Living off your account

J

Jakobsberg

To me it seems more sensible to withdraw a fixed percent of the total at regular intervals rather than the models many press articles highlight which is a set amount withdrawn (often of 4% of the first year total) and increase for inflation every year thereafter. To me that seems stupid since it doesnt take into account the current value of the portfolio apart from the initial calculation.

If full time I think I would withdraw 0.5% per month so ca 6% in total per year. The amount will vary with the account balance, you get a regular monthly withdrawl and since it is a percent of fund total you will never run out of money. However it could get increasingly hard to live on it if your do not manage to achieve and annual return of ca. 6% plus inflation.

Im interested how other full time traders live of the investments ?
 
This is what I do: Build up a big cash cushion and take your spending out of that, not your trading account. When u get ahead in your trading account by a decent amount, take some cash out and put it in the bank. Ive done it that way for years. Ive never considered drawing money out of my trading account on a monthly basis. Once u have more than a few years worth of your spending in the bank plus other investments for diversification, u stop thinking about "making a living" and just focus on making more money. Then if u are like me it clicks and u realize what u really want is a customer business and fee income, it just sound business sense.
 
sounds like you are talking about a retirement account where you take out 4%(which is the adjustment for inflation) or so a year to cover living expenses.

i forget where i read it, but apparently over a period of 30 years or so there is like ~20% failure rate due to volatility of your investments. it has to do with knowing the std(in this case about 20%) and returns (~7% in this case) of the investments and doing a monte carlo simulation, apparently you have 20% chance for it to fuck up.

most people aren't living 20 year past their retirement though, which has ~10% fail rate. Frankly, i find that still too high.

even though the above applies to retirement accounts, it can be adjusted for a pure trading account, it just means you gotta know how good those returns are, and how variable it is .

by fuck up, i mean the account goes into drawdown enough to fuck up your returns beyond inflation and account recovery
 
Definitely good to have other investments, preferably paying steady dividends, and to have a

Last year things were a bit more chaotic as I was getting started but this is what my current setup looks like:

Balance sheet:
4 months living expenses in cash
About 35% of liquid investments (excluding our house) in my trading account
The rest in dividend and coupon paying investments, some in tax shelters.

About eight months of household expenses is covered by investments outside tax shelters.
Another three months of income is generated by investments inside tax shelters (pensions and ISAs).

So the trading account needs to generate four months worth of household income to avoid touching the tax shelters, or one months worth to keep my net worth constant. In my fairly conservative backtest it makes about nine months worth after tax.

The new regime then is:

- start the year with 5 months living allowance in the bank.
- as this is run down replenish with money from non trading account, non tax shelter investments (8 months worth remember)

At end of year should have about 1 months living allowance left in bank. Then:

- do end of year tax optimisation (which will often generate extra cash if things are sold to realise losses)
- withdraw all years profits from trading account, so back to flat
- if no profits made in trading account then do not touch it.

Cash requirements will be:

- top up of 4 months worth of
- any tax payments
- pay into ISA's (tax sheltered accounts, you lose your annual allowance)

If cash available exceeds this then:

- make investments (which will gradually increase the income generated and reduce the need to rely on any trading profits)
- start paying down mortgage (when my current fixed deal expires, in about 7 years) to reduce living expenses

If cash available falls short then I'd have to sell investments, though not inside tax shelters as then I lose the benefits. Given it was a losing year I'd hopefully be able to do this without inccuring more tax by offsetting the losses.

As long as you're making money in the long run it's okay to do this I think. So last year for example I made about 3 years worth of household expenses rather than 4 months. I had a lot of excess to reinvest. If I have to sell that down some because I lose this year, I'm comfortable with that.
 
MrN said:
This is what I do: Build up a big cash cushion and take your spending out of that, not your trading account. When u get ahead in your trading account by a decent amount, take some cash out and put it in the bank. Ive done it that way for years. Ive never considered drawing money out of my trading account on a monthly basis. Once u have more than a few years worth of your spending in the bank plus other investments for diversification, u stop thinking about "making a living" and just focus on making more money. Then if u are like me it clicks and u realize what u really want is a customer business and fee income, it just sound business sense.
More...

Great advice. Thank you.
 
Here's where I'm at now. I use the 3 bucket system. The trading portion of my portfolio is the smallest first bucket and it's in my Roth and one of my IRAs. I skim some, but not all, profits off and buy income producing positions which I consider Bucket 2, then skim off the income into my checking acct, Bucket 3, and live off that.

Right now I have 3 qtrs of income in my checking and I haven't as yet, but I suppose I could, skim off that excess cash and reverse the bucket flow by buying another income position. It's a good problem to have.

At some point in your aging, you figure out that spending time making money you don't need is selling your life. You could easily modify what I do to suit your own purposes.
 
Thanks for the replies. Different bucket system seems popular. In the main trading account I have ca 600,000 USD and aim for 23% per year so doubles every 3 years, but fortunately been much higher than 23% during this bull market. Main choice seems to be:
1. Either keep it all together and overall be less aggressive (perhaps aiming for 15% on 1 M USD)
2. Keep trading the same way (index swing trades) and sweep the trading account every so often to 500,000 USD.
 
Living off your trading account is imprudent and just sets you up for additional stress that clouds your judgement. Bucket system makes good sense.

Just reallocate funds to the financial product/scheme that will provide the necessary cashflow: ie fixed income, annuity, delivering pizzas, etc.

If your concern is a lack of trading funds, then decide if you can lever up and live with the higher PnL volatility.
 
Jakobsberg said:
Thanks for the replies. Different bucket system seems popular. In the main trading account I have ca 600,000 USD and aim for 23% per year so doubles every 3 years, but fortunately been much higher than 23% during this bull market. Main choice seems to be:
1. Either keep it all together and overall be less aggressive (perhaps aiming for 15% on 1 M USD)
2. Keep trading the same way (index swing trades) and sweep the trading account every so often to 500,000 USD.
More...

23 percent after taxes?
 
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