What constitutes "a lot" of money?

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Longdog
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What constitutes "a lot" of money?

Post by Longdog » Fri Apr 14, 2017 4:44 am

Do (or should) the daily dollar gyrations of your portfolio affect your view of how much money is "a lot." For example, if you had a million dollar 50/50 portfolio that on any given day could be up or down by, say, $5,000, would you view $5,000 as a dollar amount you'd be comfortable spending on an unexpected expense or a splurge? I think it's all about perspective and would like to hear how others might view this concept.

It does seem like the larger your portfolio the more secure you are and the less you need to be concerned about your spending... to a point.
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Re: What constitutes "a lot" of money?

Post by *3!4!/5! » Fri Apr 14, 2017 4:47 am

If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.

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TheTimeLord
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Re: What constitutes "a lot" of money?

Post by TheTimeLord » Fri Apr 14, 2017 5:15 am

Over time I think the size of my portfolio has effected my view of what is a noticeable amount of money to spend in a day or on a meal. Probably 5 years ago I would have said $20, today I would say $100 but it is totally disconnected from the daily gyrations of the market. It is probably related to the amount of discretionary income I have. As for big ticket items I am in general a save up and pay cash person and I never count that money as part of my Net Worth so for me it never really exists. Makes turning it over to someone easier when it doesn't change my monthly Net Worth statement.

Also, personally I do care if my portfolio goes down more than about $7,000 in a day (sort of arbitrary number), but it would need to go up more than that say $12,000-$15,000 before I would notice the gain.
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Mr.BB
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Re: What constitutes "a lot" of money?

Post by Mr.BB » Fri Apr 14, 2017 5:23 am

It is definitely more about the cost of an item instead of portfolio size. I work with people who are the top 1%
I know they would have no problem spending 5 million on something that would help their business or be for personal use like a home.
Yet I have gone workout with them and they have on an old t-shirt and holes in their socks. I think people look at smaller price items (discretionary spending)as how they judge what costs a lot of money vs. big ticket items.
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Re: What constitutes "a lot" of money?

Post by AlohaJoe » Fri Apr 14, 2017 6:17 am

My portfolio goes up or down $15,000 most days but it doesn't affect what I'd spend on an unexpected expense or splurge.

Why would it?

That would imply that if I just held more bonds, I'd spend less when splurging on a holiday. Which seems pretty unrelated.

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EATaxGuy
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Re: What constitutes "a lot" of money?

Post by EATaxGuy » Fri Apr 14, 2017 7:19 am

Anyone who has $1 more than me has a lot of money. :P
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Re: What constitutes "a lot" of money?

Post by Traveller » Fri Apr 14, 2017 7:26 am

*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.


This.

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Re: What constitutes "a lot" of money?

Post by KlangFool » Fri Apr 14, 2017 7:37 am

Longdog wrote:Do (or should) the daily dollar gyrations of your portfolio affect your view of how much money is "a lot." For example, if you had a million dollar 50/50 portfolio that on any given day could be up or down by, say, $5,000, would you view $5,000 as a dollar amount you'd be comfortable spending on an unexpected expense or a splurge? I think it's all about perspective and would like to hear how others might view this concept.

It does seem like the larger your portfolio the more secure you are and the less you need to be concerned about your spending... to a point.


Longdog,

There is another way to look at this. If your portfolio is big enough, you do not need to save in order to reach your retirement goal. You could live paycheck to paycheck. So, you do not really look at the daily movement of your portfolio.

This is the case for me. I spend all my annual savings on my children's college education. I "cash flow" my children's college education. I spend my current income and let the portfolio grow.

Do not eat your seed corn. Spend your current income. Do not withdraw from your portfolio.

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Re: What constitutes "a lot" of money?

Post by Da5id » Fri Apr 14, 2017 7:45 am

*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.


I agree. "A lot" is relative to what it is being purchased. Using the fact that your portfolio swings X dollars a day to calibrate your sense of "a lot" is only useful if you want to rationalize spending on things you know you shouldn't buy.

e.g. I consider any amount of money spent on a book I'll read once "a lot", I have a lending library for that (and don't need more clutter). Books I read a number of times or want to refer to spontaneously or be able to loan to other folks I tend to buy. But I consider spending $10K or more on a vacation perfectly reasonable.

