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Why be depressed? If you are young and a programmer making 100K at 25, party with your hipster friends and sock away 40K in savings every year. You'll end up wi

Why be depressed? If you are young and a programmer making 100K at 25, party with your hipster friends and sock away 40K in savings every year. You'll end up with 200K by 30, not a cool billion dollar but with 6% muni-bonds, you suddenly have tax-free interest income of equivalent of $1.2 million at regular 1% CD rate. Work on interesting projects that you want to work on. Do some traveling. Go back to grad school for fun. Learn a new language, sport or talk to girls. Go to your favorite startup or software company website and click on the mugshot of the guy who's in 40's in blue dres-shirt, is that who you want to be when you want to be? If no, don't get on the VC rat-race; it's just as soul-crushing as the investment banker's rat-race except less lucrative.

arbuge 14y ago
Eh? Having $1.2m beats having 200k any day... If 6% muni-bonds are a good investment (I personally have no idea), then presumably the guy with the $1.2m portfolio could buy them too... why is the 1% CD his only investment option?
- noname123 14y ago
  Point is having FU money, for most people it's $3mil at today's current interest rate to generate $30K which is annual young person's cost of living in a big metro. If you can cut your cost of living down $12K, then only $200K is needed.
  - arbuge 14y ago
    Careful with that. That ignores inflation, which as a great man once said, is the most pernicious tax of all. Inflation is currently around ~1.8% per year. Money in a 1% CD is effectively losing 0.8% per year. If you're happy with a $30k return on a $3m portfolio, you need to get a 2.8% return in today's inflation environment.
    - rprasad 14y ago
      Interest rates on investments take into account estimated inflation, so the $30k already takes into account likely inflation (but would not take into account higher-than-expected inflation).
      - arbuge 14y ago
        Hell no. You invest in a 1% CD, you get 1% absolute return, even if inflation is raging in the double digits. Edit: I assume you mean that over time interest bearing account rates rise with inflation. That's true in general, but as the current situation shows, there's no guarantee they're actually even above the inflation level at any point.
        tcgv 14y ago
        He means that if you keep spending all of your investment's returns, you'll end up with a fixed income of $30K (1% of $3M) that, due to inflation, will have less purchasing power as the years go by.
    - 001sky 14y ago
      If you're happy with a $30k return on a $3m portfolio... -- You should never be happy with this. IMHO.
revoltingx 14y ago
I fail to understand this as well. You've been blessed with skills that are in demand. You live in one of the best cities in the world, and you're young. You need to go live as a native in a 3rd world country to give you some appreciation. Get over it and get some work done, that's why your competition is kicking your ass.
fearless 14y ago
Everyone knows startups are not the optimal economically rational way to make money. But to an entrepreneur, living off 6% muni bond interest is profoundly uninteresting, and dare I say soul crushing. Repeat after me: If you think it's only about the money, you're missing the point. And even if it is all about the money, most 25 year olds would jump at a 1% chance to make $10 million over a $100% chance to make $200K. Not mathematically rational, but if everyone was rational there would be no outliers.
- sukuriant 14y ago
  nitpick: It's a loooooooooot less than 1%
  - fearless 14y ago
    Source? I've seen data pegging startup failure rates anywhere between 50-90%, but I've never seen a credible source claim that over 99% fail. Mathematically, no investor would be able to stay in business if 99% of their investments fail. I'm guessing failure rates for startups that have funding or bootstrap through revenue are closer to 75%.
    - Timothee 14y ago
      The thing as always is how you define failure and success. Do all the founders of a startup that is considered a success make $10M? Of course not. In my opinion, that's where the "it's a lot less than 1%" might come from.
    - dredmorbius 14y ago
      It's not that 99% fail, it's that well over 99% of participants fail to hit a $1m payout. Top founders and early VC, as well as key executive hires, may win. For staff, including early engineering hires, "a good year" is a more likely outcome, after 2-6 years, or more, of sweat equity. Payout of 5-6 figures.
      - fearless 14y ago
deleted 14y ago
[deleted]
rmason 14y ago
Where can you buy muni bonds that earn 6%? Most of the muni bonds yields I've found online are in the 3.5-4% range. That is unless you're talking about the city of Detroit (which is flirting with bankruptcy) that pays 7% plus and is riskier imho than doing a startup. http://blogs.marketwatch.com/fundmastery/2010/03/12/goldman-sachs-detroit-junk-bonds-robocop/ http://blogs.marketwatch.com/fundmastery/2010/03/12/goldman-...
- noname123 14y ago
