Poll

Would you gamble?

I would gamble the $50,000
68 (26.2%)
I wouldn't gamble the $50,000
192 (73.8%)

Total Members Voted: 240

Author Topic: Almost logical to gamble $50,000 on red...  (Read 61657 times)

arebelspy

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Almost logical to gamble $50,000 on red...
« on: March 06, 2014, 08:56:01 AM »
Does it make financial sense to gamble $50,000?

Literally gamble.  Putting 50k on red.  Or black.  Might take a poll on that later.

Here's the scenario:

Being a teacher, we're locked into a contract from September through June.  We can break that and leave early, but we wouldn't do that to our students - if we commit to a year, we'll teach the whole year.  So if we don't hit FI by June of whatever year, we're locked into a whole extra year of working.

Let's say, however, you're short of your FI number in June (and projected to hit your FI number in December or so, based on what you make and save).

What if you instead took a chunk of cash, gambled it so that you hit your number if you win and, even if you lost, you hit your number anyway by the next June?

Here's some numbers so you can picture it better.

Saving 80k/yr from job.  Saving 50k/yr. from investments = 130k saved annually.

In June of year X, you're 50k short of your FIRE number.  You take 50k from your portfolio and gamble it on a coinflip.  If you win, you hit FI and are done!

If you lose, you're now short 100k of your FIRE number, and work an extra year (during which you save 130k, and then hit your number that next June).

If you gamble, you have a 50/50 shot of being FI.

If you lose, you have 1 more year (are 100k short and earn that in the next year).

If you don't gamble, you have 1 more year also (are 50k short and earn that in the next year).

Since losing and not gambling give the same result (though admittedly in the latter scenario you'll have 50k extra, but it's just random surplus you don't need), why not take the shot at gambling?

Thoughts?
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thisperson

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Re: Almost logical to gamble $50,000 on red...
« Reply #1 on: March 06, 2014, 09:10:14 AM »
If you're talking about playing roulette, then your odds of winning on red or black is 47.37%, not 50%. And then there are taxes on the winnings. You would have to bet more than $50k to clear a $50k profit.

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Re: Almost logical to gamble $50,000 on red...
« Reply #2 on: March 06, 2014, 09:11:29 AM »
I think you're placing too much importance on your FI number and not enough on what $50k actually represents. How many years of expenses is that for you?  It shouldn't be too hard to imagine future scenarios where you would kick yourself for playing a game with so much money.  Yes, you might win.  But it doesn't sound like you got this far using gambling.

I'd personally try to enjoy my job more on my way to FI so that I'm not tempted to gamble with my hard earned resources.  Make another year or two of work something that you aren't tempted to gamble your way out of.  If playing games with $50k sounds like something you'd enjoy, I'd suggest accomplishing your first goal first, (FI) and then get into gambling or high risk/return investments.  Keep the two separate. 

Not that I'll judge you for going the other route.  In fact, I'm interested to hear all about it if you decide to gamble!

MustachianAccountant

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Re: Almost logical to gamble $50,000 on red...
« Reply #3 on: March 06, 2014, 09:14:01 AM »
As much as the gambler in me would love to be at the table when you plunk down 50k on red...

If you truly have a 50k surplus in your portfolio, maybe you could donate it to a scholarship fund or back to the school district, or to the school you teach at for supplies?

Not the same high as winning on a single roulette spin, I suppose, though charitable giving has its own well-documented high.

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Re: Almost logical to gamble $50,000 on red...
« Reply #4 on: March 06, 2014, 09:17:22 AM »
Or pick a random penny stock and use your $50K for an out of the money call option ;).

One guarantee if you do the gamble: either way, you'll have a story to tell.

Interesting concept but I tend to agree with "it doesn't sound like you got this far using gambling."


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Re: Almost logical to gamble $50,000 on red...
« Reply #5 on: March 06, 2014, 09:17:39 AM »
I think your best bet to making it work would be to get in touch with a TV program that would televise the whole thing, and the reasons behind it. 
Who wouldn't want to watch a teacher gambling $50K on national TV for their "retirement"! (Well - besides most of the people on this forum . . . .)

Then it might be a win-win situation if you can get enough money out of the producers.

brand new stash

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Re: Almost logical to gamble $50,000 on red...
« Reply #6 on: March 06, 2014, 09:19:00 AM »
Wouldn't a middle ground be to do something like work at a camp or tutor during June, July, and August to earn the money.  That way you aren't starting a new contract, but aren't starting below your FI number either.

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Re: Almost logical to gamble $50,000 on red...
« Reply #7 on: March 06, 2014, 09:19:19 AM »
Interesting.

I'd say if you can take the emotional gut punch that a 50k loss would give, and given from what I know of your history in your travels towards FIRE I think you can, I'd do it. I agree that if the result of the loss and not playing are equal why not give it a shot? In even a year will it matter? In five? Ten?

However me personally I don't know if I could handle a true erasure of 50k like that from an emotional standpoint.

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Re: Almost logical to gamble $50,000 on red...
« Reply #8 on: March 06, 2014, 09:21:32 AM »
If you really want to stop working the exact minute you reach your FI number (I wouldn't mind working one year when 6 months is needed, that's just some nice extra cushion), then I suggest you don't lock yourself in a one year contract. Find something else that you can do for only a couple months instead.

