Poll

Would you gamble?

I would gamble the $50,000
69 (26.4%)
I wouldn't gamble the $50,000
192 (73.6%)

Total Members Voted: 240

Author Topic: Almost logical to gamble $50,000 on red...  (Read 66945 times)

brooklynguy

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Re: Almost logical to gamble $50,000 on red...
« Reply #50 on: March 06, 2014, 02:03:54 PM »
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!!

This is not true.  In your example, it only would have taken 4 months to earn the year's living expenses to begin with that you gambled with.  So if you are one year's worth of living expenses away from FIRE, then you are only four months away from FIRE (not one year).

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #51 on: March 06, 2014, 02:05:20 PM »
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!!

This is not true.  In your example, it only would have taken 4 months to earn the year's living expenses to begin with that you gambled with.  So if you are one year's worth of living expenses away from FIRE, then you are only four months away from FIRE (not one year).

Correct.  Nothing about the math of having a high savings rate will put gambling in your favor.

It is a losing proposition.
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warfreak2

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Re: Almost logical to gamble $50,000 on red...
« Reply #52 on: March 06, 2014, 02:27:18 PM »
Gambling only makes sense if you have a concave utility function. The OP is an example of such a concavity: it is approximately flat except for a large (one year's worth of freedom-sized) step. In that case the gamble makes sense. Concave utility functions are rather unusual, but perhaps a little more common than many economists and mathematicians might suspect.

dragoncar

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Re: Almost logical to gamble $50,000 on red...
« Reply #53 on: March 06, 2014, 02:30:59 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/

Good reminder.  I am sometimes interested in this - putting 2 month's saving on luck no 13 could potentially retire me today (hypothetical, since I'm still figuring out my target).    For some reason I'm much more willing to bet with my "time" than with money.  Probably because I know two months goes by in a flash, but 6 years not so much.

I once looked into a higher EV play using options.  That way at least losses could be written off against future earnings (I think) vs the lopsided tax treatment at the casino.  I never got a good answer though: something with 35x leverage but limited downside.  It would require a combination of options I think.

Edit: actually it looks like you just need to buy calls.
« Last Edit: March 06, 2014, 02:39:42 PM by dragoncar »

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Re: Almost logical to gamble $50,000 on red...
« Reply #54 on: March 06, 2014, 02:48:45 PM »
Quote
Quote from: arebelspy on Today at 10:29:48 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...

If you don't win, then the time between dec and june could end up being the most stressful months. Not to sound doom and gloom, but worst case is that anything could happen. And i get it, anything could happen tomorrow, but "short timers" could haunt you, preg/baby issues, etc.  what happens if your wife can't work while she's preg or can't go back to work after baby is born..too many unknowns

dragoncar

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Re: Almost logical to gamble $50,000 on red...
« Reply #55 on: March 06, 2014, 02:59:23 PM »
Quote
Quote from: arebelspy on Today at 10:29:48 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...

If you don't win, then the time between dec and june could end up being the most stressful months. Not to sound doom and gloom, but worst case is that anything could happen. And i get it, anything could happen tomorrow, but "short timers" could haunt you, preg/baby issues, etc.  what happens if your wife can't work while she's preg or can't go back to work after baby is born..too many unknowns

I think the only downside is that you could end up 50k less.  If you don't care (or care very little) about any amount over your FI number, then it's not much of a downside. 

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #56 on: March 06, 2014, 03:13:25 PM »
Gambling only makes sense if you have a concave utility function. The OP is an example of such a concavity: it is approximately flat except for a large (one year's worth of freedom-sized) step. In that case the gamble makes sense. Concave utility functions are rather unusual, but perhaps a little more common than many economists and mathematicians might suspect.

Great point.

That makes me think of another situation where this would be relevant.

Pensions.

Let's say you're 40, and partway to ER.  If you work until 50, you hit your pension which alone is more than you need.  (Insert hand waive to remove complications that distract people: Your pension is completely safe, won't be reduced due to fiscal measures, you have long term care insurance, etc.)

You calculate that you'll achieve FI right after the time you're eligible to get your pension anyways, so basically your whole stache is surplus.  You could instead gamble at some point to hit FI fast and not have to work until 50.  If you win, FIRE before pension.  If you lose, keep working until you qualify for the pension (aka the amount of time you'd have had to work anyways).