  Found some Mass. bonds (because it's my home state, so tax-free for both federal and state) yielding 6.43% just now, with expiration date of 2029-05-01 and with credit rating of AA+ http://massachusetts.municipalbonds.com/bonds/issue/914440KJ0 http://massachusetts.municipalbonds.com/bonds/issue/914440KJ.... Also can also buy some REITs with annual high-dividend yield of 17% such as AGNC or NLY. These are a bit riskier due to fluctuating principal out on the open equity market. However, can mitigate this risk by owning ITM calls prior to ex-dividend dates and capture also run-up profits.
  - bsims 14y ago
    Thanks for sharing a specific example. Could be an interesting investment. At the same time, you have to weigh out the other risks such as Mass. being one of the most in debt states in the country. http://www.usgovernmentspending.com/state_debt_rank http://www.usgovernmentspending.com/state_debt_rank
  - bokonist 14y ago
    Can you actually buy them at that price? Don't they get auctioned off, and so that the actual yield is lower? From reading that web page it looks like the effective yield was only 4-4.5%
    - bokonist 14y ago
      UPDATE: as svachalek points out, the 4-4.5% is not even the right yield. That is 4.5% interest per year, but if you pay $110 for the bond, you will only get a principal returned of $100, so the effective yield-to-maturity is even lower.
bsims 14y ago
It is hard to tell if this is a serious or sarcastic response. If you think Muni Bonds will stay at 6% for a lifetime, you're misinformed. 1) Government owned consumer debt is up nearly 5x in 5 years 2) Lately Muni Bonds have been swinging more than stocks themselves 3) Take Pimco Municipal Income Fund (NYSE: PMF) as an example. It's price has appreciated 7% over 10 years, TOTAL. Even with dividends you're looking at best 3% and at that point you've successfully managed to do nothing more than keep up with inflation.
- noname123 14y ago
  I'm not buying JNK or ETF tracking bond funds but underlying bonds. If you are buying the ETF, you are not getting the best yield but at average the 3% yield for lesser risk due to diversification - which is kinda BS given the systematic risk we've witnessed over the past 10 years. Pick muni for high yield and low default risk yourself.
- smartician 14y ago
  Given that the last ten years include the greatest financial crisis since the Great Depression, a net gain of 7% is pretty good. Plus, the annual distributions were consistently over 6%, so you're looking at a total return of almost 7% per year. That's actually pretty good.
  - bsims 14y ago
    You are correct. I didn't realize PMF was such a consistent dividend that far back. On top of the 6% average, it is also tax free since it is Municipal so true return could get up to 8ish which is pretty incredible considering the last 10 years.
leviathant 14y ago
If you think success will cure depression, your youthful inexperience is showing.
- scarecrowbob 14y ago
  Maybe off topic here, but there is a song that is popular out here in Texas that makes a useful observation (fame don't take away the pain, it just pays the bills): http://www.youtube.com/watch?v=tBjxmJIRnS8 http://www.youtube.com/watch?v=tBjxmJIRnS8
- michaelochurch 14y ago
  Success cures depression that is caused by lack of success or, relatedly, low social status. That doesn't apply to most depression, that being often a serious biological problem. No amount of success will cure that. That requires psychiatric help. It does alleviate a certain gnawing unhappiness that most ambitious people experience (unless the definition of success is raised, which it often is).
seiji 14y ago
Nobody has mentioned taxes yet. I assume your "making 100K" is the salary. The pre-tax salary. Taxes will chop that pretty much in half. So if you save $40K/year, you get to live off of $10k in the second most expensive MSA in the US. Good luck.
- natural219 14y ago
  You and I are looking at different marginal tax rate tables if you're talking about US income tax.
  - joonix 14y ago
    Annual Gross Pay $100,000.00 Federal Withholding $19,794.50 Social Security $4,200.00 Medicare $1,450.00 California $7,257.14 SDI $955.85 Net Pay $66,342.51 http://www.paycheckcity.com/calculator/netpay/us/california/calculator.html http://www.paycheckcity.com/calculator/netpay/us/california/...
    - muzz 14y ago
      And if the only tax break one takes advantage of is the 401k (ie no mortgage, no business deductions, etc): Annual Gross Pay $100,000.00 Federal Withholding $ 15,292.50 Social Security $ 4,200.00 Medicare $ 1,450.00 California $ 5,518.04 SDI $ 955.85 401k $ 17,000.00 Net Pay $ 55,583.6
- jcdavis 14y ago
  This is way overly pessimistic. At 100k total taxes (Federal+CA+SS+Medicare) are in the 30% range. That leaves 30k to spend (not too hard for a single 25 year old assuming you don't have lots of student loans, even in SF) and 40k to save. And this ignores tax-advantaged savings
  - acchow 14y ago
    At 100k, take-home pay is $65,278. Closer to 35% "total taxes"

arbuge 14y ago

Eh? Having $1.2m beats having 200k any day... If 6% muni-bonds are a good investment (I personally have no idea), then presumably the guy with the $1.2m portfolio could buy them too... why is the 1% CD his only investment option?

