000 payment that ticks you over the million mark is going to be worth notably less than the first one. You'll still come out on top in the long run, I think, but it'll probably take longer than 17 years, and being able to invest the full million right away will yield returns that will offset inflation.
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Peterass posted...

Kyuubi4269 posted...

Do you know what usually comes after a recession?

Are you disagreeing with my statement?

Yes, inflation follows recession thus cash gains value.
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Kyuubi4269 posted...

Peterass posted...

Kyuubi4269 posted...

Do you know what usually comes after a recession?

Are you disagreeing with my statement?

Yes, inflation follows recession thus cash gains value.

I think you misunderstood..
What i meant was, having $100 today, is more valuable than receiving $100 over the course of a year.
Look up "time value of money" for a full explanation. It's a common finance term.

Also, inflation decreases the value of money, not increases.
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5k a month. Easier to manage, more stable. I'll take stability over a lump sum

The million is by far the better option if you know how to invest. I already make enough money to live comfortably live on so I wouldn't have to touch the money unless i really wanted something extravagant.
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Kyuubi4269 posted...

Peterass posted...

Kyuubi4269 posted...

Do you know what usually comes after a recession?

Are you disagreeing with my statement?

Yes, inflation follows recession thus cash gains value.

But his statement was that the million would be the better option because cash gains value.
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adjl posted...

Kyuubi4269 posted...

Peterass posted...

Kyuubi4269 posted...

Do you know what usually comes after a recession?

Are you disagreeing with my statement?

Yes, inflation follows recession thus cash gains value.

But his statement was that the million would be the better option because cash gains value.

His opening statement was that money is worth more now, which is incorrect considering how we're coming out of a global recession, not going in to one.
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This is pretty dependent on what you think you can earn through re-investment income.

Let's start with a few carry through assumptions:
- consistent start date of Jan 1, 2018 for your full million, or your first $5000 monthly payment.
- 20% capital gains tax (only taxes are on re-investment income).
- Each $5k monthly payment is immediately re-invested at the rate.

Understand that this is quite simplified, but I think it's good enough for the purposes here.

Base Case Assumption: 5% annual re-investment rate.
In this case, we are earning 5%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2046, where the $5k a month becomes better.


Downside Case Assumption: 2% annual re-investment rate.
In this case, we are earning 2%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2037, where the $5k a month becomes better.


Upside Case Assumption: 7.5% annual re-investment rate.
In this case, we are earning 7.5%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2100, where the $5k a month becomes better - but this is so late that you're likely dead or near dead at this point and will have wanted access to the capital before this point.


Honestly, with $1 million in capital, investment options become quite broad - and it's not overly difficult to find reasonably safe hedge funds that can return 7.5% net of fees per year with ease - and a $1 million subscription is typically big enough that a hedge fund will consider it.

Obviously, either option is quite nice if invested responsibly, and "free money" like this is a wonderful option.
If I made any mistakes please let me know and I will happily update this - I rattled this off reasonably quickly and need to get back to work at the moment.

Kyuubi4269 posted...

His opening statement was that money is worth more now, which is incorrect considering how we're coming out of a global recession, not going in to one.

It's worth more now than it will be in the future. Whatever happens to the economy, we aren't going to see negative inflation.
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adjl posted...

Whatever happens to the economy, we aren't going to see negative inflation.

And why do you think that? Because unchecked capitalism doesn't want it to?

Government can enforce regulations and adjust taxes to effect the end value of all products. While unchecked capitalism won't solve this issue, government has all the power in the world to force change.
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This keeps coming up.

Seriously a mill is the only viable choice here, unless you are horrible at making money.

With a mill, you could buy a few fairly expensive properties on short sales or bankrupcy sales etc, for a nice discount (in CA you could just buy 2 of them for instance), renovate them a bit perhaps (pay someone), and flip the homes for a huge profit in the first year. Since your paying someone to do all the work, it's pure profit for you, with no real risk in such a short term.

So say you buy 2 400k homes your first year, and keep the $200k for yourself (you might even choose to live in one of the 400k homes initially, although while building up capital it would make sense to not do that yet).

Sell both homes for 600k after spending about 100k between them in renovations, and you'll end up with 1.3 mill.

That is a very conservative estimate on how much you could make, and means you would literally be doing almost nothing with your time for the whole year. In reality you could flip both homes easily in 3-6 months, and then do the same again (only slightly more expensive homes this time), ending up with a good 1.6 mill by the end of your first year.

The more money you have, the more money you can make with that money. This is true even with lower amounts of money, so you could in theory do it with the 5k a month setup (only with cars), but you would be making much smaller amounts of profit.

Since it takes over 15 years to even reach the initial 1 mill with 5k a month, that would never be a good option.

If it was 10k a month, it would be worth considering as it would remove any need at all for you to worry about money for the rest of your life, and if you don't want to buy/sell stuff etc, it would be a safe choice (still not the best choice finacially...but once you die it doesn't matter much, and till then you'd always have enough to do almost anything you wanted.

10k a month tax free could add up to a mill pretty fast anyway if you saved/invested along the way, so you would still have the option to build up a ton of cash over time if you wanted.

5k though....not really worth it unless you have no ambition and just want to veg somewhere.
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One million dollars now.
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One million now as at least I'll have the money right away. 5K a month for the rest of my life is all well and good but the rest of my life could be very short for all I know so eh.
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lesidesi posted...

This is pretty dependent on what you think you can earn through re-investment income.

Let's start with a few carry through assumptions:
- consistent start date of Jan 1, 2018 for your full million, or your first $5000 monthly payment.
- 20% capital gains tax (only taxes are on re-investment income).
- Each $5k monthly payment is immediately re-invested at the rate.