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Re: What constitutes "a lot" of money?

Post by investingdad » Fri Apr 14, 2017 8:03 am

Our portfolio fluctuations are in the 10k to 20k range on a common day.

Yet I was unable to spend $2500 on a second pinball machine last week because it felt like too much to justify on a second toy only I'd use.

I think part of it is that my wife is still very much in the mindset that all of it could disappear, I think the fear of spending has increased as our portfolio increased.

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Re: What constitutes "a lot" of money?

Post by KlangFool » Fri Apr 14, 2017 8:04 am

Da5id wrote:
*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.


I agree. "A lot" is relative to what it is being purchased. Using the fact that your portfolio swings X dollars a day to calibrate your sense of "a lot" is only useful if you want to rationalize spending on things you know you shouldn't buy.

e.g. I consider any amount of money spent on a book I'll read once "a lot", I have a lending library for that (and don't need more clutter). Books I read a number of times or want to refer to spontaneously or be able to loan to other folks I tend to buy. But I consider spending $10K or more on a vacation perfectly reasonable.


+1.

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Re: What constitutes "a lot" of money?

Post by jlcnuke » Fri Apr 14, 2017 8:04 am

If you have $1M, that can generate ~$40k/year of income using "basic" assumptions. To me, that $40k/year is the number that matters when considering how much would be considered "a lot" relative to a purchase. The amount needed to be considered "a lot" for a purchase to me is much much much smaller than the amount needed to be considered 'a lot' with regards to a change in portfolio value or net worth.

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Re: What constitutes "a lot" of money?

Post by midareff » Fri Apr 14, 2017 8:12 am

*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.


LOL.. depends on the lunch. For a nice Japanese Buffet of Sushi it's a deal.

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Re: What constitutes "a lot" of money?

Post by an_asker » Fri Apr 14, 2017 8:12 am

Longdog wrote:Do (or should) the daily dollar gyrations of your portfolio affect your view of how much money is "a lot." For example, if you had a million dollar 50/50 portfolio that on any given day could be up or down by, say, $5,000, would you view $5,000 as a dollar amount you'd be comfortable spending on an unexpected expense or a splurge? I think it's all about perspective and would like to hear how others might view this concept.

It does seem like the larger your portfolio the more secure you are and the less you need to be concerned about your spending... to a point.

"A lot" depends on:

- size of portfolio

- where one is in the life cycle (with the same stash, $100 for lunch might be a lot for someone in the accumulation stage; but would be nothing for someone who's ticked off everything in one's bucket list, and is just reaping the fruits of his/her labor)

- what it is being spent on ($100 on a car vs. $100 on a visit to the doctor vs. $100 for lunch)

- previous experience and expectations (for someone who grew up spending $5 for lunch, $100 for lunch would be a lot; for someone who grew up spending $50 for lunch maybe not that much)

- current benefits/job situation (for someone who has health benefits provided by company and has a low co-pay to boot, spending $100 on a doctor visit would be "a lot" compared to someone who is either a) uninsured or b) on an HDHP)

Bottom line: one size absolutely does not fit all in this case.

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Re: What constitutes "a lot" of money?

Post by The Wizard » Fri Apr 14, 2017 8:22 am

Your gross annual income constitutes a Lot of Money for most purposes...
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SQRT
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Re: What constitutes "a lot" of money?

Post by SQRT » Fri Apr 14, 2017 8:41 am

Depends on many factors, such as your wealth, income, your stage in life and the specific item. Obviously the wealthier you are the more comfortable you will be spending large amounts. This comfort level will change as you get wealthier but will often lag. I went from 0 to 60 financially, so to speak in a few years. It took longer to get comfortable spending large amounts on luxury goods. But I eventually got there.

My portfolio can fluctuate by high 6 figures daily, but I don't worry about it. Not sure that impacts my comfort with spending though. The level of cash flow(divs, pensions, etc) is probably the biggest determinant for me. Have been able to "chin up" to 6 figure cars, 4 figure restaurant bills, 4 figure clothes, etc. Still care about value for money and don't like wasting any.

This is a very personal issue and everyone will be different. In my view balance in your spending is important. But I know people who drive Aston Martins but are too cheap to buy nice clothes, or take their family on vacation. To each their own.
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Re: What constitutes "a lot" of money?

