Should I consider a prop firm? Or just trade my own funds? ($2 mil)

[wintergasp]

It's amazing how easily the conversation's subject drifts on this forum.

 

[globalarbtrader]

The issue was not about flashing wealth first, but with multimillionaire beeing (very) frugal, and the need for one to cut costs all over the place to make it.
Fair enough u don t necesseralily can point wealthy people when they hang around in a middle class area, i don t think many of them would like to be noticed where it would not be safe to, but do they hang out there much? Concentration of wealth (getthoisation of the rich) is rampant, live in a good area and costs are high, u need to be a multimillionaire or have a very high income just to afford an apartment there. In Europe where i used to live, even though schools were cheap, go in those areas and the kids come from very well off families, everything is more expensive than elsewhere in the country in those areas, yet for some (good )reason lots of those who can afford it chose to live in such area.
Check the expenses of those families and a cursory survey will show they spend way more than regular families in housing, medical care, education - especially in countries where it s expensive- holidays, food , leisure. transportation etc... much of it doesn t come as showing off, the flaunting part again varying a lot according to cultures.
I would maintain it is a poor idea to live stingily and dedinitely not necessary to become wealthy.
Spend less than u earn, significantly less preferably, but trying to reach a much higher income sounds sounder than aiming for much lesser expenses

It's very simple. If you think you need a certain income to live off, then you will need around 30 times that in income earning assets if you don't want to worry about working every again (with a safety margin).

The average post tax household income in the UK is around £30,000. The income at the top quintile (top 10%) is around £65,000. For the much vaunted top 1% it's around £150,000.

So to live an upper class lifestyle (top 1%) you need to have around £4.5 million in assets. To live a "millionaires" lifestyle you really need to have tens or hundreds of millions.

But a single millionaire (£1 million) who doesn't work will only have £33,000; exactly what the average household has. A double millionaire will earn enough for a top 10% lifestyle, but they won't be driving round rolls royces.

People who don't work will always have much more money than their lifestyle suggests. You could be a double millionaire living in a nice middle class neighborhood. Or you could be a double millionaire surrounded by

There are roughly 3 categories of millionaires:

- lucky idiots who spend all their money, but who had some kind of windfall (lottery win, gambling wins, trading wins).
- those who inherited.
- those were paid more than average, or had their own businesses, but lived significantly below their means.

The third category are by far the biggest (although there seem to be plenty of non millionaires who think they will be in the first category).

Learning how to live on less money has a double whammy effect:

1- it reduces the amount of assets you need to have before you retire. If you "need" £200,000 to live on because you want to have some of the trappings of a "millionaire lifestyle" or live right in the middle of an expensive city like London or New York, then you'll need £6 million. Even if you earn £250,00 after tax and save £50,000 a year it will still take you around 30 years to save enough to retire on (assuming some reasonable investment growth - the OP can probably do better if they can maintain their trading income).

2- it means you can save more of your income quicker, and thus retire quicker. If you earn £250,000 after tax, and are happy to survive on a comfortable middle class income of £50,000, then you can retire after 7 years on an asset base of £1.5 million.

Of course there is a limit to this. Extreme early retirees who you can find on the internet have taken things a bit far. But if I had lived a "millionaires lifestyle" I wouldn't have been able to stop working before I was 40.

The OP is really lucky - they have a highly paid job AND an inheritance AND risk adjusted trading returns that are probably in the top 1% of all retail traders. If they don't do anything stupid and aren't greedy for a "millionaire lifestyle" they can probably retire in a few years, or go and do a job they will enjoy much more.

GAT

 

[luisHK]

1- it reduces the amount of assets you need to have before you retire. If you "need" £200,000 to live on because you want to have some of the trappings of a "millionaire lifestyle" or live right in the middle of an expensive city like London or New York, then you'll need £6 million. Even if you earn £250,00 after tax and save £50,000 a year it will still take you around 30 years to save enough to retire on (assuming some reasonable investment growth - the OP can probably do better if they can maintain their trading income).