Basically you're only trading off in this scenario (and in mine), surplus money for time, because in either situation you'll hit enough, whether you win the bet or lose and work the extra time that you would have anyways.

Trading surplus money for (potential) time seems like a good trade off to me.

As you point out, it only works for those with a "jump" (step function), but a pension is another example of that.
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windawake

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Re: Almost logical to gamble $50,000 on red...
« Reply #57 on: March 06, 2014, 03:18:02 PM »
arebelspy - on a scale of one to really going to happen, where does this idea fall?

beltim

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Re: Almost logical to gamble $50,000 on red...
« Reply #58 on: March 06, 2014, 03:18:43 PM »
I think it's interesting that while most people have answered no on the poll, I haven't seen any mathematical or logical answers to why arebelspy shouldn't do it.  There are emotional or psychological arguments based on stress, and while those are real factors, they don't appear to be for arebelspy.  I say do it

warfreak2

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Re: Almost logical to gamble $50,000 on red...
« Reply #59 on: March 06, 2014, 03:19:33 PM »
I'm not seeing a concavity there; if you have a safe pension which you can claim from 50 onwards, which will cover all your expenses for the rest of your life after 50, you should stop working as soon as your stash covers your expenses for the remaining years until you're 50. As long as you have any money at all in that scenario, you can certainly retire before 50; how much earlier is a smooth (nearly linear) function of your initial stash, no jump.
« Last Edit: March 06, 2014, 03:21:51 PM by warfreak2 »

beltim

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Re: Almost logical to gamble $50,000 on red...
« Reply #60 on: March 06, 2014, 03:21:13 PM »
I'm not seeing a concavity there; if you have a safe pension which you can claim from 50 onwards, which will cover all your expenses for the rest of your life after 50, you should stop working as soon as your stash covers your expenses for the remaining years until you're 50.

I think in that example you have to work until 50 to get anything from the pension.  A lot of (most?) pension schemes have a step function like this. 

warfreak2

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Re: Almost logical to gamble $50,000 on red...
« Reply #61 on: March 06, 2014, 03:23:35 PM »
Oh! It's a step function built into the terms of the pension. I find it ridiculous that such pensions exist, but that doesn't make it hard to believe that they do. Mine pays out proportional to length of service.

Rural

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Re: Almost logical to gamble $50,000 on red...
« Reply #62 on: March 06, 2014, 03:26:35 PM »
I'm not seeing a concavity there; if you have a safe pension which you can claim from 50 onwards, which will cover all your expenses for the rest of your life after 50, you should stop working as soon as your stash covers your expenses for the remaining years until you're 50.

I think in that example you have to work until 50 to get anything from the pension.  A lot of (most?) pension schemes have a step function like this.

Mine is not like that; payout is 55, but it's based on years worked without regard to whether you work up until that age.

beltim

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Re: Almost logical to gamble $50,000 on red...
« Reply #63 on: March 06, 2014, 03:27:15 PM »
Oh! It's a step function built into the terms of the pension. I find it ridiculous that such pensions exist, but that doesn't make it hard to believe that they do. Mine pays out proportional to length of service.

Sure, they pay out based on years of service, but my guess is there's still a minimum service before you become eligible.  There is on every pension I've ever seen.

Rural

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Re: Almost logical to gamble $50,000 on red...
« Reply #64 on: March 06, 2014, 03:36:27 PM »
Oh! It's a step function built into the terms of the pension. I find it ridiculous that such pensions exist, but that doesn't make it hard to believe that they do. Mine pays out proportional to length of service.

Sure, they pay out based on years of service, but my guess is there's still a minimum service before you become eligible.  There is on every pension I've ever seen.

True, that. But the minimum service is not always age-dependent. I'm vested at 10 years service regardless of age, and for that matter, so is my husband. Now, with only 10 years of service, the pension will be tiny! It's a function of the three highest paying years, with a percent of that average paid per year served.

dragoncar

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Re: Almost logical to gamble $50,000 on red...
« Reply #65 on: March 06, 2014, 03:38:43 PM »
arebelspy - on a scale of one to really going to happen, where does this idea fall?

particularly, will you lend any weight to the actual poll?

