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Comment by zen_boy | Hacker News Reader

Just turned 30. Invested most of my savings (20k€) into Bitcoin several years ago, and then converted everything to Ethereum in the pre-sale. Those 20k€ are worth roughly 1M€ pre-tax at the current rates.

Started a fintech startup three years ago and we are close to a liquidation event that would net ~1.5M€ pre-tax.

Right now, though, I have less than 10k€ in my bank account. Would be also really curious to hear how to convert that money into sustainable passive income.

Spending 3k€ per month for the next 30 years would be about 1M€. Seems like having <5M€ is far from the "go bananas" type of wealth, but it can definitely be enough to achieve FI.

Achieving ~4% annualized ROI after tax and inflation seems plausible in the long term: https://www.reddit.com/r/financialindependence/wiki/faq

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Is there a specific reason you're keeping so much of your wealth tied up in Ethereum? (Not that clued up on it, perhaps there isn't a big enough market there to sell it yet?) It seems to me like having all of your eggs in one basket. Wouldn't it be better to convert a decent portion of it to cash and invest that in a nice mixture of stock and bonds?

Ethereum seems to have great potential to multiply its value in the next 12-24 months. I think the probability of ETH going from 1B$ -> 2-5B$ market cap is far greater than BTC going from 10B$ to 20-50B$ due to several factors.

My line of thinking has been that in order for the 4% to be meaningful, you need to start with at least a million. Saving a portion from the salary and getting 4% annualized growth just wouldn't have ever achieved the type of financial wealth I had in mind. YMMV.

But now I feel like the time has come to diversify and start reducing the risks. Going from 20$ to 10$ per ETH definitely hurt.

You do realise you're gambling, right? There's nothing wrong with that, but be honest with yourself about the risks of having nearly all your money in one instrument (ETH) which could easily wildly fluctuate up or down. If you honestly think it's a bet worth making, go look up the kelly criterion.

It does wildly fluctuate up and down, but he's also got a 1.5M startup and he's only 30, so he can easily afford the risk.

This is always a good reminder. Then again, had I not done that investment or cashed out earlier, that 20k€ would be nowhere near 1M€. There simply doesn't exist many ways to achieve 50x ROI in <5 years. Seems like majority of people are happy with lower yield plans, but I personally would have not achieved my goals without some aggressive increase in wealth.

Hard to say what I would be saying had I lost everything though. It's easy for me to rationalise the decision now that it paid off. And yes, we have to remember to look at the graveyard too.

The non-linear utility of money puts an interesting twist on things though. The effort and risk one should take to achieve additional wealth seems to reduce logarithmically after a certain point. I guess that point seems to be further for me than most people, but I feel it's close now.

You could probably say that about playing roulette if you happened to win your first spin. Doesn't mean it's a good bet, though.

Comparing an educated crypto investment with a negative EV gambling game seems a bit too farfetched. I'm quite considerate and picky investor, and did extensive research beforehand.

I do get what you are saying, but I think this is over-simplifying things. There were a lot of interesting facts and conclusions available to be made early on about the possibilities.

Again, extremely hard to say what the odds of failure still are and were in the past. And hard to say what my stance would be had I lost the initial investment. It's easy to rationalize the investment in hindsight.

If someone won the lottery for $1m and proceeded to dump their entire proceeds back into lottery tickets, you'd rightly think that they were insane. Yet that's exactly what you're doing.

You don't have to liquidate your entire stake. Heck, you could keep a full 100k in Ethereum—if it has a run-up on the scale of Bitcoin, you'd be making millions. But you wouldn't have all your eggs in one basket.

I definitely understand the desire/impulse to make big bets, but as with any gambling operation it's important to consider when you cash out. Right now you're betting $1m on the potential to make $50m, when you could have a guaranteed $900k with the potential to make $5m.

The annoying thing about survival bias is that the survivors who took the largest risks often get the greatest rewards, and then carry the most influence.

So someone who sank her entire life savings into LTC a couple years ago, would sound more worthy than this person.

