From Gary: “IT SAYS HERE THAT THE VOLUME OF CORRESPONDENCE MAY NOT PERMIT YOU TO REPLY INDIVIDUALLY. I’LL TURN IT DOWN… there. that’s better. now we can talk. i saw your holiday interview on cnbc, and thought, someone to pay attention to. (quick background: i’m a financial non-entity, with large debt due to indifference and procrastination, but a recent convert determined to reverse my fortunes and get rich) (i’ve also developed a pretty aggressive investment plan involving REITs, so i really do owe you a debt of gratitude). a week or so later, i happened onto one of your books and thought, there’s that guy again. i have been enjoying the book a great deal. tonight, i’ve encountered no less than seven articles authored by you, at no less than two different websites, and i’m saying to myself… again with this guy? being a subscriber to the old ‘three times is enemy action’ school of thought, i’m compelled to confront you and ask, exactly what is it you want from me?”

Amused and nonplused (albeit flattered), I wrote back: “Much appreciated. What I want from you is word five years from now that you are well along your way towards your goals, happy and healthy.”


“Thank you very much for your reply. I considered honoring your thinly disguised plea to be left alone for five years, but decided that perhaps a capitalist as quixotic as yourself wouldn’t mind another intrusion. I am a poker dealer, currently working in San Jose, California. I lived in Las Vegas for several years, and have also dealt cards in Los Angeles and Reno. The situation I’m about to describe is, sadly, true of those and other places. There are dealers who have made $100-200 a day in cash for ten to twenty years, whose net worth is near zero, and whose investment plan mainly consists of trying to find a lively game to play in after work. As a group we tend to compulsively gamble, smoke, drink, get high and generally punish the hell out of ourselves. We’ve done it all our lives with no regard for the future, and embody the spirit of the old joke that if we’d known we were going to live this long, we would have taken better care of ourselves. Only recently have many of us have become more investment conscious, which explains why I’ve never bothered you before. We are, collectively, babes in the financial woods, and we don’t have a quixotic bone in our bodies. I’m happy to report, 4.99 years earlier than you requested, that some of us have begun an investment club, and are invested in a basket of REITs, being managed by… ta da… me. We call it the Black Chip Club, that being the $20 denominated chip we use at work, as well as the amount of our daily individual contribution. (In my world, Blue Chips are only worth a dollar.) There are ten of us, so we’re knocking back a dime a week… sorry, that was shop talk… we’re investing a thousand dollars a week. That’s roughly 10% of our income, and there’s talk of increasing the amount later. (Conveniently, we also have a $25 chip for just such an occasion.) This leads me, as you feared it would, to my question o’ the day, and I’ll make it easy, since this is your first day. I’m 48, and intend to deal for about ten more years. The rest of my group is 396, and will be working for 684 more years. How high should we raise our contribution to make up for lost time? Is there a formula to calculate risk tolerance in a slightly skewed segment of the market such as ours? We all seem to agree that we can come up with more… may I have your opinion, please?”

Writing so fresh is almost enough to want to make you go find his blackjack table and lose some money of your own. Why isn’t this guy writing a gambling column for Forbes FYI or for GQ or for — not that I approve — Cigar Afficionado?

Anyway, putting aside $20 a day each, $7,000 a year, is more than a lot of people do, so hats off to you for doing this — and for getting started, which is the hardest part. You’re 48, and your nine fellow dealers average 44 (396 divided by 9) . . . and will be working an average of 76 more years each (684 divided by 9) which sounds a little fishy to me.

If they really did plan to work another 76 years, they’d have their end of this knocked. Assuming a real, after-tax, after-inflation return of 5%, each of your $20-a-day buddies would have at retirement about $6 million in today’s dollars. At 120 years of age, that should easily last them the rest of their lives.

But you are in not quite such good shape, at 48 planning to work just 10 more years. You’d have $94,000 under these assumptions, or enough to throw off about $6,000 a year for the next 30 years, to age 88, when you’d be out of chips. Of course, if you’re convinced you won’t make it past 78, you could use up your nest egg faster, bumping up the annual withdrawal to $7,500 or so. If you were sure of croaking by 68, then you could withdraw $12,000. But even that isn’t much to live on, and my personal feeling and hope is that anyone with your sharp wit will live a lot longer — perhaps even beyond 88.

So you either have to save more, start winning those after-work games, marry some wealthy widow who comes to your table in search of excitement, or earn more than the 5% after tax and inflation I assumed above.

At, say, 23% a year, your $20 a day in 10 years would have grown to $244,000, but (a) that’s still not enough and (b) no way are you going to earn near that kind of return (though keep it up for 50 years and you’d be up over $1 billion — all from $20 a day).

Marriage sounds more and more like the solution.

Failing that, I’d stick with the 5% assumption and try to save more.

Especially given your background, you will be tempted to speculate actively and run your money up at a much greater rate. The problem with that is taxes (although your tax situation does seem a bit . . . unclear). Taxes — let alone short-term capital gains taxes (taxed at the full ordinary income rate) — are to an investor swimming across the financial pond what shoes, pants and a parka would be to a swimmer swimming across a real pond. Far better to invest in the kinds of stocks or mutual funds that can compound their growth largely tax-free, selling (and incurring tax) only very occasionally.

Now, there are two ways you can take all this:

  1. As hopeless, throw up your hands, and head over to the craps table.
  1. As encouragement to save even more than $20 a day, and take only prudent risks with it, with an eye toward long-term capital gains.

I strongly urge you to opt for #2. And see if you can pick up some extra dough writing the aforesaid column. Who knows — there might even be a screenplay in it.

Monday: The Year 2000 Problem Begins — Oh, No! — Last Month



Comments are closed.