1. Not as many crypto people pay attention to their expenses in retirement as FIRE people (it's the basis of their existence), as a result crypto people rarely try quantify whether they need to take the crypto risk to afford retirement.

Maybe you bet the farm and let it ride on a moonshot and are sitting on a pretty nest egg. Do you need to go all in again to try and 10x it? or can you just do half and put the rest in something more stable?

Here is an example of a 32 year old already doing very well. $10m portfolio, 80% stocks, 20% bonds. He spends about $20,000 a month (2.4% withdrawal rate) and has a 99% chance of sustaining this until he's a 100. Inflation adjusted, at age 100 his median net worth is over $800 million in todays dollars. That might seem crazy, but 68 years is a lot of compounding.

What if he were to cash out his $10m portfolio and go all-in doge, 38 million doge. Assuming the historical statistics of doge continue with a mean return of 168% and a standard deviation of 157%, (numbers so big that it breaks the charts) the user has far more than the $800million median net worth in the previous scenario. Here is the comparison:

But note one huge thing. Despite the insanely high net worth in the median doge scenario, the probability of success has dropped significantly from 99.81% to 64.34%. This person has gone from a near certainty of living till 100 without having to work, to introducing a 35% chance of going broke. This is because while the median net worth is still very favourable, the larger standard deviation of returns meant that many of the simulation trials ended in the negative (many were much higher than median as well, but getting lucky shouldn't be the retirement plan). What good is an insanely high median net worth when you introduce a huge risk of going broke? What I'm trying to hammer in here is that we shouldn't risk the financial independence we have secured for arbitrarily higher net worths. We should know what we need and want to purchase and allocate in a way that best maximises our chance to afford it. Looking at returns isn't necessarily good enough if the risk cost is too high.

(Random aside: People need to start looking at risk capacity more than risk tolerance in the crypto space. Risk tolerance is your ability to emotionally withstand the volatility of the crypto market. Risk capacity is the ability for your financial situation to take that risk. If rent is due tomorrow and you are going to gamble it on roulette the night before, but still sleep at night if you lose; you had the risk tolerance for that, but not the capacity. You shouldn't exceed your risk capacity even if your tolerance is higher. You should have your tolerance match your capacity and make sure you are getting the most reward in exchange for the risks you understand and choose to take.)

2. Crypto being the only hope to accumulate enough for retirement

One thing to acknowledge is that for some people in some cities at some ages, retirement seems unattainable without a giant windfall from going all in on a crypto project with the hopes of mooning.

If we take our previous example and make the monthly spending $80,000 a month instead of $20,000, suddenly the prospects of an 80/20 portfolio don't look so rosey with only a 13.37% chance of success. The 100% doge portfolio on the other hand, despite still not being great, looks much better in comparison with its maintained probability of success at 64.15%. It's not a good chance, but it's the best chance this individual has to support an $80,000 a month lifestyle.

80/20 does not support a 70 year 10% withdrawal rate. Crypto has a chance, but it's still not pretty.

3. The best of both worlds: finding the optimal allocation between crypto and traditional asset classes

Traditionalists who are unaccepting of crypto miss out on another asset class to diversify their equity portfolio from. In terms of volatility, there has undoubtedly been more of that type of risk in the crypto space, but with different classes of crypto and stable coin yields, it is possible to have a better diversified portfolio without introducing much more risk. There have been studies that show that a small allocation to non-correlated crypto can reduce overall portfolio volatility. (Too much crypto however and the crypto volatility overwhelms the entire portfolio)

Diversification still continues to be the only free lunch. 80/20 traditional FIRE is missing out by not including crypto into consideration.

Shifting some equity to DOGE in the left scenario dramatically improved their chance of success back up to 99% allowing the user to quadruple their spending.

Disclaimers: There are many limitations to these examples, but just use common sense and hopefully the comments highlight them. These Monte-Carlo simulations extrapolate historical returns for the next couple decades, this is obviously an incredibly shaky assumption; Shaky for the last few decades of equities which have been an amazing bull run, even more shaky for extrapolating short-lived meme-coin returns. This is not to suggest what the optimal allocation would be for a 32 year-old with $10m, but to illustrate the following points I'm hoping to drive discussion around:

If you've somehow built up a decent bag, don't get too greedy letting it ride if you're introducing risk to things you really want in retirement. To evaluate this you need to first figure out what you need to afford in your life.