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #66 on: March 06, 2014, 03:43:01 PM »
Oh! It's a step function built into the terms of the pension. I find it ridiculous that such pensions exist, but that doesn't make it hard to believe that they do. Mine pays out proportional to length of service.

Correct.   Many have a "Must work 20 (or 30) years or at age X" clause before you are eligible to collect.

If you fail the gamble, you work to the age you can collect.  If you win, you can FIRE right away and not worry about the age limit.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #67 on: March 06, 2014, 03:45:07 PM »
arebelspy - on a scale of one to really going to happen, where does this idea fall?

I'd say it's unlikely I get in this scenario at all.

But if I do get in the scenario, I couldn't put exact odds on this happening versus not. It's in the realm of possibilities, and maybe not that long of a shot, though probably not probable (even if in that scenario).


particularly, will you lend any weight to the actual poll?

None whatsoever.  I'm certainly not going to let strangers make this decision for me.  :)

I do like your input though.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

tomsang

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Re: Almost logical to gamble $50,000 on red...
« Reply #68 on: March 06, 2014, 03:50:49 PM »
I think you should just get in an all out flame war with the guys at Everest. Spend the $50k on the legal battle:). Actually no gambling, just donate excess.

JohnGalt

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Re: Almost logical to gamble $50,000 on red...
« Reply #69 on: March 06, 2014, 03:53:21 PM »
I answered yes because I would consider it given that no scenario existing in which you could see yourself earning that $50,000 doing other part time work or having any interest in some other money earning venture down the line.  If there is, I would just quit $50,000 short and assume I would make it up along the way. 

loki

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Re: Almost logical to gamble $50,000 on red...
« Reply #70 on: March 06, 2014, 03:55:19 PM »
Not logical in the least. However, I'm looking at it from the perspective of that $50k being able to help people who need it.
« Last Edit: March 06, 2014, 03:58:21 PM by loki »

warfreak2

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Re: Almost logical to gamble $50,000 on red...
« Reply #71 on: March 06, 2014, 03:56:07 PM »
Oh! It's a step function built into the terms of the pension. I find it ridiculous that such pensions exist, but that doesn't make it hard to believe that they do. Mine pays out proportional to length of service.

Sure, they pay out based on years of service, but my guess is there's still a minimum service before you become eligible.  There is on every pension I've ever seen.
That sounds normal enough, I suppose. I did check on my pension (UK Teacher's Pension) a month after I started working, though, and saw I was already eligible for something silly like £30 a year (don't remember the exact figure).

zachd

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Re: Almost logical to gamble $50,000 on red...
« Reply #72 on: March 06, 2014, 04:02:34 PM »

I guess you have not seen the movie 'wake in fright'. Trying to gamble to get out of teaching early could have some bad consequences.

soccerluvof4

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Re: Almost logical to gamble $50,000 on red...
« Reply #73 on: March 06, 2014, 04:07:35 PM »
Revisiting because its an intriguing discussion. I said earlier no way and I hold my stance on that.  But what stands out to me in the OP thread heading ALMOST.....logical to gamble. Really, I see this more now as justifying does it ever become logical to gamble? and in this case is it Almost the reason. Logical Gambling doesn't happen IMHO ever at a Casino period. I just cannot connect the dots on that! However throw in the word Almost ,,sure , i can connect the dots on that thinking.  OK, I must be having a mind melt because this has made me  way over think! Feel like i am solving a riddle!
« Last Edit: March 06, 2014, 04:09:06 PM by soccerluvof4 »

aclarridge

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Re: Almost logical to gamble $50,000 on red...
« Reply #74 on: March 06, 2014, 04:07:56 PM »
Since we're talking about some dollar amount of "surplus" that may get donated to charity, what would the charity have you do?

If you gamble and win, no surplus goes to charity since you quit a year early.
If you gamble and lose, no surplus goes to charity since the surplus goes to the casino.
If you don't gamble, surplus definitely goes to charity.

