The 4% rule does not work for bitcoins.

To calculate the percentage, you need average yields on stocks, bonds, and bitcoins.

The usual values are ~3.5% for bonds, ~7% for stocks and ~14% for bitcoin.

Obviously, this is a very strong simplification, since, for example, there is still very little data on bitcoin, but we are working with what we have. If these numbers are good for Michael Saylor's calculations, they are good for me.

The 4% rule assumes your investment portfolio contains about 60% stocks and 40% bonds.

(7% * 60%) + (3.5% * 40%) = 4.2% + 1.4% = 5.6%

$1,000,000 - 4% + 5.6% = $1,013,760

On average, you will earn 1.38% every year. The probability of losing all your savings is quite small.

Now let's calculate for a portfolio of 100% bitcoins.

$1,000,000 - 12% + 14% = $1,003,200

If your portfolio grows at an average rate of 14% per year, the average amount you can withdraw indefinitely is ~12%.

In this case, if you want to withdraw $100k a year, here's how much you need:

$100,000 * (100% / 12%) = $833,333

This is well below the 2.5 million required by the 4% rule.

If your portfolio allocation is not 100% bitcoins or you want to withdraw more/less than $100k a year, you can easily plug in your numbers and figure it out yourself. All formulas are there.

It's worth noting that these calculations don't make sense as long as volatility remains as crazy as it is right now. These calculations are for the future, where the volatility is much lower and the price no longer jumps by 90% back and forth.

You can use 11% if you want to be more conservative in your predictions. If you expect volatility to continue to be high, you can lower it down to 10%. Then, as you can calculate yourself, the required amount for $100k a year will be $909,090 and $1,000,000 respectively.

What's left is to predict how much it will be in bitcoins. I'll leave that for comments.

P.S. If you think all these calculations are nonsense and your strategy is "as much as possible", I agree with you. Obviously, all these calculations won't be relevant if the entire financial system switches to Bitcoin and its price turns into infinity.

Submitted August 03, 2023 at 09:34PM by evgeniy_pp https://bit.ly/47jb0zy