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What do you mean by negatively compound? I assumed you meant that if you gain no income, losing 1% per year means you lose less than 10% over 10 years, but you
by fauxpause_ 4y ago
What do you mean by negatively compound? I assumed you meant that if you gain no income, losing 1% per year means you lose less than 10% over 10 years, but you don’t seem to have acknowledged that.
- TigerTeamX 4y ago0.99*10 = 90%. Why do you need to work just to keep your wealth at the same level? Isn't that a big red flag?
- eynsham 4y ago0.99*10 = 9.9, I should think; of course, 0.99^10 ≈ 0.9 but 0.99^n is not in general well-approximated by 1-0.01n.
- TigerTeamX 4y agoYeah, that's right. I wrote two stars but apparently they're removed by HN.
- cwaffles 4y agoI think it should be 0.99^10, since you lose 1% every year, just like interest. Example showing final balance at end of each year: Year 0: Start with $1000 Year 1: $990 (1% is $10) Year 2: $980.1 (1% is $9.9) ... Year 10: $904.38
- TigerTeamX 4y agoYes, you're right. I made two stars but HN removes that. Many times in programming we use two stars for meaning ^
- cwaffles 4y agoOther follow up, you can always buy government treasuries for yield to offset the tax, which requires very minimal work. At billionaire wealth level, you most certainly have someone managing the funds for you.
- TigerTeamX 4y agoThey yield 3-5% right now. Official inflation is 8%. You're losing 3-6% based on official inflation data. I don't know about you though, but things went up a lot more than 8% for me. But let's say just 3% a year loss, that's a loss of almost 30% over 10 years.
- fauxpause_ 4y agoYou’re not entitled to be sheltered from inflation, especially not for just passively investing income.
- fauxpause_ 4y agoThat has nothing to do with the term “negative compounding”. Although for what it’s worth, I don’t think it makes a lot of sense for the wealthy to comfortably do nothing and contribute nothing to society. I would prefer wealth weighted income taxes personally.