And, depending on how credulous the reader is, someone who went into debt to buy a few lottery tickets, and was lucky enough to win, could trump both of them.

I had the opportunity to hear major german bank disappoint affluent customers by telling them that, in stark contrast to the past, there is no risk-free 4% in the stock market any more (when using the basic strategies available retail like investment funds etc). If true, you might have to play a more active role and "run a business" instead of "invest some".

What's the "risk-free" amount then? 2%? 1%? 0.25%?

2% just means you need more money saved, not that you need to actively run a business into your 80's to continue feeding yourself.

They said risk-free would be -0.4% or something. I suppose they would have been biased to say "buy our funds", and they didn't really push any other products except maybe real estate. Everyone was bummed out.

Curious to hear other opinions.

It sounds like they're pushing an agenda (everything else is terrible; buy our products).

No asset is "risk-free" but it's certainly possible to get risk-adjusted returns of 4% in the stock market. Even if you include 2008, you would average 4% over any 30 year period.

At a minimum, you can get ~2% in treasuries. There are even savings accounts offering 1% returns.

> Spending 3k€ per month for the next 30 years would be about 1M€

That is only withdrawing the principal without taking into account the real interest/yield rate you can make off the investment. That money would probably last longer or yield more for the same time period.

In fact, as you point out it can last indefinitely with an after inflation and tax ROI(real yield) of 4% which converts to ~3k/mo. You would have to plowback excess returns on good years and withdraw part of the principal on bad years. Plus readjusting your expectations from time to time.

One of the best investments you can make is to get a financial education. You don't need to get a pedigree to show on your job interview, you should go only after the knowledge which will be cheaper.

And lastly a diversified mix of stocks, long term bonds and short term notes will earn you that passive income. Now that you are young take a little more risk and shift your allocation gradually towards short term debt as you age.

The real interest rate is usually negative in today's environment; I'd love to know where you're getting a risk-free 4% after inflation and tax.

Muni bonds are the best way to go for that. You can still nail 4% plus after inflation and taxes there. You're not going to get risk-free anywhere, there's no such thing.

Can you provide some example names? I'm seeing returns of only 1.65% on the Barclays Muni Index[0]

[0]: https://index.barcap.com/Benchmark_Indices/Aggregate/Bond_In...

You're looking at the yield; not the returns. You also cannot directly invest in the index but there are ETFs that track it.

Sure - so you're factoring capital appreciation in to the total return for your 4% after tax number? Which would imply that you're not holding these to maturity though right?

Nothing is risk free.

Why does it have to be risk free? Did you make your money not taking risks? Taking calculated (not stupid) risks helps you get decent returns above 5% quite easily.

Put half of it in a low fee index fund, and half in stocks you believe in. Those stocks are higher risk, but can have a much higher (or lower) return than the index, i.e. risk 20% of your capital for a potential 50% gain. You can add bonds to the mix if you want.

Half in picked stocks is a very high risk strategy. I wouldn't recommend it.

And I would. Look, it all comes down to what you're comfortable with and how you've made your money. Some people are terrified of losing even a penny. Others don't care if a stock goes down 20%, if long term the business is solid / healthy and the price makes sense.

If you're looking for stock tips on the internet, then yes, half in picked stocks is quite risky. If you're willing to put in the work to do the research by plowing through SEC filings, reading annual reports, trying out the product the business is selling, in sectors you know and understand (i.e. tech for us) and you have common sense, then it's quite reasonable. You won't always get it right, but you can at least do better than others who haven't done their homework. That also means saying no to 90% of the stocks you could invest in.

Is capital gains tax payable on those coins? If I were in your place, I would probably attempt to find a way to realise that gain (i.e. by relocating to a tax friendly country for a while) without having to pay capital gains tax. Make sure to not throw away your windfall.

In Finland, the capital gains on cryptos are realised once you sell them for floating currencies (ie. USD or EUR). We pay 34% tax on the profit.

For example, I'd pay (1M€ - 20k€) x 34% = 333k€ of taxes on capital gains. I'm not sure how the taxation works if you try to dodge it by relocating to a more tax friendly zone. I've heard some horror stories about Finnish companies moving to Estonia for tax benefits only to be taxed with fines for the gains that the company made while it located in Finland. Would the same rationale apply for personal capital gains?