2- it means you can save more of your income quicker, and thus retire quicker. If you earn £250,000 after tax, and are happy to survive on a comfortable middle class income of £50,000, then you can retire after 7 years on an asset base of £1.5 million.

Of course there is a limit to this.

Overall agree with your post, but there are more limits to it, chose to save on your lifestyle through your residence location and you are likely to limit your future income, like an american could elect to live in a rural Midwest area where life seems dirt cheap, or head to San Francisco or New York, hoping for better opportunities, as an employee or an entrepreneur.
Decide you need more, and live next to very wealthy people, and you will be motivated to earn a lot more as well as likely encounter more oportunities, elect to live in a poor but cheap area, with few large successes around, if any, and , with opportunities and probably motivation lacking, it's more likely you will remain in the same situation and raise your children with similarly low prospects (I've seen it a lot within my own family, which to this day is relatively concentrated geographically and not very well off. And if the most cautious had been listened to, we'd probably have grown up the ass in the dust of some poor spanish countryside - still plenty of family there btw, who don't look unhappier than we are, but I couldn't go that way, at least while still looking for business opportunities or raising kids, career prospects are grim there and opening to the wide world outside very limited)

 

[manstein]

So lets say you're earning $50K from your trading strategy.

If you put $1.5 million into a diversified portfolio of stocks and bonds you can probably earn 3%. Sure there will be ups and downs, but the flow of dividends and coupons would be reasonably safe. So that's another $45,000. Total of $95K: would that be enough? (there will be taxes of course)

This is pretty much how I organise my own investments. Although my trading strategy is incredibly scalable, its much safer if you aren't relying entirely on your trading strategy. If it doesn't work in one or two years you need something to fall back on.

Personally I don't think you'd learn anything from a prop shop: you're already doing very well. If this all still sounds too risky then can you suck up the high paying office job for a few more years? Maybe by then with trading income and growth in your diversified portfolio you'd have $3 million in your diversified portfolio; $90K plus $50K... would that be enough?

Just one more piece of advice if you're going down this route set your "F... You Money" target and stick to it. If I hadn't done that I'd still be working...

GAT

Do something similiar as this person says.

Do not put your capital at risk, especially in prop firms since you never know if they are really as good as their "reputation" says.

The problem nowadays is that good reputation can be faked, as nearly everything else.

Invest the rest of the capital and pray that the system does not go belly up some day.

Also a sizeable amount of gold in the portfolio would not hurt.

Good luck

 

[Serenity]

Hi folks,

Long-time lurker, but I haven't posted much. I need some advice from the board's collective wisdom.

For the past 5-6 years, I've traded a system I developed on an account size in the low six figures. The system works very well (10-15% returns per year with rather minimal drawdowns). However, it won't scale up well. The order books are too thin on the instruments I trade. Frankly, my current system really can't be traded on an account greater than $500,000 or so. That's pretty much why the system works--none of the big players can play in this sandbox and remove the inefficiencies.

I've recently come into an inheritance of $1,500,000 bringing my total liquid assets to around $2 million. I'd like to quit my current office job (which is high paying but I absolutely hate it and it's destroying my soul). I want to become financially independent by leveraging my inheritance money into additional trading income. My family and I need more than 10-15% per year on the $500,000 or so my current system can handle. I need to learn a system that trades more liquid instruments so I can put more of my inheritance to work.

A couple options came to mind first (though I'm sure I'm missing some):

My first thought was to see if I could sign on with a prop firm with a reputation for good training (if there is such a thing?). This would help me learn strategies for larger accounts (whether intraday equities, FX, or whatever). Also, I could put up a small chunk of my personal capital, while keeping the rest in more traditional retirement-like investments for long-term growth. This would help shield my nestegg while I'm learning a new system.

Alternatively, I could forego the prop firm route and just try to learn a new system or two on my own--something that would allow me to trade a bigger account. But I don't even know where to start. And to make a livable income, I might have to risk a significant amount of my personal capital on a system I'm not fully comfortable with--or at least more than I'd have to risk if I landed a prop gig.