So if you don't gamble, you could look at it as working the half year for charity. If you do gamble, it's 50/50 that you or the casino win (and the govt wins a bit in both cases I guess). It's a difficult decision - very selfless to knowingly work extra for charity when you might be FI and would rather be doing something else.

dragoncar

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Re: Almost logical to gamble $50,000 on red...
« Reply #75 on: March 06, 2014, 04:11:25 PM »
Revisiting because its an intriguing discussion. I said earlier no way and I hold my stance on that.  But what stands out to me in the OP thread heading ALMOST.....logical to gamble. Really, I see this more now as justifying does it ever become logical to gamble? and in this case is it Almost the reason. Logical Gambling doesn't happen IMHO ever at a Casino period. I just cannot connect the dots on that! However throw in the word Almost ,,sure , i can connect the dots on that thinking.  OK, I must be having a mind melt because this has made me  way over think! Feel like i am solving a riddle!

http://freakonomics.com/2011/08/05/a-lottery-loophole-sorry-now-closed-in-massachusetts/

warfreak2

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Re: Almost logical to gamble $50,000 on red...
« Reply #76 on: March 06, 2014, 04:15:53 PM »
Revisiting because its an intriguing discussion. I said earlier no way and I hold my stance on that.  But what stands out to me in the OP thread heading ALMOST.....logical to gamble. Really, I see this more now as justifying does it ever become logical to gamble? and in this case is it Almost the reason. Logical Gambling doesn't happen IMHO ever at a Casino period. I just cannot connect the dots on that! However throw in the word Almost ,,sure , i can connect the dots on that thinking.  OK, I must be having a mind melt because this has made me  way over think! Feel like i am solving a riddle!
Suppose you owe $1,000,000 to the mafia tomorrow, but you only have $500,000. If you bet it all on a coin flip, you have a 50% chance of living. That's an example of a concave utility function; anything less than $1,000,000 is worth -∞ to you. You want to choose the option with the highest probability of having $1,000,000 tomorrow; 50% is a lot better than 0%.

soccerluvof4

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Re: Almost logical to gamble $50,000 on red...
« Reply #77 on: March 06, 2014, 04:16:27 PM »
Revisiting because its an intriguing discussion. I said earlier no way and I hold my stance on that.  But what stands out to me in the OP thread heading ALMOST.....logical to gamble. Really, I see this more now as justifying does it ever become logical to gamble? and in this case is it Almost the reason. Logical Gambling doesn't happen IMHO ever at a Casino period. I just cannot connect the dots on that! However throw in the word Almost ,,sure , i can connect the dots on that thinking.  OK, I must be having a mind melt because this has made me  way over think! Feel like i am solving a riddle!

http://freakonomics.com/2011/08/05/a-lottery-loophole-sorry-now-closed-in-massachusetts/

Nice! :-) haha. 72% i dont know if its logical but I would take those odds! But it came down to they detected a Quirk in the system. Great read though. Thanks for sharing.

soccerluvof4

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Re: Almost logical to gamble $50,000 on red...
« Reply #78 on: March 06, 2014, 04:20:30 PM »
Revisiting because its an intriguing discussion. I said earlier no way and I hold my stance on that.  But what stands out to me in the OP thread heading ALMOST.....logical to gamble. Really, I see this more now as justifying does it ever become logical to gamble? and in this case is it Almost the reason. Logical Gambling doesn't happen IMHO ever at a Casino period. I just cannot connect the dots on that! However throw in the word Almost ,,sure , i can connect the dots on that thinking.  OK, I must be having a mind melt because this has made me  way over think! Feel like i am solving a riddle!
Suppose you owe $1,000,000 to the mafia tomorrow, but you only have $500,000. If you bet it all on a coin flip, you have a 50% chance of living. That's an example of a concave utility function; anything less than $1,000,000 is worth -∞ to you. You want to choose the option with the highest probability of having $1,000,000 tomorrow; 50% is a lot better than 0%.

If your implying that I have a gun to my head and have to make a choice now and then and am not allowed to negotiate terms. I understand your concave utility function and in a life and death situation it makes sense. I cant argue that. I cant even support my thesis on the OP question which is why my head aches!! haha

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #79 on: March 06, 2014, 04:22:52 PM »
I answered yes because I would consider it given that no scenario existing in which you could see yourself earning that $50,000 doing other part time work or having any interest in some other money earning venture down the line.  If there is, I would just quit $50,000 short and assume I would make it up along the way.

Yeah, that's interesting.

I mean, it makes more sense to me to stick around rather than have to earn that money later.  But it feels like it makes more sense to earn that later than gamble.

(Sort of an A beats B, B beats C, but C beats A scenario - ala RPS.)