Post by JDCarpenter » Fri Apr 14, 2017 8:56 am

SQRT wrote:...

This is a very personal issue and everyone will be different. ... I know people who drive Aston Martins but are too cheap to buy nice clothes, or take their family on vacation. To each their own.


Agree. As we soon enter retirement, we are more on the spend too much on vacations while wearing cheap clothing and using duct tape to hold the old hondas together side. (I exaggerate.... some.) Spending the equivalent of a new car on a nice long vacation seems appropriate--but we hesitate to spend even a lesser amount on a newer car, and I buy my reading glasses in bulk from Amazon after getting irked at the $5 per pair price at Dollar General. So, for me, $5 for a pair of reading glasses is "a lot," but $X for DW's desired business class air to the south pacific is not. :oops:

OTOH, many more things were "a lot" of money not too long ago, before kids were fully fledged.
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TheTimeLord
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Re: What constitutes "a lot" of money?

Post by TheTimeLord » Fri Apr 14, 2017 9:01 am

Love hearing about all the 8 digit portfolios.
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dbr
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Re: What constitutes "a lot" of money?

Post by dbr » Fri Apr 14, 2017 9:05 am

Longdog wrote:Do (or should) the daily dollar gyrations of your portfolio affect your view of how much money is "a lot." For example, if you had a million dollar 50/50 portfolio that on any given day could be up or down by, say, $5,000, would you view $5,000 as a dollar amount you'd be comfortable spending on an unexpected expense or a splurge? I think it's all about perspective and would like to hear how others might view this concept.

It does seem like the larger your portfolio the more secure you are and the less you need to be concerned about your spending... to a point.


Spending and fluctuations in portfolio value are two entirely different things. Trying to mentally equate them makes no sense.

As to your second question, I guess it is obvious that relative to a certain level of spending you are more secure with a larger portfolio. But this returns to the fact that fluctuations are not the same thing as being larger.

A major conundrum for all investors is how to mentally accommodate to holding wealth that is of uncertain value day in and day out. Much of the conversation on this board is about more successful and less successful ways of absorbing that.

Another observation is that investment holdings are not money but merely holdings that can be exchanged for money at some uncertain rate sometime in the future. Technically that even applies to CDs and everything up from there, though one can niggle about where the line should be drawn.

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randomizer
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Re: What constitutes "a lot" of money?

Post by randomizer » Fri Apr 14, 2017 9:21 am

I don't know how much my portfolio goes up or down because I don't check it every day. I check it at most every couple weeks right before my periodic automatic investment goes in, to see if I should change the fund I'm directing those funds towards for rebalancing. So I've seen it up or down by some 5-digit amounts (haven't been investing long enough to see any corrections/movements bigger than the dips in August 2015 and January 2016), but never had a sense of how much is is swinging each day. Actually, that's not quite true: when I was trying to do tax-loss harvesting for the first time, I discovered the difficulty of harvesting small losses (say, $1,000) on large lots, because they could swing enough from one day to the next — and the prices only update once per day — that I had to be really careful that an uptick didn't eliminate the loss before I harvested it.

So basically, no: market movements haven't affected my view of what a lot of money is. My income is the main thing that affects that. For example, if an occasional expense is 0.25% of my annual income, I consider it to be something I can absorb without altering my financial outlook too much. But I know that if I have enough of those, they'll add up to 1% of my annual income, then 5%, and that that does affect my outlook.

The other big thing was buying a house. If the house costs half-a-million and I discover that I'm going to have to spend a couple grand on some unexpected aspect of it, I find it much easier to lump that in with the purchase price and not agonize over it, whereas if I had to pull $2,000 out of my taxable account to purchase a luxury item I'd find that to be quite psychologically burdensome.

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Re: What constitutes "a lot" of money?

Post by gasdoc » Fri Apr 14, 2017 9:29 am

A "lot" is based on the number of places to the left of the decimal point when I look though my Quicken expense report. There are tons of $X.XX and $XX.XX, fewer $XXX.XX, fewer yet of $X,XXX.XX, and a handful of $XX,XXX.XX. Those are the ones that are a "lot!" The size of the portfolio swings does not affect what is a "lot."

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Re: What constitutes "a lot" of money?

Post by an_asker » Fri Apr 14, 2017 9:35 am

TheTimeLord wrote:Love hearing about all the 8 digit portfolios.