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Re: Almost logical to gamble $50,000 on red...
« Reply #9 on: March 06, 2014, 09:24:39 AM »

The excitement of doing it would be an adrenaline rush...  But I am probably over-the-top cautious.  I'd puke on the roulette wheel if I had that much riding on it.  I would much prefer to have a cushion than to be at exactly the 100% number (or whatever target number you're looking for.)

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Re: Almost logical to gamble $50,000 on red...
« Reply #10 on: March 06, 2014, 09:31:31 AM »
Throw in a free buffet and night's stay, and I'd put it on black.  Seriously, I'd probably save the $50k (and I do love roulette - probably one of the most un-mustachian games ever) and take a trip.  Either that or donate 25k (maybe buy everyone on my block a transit pass) and gamble the other 25k.

edit: I realize splitting the amount isn't answering the question, so I guess the short answer would be no - I wouldn't gamble the 50K.

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Re: Almost logical to gamble $50,000 on red...
« Reply #11 on: March 06, 2014, 09:39:09 AM »
Here's the older person's perspective. 

IIRC, you are waiting until FIRE to have kids.  WTF??  You work for the freaking government, with the most liberal leave programs in the country and some decent health insurance.  Get pregnant on the school district's dime.  If you are really good, you can time the birth to be just after school ends next June.  The wife goes on mat leave, and you decide what you want to do then.  You know, once the baby is here, you know s/he is healthy, and you have a better perspective on the parenting thing.  Mrs. Rebelspy does not go back after the mat leave, and all is good.

Meanwhile, you just keep buying those cash-flowing houses in Michigan and maxing out both 457 plans.  Your FIRE plan will be more secure and you will be free to fret about what you hear on the baby monitor instead of what's going on in the stock market.

No way in hell would I take the gamble.

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Re: Almost logical to gamble $50,000 on red...
« Reply #12 on: March 06, 2014, 10:02:10 AM »
The gambler in me says that would be fun, what a thrill.  The entertainment seeker in me says, sit a blackjack table and play $1,000 hands.....you know stretch that 50k out a bit.  The odds in blackjack are relatively similar to the red/black of roulette.  It would be more of a roller coaster on your way to 100k...or to zero.

But, then there is the part of me that would just die if I actually lost $50,000 gambling.  And possibly might literally die when the wife found out (assuming she wasn't a part of this decision).

So end result, I probably wouldn't do it, whether or not it affected my FI date.
« Last Edit: March 06, 2014, 10:05:38 AM by Cromacster »

foobar

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Re: Almost logical to gamble $50,000 on red...
« Reply #13 on: March 06, 2014, 10:26:50 AM »
Why not just call yourself FI 50k short of your number? The odds of that working out are a lot better than 50/50.

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #14 on: March 06, 2014, 10:29:48 AM »
If you're talking about playing roulette, then your odds of winning on red or black is 47.37%, not 50%. And then there are taxes on the winnings. You would have to bet more than $50k to clear a $50k profit.

Right, I'm handwaving both those assumptions - I'd pick something closer to 50/50 (if I was doing Roulette it'd definitely be a single zero one, not double, so it'd be 48.6%), and I'd bet enough to cover the taxes as well.  That was just to simplify the example.

I think you're placing too much importance on your FI number and not enough on what $50k actually represents. How many years of expenses is that for you?

About a year.  It'd maybe be 5% of our stache.

Quote
But it doesn't sound like you got this far using gambling.

Quote
Interesting concept but I tend to agree with "it doesn't sound like you got this far using gambling."

No, certainly not.

The thing many people seem to be missing who are saying quotes like the above is that this is a scenario where losing and not gambling seem to have the same outcome. 

If it was "gamble 1 year to knock off a year, but losing adds a year" (i.e. say I had one year left in the scenario, and if I gamble and win I'm FI, but if I gamble and lose, I have 2 years), that would be a "you didn't get here by gambling" scenario, and I'd just do the one year.  We're in complete agreement there.  This seems to be a scenario where even if I gamble and lose, it doesn't add any time to my working career, but it could shorten it.

I'd personally try to enjoy my job more on my way to FI so that I'm not tempted to gamble with my hard earned resources.  Make another year or two of work something that you aren't tempted to gamble your way out of.

Actually we enjoy our jobs very much.  But if we can do one less and move on to other stuff, we'd do that.  I'll have done it for almost a decade at that point.  That's plenty of time to do anything, IMO.  I will very much enjoy the next few years of doing it.  But that doesn't mean I'd rather do 3 years of it than 2.

If you truly have a 50k surplus in your portfolio, maybe you could donate it to a scholarship fund or back to the school district, or to the school you teach at for supplies?

Sure, any surplus will be going to charities.  I expect we'll actually have a LOT of surplus in FIRE.  This would be more pointless extra.

Then it might be a win-win situation if you can get enough money out of the producers.

Hah.  Yeah.