Obviously, in either of these cases I can continue trading my current system on an account of around $500,000. That will provide my family some basic (albeit inadequate) income while I'm learning something new.

Any advice?

***********************************************************************
A different perspective.

Personally I would keep running your $500k account to generate $50k and "invest" the remaining $1.5M into "Unlisted Commerical property Funds" - look it up - many to choose from with substantial tax benefits and income splitting possibilities to minimise tax.

Average returns are 6-8% yield + capital appreciation of 2-3%/year...ie say 10%/yr gives you another $150k - gross but with depreciation and income splitting(partner or adult kids) you can get 1-2% higher return again....the funds are normally around 50% geared and buy quality buildings in big cities in good locations or quality industrial properties in a portfolio....this is the strategy I have used to fund my family and live happily in retirement since 2012 at the age of 42. I have no regrets leaving the high paying job in Finance behind.

(I'm a bit like GAT - as you get older you learn to appreciate your own time and no longer have to deal with DH's everyday though I do miss the intellectual challenges at times).

So now you have an minimum annual income of $50k+120k(8% conservative) = $170k/year.
(more if you use tax effective entities)

If you wanted to spice it up a little I would at most use 1/3 of the $1.5M and put it to work with a competent HF....this would take a bit of time to locate but well worth it as you are now free to walk away from the crappy job and start enjoying "life".

You've been given a massive head start - don't waste it!

 

[globalarbtrader]

Overall agree with your post, but there are more limits to it, chose to save on your lifestyle through your residence location and you are likely to limit your future income, like an american could elect to live in a rural Midwest area where life seems dirt cheap, or head to San Francisco or New York, hoping for better opportunities, as an employee or an entrepreneur.
Decide you need more, and live next to very wealthy people, and you will be motivated to earn a lot more as well as likely encounter more oportunities, elect to live in a poor but cheap area, with few large successes around, if any, and , with opportunities and probably motivation lacking, it's more likely you will remain in the same situation and raise your children with similarly low prospects (I've seen it a lot within my own family, which to this day is relatively concentrated geographically and not very well off. And if the most cautious had been listened to, we'd probably have grown up the ass in the dust of some poor spanish countryside - still plenty of family there btw, who don't look unhappier than we are, but I couldn't go that way, at least while still looking for business opportunities or raising kids, career prospects are grim there and opening to the wide world outside very limited)

You're right to a degree but I'm looking at it from my own perspective. I moved to an expensive city London to get a well paid job but then elected to commute. I made various other decisions which meant we still had (and have) a nice middle class lifestyle but worry about acquiring the trappings of the rich - private school, nanny, multiple expensive cars, multiple expensive holidays ... .

The OP already has a well paid job so this perspective is probably more relevant to them.

GAT

 

[Visaria]

Hi folks,

Long-time lurker, but I haven't posted much. I need some advice from the board's collective wisdom.

For the past 5-6 years, I've traded a system I developed on an account size in the low six figures. The system works very well (10-15% returns per year with rather minimal drawdowns). However, it won't scale up well. The order books are too thin on the instruments I trade. Frankly, my current system really can't be traded on an account greater than $500,000 or so. That's pretty much why the system works--none of the big players can play in this sandbox and remove the inefficiencies.

I've recently come into an inheritance of $1,500,000 bringing my total liquid assets to around $2 million. I'd like to quit my current office job (which is high paying but I absolutely hate it and it's destroying my soul). I want to become financially independent by leveraging my inheritance money into additional trading income. My family and I need more than 10-15% per year on the $500,000 or so my current system can handle. I need to learn a system that trades more liquid instruments so I can put more of my inheritance to work.

A couple options came to mind first (though I'm sure I'm missing some):

My first thought was to see if I could sign on with a prop firm with a reputation for good training (if there is such a thing?). This would help me learn strategies for larger accounts (whether intraday equities, FX, or whatever). Also, I could put up a small chunk of my personal capital, while keeping the rest in more traditional retirement-like investments for long-term growth. This would help shield my nestegg while I'm learning a new system.