I probably have a 12 digit portfolio ... in Zimbabwean currency ;-)

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Re: What constitutes "a lot" of money?

Post by LarryAllen » Fri Apr 14, 2017 9:39 am

KlangFool wrote:
Do not eat your seed corn. Spend your current income. Do not withdraw from your portfolio.

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Well said Klang. I try to live this as well.

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Re: What constitutes "a lot" of money?

Post by larsm » Fri Apr 14, 2017 9:47 am

EATaxGuy wrote:Anyone who has $1 more than me has a lot of money. :P

Beat me to it... though I was going to say $100. :D

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Re: What constitutes "a lot" of money?

Post by traveltoomuch » Fri Apr 14, 2017 9:57 am

I like the data points of $10 on lunch is "a lot" and $10k on vacation reasonable. Thanks *3!4!/5! and Da5id. :happy

I've just posted in a couple of car repair threads here, and those triggered some thoughts about how my own spending habits have changed through the years: when I need to replace the tires on my car, I will now replace all four, v. just replacing the two on the drive axle. I'll also buy Michelins rather than shop around for the cheapest thing I can find. But I'll get them from Costco for $450 rather than pay $750.

Which is a long way of saying: despite having more money in the bank, I still pay attention to the details. I may go out to eat more often than before, but I still think twice before ordering appetizers and drinks.

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Re: What constitutes "a lot" of money?

Post by Vanguard Fan 1367 » Fri Apr 14, 2017 10:14 am

Longdog wrote:Do (or should) the daily dollar gyrations of your portfolio affect your view of how much money is "a lot." For example, if you had a million dollar 50/50 portfolio that on any given day could be up or down by, say, $5,000, would you view $5,000 as a dollar amount you'd be comfortable spending on an unexpected expense or a splurge? I think it's all about perspective and would like to hear how others might view this concept.

It does seem like the larger your portfolio the more secure you are and the less you need to be concerned about your spending... to a point.


I would say that the fluctuation of my portfolio is unrelated to how much I would be comfortable spending on an unexpected expense or a splurge. I really appreciate John Bogle and many others, including my Boglehead buddies who point out that if I can handle significant drops in my portfolio's value, like 50 percent or more that over the long term in the past things have recovered and turned out well and investing in low cost index funds of maybe the Total Market are something that I could consider.

I am sure that everyone knows people who cannot handle those significant drops. Unfortunately with the interest rate situation being so bad, those people are challenged with their investing. '

I was unable to handle the thought of large fluctuations in my portfolio until 1994. But I also was able to get a fairly nice return with Money Market funds, CDs and other fixed income investments.

You are correct that the larger the portfolio the less concerned I am with life's expenses.

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Re: What constitutes "a lot" of money?

Post by bigred77 » Fri Apr 14, 2017 10:24 am

"A lot" of money to me just keeps going up and up and up...

When I first entered the workforce almost 10 years ago:
-A couple hundred dollars could sustain me for months (excluding rent).
- I thought the only people who made $100k+ were fortune 500 VPs and above. They were rich beyond comprehension.
- Spending $200k on a house was absurd. Probably bought you an estate with some acreage close to a major city.
- Spending $35 on a dinner for 2 was splurging, probably a birthday or special occasion.

Now:
- $10k is a nice amount of money. I can finally hardscape the backyard!
- How can anyone afford a family with a household income of only $100k?
- That neighborhood is reasonable. Good schools, relatively walkable, average property tax rate, and a 3 bedroom SFH starts at only $850k
- Oh it's my anniversary? Hope I can limit the dinner check to $150.

an_asker
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Re: What constitutes "a lot" of money?

Post by an_asker » Fri Apr 14, 2017 12:47 pm

bigred77 wrote:"A lot" of money to me just keeps going up and up and up...

When I first entered the workforce almost 10 years ago:
-A couple hundred dollars could sustain me for months (excluding rent).
- I thought the only people who made $100k+ were fortune 500 VPs and above. They were rich beyond comprehension.
- Spending $200k on a house was absurd. Probably bought you an estate with some acreage close to a major city.
- Spending $35 on a dinner for 2 was splurging, probably a birthday or special occasion.