Wouldn't a middle ground be to do something like work at a camp or tutor during June, July, and August to earn the money.  That way you aren't starting a new contract, but aren't starting below your FI number either.

I'm already counting in all the extra monies we make from tutoring, summer school, etc. in the "will be $X short" scenario.

Interesting.

I'd say if you can take the emotional gut punch that a 50k loss would give, and given from what I know of your history in your travels towards FIRE I think you can, I'd do it. I agree that if the result of the loss and not playing are equal why not give it a shot? In even a year will it matter? In five? Ten?

However me personally I don't know if I could handle a true erasure of 50k like that from an emotional standpoint.

I can.  My wife maybe not so much.  :)  She wouldn't want to be there when it happened.  But you're right, in 10 years, whether I do it and win, or do it and lose and do the extra year (which I'd have done anyways), or don't do it and have an extra 5% larger portfolio, it won't matter in 10 years in any of those scenarios... except maybe the first, winning and having an extra year of freedom (IMO, not sure on that point yet, thus the feedback request).

If you really want to stop working the exact minute you reach your FI number

I would much prefer to have a cushion than to be at exactly the 100% number (or whatever target number you're looking for.)

Oh, there's plenty of cushion built into my FI numbers.  You'd probably be surprised at how much.  The extra 6 months would be needed to get me to that cushion that I'm comfortable with - so I either work the extra year, or gamble for it, or do without.  I'd say the doing without is the least appealing option (i.e. cutting short in June 50k of my FIRE number that includes the cushion).

I suggest you don't lock yourself in a one year contract. Find something else that you can do for only a couple months instead.

Not much we can do for a few months that would make us as much, so we'd need to end up working a year at something else to make what we'd make in 6 months doing this.  At that point, might as well work the extra year doing what we already are.

Seriously, I'd probably save the $50k (and I do love roulette - probably one of the most un-mustachian games ever) and take a trip.

Our whole FIRE plan is constant and nonstop travel. Taking a trip will be exactly what we do when we FIRE.  :)

IIRC, you are waiting until FIRE to have kids.  WTF??  You work for the freaking government, with the most liberal leave programs in the country and some decent health insurance.  Get pregnant on the school district's dime.  If you are really good, you can time the birth to be just after school ends next June.  The wife goes on mat leave, and you decide what you want to do then.  You know, once the baby is here, you know s/he is healthy, and you have a better perspective on the parenting thing.  Mrs. Rebelspy does not go back after the mat leave, and all is good.

Yeah, we'll have the kid our last year teaching, and FIRE.  If we come up short at the end of that year, then we have to work and put the kid in daycare.  I'd rather FIRE a few months after it's born.

Quote
Why not just call yourself FI 50k short of your number? The odds of that working out are a lot better than 50/50.

That's an option, but the number I'm comfortable with is pretty well defined (actually it's tied to a certain number of houses/cash flow, but the 50k is an approximation that will get me there), so I'd rather work the extra year than stop short.  And if I'm going to work the extra year and have way more than I need, why not take a shot at being done then...

So I guess no one has really addressed my main point which is: in any worst-case scenario, I'm working the same amount of time, so.. why not do it?

I can't think of a counter-argument to that...
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RootofGood

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Re: Almost logical to gamble $50,000 on red...
« Reply #15 on: March 06, 2014, 10:34:16 AM »
I'd keep the money.  A $50k gain wouldn't be 50k after taxes.  And the pleasure of an extra $50k wouldn't offset the pain if you lost $50k*.  So the expected value of gambling 50k is pretty negative.  I'd keep it and indulge in a little hedonistic adaptation. 

*Kahneman's Prospect Theory.  http://en.wikipedia.org/wiki/Prospect_theory

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #16 on: March 06, 2014, 10:42:52 AM »
I'd keep the money.  A $50k gain wouldn't be 50k after taxes. 

I'm hand waiving the taxes, but yes, you'd bet enough to cover the taxes too.  No hedonistic adaptation or other indulging needed, plenty of that already built in.

*Kahneman's Prospect Theory.  http://en.wikipedia.org/wiki/Prospect_theory

Can you explain to me how this applies or what you think will happen psychologically?

And the pleasure of an extra $50k wouldn't offset the pain if you lost $50k  So the expected value of gambling 50k is pretty negative.

Gambling is certainly a negative EV proposition overall, but given the odd scenario it may be net positive EV due to the loss downside versus win upside.  The pleasure of winning is 1 extra year of FIRE.  The pain of losing is... still FIREing at the same time you normally would.  At that point I'd just say "Oh well, now I retire when I would have anyways."
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MustachianAccountant

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Re: Almost logical to gamble $50,000 on red...
« Reply #17 on: March 06, 2014, 10:44:34 AM »
So I guess no one has really addressed my main point which is: in any worst-case scenario, I'm working the same amount of time, so.. why not do it?

I can't think of a counter-argument to that...

Because if you lose, you're giving $50k to a casino. Now go watch Ocean's Eleven. :-)

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #18 on: March 06, 2014, 10:46:35 AM »
So I guess no one has really addressed my main point which is: in any worst-case scenario, I'm working the same amount of time, so.. why not do it?

I can't think of a counter-argument to that...

