Thinking About Investing in Dimes Per Day


Everyone - especially young people - could probably do well to invest more of their income. One of the reasons that is is hard to get the motivation to invest is that the outcomes are not clear, and the pace of progress is oftentimes hard to gauge.

After all, if you check your portfolio regularly, you might see swings in its value of hundreds of dollars every day, even though, on average, over the course of years, you can be confident that your portfolio will become more valuable.

And, what is the goal? Many of my friends who are the most thrifty in general - who have to make the fewest life changes to begin investing - are the ones who see the point the least. They don’t value material things, but they do value experiences and freedom. So what is the point of amassing a large portfolio?

Every $1000 you invest gives you one dime per day

That’s how I’ve started thinking about it. If I invest $1,000, I can then (99 times out of 100) count on being able to spend one dime per day, in current money, forever, without reducing my portfolio balance.

How? To withdraw one dime per day, my portfolio must on average earn $36.50 per year - a return of just 3.65%.

With an aggressive but diversified portfolio of stocks and bonds and reasonable inflation - say, 70% stocks earning on average 7.0%, 30% bonds earning on average 3%, and 2% inflation, the math works out:

Your 70% allocation to stocks - or $700 - will on average earn 7.0%, or ($700 * .07) = $49.00 per year. Your $300 of bonds will earn on average ($300 * .03) = $9.00 per year, for a total of $58.00 per year.

You need to increase the balance of your portfolio by 2% - or $20 - each year to counter act the effects of inflation, leaving you $38 per year to spend.

$38 per year is just a hair over a dime per day, or $36.50 per year. So thinking in terms of a dime per day is both easy and suitably conservative.

Of course, there’s more to this - if you actually live on a 3.65% withdrawal rate, you’ll run out of money in 30 years about 1 out of every 100 times - but in general, it’s a safe way to think about things.

Backing things out

A dime per day isn’t much, or doesn’t seem like much. But thinking about things starting with needs, not wants, makes it clear how much it can be.

What is the bare minimum to live? There are lots of things that make live liveable - but ultimately the only thing you must have is food and water.

Buying in bulk, cornmeal is about $0.15 per 200 calories. Pasta is about $0.20 per 200 calories. Rice and beans, which together provide all the essential amino acids for dietary protein, if prepared yourself, are in approximately the same range - say $0.15 per 200 calories. Canola oil, a healthy fat, is less than $0.10 per 200 calories.

Net, you should be able to eat a relatively healthy 1600 calorie per day diet (certainly not enough to thrive, but enough to live) for about $2.00 per day. Twenty dimes.

Hence, if you can get $20,000 into an investment account, you will never, ever need to go hungry.

That’s a powerful statement. All that is required to never be hungry in your life is saving $20,000 - quite a reasonable sum.

This extends to all the other aspects of life as well. In low income neighborhoods of most non-major cities, you can find rooms for rent for as little as $300/m, or 100 dimes per day, and in many cities you can actually buy a (granted, low quality) house for as little as $50,000 - which, with a 30 year mortgage, will cost you about $300/m as well.

If you can get $100,000 invested, you will never be homeless.

$20,000 for food and $100,000 for housing - plus, say, another $0.05 per day for odds and ends - and you can be assured that you will never be destitute if you can get $125,000 together.

That’s powerful, because investing $125,000 is eminently doable. If you have a college degree, you should be able to find a job that will pay at least $30,000 per year - and if you simply continue to live as you did in college, which was likely on less than $10,000 per year, you can save an additional $15,000 per year and have $125,000 in just 7 years.

And every extra $1000 you save - which is only 50 hours of work at $20 / hour, a pretty reasonable rate for freelance work - increases your standard of living by $0.10 per day, forever.

And all of this is without leaving the US - there are many countries where you can have a significantly better quality of life for this price of about $12.50 per day Check out Millenial Moola’s post on this topic.

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