Now:
- $10k is a nice amount of money. I can finally hardscape the backyard!
- How can anyone afford a family with a household income of only $100k?
- That neighborhood is reasonable. Good schools, relatively walkable, average property tax rate, and a 3 bedroom SFH starts at only $850k
- Oh it's my anniversary? Hope I can limit the dinner check to $150.

I like this analysis :-)

Coming as I did from India where a haircut cost less than ten rupees back then (about 70 cents converted) compared to $5 in Virginia, I even now cavil at getting my haircut quicker than in six-eight weeks - the corresponding comparison now is fifty rupees* (about 80 cents) and $15 in Central Florida. Though I don't convert everything to rupees like I did back then, even now once in a while, I do slip up (as you can see from example above!).

On the other hand, we got some generic medication yesterday for DD at $100+ (made in India, no less!!); though it was "a lot" of money for medicine (after insurance, that too), it is what it is!!

* I am not referring to the hi falutin hair-cutting salons, where I am pretty sure the price would be much higher!

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Re: What constitutes "a lot" of money?

Post by deltaneutral83 » Fri Apr 14, 2017 1:07 pm

A lot(?), 50x earnings. Your investments could get halved (08/09) and still have 25x, which is the benchmark. And I'm sure portfoios were bouncing a little more than $10 grand in fall 2008, winter 2009. Dow was moving 300-700 points nearly every day which represented 4-9% at times.

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Re: What constitutes "a lot" of money?

Post by WildBill » Fri Apr 14, 2017 1:54 pm

*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.



Only on Bogleheads! :P

But I agree 100% :mrgreen:
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Re: What constitutes "a lot" of money?

Post by TheTimeLord » Fri Apr 14, 2017 2:18 pm

Mr.BB wrote:It is definitely more about the cost of an item instead of portfolio size. I work with people who are the top 1%
I know they would have no problem spending 5 million on something that would help their business or be for personal use like a home.
Yet I have gone workout with them and they have on an old t-shirt and holes in their socks. I think people look at smaller price items (discretionary spending)as how they judge what costs a lot of money vs. big ticket items.


I think they need therapy. If you pulling down over $400,000/year (sounds like a lot more) and have a 8 digit portfolio and still have holes in your socks that is a sign you have lost perspective. Wearing an old t-shirt a sign of nostalgia, ignorance of new materials or a loss of perspective. What is the point of accumulating wealth just to let it sit in a pile so you can oogle it? If they aren't going to use it, perhaps they should work more actively to give it away like Gates and Buffet.
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Re: What constitutes "a lot" of money?

Post by DaftInvestor » Fri Apr 14, 2017 2:27 pm

TheTimeLord wrote:
Mr.BB wrote:It is definitely more about the cost of an item instead of portfolio size. I work with people who are the top 1%
I know they would have no problem spending 5 million on something that would help their business or be for personal use like a home.
Yet I have gone workout with them and they have on an old t-shirt and holes in their socks. I think people look at smaller price items (discretionary spending)as how they judge what costs a lot of money vs. big ticket items.


I think they need therapy. If you pulling down over $400,000/year (sounds like a lot more) and have a 8 digit portfolio and still have holes in your socks that is a sign you have lost perspective. Wearing an old t-shirt a sign of nostalgia, ignorance of new materials or a loss of perspective. What is the point of accumulating wealth just to let it sit in a pile so you can oogle it? If they aren't going to use it, perhaps they should work more actively to give it away like Gates and Buffet.


I think for some its just the way they are or a pride in acting like the rest of us. I know a CEO with a multi-million dollar car collection (about a dozen very high end cars). He once drove me into the city with his Aston Martin and we had to drive around for an extra 30 minutes finding the cheapest parking garage (I think we saved $5 that day with him stating that perhaps we should have taken public-transit into the city since parking was so high).

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Re: What constitutes "a lot" of money?

Post by TheTimeLord » Fri Apr 14, 2017 2:56 pm

DaftInvestor wrote:
TheTimeLord wrote:
Mr.BB wrote:It is definitely more about the cost of an item instead of portfolio size. I work with people who are the top 1%
I know they would have no problem spending 5 million on something that would help their business or be for personal use like a home.
Yet I have gone workout with them and they have on an old t-shirt and holes in their socks. I think people look at smaller price items (discretionary spending)as how they judge what costs a lot of money vs. big ticket items.