Because if you lose, you're giving $50k to a casino. Now go watch Ocean's Eleven. :-)

lol.  Great movie.

It doesn't have to be a casino.

I mean, if some Mustachian has some gamble in them and wants a 1-2% edge, I'm game (assuming I work out this scenario to my satisfaction, are in the scenario in two years, etc. etc.).  ;)
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Re: Almost logical to gamble $50,000 on red...
« Reply #19 on: March 06, 2014, 10:48:42 AM »
Let's word it slightly differently and see if you all change your mind.

You work out your time to FIRE.  You're 1 year away.

Mysterious Benefactor (MB) says you can FIRE now, today, with the full amount you'd have had in your portfolio (had you worked that extra year).  (Said portfolio amount already includes all the cushion amount you want to feel comfortable.) Or you can FIRE in a year, and he'll give you 5% of your portfolio boost above what you need (that isn't adding any extra comfort cushion, it's just gratuitous extra money).

Would you work the extra year?

Simple answer is yes.  It sounds like we're at similar places in our quest.  I'm pretty close to "there."  I'm continuing to work a little past for cushion.  I also know what my inheritance is (my MB) and know that it would easily cover any gaps.  I choose not to include that in any calculations.  There's both a self motivation there and a "don't count yer chikens" there.

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #20 on: March 06, 2014, 10:52:49 AM »
Let's word it slightly differently and see if you all change your mind.

You work out your time to FIRE.  You're 1 year away.

Mysterious Benefactor (MB) says you can FIRE now, today, with the full amount you'd have had in your portfolio (had you worked that extra year).  (Said portfolio amount already includes all the cushion amount you want to feel comfortable.) Or you can FIRE in a year, and he'll give you 5% of your portfolio boost above what you need (that isn't adding any extra comfort cushion, it's just gratuitous extra money).

Would you work the extra year?

Simple answer is yes.  It sounds like we're at similar places in our quest.  I'm pretty close to "there."  I'm continuing to work a little past for cushion.  I also know what my inheritance is (my MB) and know that it would easily cover any gaps.  I choose not to include that in any calculations.  There's both a self motivation there and a "don't count yer chikens" there.

I split that scenario into a separate thread, both with polls, to see how the gambling changes the responses.  :)
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Re: Almost logical to gamble $50,000 on red...
« Reply #21 on: March 06, 2014, 10:57:52 AM »
I wouldn't do it because if I lost 50K, I'd feel sick for a lot longer than a year. For that matter, I'm not sure I'd ever feel right about 50 K I won! I think it's a personal choice.

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Re: Almost logical to gamble $50,000 on red...
« Reply #22 on: March 06, 2014, 11:02:30 AM »
I'd keep the money.  A $50k gain wouldn't be 50k after taxes. 

I'm hand waiving the taxes, but yes, you'd bet enough to cover the taxes too.  No hedonistic adaptation or other indulging needed, plenty of that already built in.

*Kahneman's Prospect Theory.  http://en.wikipedia.org/wiki/Prospect_theory

Can you explain to me how this applies or what you think will happen psychologically?

And the pleasure of an extra $50k wouldn't offset the pain if you lost $50k  So the expected value of gambling 50k is pretty negative.

Gambling is certainly a negative EV proposition overall, but given the odd scenario it may be net positive EV due to the loss downside versus win upside.  The pleasure of winning is 1 extra year of FIRE.  The pain of losing is... still FIREing at the same time you normally would.  At that point I'd just say "Oh well, now I retire when I would have anyways."

It's a strange (but interesting and not merely hypothetical) binary function that you find yourself in.  I think I would say "Fuck it bo, go wid it" and just FIRE one year earlier and make it work.  Accept the worst case that you might have a very slightly reduced amount of consumption over the course of your lifetime (but probably not).  Or you could always return to work. 

The reality is that if you work one year longer, you'll save a butt load more money and have 1 less year of FIRE to fund.  And you'll know how your investments or other cashflow sources are doing.  For example, say you retired one year early (even with the extra $50k), and the market took a big dump.  You suddenly go from FI to not quite FI (or at least at a greater risk of not being FI). 

Had you worked one year longer, you would have known this information of the poor stock market performance and could have extended your career even longer to adequately address the portfolio shortfall. 

As for the prospect theory, imagine finding $5 on the sidewalk.  Kinda neat but no big deal.  Imagine losing $5.  That sucks (and to a greater extent than the joy of finding $5).  Or so the empirical research suggests.  To me the $5 cash isn't really a big deal, so I'm not sure the example is persuasive (to me).

But if I were to overpay for something by $5 (say I forgot to give the cashier a coupon and the sale is non-refundable) versus saving an unexpected $5 (finding the item I was going to buy at full price is on clearance and selling $5 cheaper).  I think the anguish from the "lost" $5 would cause me more psychological suffering than saving a random $5. 


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Re: Almost logical to gamble $50,000 on red...
« Reply #23 on: March 06, 2014, 11:05:49 AM »
I'd do it.  But I have zero emotional attachment to money (or near zero).  And you like your job.  If you didn't like your job, I'd say quit at $50K short and rely on side gigs in retirement to make up the shortfall. 