Hah, I'll have to noodle over that.
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arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #80 on: March 06, 2014, 04:23:18 PM »
Revisiting because its an intriguing discussion. I said earlier no way and I hold my stance on that.  But what stands out to me in the OP thread heading ALMOST.....logical to gamble. Really, I see this more now as justifying does it ever become logical to gamble? and in this case is it Almost the reason. Logical Gambling doesn't happen IMHO ever at a Casino period. I just cannot connect the dots on that! However throw in the word Almost ,,sure , i can connect the dots on that thinking.  OK, I must be having a mind melt because this has made me  way over think! Feel like i am solving a riddle!
Suppose you owe $1,000,000 to the mafia tomorrow, but you only have $500,000. If you bet it all on a coin flip, you have a 50% chance of living. That's an example of a concave utility function; anything less than $1,000,000 is worth -∞ to you. You want to choose the option with the highest probability of having $1,000,000 tomorrow; 50% is a lot better than 0%.

Excellent example.  Thanks WF2!
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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warfreak2

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Re: Almost logical to gamble $50,000 on red...
« Reply #81 on: March 06, 2014, 04:32:55 PM »
There are, of course, the situations where casinos don't do their sums properly, as dragoncar points out. Here's a couple of my favourite:

The Man Who Broke Atlantic City (The Atlantic)
Cracking the Scratch Lottery Code (Wired)

Argyle

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Re: Almost logical to gamble $50,000 on red...
« Reply #82 on: March 06, 2014, 05:19:52 PM »
If the situation is really as stated, there's not much harm in gambling, aside from the chagrin of losing, which might not be as great for the OP as it would be for me.  One reason the chagrin would get me would be this. If I gambled and lost, and worked an extra year, after that extra year of working I'd be down $50,000 compared with not gambling and continuing to work.  I would have paid $50,000 to have that gambling experience and loss.  We all know what $50,000 could get us years down the line.  After 10 years at a modest 5% interest rate, it's $81,444.73.  After 20 years at the same 5% interest rate, $132,664.89. (The interest calculator tells me that after inflation adjustment that's $73,453.33 — but Your Money or Your Life argues that inflation doesn't necessarily apply to people like us.) 

Boy, I'd rather have that $132,664.89 in 20 years, instead of having dropped $50,000 on a scheme to retire a tiny bit earlier.

But the thing that really concerns me is the risk of some catastrophe in the next year of working.  The risks are small but not negligible.  You don't have to be fired to be unable to work.  A bike accident, any kind of fall, a crazy driver who hits your car, a bout of bad illness, pregnancy complications...  Eventually a good many of these will happen to all of us.  Or other complications: a house fire, emergencies in our extended family.  None of these may happen in the next year, but there are no guarantees.  My question is: would I rather weather any of those, with their associated expenses and loss of income, with an extra $50,000 in the bank, or without?  My answer is: with.  I know most people think, "Well, those things won't happen to me."  Quite possibly not, yet.  But we buy insurance anyway, and wisely so.  That $50,000 is a form of insurance, and I'd feel safer, and be safer, with that $50,000 in the bank.

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #83 on: March 06, 2014, 05:26:09 PM »
Boy, I'd rather have that $132,664.89 in 20 years, instead of having dropped $50,000 on a scheme to retire a tiny bit earlier.

I feel you.  I'd rather have a year of my life than $132,664.89 in 20 years, but it is a very personal decision.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Rural

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Re: Almost logical to gamble $50,000 on red...
« Reply #84 on: March 06, 2014, 05:35:30 PM »
Boy, I'd rather have that $132,664.89 in 20 years, instead of having dropped $50,000 on a scheme to retire a tiny bit earlier.

I feel you.  I'd rather have a year of my life than $132,664.89 in 20 years, but it is a very personal decision.

I'd make the same choice, but the point is that in this scenario, you don't get to make that choice. In this scenario you either get both, or you get neither.

The Money Monk

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Re: Almost logical to gamble $50,000 on red...
« Reply #85 on: March 06, 2014, 06:39:05 PM »
I woudl totally do it, haha that's awesome.

If you film it and put it on youtube it would probably go viral and you would probably make enough from ad revenue on the video to offset if you lost lol.

There's something I'm not clear on though:

In OP you say that you are bringing in 80K in savings from the job, and 50K in savings from investments, is that right?