Understand that this is quite simplified, but I think it's good enough for the purposes here.

Base Case Assumption: 5% annual re-investment rate.
In this case, we are earning 5%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2046, where the $5k a month becomes better.


Downside Case Assumption: 2% annual re-investment rate.
In this case, we are earning 2%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2037, where the $5k a month becomes better.


Upside Case Assumption: 7.5% annual re-investment rate.
In this case, we are earning 7.5%/12 each month on our million, or our re-invested $5k monthly payments.
In this case, the million is worth more until ~2100, where the $5k a month becomes better - but this is so late that you're likely dead or near dead at this point and will have wanted access to the capital before this point.


Honestly, with $1 million in capital, investment options become quite broad - and it's not overly difficult to find reasonably safe hedge funds that can return 7.5% net of fees per year with ease - and a $1 million subscription is typically big enough that a hedge fund will consider it.

Obviously, either option is quite nice if invested responsibly, and "free money" like this is a wonderful option.
If I made any mistakes please let me know and I will happily update this - I rattled this off reasonably quickly and need to get back to work at the moment.

I need to hire this guy as my financial advisor...Good Work

Kyuubi4269 posted...

His opening statement was that money is worth more now, which is incorrect considering how we're coming out of a global recession, not going in to one.

Receiving $100 today is worth more than receiving $100 a year from now.. I think you are completely misunderstanding what I'm saying..
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Due to inflation, money is always worth more now pretty much. Been awhile but I think it's something like 3% loss per year or so from inflation (may be less, certainly isn't more).

Point is, $100 cash today is worth more then $100 cash would be in 5 years as the price of everything will have gone up, so you'd get less for the same amount of cash.

Only reason to keep large amounts of money in cash form is if your a bank robber or doing something illegal (hiding assets etc as well).

Otherwise you should always be having your money, make money, even just to keep it's own actual value (although investing it in gold etc can often work as well).

More money you have, in general, the larger percentage you can make on your money as well. Not only by getting higher rates or having more options with higher rates of interest, but because so many more lucrative investment options become possible.

Flipping houses like I mentioned above, can enable you to make very large profits for hardly any work. Short sales for instance are usually below market value, and if your willing to invest a very small amount in improving the property and then not rush to sell it, you can make a fairly large profit (not percentage wise, just pure profit for time spent) with little to no risk.

You can't do that without taking out loans etc which will destroy most of your profit, unless you have plenty of money already, but if you do, you can quickly multiply your money over time. Honestly you can do it in some places with as little as $100k or so (in theory you could do it with mobile homes, or even cars, but it would be a much smaller profit).

Helps to be licenses to sell etc, and you'll still have some taxes etc, but yeah, you can make serious bank that way if you have the funds. If you don't have the funds, there are usually people you can find to bankroll you if you can show them you are capable, but they will take half the profit (at least). Still you could do that initially till you had enough capital to swing it on your own (Wouldn't take too long if you are making 50k+ per property).
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wolfy's advice is definitely oversimplified and borderline dangerous
there are significant liquidity issues amongst a million other concerns i have with wolfy's analysis

not to mention wolfy's reductive explanations on inflation, holding cash, and investing in gold

$1m

5k a month isn't enough for me.
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I'd honestly just flip a coin.
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lesidesi posted...

wolfy's advice is definitely oversimplified and borderline dangerous
there are significant liquidity issues amongst a million other concerns i have with wolfy's analysis

not to mention wolfy's reductive explanations on inflation, holding cash, and investing in gold

You made a wonderful analysis on the returns of the million dollar investment compared to the partial payments of the 5k/month. But isn't the NPV or PV important to consider which investment is worth more? The million dollars today would only decline in value in the future, likewise with the 5k investment. But I'm not a finance major so, eh heh.

It's far more prudent to start with the $1 million upfront and let compound interest do it's work rather than rely on minimal payments, especially when inflation lowers the value of each payment.
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As mentioned, the million is (usually) the correct choice, simply because it's very easy to make more than 6% on that, and you'll get compound interests that go up pretty quickly.

Just dumping a million in an average index fund will do it. But that's the easy option. With a million, you can buy a condo rental property in pretty much any metro area (a luxury one in anything but SF or NYC, and even in the later you can get something pretty nice), and in those areas, 1 million~ rental properties generally average 10% profit.

Really, the million is much better.

Ranzoh posted...

lesidesi posted...

wolfy's advice is definitely oversimplified and borderline dangerous
there are significant liquidity issues amongst a million other concerns i have with wolfy's analysis

not to mention wolfy's reductive explanations on inflation, holding cash, and investing in gold

You made a wonderful analysis on the returns of the million dollar investment compared to the partial payments of the 5k/month. But isn't the NPV or PV important to consider which investment is worth more? The million dollars today would only decline in value in the future, likewise with the 5k investment. But I'm not a finance major so, eh heh.

I did a future value analysis - to see how much money you'd have at a point in time in the future. If you wanted to see what it's worth today - the million is just worth a million. Then you can sensitive different reinvestment rates to see what the $5000 payments are worth today. For example, if you had a given reinvestment rate, similar to what I used, and wanted to treat the 5k payments as a perpetuity (which is unrealistic) you could use annuity perpetuity calculations. So you're absolutely right - and one can definitely do that analysis - but I felt it was more revealing to look at what you'd have in the future over time.

However, saying the million dollars today would only decline in value in the future is following the assumption that you don't invest the money and just hold it as cash. Because I'm assuming you invest the full amount and let it compound - it's not fair to say that it would decline in value in the future.

Given that I'm not entirely sure I could invest the money better than the result of $5k/month, I'd probably take the $5k/month. However, if you could pull a 6% annual return on that million, it would be the far better option.
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