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Re: Almost logical to gamble $50,000 on red...
« Reply #24 on: March 06, 2014, 11:08:15 AM »
Not a chance. Wouldn't gamble it. Not my nature.  When I was younger perhaps!

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Re: Almost logical to gamble $50,000 on red...
« Reply #25 on: March 06, 2014, 11:14:57 AM »
So I guess no one has really addressed my main point which is: in any worst-case scenario, I'm working the same amount of time, so.. why not do it?

I can't think of a counter-argument to that...

One counter argument is that your premise also "hand waves" away risks that do exist in reality (however small they may be).  What if you lose the gamble then lose your job?  Now you are not the same distance from FI that you would've been had you not taken the gamble.  What if your investments do not earn as much as projected in that final year?  Again, now you are farther from FI than you would've been.

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Re: Almost logical to gamble $50,000 on red...
« Reply #26 on: March 06, 2014, 11:19:45 AM »
Often with these scenarios, it's phrased as if you have only two options.  Decision-making and negotiating classes taught me this is pretty much a fallacy.  You think outside the box to get to different options.  One of you works and the other doesn't.  You ask for a student teacher, and leave midway through the year so the student teacher will take over, giving continuity to your kids (and great exp for that teacher).  You plan for a second job now or in the future for that extra buffer.

(What grades do you teach?  Losing a teacher halfway through the end of the year isn't a big deal in some grades, from experience I say - and I was a "good student".)

Quote from: arebelspy
it's just random surplus you don't need

Its probably more accurate to say it's money you don't need now.  I can think of plenty of ways to spend it so it's not surplus.

As for the prospect theory, imagine finding $5 on the sidewalk.  Kinda neat but no big deal.  Imagine losing $5.  That sucks (and to a greater extent than the joy of finding $5).  Or so the empirical research suggests.  To me the $5 cash isn't really a big deal, so I'm not sure the example is persuasive (to me).

And this is really why I wouldn't be able to gamble, RootofGood just beat me to it.  The fear of losing all of that money is psychologically more damaging than the burst of joy of winning all of that money.  Not just me, but proven through research studies to be generally true for everyone.  It also takes options away from me (such as those named above) to be down $50k in a blink of an eye.

DoubleDown

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Re: Almost logical to gamble $50,000 on red...
« Reply #27 on: March 06, 2014, 11:21:09 AM »
I swear this forum is mind-reading -- yet another almost-exact scenario I was discussing with my kids the other day, the prospect of putting $100,000 on a single spin of the roulette wheel in Vegas. We were speculating on what it would be like to make such a big gamble on a single outcome. And of course you're wise to avoid the double-zero wheels.

For all the naysaying here, I'll say I am totally intrigued by the idea, and see it as one of those once-in-a-lifetime experiences that would make a superb story for the rest of your life, win or lose. If you could stomach the loss, and given your description of the scenario and history I think you could, I would consider doing it in your shoes! I couldn't personally stomach the loss, but if you can I'd say go for it!

Math/Gambling Geek Alert: Obviously there's been a lot of study on the mathematics of gambling, and your one gambling event (one coin toss, one roulette spin, etc.) as you likely already know is just about optimal. It takes away almost all of the casino's statistical advantage (around ten distinct plays is optimal odds, but the odds that you'd win all ten is very small and would not change your FIRE situation). You could minimize your exposure to losses by employing a doubling strategy, and only risking more if you win the first few plays. For example, do one bet of $12,500 and let it ride on one or two more plays only if you win. Otherwise, you walk away having lost "only" $12,500. The casino would still have no statistical advantage on two or three plays, vs. only one. If your goal is just to win or lose $50,000, then you've picked the right strategy: one play.

windawake

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Re: Almost logical to gamble $50,000 on red...
« Reply #28 on: March 06, 2014, 11:46:41 AM »
This idea sounds neat. It's probably not something I'd have the stomach to do, but I totally understand your logic. Please post a very detailed description if you end up doing it!

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #29 on: March 06, 2014, 12:01:50 PM »
For that matter, I'm not sure I'd ever feel right about 50 K I won!

Yeah, that's one of my hesitations - an ego/pride thing.  I'd like to "earn" FIRE on my own, not have someone be able to say "you got lucky."  But meh, they'll say it anyways.



The reality is that if you work one year longer, you'll save a butt load more money and have 1 less year of FIRE to fund.  And you'll know how your investments or other cashflow sources are doing.  For example, say you retired one year early (even with the extra $50k), and the market took a big dump.  You suddenly go from FI to not quite FI (or at least at a greater risk of not being FI). 

Had you worked one year longer, you would have known this information of the poor stock market performance and could have extended your career even longer to adequately address the portfolio shortfall.

Sure, but I could always go back to work, like you say, or cut back or whatever.  I think people need to be flexible in FIRE.  I'm also not worried about the market taking a dump, as the vast majority of my investments will be in rental income with LOTS of buffer.

But if I were to overpay for something by $5 (say I forgot to give the cashier a coupon and the sale is non-refundable) versus saving an unexpected $5 (finding the item I was going to buy at full price is on clearance and selling $5 cheaper).  I think the anguish from the "lost" $5 would cause me more psychological suffering than saving a random $5. 

