Thought experiment: fixed pot, fixed life

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  • Let’s say you know that you will die in 20 years and so you have 20 years to live (for the sake of argument, let’s assume you hired an assassin to kill you in 20 years time)
  • Let’s say until now you spent 5k a month for living costs, or 60k per year
  • Now if you have a pot of money totalling 1400k. assuming you hold it in cash, that gives you your 60k per year needed, together with a buffer of 200k to account for inflation or unexpected costs.

Question: would it be logical to just hold it as cash or cash in the bank? maybe you can earn a tiny bit of interest? would you worry about inflation? would you invest part of it to build a bit of a higher return to deal with potential inflation or would you avoid this as you want to avoid taking risks when you have enough (assuming little inflation and no unexpected events). but is it reasonable to plan for no unexpected events over 20 years?

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Not really. Unexpected events are statistically expected. But that’s what the extra 200K is for, right?

The main problem will be inflation. But over a 20-year period, the 200K buffer should cushion that. If you can earn at least enough interest to cover inflation, that’s all the better.

I guess the main question would be why someone would not keep at least part of their wealth invested. Holding all that wealth in a fiat currency is a big concentration risk.

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Yes. Yes.

And you should rather plan for 50 years.

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For once, and I know that’s not your main question, but at 2% annual inflation you would run out of money before 20 years, not even including the buffer if my guess is right.

Essentially, your math or expected spending could be wrong. You personally might face higher inflation, e.g. for health-care that becomes much more relevant in older age.

Also, you might plan for elderly-care or renovations to make your place barrier-free.

And what’s outside of your parameters, but you might live longer than 20 years. Maybe healthier life-style, maybe advances in medicine etc.
Lot of things can happen in 20 years.

Of course, in the line of Daniel’s comment you could argue that any of those points is considered not “unexpected” and already part of the expected spent and safety buffer.
If so, you could go with cash only, but that would require such a high buffer that you’d be better off investing part of it to get some returns over that time.

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But this then comes to a paradox, when you have the cash, you might have problems with inflation, but then if you invest your money - let’s say half into the stock market - you introduce a different risk: stock market risk.

But then is this stock market risk greater than the inflation risk?

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I recommend The Missing Billionaires by Victor Haghani, which uses the concept of Expected Lifetime Utility to compare investment strategies and spending policies.

I would use a framework like that to calculate my appropriate risky asset ratio, and decide on the spending policy. Doing it right, you can spend more then 60k per year, and you probably want to spend much of it earlier, too.

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It’s not only inflation, it‘s also medical expenses or care.
Just a lot of personal and external factors that I know less about compared to historic market returns.
While the stock market is risky, I guess that adding it to me mix, even just a small portion, lowers your risk of running out of money.
In my view it’s more portfolio theory or risk management.

In real life, you would have AHV rent, health insurance etc. that shield you from inflation and personal somewhat. Now if the assets in your example would quite a big bigger, you might as well go with “I won the game, now I stop playing” if you don’t want that additional risk.

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Thanks for the reference. Haven’t heard about the book, but some of the theories or ideas it seems to cover.
Could be an interesting read.

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I asked Gemini about this. Here’s the answer:

Important Assumptions and Disclaimers

This is a hypothetical exercise based on a series of assumptions. It is crucial to understand that there is no public data on the cost of illegal activities like a contract killing in Switzerland. The figures used are purely for illustrative purposes and are based on the general costs associated with such crimes in other parts of the world, which can vary wildly. This analysis is a theoretical application of a financial method, not a factual assessment of a real-world market.

Assumption 1: Current Cost of a Killer in Switzerland

There is no reliable data on the cost of a contract killer in Switzerland. Based on a wide range of anecdotal and fictional sources, the cost of a contract killing can vary significantly depending on factors like:

  • The target’s profile (e.g., public figure vs. ordinary citizen).

  • The complexity and risk of the job.

  • The reputation and skill of the individual hired.

  • The location.

For the purpose of this exercise, we will assume a base cost of CHF 150,000 in today’s money (2025). This is an arbitrary figure, chosen to be on the higher end of the spectrum often cited in speculative discussions, reflecting the high cost of living and general expense in Switzerland.

Assumption 2: Inflation Rate

The user has specified an inflation rate of 2%. This rate will be used to project the future cost of the murder.

The Calculation

We will use the future value formula, which is a core component of the discounted cash flow (DCF) method, to determine the future cost of the murder. The DCF method is typically used to value an asset or project by discounting future cash flows back to their present value. However, the same mathematical principle can be used in reverse to calculate the future value of a present sum, accounting for inflation.

Formula for Future Value:

FV=PV∗(1+i)n

Where:

  • FV = Future Value (the cost in 20 years)

  • PV = Present Value (the assumed cost today)

  • i = Inflation rate per period (2% or 0.02)

  • n = Number of periods (20 years)

Plugging in the numbers:

  • PV = CHF 150,000

  • i = 0.02

  • n = 20

FV=150,000∗(1+0.02)^20

FV=150,000∗(1.02)^20

FV≈150,000∗1.4859

FV≈222,885

Conclusion

Assuming a present-day cost of CHF 150,000 for a contract killing in Switzerland and a constant inflation rate of 2% over the next 20 years, the calculated cost of the murder in 20 years’ time would be approximately CHF 222,885.

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The first chapter starts with the Lessons from Betting on a Biased Coin: Cool heads and cautionary tales and the book in written in this style and quality.

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The bigger question is if you know you will die in 20 years your annual cost would likely not be 60k. We all have that bucket list and as you get closer to year 20 you want to get everything done.

You need to introduce some investment risk

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Being in the market addresses inflation risks and expected higher returns reduce risks associated with incorrect assumptions around spending needs. Keeping savings in CHF is a pretty good measure to reduce inflation risk anyway compared to almost every other currency.

Being in cash reduces exposure to market crashes. Historically significant over 5 to 10 years but in the future this could avoid a hitherto unexperienced mega double decade super crash.

If you seriously worry about the black swan financial market meltdown then you should move increasing proportions of your wealth away to cash or other value stores, as you become less worried about the need to beat inflation and generate further returns. If you are completely confident that the next 50 years in the world stock market will look like the last 50 then stay invested.

If you’re getting old then the simplicity of a cash pile or better still an annuity is probably quite reassuring. I have a number of relatives who started to make inadvisable financial decisions and became at risk of scams or risky investments as they got older.

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After understanding that this in not about you having stopped smoking weed, and that this fixed your life …. interesting issue.

20 years is not a short time, so I’d invest probably 25-50% of the total; half of that in dividend stock, the other half a bit more conservative.

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