You can freely trade between cryptos, for example between BTC and ETH, without triggering the capital gains. The moment you leave cryptoland, I believe they use the first-in-first-out (FIFO) principle to calculate the profits.

In Belgium (where I live), these gains are tax free. So that is one country you could potentially move to to avoid the tax. The same applies for the UK, Malta, Cyprus (non dom regime) and Monaco. If I were you, I'd consider doing the perpetual traveler thing for a while (i.e. while having a base in Malta, which is cheap) and cash out + reinvest in stocks. After a few years, move back, and then pay capital gains tax on those future gains.

You can leave most countries without realising the capital gain, even if you've built it up within a country. This is why certain people move to a country without capital gains tax to sell their company. Obviously I don't know Finnish tax law, but within the EU it's generally the case (for now). Have it checked by a _GOOD_ tax lawyer, if that's what you want to do.

Building up capital is important - once you have it there's a lot you can do.

Wow, this advice is very valuable. I'll definitely investigate. Thank you.

Another interesting discussion is the ethical side of things. I do feel some obligation to pay back to my home country for things it has provided (free education, healthcare, etc.), many of which were financed with tax income.

But paying the whole amount from current and future gains would be tad too much. Also, would it be possible to achieve higher and more direct impact with dodging the taxes and distributing that money via philantrophic means? Just some questions I'm thinking about in the whole picture.

1. If you intend to move back at some point, it doesn’t matter. Say you generate €75-100k a year from that million in the future, you’ll be paying 25k a year in taxes anyway. The more capital you have, the more you can generate, hence the more tax you can pay in the future. Pay 333k now vs 25k a year over the next 50 years. But building that first €500k-1m is hard, imo.

2. Always give back. For example, I gift €X,000 every year to local good causes. Yep, I get a 45% tax deduction for it, but I also use it as a way to give back. You’re not going to spend one euro to save 45 cents in tax, if it's not something you believe in.

You can also give back by investing in Finnish companies.

3. If you’re interested in Belgium (low cost of living, high quality of life, free health insurance, relaxed society, high taxes but not on capital), I can intro you to my tax lawyer. He’s awesome.

Great points. Ultimately, it seems to boil down to deferring tax to the future instead of the present resulting in higher gains for everybody, and having the freedom to choose on how to give back. Both of which seem like the obvious after further consideration.

I'm really curious about your story. Would you be interested in continuing this discussion over email?

Sure! E-mail address is on my HN profile.

>This is why certain people move to a country without capital gains tax to sell their company.

Do you happen to have an example of this?

The easiest example I could find: http://www.dailymail.co.uk/news/article-1132957/Piers-Morgan.... But there are plenty of these stories if you go looking.

Note: this does not apply to Americans, because they are taxed based on citizenship, not residency. But even within the US you can save taxes by moving states (i.e. by being based in Texas or Seattle when selling your company, vs California). I believe Mike Arrington did this.

Another example: - http://newsfeed.time.com/2012/12/10/cest-it-aint-so-gege-fre...

From your second link:

>Speculation is rampant that the move has allowed Depardieu to shift his legal residence to Belgium to dodge the 75% tax on income over $1.27 million that Socialist President François Hollande will apply as of 2013 as part of his response to France’s debt crisis.

Two things stand out:

1. Depardieu is avoiding a hit on his future income. The story is from 2012 talking about a future French tax hike in 2013. Avoiding tax on past income i.e. unrealized capital gains would be much harder I believe.

2. The story doesn't mention capital gains at all. I'm specifically interested in cases where people have successfully avoided a capital gains tax.

As long as the country you live in does not levy an "exit" tax of some sorts (on the individual, not the company), you should be able to move. Only the individual shareholder is moving, you are not moving the company abroad.

This is a relevant article: http://www.bloomberg.com/news/articles/2001-07-22/if-youre-w.... It's from 2001, but still relevant today.

