Monday, May 23, 2016

Low income strategy

So you have that minimal wage 2k$. You live next to your job and can get by without a car. You share a house with a few roommates so your rent is <1k$. You are healthy so you don't need insurance (or you have subsidized insurance). Your family is all fine so you don't have any financial burden from them. It goes without saying that you don't spend on alcohol and have inexpensive hobbies. Then you're good to go - saving money actually makes sense for you.

You get 1k$ net profit every month. You get credit cards from different banks and accumulate promotions and credit line. You get 0-interest first X month loans and pay them back on time. You hold your money in both liquid and illiquid investments. The amount you loan is equal to twice your current worth that is invested in liquid part of your portfolio. Let's do a calculation:
M is the money that you own. 0.5M of it is in illiquid investments with 5% yearly rate. 0.5M +M owed are in liquid investments - stock market and high rate savings accounts. They say Goldman now has a saving account everybody can open with them. The return rate is 2% for savings, random for stock market, but we assume it is roughly 3% expectation value in the current economy. With a more advanced algorithms small amounts of investment can easily get 20% return rates, but the taxes may be an issue for those ones. So if you don't use our algos, you are stuck at 3% expectation value. If you do, it is let's say 10%.
So over a year you get 12k$ of wages, and (0.025+ 0.045)M= 0.07M of investment income. After taxes it gets reduced to 11k$ and 0.05M. So our new M' = 1.05M + 11k$. The amount of money you save living this way is (for the first 10 years):
00
111
222.55
334.6775
447.411375
560.78194375
674.82104094
789.56209298
8105.0401976
9121.2922075
10138.3568179
One group of people that easily fits the requirements are gradstudents. They stay for 6 years, and then typically get a postdoc for 2, and then forced to leave their field. With this strategy, they can instead retire :) the 5% income from 100k$ is 5k$/year - enough to have a comfortable life in one of those third world countries. They can even keep doing science - their dream job - in their free time.
Seriously, 5k$/ year is not enough. You don't expect to be able to support your family with that. There are also other nice bonuses like promotions from all those credit cards (500$ a year?), and extra 40k$ of postdoc salaries over those 2 years. So you can maybe get to 150k$ by year 8. Or 200k$ if you get a second postdoc. Moving to another country will mess up your loan game, so 5% interest rate will not be available anymore (however, the interest rate in that country may well be comparable). Also if you are a foreigner, you will need to figure out immigration by then.

Now let's consider an idealistic scenario. You use our algorithm and you get 10% yearly returns on it. Then it doesn't really make sense to use illiquid investments - their rate is lower. You may still do it to diversify your portfolio. But let's say you don't, and put all 3M into this algorithm (email us for details, there should be a form on the right). You get 0.3M yearly returns. Lets say you somehow figure out your taxes, so you just pay 1/3 on stock trading income - your returns after taxes are 0.2M. Let's see what the formula M' = 1.2M + 11k$ spits out after 8 years :)))
00
111
224.2
340.04
459.048
581.8576
6109.22912
7142.074944
8181.4899328
9228.7879194
10285.5455032
Now you get 181k$ savings (+44k$ extra from postdoc salary and credit card promos). Also your yearly return is much more noticeable: 45k$/year. That is a decent salary! Our only assumptions are that the algorithm will still be working at 10% yearly returns expectation value, and that the banks will still give out those 0-rate loans as a way to attract you as a customer. If you play the credit card game (see website "dr. credit"), your credit line should be pretty big at year 8, and the banks should be willing to loan you sums like 400k$ with no interest rate for a short amount of time (because they expect you to forget to pay on time). Both assumptions are very feeble. But at least they show that financial stability is possible for those who want to stay in Academia. In the same way they are possible for other low-paying jobs.

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