What are your living expenses each year? I can't imagine they are 50k. But if they are lower you are already technically FI, right? Since you are making more than that in investments? Are you just trying to get to a 'safer' total portfolio value to officially retire?

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #86 on: March 06, 2014, 07:06:31 PM »
My FIRE expenses will be around 45k.  I expect to make significantly more than that income-wise (I'm shooting for a 50% savings rate in FIRE in a normal year, with that dropping to no savings at worst in the rare bad years).

My current expenses are about 20k.  I am FI based on current expenses, I am not yet FI based on FIRE expenses.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

DoubleDown

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Re: Almost logical to gamble $50,000 on red...
« Reply #87 on: March 06, 2014, 07:59:18 PM »
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!!

This is not true.  In your example, it only would have taken 4 months to earn the year's living expenses to begin with that you gambled with.  So if you are one year's worth of living expenses away from FIRE, then you are only four months away from FIRE (not one year).

Correct.  Nothing about the math of having a high savings rate will put gambling in your favor.

It is a losing proposition.

We're all saying the same thing. What you've said is correct, and everything I said is true/correct. There is no free lunch, I think you're perhaps misconstruing my words. I said that with a high savings rate, winning gives you more time in retirement than it takes to earn back if you lose. It's the same with your earnings: If you save 66% (or anything greater than 50%), you are buying more retirement time than it takes you to earn it.

It's just another way of saying that I wouldn't be willing to risk losing more than I could "afford", and I might be willing to risk a few more months of work if I lost in exchange for the prospect of one year's worth of living expenses if I won. Putting it the opposite way, if I was a typical Joe that saved 5-10% of my earnings, then gambling and losing one year's worth of living expenses would be catastrophic, because it could take me 10-20 years to recover from such a loss (not counting investment gains). I'd say having a high savings rate is just another way of saying you have more "disposable" money to leverage in all kinds of ways, including gambling. Does that make sense?

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Re: Almost logical to gamble $50,000 on red...
« Reply #88 on: March 06, 2014, 11:09:17 PM »
I think it appears almost logical because (as others have mentioned) it ignores the FIRE early option and discounts the future earnings from your stache.  Basically, there are 4 outcomes, for which I've made up some simplified numbers below:

Assume: Stache is $950k. FIRE goal is 1M. 1 year work = +100k (and cannot be less than 1 year). Gamble odds 50/50, double or nothing

Don't gamble
950k + 100k (+ 1 year work)
Stache = 1,050,000
FIRE income (4%) = 42k/year for life

Gamble
WIN 
Stache = 1M
FIRE now. Income = 40k for life

LOSE
900k + 100k (+1 year work)
Stache = 1M
FIRE income (4%) = 40k for life

So it may look like the choice between the gamble win/lose is nearly equivalent, other than the year of work. But if you lose you're now working for an entire year for half of the income (i.e. work for one year and only increase stache by 50k compared to now) and even after all this work you're still missing out on 2k a year for the rest of your life, since your ending stache is smaller. Assuming you will be retired for 40-60 years, this is a significant loss.

Winning allows you to skip the year of work, but you also miss out on the "extra" 50k in your stache (additional work earning) and therefore also miss the extra 2k/year for life. Not really a huge win.

If neither of these losses really matters and 2k is deemed insignificant, then FIRE now @ 38k/year. If 2k more per year does matter, you should probably still be working, not gambling ; )

Don't Gamble, FIRE now anyway
Stache = 950K
FIRE income = 38k

As for the Mafia example, it's a great illustration of Prospect Theory because it shows that when considering loss, people are more willing to take risks than when considering gains. Since loss is high (limbs? life?) people will take on larger risks in an attempt to avoid the loss. This also explains why gamblers (or fraudulent investors) often dig themselves into massive holes by taking on riskier and riskier bets in attempts to cover up their previous (smaller) losses. It might also mean that losing your first bet on red could have you more seriously contemplating a second bet to get back to where you started, after all it is 50/50 right?....
« Last Edit: March 06, 2014, 11:12:53 PM by mikecorayer »

Baylor3217

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Re: Almost logical to gamble $50,000 on red...
« Reply #89 on: March 07, 2014, 12:11:42 AM »
I'd put it in a higher risk stock that I felt had a likelihood of a 100% return.

