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You are now encountering the concept of a safe withdrawal rate. If you have money and want to spend it effectively, the best course of action is not to immediat

You are now encountering the concept of a safe withdrawal rate. If you have money and want to spend it effectively, the best course of action is not to immediately spend it all, but to invest it. Then, once a year, you'll want to take the profits, reinvest a sufficient amount such that your capital doesn't depreciate due to inflation, and then to spend the rest. A more conservative strategy would have you reinvesting even more. What's the point? Well, suppose you have $100. You could spend it all now. Or you could invest at a 7% profit rate, reinvest 2% for inflation, and then spend the remaining 5%. This lets you spend $5 a year, inflation-adjusted, for the foreseeable future -- so if your timeframe is longer than twenty years (20x5 = 100), it makes sense. That's not to mention that having a lot of money in investments gives a school substantial practical/political power.

77pt77 11y ago
> Or you could invest at a 7% profit rate Tips welcome.
- jldugger 11y ago
  Broad market indicies like S&P500 are regarded as having a 7 percent return after adjusting for inflation.
  - 77pt77 11y ago
    According to http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... from 2006-2015 the SP500 had a geometric yearly mean return of 7.25%. according to http://www.usinflationcalculator.com/inflation/current-inflation-rates/ http://www.usinflationcalculator.com/inflation/current-infla... The average inflation for that period is 1.9% so you get roughly 5%. Still pretty decent.
    - jldugger 11y ago
      We're talking longer than 10 years here. A better estimate might calculate the average 10 year return for every 10 year return period, and the standard deviation of that same data set. And then do that calculation for 30 years. I believe you end up with a higher average and smaller deviation at 30 than 10.

77pt77 11y ago

> Or you could invest at a 7% profit rate Tips welcome.

jldugger 11y ago
Broad market indicies like S&P500 are regarded as having a 7 percent return after adjusting for inflation.
- 77pt77 11y ago
  According to http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... from 2006-2015 the SP500 had a geometric yearly mean return of 7.25%. according to http://www.usinflationcalculator.com/inflation/current-inflation-rates/ http://www.usinflationcalculator.com/inflation/current-infla... The average inflation for that period is 1.9% so you get roughly 5%. Still pretty decent.
  - jldugger 11y ago
    We're talking longer than 10 years here. A better estimate might calculate the average 10 year return for every 10 year return period, and the standard deviation of that same data set. And then do that calculation for 30 years. I believe you end up with a higher average and smaller deviation at 30 than 10.