How do you annualize? Do you power it up? How different is it if you just take annual gains and average?
Yes. 11.04^10 = 285%. If you just average, you would say 28.5% per annum but that disregards benefit of compounding. 28.5% compounded over 10 years would yield 1227.5% ROI.
I meant if you keep the record of annual returns every year for 10 years, can you just add them up to get 10 year returns? Roughly speaking?
Not if you want to take into account things like compounding and/or the time value of money.
No, you need to apply them sequentially to account for compounding.
Examples of compounding:
- +10%, +10% => +21% for the two years (1.10 * 1.10 = 1.21)
- +25%, +20% => +50% for the two years (1.25 * 1.20 = 1.50)
- -50%, +100% => break even for the two years (0.50 * 2.00 = 1.00)
Had a socially distanced sunset with friends on the beach tonight, and we started talking about a few things related to retirement, wealth accumulation, dying (lol), etc. Idk if this has been discussed on this thread before or not, but I am curious as to whether or not leaving monies to your descendants or charity or whatever is important to you. I know there has been considerable discussion about estate planning on this thread, but I am wondering if people have it as GOAL to leave substantial assets (to whomever) on this earth after leaving it and how that affects your day-to-day existence, lifestyle, spending, and planning.
Leaving an estate (or trust fund or whatever) may not necessarily be a goal, but can be a byproduct of financial planning that leaves a significant margin of safety against worse case financial outcomes. If the worse case financial outcome does not occur, then the money that would have covered the worse case financial outcome ends up being your estate when you die.
We gave our kids a decent childhoods and college educations. They will likely also inherit some money someday when we both are gone, but we have no specific goal. They get split is left over, or possibly other scheme someday when/if grandchildren.
As of now, I expect that there will be some left in the trust.
My kids/grandkids will get that âper stirpesâ.
But if my situation changes and I need to deplete the trust, I will adopt a good friendâs tongue-in-cheek goal: Die with a dollar left, and let them fight over it!
We always told ours that we planned to have the last check bounce?. But in reality unless something disastrous happens the financial plan has that there will be trusts for grandkids education and money left for all.
My philosophy aligns with that of @ucbalumnus, but our friends donât have that worst-case-scenario mindset. Donât get me wrong - they arenât spendthrifts, crazy with debt, anything like that. I think they enjoy what they have now more than I do because of how they think.
We also talked about different ways people enjoy their resources. They are big foodies, and that just isnât something that is important to me. They talked about having done a 10 course pairing menu at the V&A at Disney and spending around $850 (for both of them) for that experience. I donât think I could enjoy that, but different strokes!
DW continues to work, long after she could have retired, mostly for two reasons.
- She enjoys it and gets gratification from it.
- She wants to provide for her family (sibs, parents, kids) while sheâs alive and a good inheritance for the kids.
I tell her she doesnât have to account for the extreme case of EVERY family member going financially belly up at the same time. She smiles and nods.
She also wants to leave a significant inheritance for the kids. I want to be sure not to require any financial help ourselves, and a side effect of that is we will die with considerable assets (since we donât know precisely how long we will live).
Itâs all good, and since she enjoys working, I no longer pressure her to retire. It was different when she had a job she didnât enjoy.
Iâd like to find some balance in being sure I leave something for our D (the only child) when we die but also enjoying life. My parents were very very thrifty and left us quite a bit of inheritance. I think especially my dad could have lived quite a bit more fully but he was always worried about running out of $ (WWII baby).
That said, Iâm leaving 1/2 my inheritance from my parents to D outright in my will. Too many examples of husbands re-marrying and blowing through all the money on the new wife and having nothing left for their children. I know my parents would be happy with that.
We have not assumed any thing left over for the kids. But we plan it the way ucbalumnus outlines above. Families and money mean there is a lot more emotion involved, but I like the way ucbalumnus states it with such an even keel.
The more your retirement plans are based on income sources that terminate at death (social security and pensions), the more likely/realistic is the âleave the kids/grandkids $1â approach. But if you are depending on your own personal savings to fund retirement, you are less likely to be able to do that because you likely have planned to have your savings last an indefinite amount of time.
Given what we see in terms of savings levels at various age groups in the US, most people are likely to be in the $1 camp (or at least close to it). Though I donât expect that to be the case for most people in this thread.
We are in pretty good shape. I had made my âsit on the beach moneyâ some time ago, but have kept on working for the challenge and something to do. Kidsâ education almost paid for (1 semester left for S) with the remaining 529 funds about covering that. D employed/self sufficient but looking at a long PhD program (6 years). It is in a field where she should be fully funded but we might help her a bit if and when necessary. S has a permanent offer in hand after graduation at an IB, so he will also be fully off the payroll. We have told the kids to expect nothing from us in terms of inheritance. We have too many wealthy friends and relatives with kids that go through life going through the motions because they know they have a cushy safety net. We will contribute to any grandchildâs college fund. Then towards the end, weâll see what is left. If it is sizable enough, I am thinking of establishing a Delaware perpetual trust that will fund âmeritâ scholarships for future generations. I was the beneficiary of one (I come from a country that doesnât have a ârule against perpetuitiesâ ). While the amount was not large, it was kind of cool to know my ancestors also valued education.
My fil was too thrifty (cheap is a better descriptor), and mil really didnât know what they had until he died. Itâs not a ridiculous amount, but I think she was shocked and a bit resentful of how much he had badgered her about spending money on small things like eating lunch out with girlfriends. She is certainly reasonable, but I am glad at age 80 she finally hired someone to come clean her home. He would have never âallowedâ that.
Interesting take and reasoning on leaving part of your parental inheritance to your dd. Filâs parents accomplished that through a GST trust, so when fil passed dh and his sister each got half of what was left. Grandparents did that to keep mil from getting anything of theirs, though it wouldnât be considered a super large amount . Yours is a much more reasonable and balanced approach, I think. And, what is best, I think will depend on the relative amount of what one has inherited and the total amount of resources a couple has together.
Weâre in the same camp as @ucbalumnus. Itâs not necessarily our goal to leave $ to our kids, but, because of how weâve planned and saved, itâs likely there will be $ left for them.
When FIL died, DH and I decided we didnât need the money (a 5-figure sum) and gave each son half of the amount at appropriate times. S1 got it to buy his house,S2 to pay for grad school.
We arenât planning in a way that makes leaving money to our kids a priority, but because we donât have pensions, I expect there will be savings left to pass on(when we pass on). That would be better than running out early.
I have a friend who is working longer than he would like because his wife wants to make sure there is lots of money left for their kids when they die. Another friend has scaled back her retirement plans a bit because they need to help their son who has mental health issues. To each his own.
@ucbalumnus I was afraid of that. Trying to cheat to get a simple answer.