For that right now if recommend STSI or AMZG or HK. Each with a decent chance to double in the next 24 months and if they don't, each is very unlikely to go BK.

Mark this post for 24 months from now and check the results!!! :)

escolegrove

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Re: Almost logical to gamble $50,000 on red...
« Reply #90 on: March 07, 2014, 12:51:22 AM »
Honestly, I might do it. Sounds like a fun!

DaKini

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Re: Almost logical to gamble $50,000 on red...
« Reply #91 on: March 07, 2014, 02:20:36 AM »
I woudl totally do it, haha that's awesome.

If you film it and put it on youtube it would probably go viral and you would probably make enough from ad revenue on the video to offset if you lost lol.

You could truly conduct this gamble as an experiment.
Before entering the casino, explain in detail the situation and odds you face.
Explain also what you expect to happen to your feelings in case you win and also in case you loose.
Then conduct the experiment.
After that summarize the experiment and lay out how you currently feel in detail.


That said, i would fear the outcome of the loss more than i honor the possible win. Especially concerning (for me) is what would happen with my "what if" machine in my head; If i would loose, i am sure i would often regret the gamble and think that it was a stupid idea regardless of the "small" impact in the given scenario.

As mentioned otherwise above, i would try to work on the "contract problem" and search solutions outside the box, like a simple part time work. I imagine me with 40 working at MC-Donalds or aldi just for the experience of such an work environment.

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #92 on: March 07, 2014, 06:31:25 AM »
I'd put it in a higher risk stock that I felt had a likelihood of a 100% return.

For that right now if recommend STSI or AMZG or HK. Each with a decent chance to double in the next 24 months and if they don't, each is very unlikely to go BK.

Mark this post for 24 months from now and check the results!!! :)

Roulette was just for illustrative purposes.  It could be a gamble on something else (my wife suggested a sports bet), or on the stock market, sure.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #93 on: March 07, 2014, 06:32:33 AM »
As mentioned otherwise above, i would try to work on the "contract problem" and search solutions outside the box, like a simple
part time work. I imagine me with 40 working at MC-Donalds or aldi just for the experience of such an work environment.

A scenario like that doesn't work, since I'd make so much less doing it, I'd have to end up working the whole year anyways to just get to the smaller stache.. defeats the point.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Roland of Gilead

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Re: Almost logical to gamble $50,000 on red...
« Reply #94 on: March 07, 2014, 06:44:43 AM »
I would not gamble $50,000 on roulette.

I would consider betting $50,000 on certain option spreads.  When Apple was $390 last year I bet $30,000 that it would go back to at least $450 by Jan 2014 by purchasing $400 calls and selling $450 calls for a net of $22 per call.  I won the bet but now owe taxes next year.

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Re: Almost logical to gamble $50,000 on red...
« Reply #95 on: March 07, 2014, 06:55:10 AM »
I would not gamble $50,000 on roulette.

I would consider betting $50,000 on certain option spreads.  When Apple was $390 last year I bet $30,000 that it would go back to at least $450 by Jan 2014 by purchasing $400 calls and selling $450 calls for a net of $22 per call.  I won the bet but now owe taxes next year.

This is still more tax efficient than gambling since you can deduct losses against future capital gains (and presumably there will be no future gambling).  If you can hold LEAPS for a year, I think they would be long-term capital gains.

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #96 on: March 07, 2014, 07:01:22 AM »
I would not gamble $50,000 on roulette.

I would consider betting $50,000 on certain option spreads.  When Apple was $390 last year I bet $30,000 that it would go back to at least $450 by Jan 2014 by purchasing $400 calls and selling $450 calls for a net of $22 per call.  I won the bet but now owe taxes next year.

Roulette was just for illustrative purposes.  It could be a gamble on something else (my wife suggested a sports bet), or on the stock market, sure.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

foobar

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Re: Almost logical to gamble $50,000 on red...
« Reply #97 on: March 07, 2014, 07:22:43 AM »
No need to drop the income
900k @40k = 83%
950k at 40k = 92.9%
1000k @40k = 94.7

That 2% difference is meaningless. It is off in the realm of errors in the various assumptions. Now the 10% gap between having 900k and 950k is pretty big. Now firecalc is using market returns (OP said he had a lot of rentals) so the math doesn't directly apply but the point of not getting hung up on made up numbers applies.