noname123 14y ago
Point is having FU money, for most people it's $3mil at today's current interest rate to generate $30K which is annual young person's cost of living in a big metro. If you can cut your cost of living down $12K, then only $200K is needed.
- arbuge 14y ago
  Careful with that. That ignores inflation, which as a great man once said, is the most pernicious tax of all. Inflation is currently around ~1.8% per year. Money in a 1% CD is effectively losing 0.8% per year. If you're happy with a $30k return on a $3m portfolio, you need to get a 2.8% return in today's inflation environment.
  - rprasad 14y ago
    Interest rates on investments take into account estimated inflation, so the $30k already takes into account likely inflation (but would not take into account higher-than-expected inflation).
    - arbuge 14y ago
      Hell no. You invest in a 1% CD, you get 1% absolute return, even if inflation is raging in the double digits. Edit: I assume you mean that over time interest bearing account rates rise with inflation. That's true in general, but as the current situation shows, there's no guarantee they're actually even above the inflation level at any point.
      - tcgv 14y ago
        He means that if you keep spending all of your investment's returns, you'll end up with a fixed income of $30K (1% of $3M) that, due to inflation, will have less purchasing power as the years go by.
  - 001sky 14y ago
    If you're happy with a $30k return on a $3m portfolio... -- You should never be happy with this. IMHO.

revoltingx 14y ago

I fail to understand this as well. You've been blessed with skills that are in demand. You live in one of the best cities in the world, and you're young. You need to go live as a native in a 3rd world country to give you some appreciation. Get over it and get some work done, that's why your competition is kicking your ass.

fearless 14y ago

Everyone knows startups are not the optimal economically rational way to make money. But to an entrepreneur, living off 6% muni bond interest is profoundly uninteresting, and dare I say soul crushing. Repeat after me: If you think it's only about the money, you're missing the point. And even if it is all about the money, most 25 year olds would jump at a 1% chance to make $10 million over a $100% chance to make $200K. Not mathematically rational, but if everyone was rational there would be no outliers.

sukuriant 14y ago
nitpick: It's a loooooooooot less than 1%
- fearless 14y ago
  Source? I've seen data pegging startup failure rates anywhere between 50-90%, but I've never seen a credible source claim that over 99% fail. Mathematically, no investor would be able to stay in business if 99% of their investments fail. I'm guessing failure rates for startups that have funding or bootstrap through revenue are closer to 75%.
  - Timothee 14y ago
    The thing as always is how you define failure and success. Do all the founders of a startup that is considered a success make $10M? Of course not. In my opinion, that's where the "it's a lot less than 1%" might come from.
  - dredmorbius 14y ago
    It's not that 99% fail, it's that well over 99% of participants fail to hit a $1m payout. Top founders and early VC, as well as key executive hires, may win. For staff, including early engineering hires, "a good year" is a more likely outcome, after 2-6 years, or more, of sweat equity. Payout of 5-6 figures.
    - fearless 14y ago

deleted 14y ago

[deleted]

rmason 14y ago

Where can you buy muni bonds that earn 6%? Most of the muni bonds yields I've found online are in the 3.5-4% range. That is unless you're talking about the city of Detroit (which is flirting with bankruptcy) that pays 7% plus and is riskier imho than doing a startup. http://blogs.marketwatch.com/fundmastery/2010/03/12/goldman-sachs-detroit-junk-bonds-robocop/ http://blogs.marketwatch.com/fundmastery/2010/03/12/goldman-...