I think they need therapy. If you pulling down over $400,000/year (sounds like a lot more) and have a 8 digit portfolio and still have holes in your socks that is a sign you have lost perspective. Wearing an old t-shirt a sign of nostalgia, ignorance of new materials or a loss of perspective. What is the point of accumulating wealth just to let it sit in a pile so you can oogle it? If they aren't going to use it, perhaps they should work more actively to give it away like Gates and Buffet.


I think for some its just the way they are or a pride in acting like the rest of us. I know a CEO with a multi-million dollar car collection (about a dozen very high end cars). He once drove me into the city with his Aston Martin and we had to drive around for an extra 30 minutes finding the cheapest parking garage (I think we saved $5 that day with him stating that perhaps we should have taken public-transit into the city since parking was so high).


It is delusional to think they are like the rest of us. Wealth accumulation is naturally isolating, if you want to fit in buy an Accord. If you aren't homeless and have holes in your workout socks I think you silly whether you are a 1% or make $40K.If you have an 8 figure portfolio you are no more like me than I am like a guy living paycheck to paycheck trying to save $500/month. In either case you just don't have the perspective to understand the issues of the others persons situation. I am very fortunate and blessed and one of the things I am becoming aware of is how difficult it is going to be to find friends capable of affording the same activities and travel we will be able to in retirement and I am not by any meaning rich (at least not in a first world sense). Again wealth accumulation is isolating. (probably why many of the people here gravitate to this forum).
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Re: What constitutes "a lot" of money?

Post by Pajamas » Fri Apr 14, 2017 3:30 pm

Longdog wrote:Do (or should) the daily dollar gyrations of your portfolio affect your view of how much money is "a lot." For example, if you had a million dollar 50/50 portfolio that on any given day could be up or down by, say, $5,000, would you view $5,000 as a dollar amount you'd be comfortable spending on an unexpected expense or a splurge? I think it's all about perspective and would like to hear how others might view this concept.

It does seem like the larger your portfolio the more secure you are and the less you need to be concerned about your spending... to a point.


As your investments grow, the gyrations are larger in dollar amounts. so it helps to look at percentage moves and use logarithmic charts. If you have a $100,000 portfolio, a 1% move is $1,000 but if you have a $10,000,000 portfolio, 1% is $100,000. If you have a $1,000,000 portfolio, it can easily change in value by $10,000 or more while you are having lunch. So you do have to get used to the difference in dollar amounts. It definitely affects me emotionally when a fast change in portfolio value (either up or down) equals a year's worth of spending. I don't think that affects my spending for the most part.

It can also help to think about the fact that you have the same investments that you had a month ago, it's just that the value in dollars has changed, or you can even look at it as a change in the buying power of the dollar rather than a change in the value of your investments.

Spending even $1 on an unexpected or unwanted expense bothers me. I few weeks ago, I had a big battle with a utility over an incorrect $1 charge they were adding to my bill each month.

I don't really splurge in the strictest sense of extravagant or thoughtless spending and I think that has more to do with personality and inclination rather than wealth or income. If I need or want something, I will spend a little time researching exactly what to buy and to find a good price to make sure that I have the best chance of being happy with the purchase.

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Dutch
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Re: What constitutes "a lot" of money?

Post by Dutch » Fri Apr 14, 2017 3:47 pm

It's somewhere between: a cr@pload of money - and - not enough

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Re: What constitutes "a lot" of money?

Post by Jimmie » Fri Apr 14, 2017 4:18 pm

traveltoomuch wrote:I may go out to eat more often than before, but I still think twice before ordering appetizers and drinks.

I always drink twice before thinking. What was the question, again?

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Re: What constitutes "a lot" of money?

Post by TomatoTomahto » Fri Apr 14, 2017 5:17 pm

Pajamas wrote:As your investments grow, the gyrations are larger in dollar amounts. so it helps to look at percentage moves and use logarithmic charts. If you have a $100,000 portfolio, a 1% move is $1,000 but if you have a $10,000,000 portfolio, 1% is $100,000. If you have a $1,000,000 portfolio, it can easily change in value by $10,000 or more while you are having lunch. So you do have to get used to the difference in dollar amounts. It definitely affects me emotionally when a fast change in portfolio value (either up or down) equals a year's worth of spending. I don't think that affects my spending for the most part.