Ah, I see.  That makes sense.  I personally try not to care about money, and generally succeed.  It's just a number to me.

One counter argument is that your premise also "hand waves" away risks that do exist in reality (however small they may be).  What if you lose the gamble then lose your job?  Now you are not the same distance from FI that you would've been had you not taken the gamble.  What if your investments do not earn as much as projected in that final year?  Again, now you are farther from FI than you would've been.

I'm a teacher with tenure.  I'm not losing my job.  My investments are in income producing real estate.  I'm not worried about them underperforming, because I already build in large cushions.

Often with these scenarios, it's phrased as if you have only two options.  Decision-making and negotiating classes taught me this is pretty much a fallacy.  You think outside the box to get to different options.  One of you works and the other doesn't.  You ask for a student teacher, and leave midway through the year so the student teacher will take over, giving continuity to your kids (and great exp for that teacher).  You plan for a second job now or in the future for that extra buffer.

(What grades do you teach?  Losing a teacher halfway through the end of the year isn't a big deal in some grades, from experience I say - and I was a "good student".)

This is generally true. There is probably another solution.  But it may come down to the "work one more year" thing, which is why I wanted to explore (discuss) this option.

5th grade.  My district is short teachers, good teachers especially.  They'd get in a sub for the second half of the year, and it would not be good.

Quote from: arebelspy
it's just random surplus you don't need

Its probably more accurate to say it's money you don't need now.  I can think of plenty of ways to spend it so it's not surplus.

I can't.

And this is really why I wouldn't be able to gamble, RootofGood just beat me to it.  The fear of losing all of that money is psychologically more damaging than the burst of joy of winning all of that money.  Not just me, but proven through research studies to be generally true for everyone.  It also takes options away from me (such as those named above) to be down $50k in a blink of an eye.

Gotcha.  I have lost more than that in just about as quick, so I'm not too worried about handling it psychologically.

I swear this forum is mind-reading -- yet another almost-exact scenario I was discussing with my kids the other day, the prospect of putting $100,000 on a single spin of the roulette wheel in Vegas.
...
If your goal is just to win or lose $50,000, then you've picked the right strategy: one play.

JohnGalt started a good discussion on this topic about a year and 1/2 ago:
https://forum.mrmoneymustache.com/investor-alley/'stache-building-via-long-shots/

I agree with everything you said on the odds/best strategy.
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Cwadda

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Re: Almost logical to gamble $50,000 on red...
« Reply #30 on: March 06, 2014, 12:05:42 PM »
Hold on to the money either way. Work one more year, and when you're finished working, take $1000 of it and go have a nice time at the casino.

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #31 on: March 06, 2014, 12:07:31 PM »
Hold on to the money either way. Work one more year, and when you're finished working, take $1000 of it and go have a nice time at the casino.

I don't have a desire to gamble 1000, or really any amount.

The gamble would be for a calculated purpose, not entertainment, a "rush," or anything like that.
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Cwadda

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Re: Almost logical to gamble $50,000 on red...
« Reply #32 on: March 06, 2014, 12:09:25 PM »
Yeah, ik what you mean. I would rather hold on to the money extra 50k and work a year longer. There are lots of ways to spend it.

CommonCents

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Re: Almost logical to gamble $50,000 on red...
« Reply #33 on: March 06, 2014, 12:17:33 PM »
The big question, ARS, is whether you'll continue posting here post-retirement, in betweenst your travels.

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Re: Almost logical to gamble $50,000 on red...
« Reply #34 on: March 06, 2014, 12:20:29 PM »
I'd probably do it.  But that's because I want out of my job.  Here's one way of thinking about it:

If the odds of winning are 48.6%, you can "expect" (in the mathematical sense) to lose $1,400 to the house. 

Would you be willing to pay a $1,400 fee to be allowed to quit 50% into your contract?

In my mind, those two are similar propositions.

Dr. Doom

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Re: Almost logical to gamble $50,000 on red...
« Reply #35 on: March 06, 2014, 12:44:27 PM »
The title of the thread reads:  Almost logical to gamble 50K.

But I disagree - it's not logical.  You've put in X hours teaching to earn that money and you're proposing risking it all to less than double it after taking taxes into account.  That's a percentage of your life on the line right there. I don't see risking life energy as a simple math problem (although I get that you may not be bothered at all by this...)

If you haven't hit your FIRE number, slog through another year and run over your number with a vengeance. You'll be glad you have the safety buffer in your asset pool.  I understand the urge to roll the dice and potentially be done with it -- god knows I'd like to be done with my day job too -- but it's not the prudent plan IMO.

>> but it's just random surplus you don't need),

Once that sweet, sweet surplus money is in your accounts, it won't feel random, and you'll find uses for it down the line.  Even if you can't envision any need for it right now, most likely things will come up.   Life is surprising that way.

Remember, Yoda says: "Future, cloudy it is."  And that dude was totally FI.