If the OP wants to retire, he should. If he wants to work, he should. And if he wants to gamble, he should enter the WSOP. It would be a lot better story.




I think it appears almost logical because (as others have mentioned) it ignores the FIRE early option and discounts the future earnings from your stache.  Basically, there are 4 outcomes, for which I've made up some simplified numbers below:

Assume: Stache is $950k. FIRE goal is 1M. 1 year work = +100k (and cannot be less than 1 year). Gamble odds 50/50, double or nothing

Don't gamble
950k + 100k (+ 1 year work)
Stache = 1,050,000
FIRE income (4%) = 42k/year for life

Gamble
WIN 
Stache = 1M
FIRE now. Income = 40k for life

LOSE
900k + 100k (+1 year work)
Stache = 1M
FIRE income (4%) = 40k for life

So it may look like the choice between the gamble win/lose is nearly equivalent, other than the year of work. But if you lose you're now working for an entire year for half of the income (i.e. work for one year and only increase stache by 50k compared to now) and even after all this work you're still missing out on 2k a year for the rest of your life, since your ending stache is smaller. Assuming you will be retired for 40-60 years, this is a significant loss.

Winning allows you to skip the year of work, but you also miss out on the "extra" 50k in your stache (additional work earning) and therefore also miss the extra 2k/year for life. Not really a huge win.

If neither of these losses really matters and 2k is deemed insignificant, then FIRE now @ 38k/year. If 2k more per year does matter, you should probably still be working, not gambling ; )

Don't Gamble, FIRE now anyway
Stache = 950K
FIRE income = 38k

As for the Mafia example, it's a great illustration of Prospect Theory because it shows that when considering loss, people are more willing to take risks than when considering gains. Since loss is high (limbs? life?) people will take on larger risks in an attempt to avoid the loss. This also explains why gamblers (or fraudulent investors) often dig themselves into massive holes by taking on riskier and riskier bets in attempts to cover up their previous (smaller) losses. It might also mean that losing your first bet on red could have you more seriously contemplating a second bet to get back to where you started, after all it is 50/50 right?....

simonsez

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Re: Almost logical to gamble $50,000 on red...
« Reply #98 on: March 07, 2014, 07:42:20 AM »
Interesting your remark about retiring from teaching mid-year is not being considered due to lack of replacement options.  Is the teaching market in Las Vegas unique (i.e. no good full-time teaching hires are made in December/January) or this common everywhere?  The prospective teachers that do not get hired in August/September in year X would be better teachers, on average, in the Fall of year X+1 with a 1/2 year of full-time teaching experience under their belt compared to subbing/tutoring/being an aide/not being in education altogether, no?

Also, I wouldn't think of teaching skill/ability as static, especially for teachers with little or no experience.  A new teacher will be much better at the end of a semester compared to the beginning, just like most other jobs after a few months at it.

It's a gamble your students that you would hypothetically leave at the end of the fall semester would be in poor hands (temporarily), one (a pessimist?) might even venture a guess near 50/50.... :)

arebelspy

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Re: Almost logical to gamble $50,000 on red...
« Reply #99 on: March 07, 2014, 07:46:33 AM »
Interesting your remark about retiring from teaching mid-year is not being considered due to lack of replacement options.  Is the teaching market in Las Vegas unique (i.e. no good full-time teaching hires are made in December/January) or this common everywhere?  The prospective teachers that do not get hired in August/September in year X would be better teachers, on average, in the Fall of year X+1 with a 1/2 year of full-time teaching experience under their belt compared to subbing/tutoring/being an aide/not being in education altogether, no?

Also, I wouldn't think of teaching skill/ability as static, especially for teachers with little or no experience.  A new teacher will be much better at the end of a semester compared to the beginning, just like most other jobs after a few months at it.

It's a gamble your students that you would hypothetically leave at the end of the fall semester would be in poor hands (temporarily), one (a pessimist?) might even venture a guess near 50/50.... :)

I can't speak for other districts.

They would have a sub, not a real teacher.  That individual would likely change by the week, if not more frequently.  The sub would very likely be filling time, not teaching the standards (based on all the evidence I've seen, which is a lot).

No, the odds on getting someone good in there would be nowhere close to 50/50.
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If you want to know more about me, this Business Insider profile tells the story pretty well.
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