Livesoft somewhere or other put forward what I refer to as "Livesoft's Rule." You can spend as much on a car as your portfolio (1) goes up in a day or (2) goes down in a day. I thus got his approval to buy my Tesla. Unfortunately, I used variant (2), but I love my car regardless.

My son tells me a definition of "a lot of money" is a metric sh##ton of moola.

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Re: What constitutes "a lot" of money?

Post by FelixTheCat » Fri Apr 14, 2017 5:40 pm

Almost half the world — over three billion people — live on less than $2.50 a day. At least 80% of humanity lives on less than $10 a day. More than 80 percent of the world's population lives in countries where income differentials are widening.

50% of the world ~ $2.50 a day
Next 30% ~ $10 a day

A lot of money? $20 a day.
Felix is a wonderful, wonderful cat.

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Re: What constitutes "a lot" of money?

Post by nisiprius » Fri Apr 14, 2017 6:42 pm

I have what we now call a STEM background, I think in percentages. I'm risk-averse and yet I think I really do accept the risk that I do take. That means, for example, that whether I like it or not, the stock market as a whole normally fluctuates daily, with something like a 1% standard deviation. I just have to accept the idea that if I have $250,000 in the stock market, I'm going to be "gaining" and "losing" several thousand dollars almost every day. It's just the way it is.

Now, as to peoples' attitudes toward what expenses they fuss about, there's nothing to say there but it's personal. Everybody's personal pattern looks crazy to everybody else. As to whether to pick pennies off the sidewalk or not, that's up to you. I don't think there's anything terrible about picking pennies off the sidewalk but buying a new car just because you want one and can afford one. I don't think there's anything terrible about letting the pennies lie but only buying used cars.

Right now, I am personally faced with a laser printer I love that has a ding in one of the fuser rollers; having a local office place replace the fuser assembly is going to cost about $250; a new one at Staples costs $199.99; and in theory I could buy a new fuser assembly from an Amazon partner that says it's an OEM unit for $100, and install it myself. I'm opting for having the local office place replace the fuser. Shrug. That's just my personal choice.

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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: What constitutes "a lot" of money?

Post by *3!4!/5! » Fri Apr 14, 2017 6:47 pm

*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.


I'll expand on this. Despite differing by orders of magnitude, these numbers are related.

Firstly, the daily fluctuations of a portfolio are proportional to its size, and for a stock heavy portfolio, a daily change up or down of 1% of balance is not unusual. That's just the way it is. (Less volatile investments will fluctuate less, but 1% is about the right order of magnitude.)

As to spending, a sustainable spending rate also depends on portfolio size (and many other factors such as age, and disregarding other income). As a very rough ballpark figure, you may spend something like 3.65% per year or 0.01%=1 basis point per day (and again that's the right order of magnitude for a wide range of cases).

So typical daily fluctuations are expected to often be 100 times larger than sustainable average daily spending. But a very rough constant of proportionality is there (dependent on many other factors though).

To be concrete again. A $1,000,000 portfolio may often fluctuate up or down of 1% or $10,000 in a day. But this portfolio will support 0.01% or $100 average daily spending. If this is supporting a couple or family, then one person spending $10 on lunch every day is excessive and unsustainable since it is 10% of spending when there are other meals in the day, other mouths to feed, and many non-food expenses. Meanwhile, 3, 4, or 5 figure expenses are sustainable if they are infrequent enough.

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If you change daily to weekly monthly, or annually, there's one thing to consider. For N days, the expected spending is N times the average daily spending. But the standard deviation in investment returns for N days is (modulo assumptions) sqrt(N) times what it is for 1 day.

So daily fluctuation could be an amount like 3 months spending, while annual fluctuation could be an amount like 5 years spending. Either way, that's just the way it is, and you have to accept it.

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Re: What constitutes "a lot" of money?

Post by JoMoney » Fri Apr 14, 2017 6:47 pm

*3!4!/5! wrote:If my portfolio goes up or down $10,000 (1% of $1M) in a day, then that amount of money is basically nothing. It's just background noise (even if I peek every day).

But if I had to spend $10 on lunch, well that's a lot.

+1 ....
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Re: What constitutes "a lot" of money?

Post by HopeToGolf » Fri Apr 14, 2017 7:02 pm

Fun and interesting question.