BTW, this dude sort of did what you're suggesting, except in a much riskier way, his entire life savings.
https://www.youtube.com/watch?v=zGCdBsOIKYA


dachs

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Re: Almost logical to gamble $50,000 on red...
« Reply #36 on: March 06, 2014, 12:48:50 PM »
One the one hand it's clear that the 50k more after one year are pretty cool.

But: When do you get the chance to gamble 50k and have a very reasonable explanation for it? If you win, awesome. If you don't, well it doesn't change that much if you're gonna live the same whether or not you have the 50k extra after one year.

thepokercab

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Re: Almost logical to gamble $50,000 on red...
« Reply #37 on: March 06, 2014, 12:59:52 PM »
Personally, i'd take a coin flip for $50,000.  Your odds are 50% to win.  I'll take those odds any day. I wouldn't suggest this to anyone if 50K meant wiping out your savings, but if its only for 5% or less why not.  Your playing the numbers.

The only suggestion is that there might be some hedging strategies i'd research, that might increase your win odds.  I can't even begin to wrap my head around the math, but I know it exists.   

MustachianAccountant

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Re: Almost logical to gamble $50,000 on red...
« Reply #38 on: March 06, 2014, 01:05:00 PM »
The only suggestion is that there might be some hedging strategies i'd research, that might increase your win odds.  I can't even begin to wrap my head around the math, but I know it exists.

Well, since we're talking roulette, the only casino game where the dealer has an effect on the outcome, put $1,000 down "for the dealer" on a number, and then cover that number and the quarter of the wheel around it. ;-)

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #39 on: March 06, 2014, 01:06:57 PM »
But I disagree - it's not logical.  You've put in X hours teaching to earn that money and you're proposing risking it all to less than double it after taking taxes into account. 

Ah, but I gain time when I win, and I don't lose any if I lose.   That's the potentially logical part - the outcome of losing and not gambling are the same.  So I can choose to work Z hours (my whole teaching career) + 1 extra year (1500 working hours or so) if I don't gamble, I can choose to work Z hours if I win the gamble, or Z + 1 year (1500 hours) if I lose the gamble.  Gambling potentially saves me a year, but doesn't cost me any - in other words, I haven't put in that extra Z hours, but I will have to if I don't gamble.
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luigi49

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Re: Almost logical to gamble $50,000 on red...
« Reply #40 on: March 06, 2014, 01:11:03 PM »
Invite us here if you decide to bet.   I went to casino once and this guy was trying to impress my wife and me.  He lost 30k in 20 minutes.  He turned white.  His friend recovered 25k after one hour of playing by winning the dragon.  whew. 

DoubleDown

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Re: Almost logical to gamble $50,000 on red...
« Reply #41 on: March 06, 2014, 01:18:59 PM »
As I attempted to post, I see that ARS just explained himself, but here goes anyway:

I think some folks are missing ARS's point that losing the $50k is not really life-altering for him and doesn't particularly set him back. Sure, he'd have $50k less, which he'd have to work the entire year (as planned) to recover it. But he will FIRE within that 12-month span even if he loses. Winning would mean he could leave on the early side of that 12 month span (thereby missing the entire school year). But not gambling at all means he has to do at least part of the school year, which effectively means the entire year since he doesn't want to leave his students mid-year.

I FIRE'd a few months ago, so doing something like this isn't on my radar. But when I was in my final months of work, I could imagine taking a gamble like this. If I lost, working a few more months to cover the loss would really have been no big deal at all (I didn't hate my job). But winning an extra $50k (a year's expenses for my family) would have been awesome. Now I'm almost wishing I would have considered trying it!

And now that I think about it, the fact that MMM people spend less than they earn during the accumulation years, means doing something like this actually has some additional value, in my mind. That is, winning can provide a lot more time in retirement than it takes to earn back if you lose. For example, if you save 66% of your take home pay, and you gamble one year's worth of expenses on a single roulette spin, you only have to work 4 months extra for a loss, but gain 12 months of retirement time if you win!!

CommonCents

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Re: Almost logical to gamble $50,000 on red...
« Reply #42 on: March 06, 2014, 01:28:35 PM »
That is, winning can provide a lot more time in retirement than it takes to earn back if you lose. For example, if you save 66% of your take home pay, and you gamble one year's worth of expenses on a single roulette spin, you only have to work 4 months extra for a loss, but gain 12 months of retirement time if you win!!

Said this way, it almost starts to make sense to me!

lentilman

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Re: Almost logical to gamble $50,000 on red...
« Reply #43 on: March 06, 2014, 01:28:54 PM »
I would do it, but make sure it was +EV.  Perhaps similar to the Brit, Ashley Revell, who did something similar almost a decade ago.

The basic idea would be to drum up public interest in the quest for "gambling for an early retirement".  Have an e-book ready to sell (win or lose, just write a different ending each way).  Invite the press, run polls on how the bet should be done.  Get the casino involved - they would get plenty of social advertising in the buildup.  You could slip in plenty of good MMM advice as the story builds so you could consider it an educational tour also.   

Either way you sell your story, educate the public, drive traffic to a site (if you want), and get excitement.