noname123 14y ago
Found some Mass. bonds (because it's my home state, so tax-free for both federal and state) yielding 6.43% just now, with expiration date of 2029-05-01 and with credit rating of AA+ http://massachusetts.municipalbonds.com/bonds/issue/914440KJ0 http://massachusetts.municipalbonds.com/bonds/issue/914440KJ.... Also can also buy some REITs with annual high-dividend yield of 17% such as AGNC or NLY. These are a bit riskier due to fluctuating principal out on the open equity market. However, can mitigate this risk by owning ITM calls prior to ex-dividend dates and capture also run-up profits.
- bsims 14y ago
  Thanks for sharing a specific example. Could be an interesting investment. At the same time, you have to weigh out the other risks such as Mass. being one of the most in debt states in the country. http://www.usgovernmentspending.com/state_debt_rank http://www.usgovernmentspending.com/state_debt_rank
- bokonist 14y ago
  Can you actually buy them at that price? Don't they get auctioned off, and so that the actual yield is lower? From reading that web page it looks like the effective yield was only 4-4.5%
  - bokonist 14y ago
    UPDATE: as svachalek points out, the 4-4.5% is not even the right yield. That is 4.5% interest per year, but if you pay $110 for the bond, you will only get a principal returned of $100, so the effective yield-to-maturity is even lower.

bsims 14y ago

It is hard to tell if this is a serious or sarcastic response. If you think Muni Bonds will stay at 6% for a lifetime, you're misinformed. 1) Government owned consumer debt is up nearly 5x in 5 years 2) Lately Muni Bonds have been swinging more than stocks themselves 3) Take Pimco Municipal Income Fund (NYSE: PMF) as an example. It's price has appreciated 7% over 10 years, TOTAL. Even with dividends you're looking at best 3% and at that point you've successfully managed to do nothing more than keep up with inflation.

noname123 14y ago
I'm not buying JNK or ETF tracking bond funds but underlying bonds. If you are buying the ETF, you are not getting the best yield but at average the 3% yield for lesser risk due to diversification - which is kinda BS given the systematic risk we've witnessed over the past 10 years. Pick muni for high yield and low default risk yourself.
smartician 14y ago
Given that the last ten years include the greatest financial crisis since the Great Depression, a net gain of 7% is pretty good. Plus, the annual distributions were consistently over 6%, so you're looking at a total return of almost 7% per year. That's actually pretty good.
- bsims 14y ago
  You are correct. I didn't realize PMF was such a consistent dividend that far back. On top of the 6% average, it is also tax free since it is Municipal so true return could get up to 8ish which is pretty incredible considering the last 10 years.

leviathant 14y ago

If you think success will cure depression, your youthful inexperience is showing.

scarecrowbob 14y ago
Maybe off topic here, but there is a song that is popular out here in Texas that makes a useful observation (fame don't take away the pain, it just pays the bills): http://www.youtube.com/watch?v=tBjxmJIRnS8 http://www.youtube.com/watch?v=tBjxmJIRnS8
michaelochurch 14y ago
Success cures depression that is caused by lack of success or, relatedly, low social status. That doesn't apply to most depression, that being often a serious biological problem. No amount of success will cure that. That requires psychiatric help. It does alleviate a certain gnawing unhappiness that most ambitious people experience (unless the definition of success is raised, which it often is).

seiji 14y ago

Nobody has mentioned taxes yet. I assume your "making 100K" is the salary. The pre-tax salary. Taxes will chop that pretty much in half. So if you save $40K/year, you get to live off of $10k in the second most expensive MSA in the US. Good luck.

natural219 14y ago
You and I are looking at different marginal tax rate tables if you're talking about US income tax.
- joonix 14y ago
  Annual Gross Pay $100,000.00 Federal Withholding $19,794.50 Social Security $4,200.00 Medicare $1,450.00 California $7,257.14 SDI $955.85 Net Pay $66,342.51 http://www.paycheckcity.com/calculator/netpay/us/california/calculator.html http://www.paycheckcity.com/calculator/netpay/us/california/...
  - muzz 14y ago
    And if the only tax break one takes advantage of is the 401k (ie no mortgage, no business deductions, etc): Annual Gross Pay $100,000.00 Federal Withholding $ 15,292.50 Social Security $ 4,200.00 Medicare $ 1,450.00 California $ 5,518.04 SDI $ 955.85 401k $ 17,000.00 Net Pay $ 55,583.6
jcdavis 14y ago
This is way overly pessimistic. At 100k total taxes (Federal+CA+SS+Medicare) are in the 30% range. That leaves 30k to spend (not too hard for a single 25 year old assuming you don't have lots of student loans, even in SF) and 40k to save. And this ignores tax-advantaged savings
- acchow 14y ago
  At 100k, take-home pay is $65,278. Closer to 35% "total taxes"