For some people who's portfolios aren't where they need to be yet relative to financial needs, all-in a crypto may seem like the only hope. It's akin to Powerball gamblers. Terrible odds, but probably the best odds many people feel they have of getting hundreds of millions of dollars.

There is probably a more optimal allocation that mixes traditional assets and crypto assets. It's up to this sub to figure out heuristics to determine that for people at various stages in their life. It's a relic of traditional finance, but diversification still continues to be the only free lunch.

Cryptocurrency allocations are an often ignored aspect of traditional planning to the point that many people are left without appropriate frameworks to determine how much risk they should be taking. Data for cryptocurrency's performance isn't very robust, so extrapolating returns and standard deviations is very risky, but hopefully as the market developes, new frameworks will come into light on how to use cryptocurrency to help with your financial plans.

For a while, the simulation tool has been currency agnostic - whatever currency you entered in was fine as long as you were consistent throughout the entire form.

However, with the addition of specifying your assets via stock tickers, we needed to adjust the currency of those stocks to the ones you were reporting.

You now have the option to select the base currency you want to work in at the top of the simulation. From that point on, when you enter tickers for stocks you own, the market values will all be converted to their equivalents in your chosen base currency.

Something on this post got me thinking about what framework would be to determine whether we could afford something. The post is meant to be light-hearted, but OP mentioned that at a net worth of $1 million, he would consider getting a Tesla. I got to wondering and created this 2-way table.

In short, it tells you what the effect of a one-off purchase would be on your net worth in 20 years. It's a little interesting for me to see how inelastic your long-term net worth is if the purchase is either a very small portion of your annual income, or if it's a very small portion of your invested assets. If something is 2% of your net invested assets, it doesn't really matter that it's 100x your annual salary. That's probably not that surprising, but for intersections in the middle, like an expense that's 50% of your current net worth and 50% of your current salary, the effect on future net worth is probably not as intuitive.

Personally, I'm thinking that if a one-off purchase decreases your long-term net worth by less than 3% and is something you do very infrequently, then you can afford it. Any thoughts on that? I suppose if your investable assets are scheduled to be well above what you need for a livable 4% in 20 years, you can make a purchase that haircuts you a bit more.

An article I’ve loved and often linked to is Dana Anspach’s piece on the rolling returns for various asset classes over different time periods. I think the article can best be summed up in 2 of the included charts:

In a given year, bonds and treasuries are indeed very safe with very little incidence of losing more than a few percent of value in a year. Equities over the 1 year period have wildly variable with higher highs and lower lows. In the worst-case single-year return over Dana’s sample, intermediate bonds were down 1.7%. The S&P 500 on the other hand was down almost 45%.

However, when annualizing returns over a 20-year time frame, the worst intermediate bond returns were 4.2% per year. The worst S&P 500 returns were 6.4%.

The punchline here is that while bonds are indeed safer in the short term if you have a long enough investment horizon, equities are a much better choice not only in terms of average return but also in terms of possible losses.

I decided to update this study on the S&P 500 for a larger window. The period between January 1935, and January 2021.

Overall, the trend from Dana’s original article still holds true. Returns over a 1-year period are wildly variable, but as we annualize returns over longer time periods, the range of returns becomes more and more narrow.

Sadly though, her point of the lowest annualized returns over a 20-year period being 6.4% no longer seems true. In fact, the lowest annualized return over that period is a loss of 3.6%.

That being said, expanding to a 30 year period does bring us back into the “always positive” territory, albeit at a lower return of 2.13%.

Hopefully, the result of all this is that investors with long time horizons can have confidence in planning for retirement with large allocations to equities knowing that more often than not, they could assume long-run annualized returns of about 6%.

100% SPY, no Debt.

80% SPY, 20% AGG, 2x Debt