Story of Ashley (he ended up winning, but also parlaying into an online poker website): http://www.cbsnews.com/news/he-bets-life-savings-wins-270k/

James

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Re: Almost logical to gamble $50,000 on red...
« Reply #44 on: March 06, 2014, 01:34:44 PM »
Hey rebel, I'm loving the idea, glad I popped back on to see what you were up to... :D


I wouldn't gamble it, I would just go past my FIRE date and spend the money either on charity or save it for a "rainy day". Just having and extra $50,000+ in your "pocket" that you can use at the drop of a hat with no financial consequences to you would likely come in handy eventually. Whether that is funding clean water in africa or paying a solid student to get through college.

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Re: Almost logical to gamble $50,000 on red...
« Reply #45 on: March 06, 2014, 01:35:58 PM »
The reality is that if you work one year longer, you'll save a butt load more money and have 1 less year of FIRE to fund.  And you'll know how your investments or other cashflow sources are doing.  For example, say you retired one year early (even with the extra $50k), and the market took a big dump.  You suddenly go from FI to not quite FI (or at least at a greater risk of not being FI). 

Had you worked one year longer, you would have known this information of the poor stock market performance and could have extended your career even longer to adequately address the portfolio shortfall.

Sure, but I could always go back to work, like you say, or cut back or whatever.  I think people need to be flexible in FIRE.  I'm also not worried about the market taking a dump, as the vast majority of my investments will be in rental income with LOTS of buffer.

But if I were to overpay for something by $5 (say I forgot to give the cashier a coupon and the sale is non-refundable) versus saving an unexpected $5 (finding the item I was going to buy at full price is on clearance and selling $5 cheaper).  I think the anguish from the "lost" $5 would cause me more psychological suffering than saving a random $5. 

Ah, I see.  That makes sense.  I personally try not to care about money, and generally succeed.  It's just a number to me.

Would the buffer just be a little smaller (but still an adequate buffer) if you retire the year early and keep the $50k?  For me $50k is 1.5 years living expenses, so quite a buffer. 

If you bifurcate the decision into (a) can I retire a year earlier with a smaller buffer? and (b) what's the optimal use of $50k?, I think you can answer yes to (a) with just a little more risk than if you worked till exactly mid-year.  You would never answer "double or nothing" to (b), considered in isolation, would you?  Most people want the highest risk adjusted return, and if you do the double or nothing, you have taken on the risk of a 100% loss in 50% of the outcomes (ignoring frictional costs you've waved away). 


thepokercab

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Re: Almost logical to gamble $50,000 on red...
« Reply #46 on: March 06, 2014, 01:37:48 PM »
That is, winning can provide a lot more time in retirement than it takes to earn back if you lose. For example, if you save 66% of your take home pay, and you gamble one year's worth of expenses on a single roulette spin, you only have to work 4 months extra for a loss, but gain 12 months of retirement time if you win!!

Said this way, it almost starts to make sense to me!

This convinced me- i'm off to the casino.  Plus, if I lose, i guess i'll just sue MMM for emotional distress- since I did get the idea on this forum, which is basically the same thing as him saying it himself.  :) 

dragoncar

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Re: Almost logical to gamble $50,000 on red...
« Reply #47 on: March 06, 2014, 01:47:11 PM »
That is, winning can provide a lot more time in retirement than it takes to earn back if you lose. For example, if you save 66% of your take home pay, and you gamble one year's worth of expenses on a single roulette spin, you only have to work 4 months extra for a loss, but gain 12 months of retirement time if you win!!

Said this way, it almost starts to make sense to me!

This convinced me- i'm off to the casino.  Plus, if I lose, i guess i'll just sue MMM for emotional distress- since I did get the idea on this forum, which is basically the same thing as him saying it himself.  :)

Of course ARS has a pretty unique situation that doesn't apply to most of us. 

If you do it, I'd be down for a visit to LV to watch it go down. 

thepokercab

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Re: Almost logical to gamble $50,000 on red...
« Reply #48 on: March 06, 2014, 01:52:00 PM »
That is, winning can provide a lot more time in retirement than it takes to earn back if you lose. For example, if you save 66% of your take home pay, and you gamble one year's worth of expenses on a single roulette spin, you only have to work 4 months extra for a loss, but gain 12 months of retirement time if you win!!

Said this way, it almost starts to make sense to me!

This convinced me- i'm off to the casino.  Plus, if I lose, i guess i'll just sue MMM for emotional distress- since I did get the idea on this forum, which is basically the same thing as him saying it himself.  :)

Of course ARS has a pretty unique situation that doesn't apply to most of us. 

If you do it, I'd be down for a visit to LV to watch it go down.

Sorry- meant to say that once i'm a year or so away from fire, i'm off to the casino.  So, 2027-ish.     

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #49 on: March 06, 2014, 01:56:35 PM »
Sounds like I need to do it just to get you all to come visit.  :P

Sorry- meant to say that once i'm a year or so away from fire, i'm off to the casino.  So, 2027-ish.     

If you don't have the one year contract situation, it doesn't apply so much.

Anyone actually interested in doing this without the contract situation, just in general, would be served by reading the earlier thread on the idea:
https://forum.mrmoneymustache.com/investor-alley/'stache-building-via-long-shots/
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.