Alternatively, I could forego the prop firm route and just try to learn a new system or two on my own--something that would allow me to trade a bigger account. But I don't even know where to start. And to make a livable income, I might have to risk a significant amount of my personal capital on a system I'm not fully comfortable with--or at least more than I'd have to risk if I landed a prop gig.

Obviously, in either of these cases I can continue trading my current system on an account of around $500,000. That will provide my family some basic (albeit inadequate) income while I'm learning something new.

Any advice?

Stick the inheritance into savings accounts that are insured.

Learn strategies that will grow your half million very quickly. 50% to 100% a year is very doable. Do not invest for income.

At the end of the year, take out from your acct whatever amount you need to spend for the following year. Hopefully u will have made at least 20%...you can spend that as u need.

 

[wintergasp]

Stick the inheritance into savings accounts that are insured.

Learn strategies that will grow your half million very quickly. 50% to 100% a year is very doable. Do not invest for income.

At the end of the year, take out from your acct whatever amount you need to spend for the following year. Hopefully u will have made at least 20%...you can spend that as u need.

Damned ....100% a year is very doable, wondering what all those hedge funds are doing to make 5%

 

[Zzzz1]

You sound exactly like the Nigerian uncles that pester all of us with their spam. "I came to an inheritance of xxx mln and I have no friggin clue what the fuxx I should even do with all that money. Please send me your account number so that I may share the joy."

Hi folks,

Long-time lurker, but I haven't posted much. I need some advice from the board's collective wisdom.

For the past 5-6 years, I've traded a system I developed on an account size in the low six figures. The system works very well (10-15% returns per year with rather minimal drawdowns). However, it won't scale up well. The order books are too thin on the instruments I trade. Frankly, my current system really can't be traded on an account greater than $500,000 or so. That's pretty much why the system works--none of the big players can play in this sandbox and remove the inefficiencies.

I've recently come into an inheritance of $1,500,000 bringing my total liquid assets to around $2 million. I'd like to quit my current office job (which is high paying but I absolutely hate it and it's destroying my soul). I want to become financially independent by leveraging my inheritance money into additional trading income. My family and I need more than 10-15% per year on the $500,000 or so my current system can handle. I need to learn a system that trades more liquid instruments so I can put more of my inheritance to work.

A couple options came to mind first (though I'm sure I'm missing some):

My first thought was to see if I could sign on with a prop firm with a reputation for good training (if there is such a thing?). This would help me learn strategies for larger accounts (whether intraday equities, FX, or whatever). Also, I could put up a small chunk of my personal capital, while keeping the rest in more traditional retirement-like investments for long-term growth. This would help shield my nestegg while I'm learning a new system.

Alternatively, I could forego the prop firm route and just try to learn a new system or two on my own--something that would allow me to trade a bigger account. But I don't even know where to start. And to make a livable income, I might have to risk a significant amount of my personal capital on a system I'm not fully comfortable with--or at least more than I'd have to risk if I landed a prop gig.

Obviously, in either of these cases I can continue trading my current system on an account of around $500,000. That will provide my family some basic (albeit inadequate) income while I'm learning something new.

Any advice?

 

[SpreadOption]

Thanks all. Lots of great advice in here. A few points of clarification:

1) I too would never put more than a very small fraction of my money into a prop firm. The reason I mentioned prop firms was because, if there are any good shops out there who can help me learn some additional strategies, it could be worth investing a small slice of capital with them (say $10,000) to learn some strategies and expand my horizons. But that's only if anybody can recommend a reputable shop with real training--it may not exist.

2) To the people telling me to keep my day job because I could compound massive wealth, that's not my goal. My job (and not just my job, but my entire field) makes me unhappy. That's the whole point. That's why I want to make the right decisions with this money so I can leave this job and industry permanently. I want a happy life with a enough money to be comfortable--no more.

3) My family can't live on $50k, but we can certainly live on $150k. We don't spend lavishly. We live in a fairly expensive city and moving isn't an option.

4) To the guy who just called me a Nigerian scammer: go home sir, you're drunk.

Anyway, just a ton of great advice in here. It sounds like pretty much nobody thinks I should bother with a prop firm!