My view....it depends. On many things; retirement aspriations, age, income, expense type, savings, etc.

Example, wifey wanted to buy a surface for $799...fortunately we are at a point where it really does not matter. However, she will likely use it to surf the web and we are an Apple household so a new iPad (@ ~$330) fits the bill perfectly so $799 is a lot.

If she approached me with a well planned great vacation for $10K, I am all in and it is is not "a lot" for our family but it could be for others.

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Re: What constitutes "a lot" of money?

Post by RAchip » Fri Apr 14, 2017 7:21 pm

SQRT wrote:My portfolio can fluctuate by high 6 figures daily, but I don't worry about it.



Umm, your portfolio can fluctuate by $900,000 per day (high 6 figures)? So you have what, a $90 million portfolio?

A $90 million portfolio is a lot of money.

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Re: What constitutes "a lot" of money?

Post by randomizer » Fri Apr 14, 2017 9:42 pm

TheTimeLord wrote:Again wealth accumulation is isolating. (probably why many of the people here gravitate to this forum).

Very insightful.

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Re: What constitutes "a lot" of money?

Post by Sandtrap » Fri Apr 14, 2017 10:11 pm

10 million is a business starter fund
30 million is a lot
100 million is a pile
300 million is a boat load, but a mere small deposit on a shopping mall in Waikiki, Hawaii.

Amounts of money have only relative comparisons to its intended use.
All relative.

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Re: What constitutes "a lot" of money?

Post by Oak&Elm » Sat Apr 15, 2017 7:22 am

I love questions like this, kinda puts things in perspective. To many on this forum $10k is pocket money, to others it could change their life's circumstances. Like others have said, it's all relative.

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Re: What constitutes "a lot" of money?

Post by market timer » Sat Apr 15, 2017 7:34 am

I tend to ignore my portfolio's fluctuations and think about spending in terms of additional work-hours. One of my splurges is buying business class tickets instead of economy for long haul flights for myself and my family. I'll usually calculate how many extra days I'd have to work to pay for the cost difference. An expense is too much if it's not worth the effort.

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Re: What constitutes "a lot" of money?

Post by SQRT » Sat Apr 15, 2017 7:38 am

RAchip wrote:
SQRT wrote:My portfolio can fluctuate by high 6 figures daily, but I don't worry about it.



Umm, your portfolio can fluctuate by $900,000 per day (high 6 figures)? So you have what, a $90 million portfolio?
.

My portfolio can fluctuate by more than 1% per day.

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Re: What constitutes "a lot" of money?

Post by SQRT » Sat Apr 15, 2017 7:45 am

TheTimeLord wrote:. What is the point of accumulating wealth just to let it sit in a pile so you can oogle it? If they aren't going to use it, perhaps they should work more actively to give it away like Gates and Buffet.


This would be my view as well. I don't really understand money hoarders. Reminds me a bit of another thread. "Stealth Wealth". Money will be spent or given away for others to spend, now or later.

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Re: What constitutes "a lot" of money?

Post by Lynette » Sat Apr 15, 2017 8:10 am

I thought the Boglehead mantra was "Don't peek". I'm retired but my immediate needs and wants are covered by pensions and SS. My savings are for health care emergencies so I don't watch my portfolio closely. I did not even know the market went down on Thursday and how much it affected my portfolio.

I dropped my Chromebook several times and it retaliated by refusing to start up unless it was plugged into an electrical outlet. So I pondered buying a new one. I have two other laptops, a desktop and an IPAD. I pulled the plug and bought one from Amazon for $200. Its a great little Chromebook and I'm glad that I bought it. I've been thinking about taking a six-week Spanish immersion class in Seville in Spain. It would cost at least $10,000 for single supplement. My real issue with the class is that one stays in apartments instead of someone's home and even though there are different levels of instruction I'm not sure if it would be worth the money for me. I know that I can learn the basics on my own and I need one-on-one conversation.

Yesterday I watched a Univision program on the Easter celebrations in Seville. When I've visited Spain, our tour guides advised us to go to some of these older cities during Easter. There were about 71 floats with ornate trappings in gold and silver with images of Mary and Christ. The program was most enlightening and many of the people in the crowd were in tears. The hosts said it was viernes de la esperanza. People were hoping for better things to come. It was cheaper than going to Seville myself.

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