Another article, specifically on Belgium: http://www.bespaarbelastingen.be/algemeen/belgium-tax-haven/

Third: http://www.wealthprotectionreport.co.uk/public/704.cfm

This law does not just apply on the disposition of shares, but on nearly all types of assets, with the exception of property.

> Invested most of my savings (20k€) into Bitcoin several years ago, and then converted everything to Ethereum in the pre-sale

Haha. I did the same except with only 30€ worth of BTC, now worth ~15K€ in ETH. If only I had had slightly more balls at the time…

So easy to say in hindsight, right? I try not to be too hard on myself about past decisions. I bet you did the best decision you were capable of doing with the information you had at the time.

Similar opportunities will come in the future.

Hey, I bought zero bitcoin because by the time I looked at it - when the price was still in two digits - I thought the bubble had come and gone and there were rumors of an impending government crackdown. So you did 15k better than I did!

+1 ditto. :(

If you only have 10k€ in the bank and not a second "survival" account with around 10k€ then this should be your backup fund. Make the money as easily assessible as possible. It should be at least 3 months of expenses, and I personally spend less than 10k in 3 months but still have that goal.

Great advice, thank you. I'll prioritise increasing this amount in the near future.

I just switched from Wealthfront to Betterment, because their software does a good job of helping you with this. It asks you what you're using the money for, when you'll need it, and about your tax situation. It'll automatically provide different investment options based on what you answer. So, for your situation you could put some of it into an income producing "goal", and put the rest into something more growth oriented.

Definitely worth checking out: http://betterment.com/invite/seanhess

(disclosure: that is my invite link which gets me free months without fees. I do love the service a lot).

Both this and Welathfront only operate within the US, which is a shame. Anyone aware of a similar service operating within the EU?

EU criterion may drop away but... In the UK:

http://www.wealthify.com/ https://www.nutmeg.com/ https://www.moneyfarm.com/uk/

I'm pretty sure Moneyfarm are based in Italy, so definitely in the EU !

https://www.nutmeg.com in the UK are quite good. I can provide a referral : you get 3 months fee-free (and an additional £100 if you invest >£15k) and I get a small bonus.

There's https://www.yomoni.fr/ in France too

Hi there, can you explain to us why you chose to invest so heavily in Bitcoin and Ethereum? What gave you the certainty that they would go so well?

I didn't have any magical crystal ball, like no one else did. The key transition point was moving the Bitcoins into the Ethereum. For me, Vitalik's early posts convinced me that Ethereum wasn't just another altcoin and it had great potential.

I didn't have any debt at that point and the traditional model of saving portion of salary and getting 4% annualized growth wasn't going to achieve the wealth I had in mind. So cryptocurrencies seemed like it had the huge upside potential I wanted and the worst-case scenario would have been that I'd lose the initial 20k€. I'm fairly opportunistic and risk-seeking. YMMV.

Hard to say what the probability of failure (ie. Bitcoin collapsing or the value of Ethereum being far less than the pre-sale price) has been.

With bitcoin, I'm kinda sure there was never any certainty, only faith; for a few, that worked out very well. But bitcoin has always been a gamble, a very unstable and easily influenced investment product, with unsafe and corrupt trading platforms.

Typically the best / simplest way for sustainable mostly passive income is rental property. Lots of how to guides out there. Mortgage rates are really low at the mo if you want to leverage.

This depends on the country. Property isn't exactly passive income, when compared to other types of investments.

For example, in Belgium, stamp duty (a transfer tax) upon acquisition of a property is 10%. It takes a long while before you generate that back in rental yields.

I did some calculations about owning your own apartment vs renting. At least in Finland with the current housing prices and interest rates, the difference in a 25 year period between owning and renting was surprisingly small. Personally, I'm happy to pay rent and have the money in more liquid assets as well as enjoy more freedom and being debt free.

I assume renting out would only be worse with the additional risk of having bad tenants.

This helped a lot https://www.khanacademy.org/economics-finance-domain/core-fi...

Here in Finland, the status quo seems to be that you obviously save for your own apartment as the first thing. From purely financial gains perspective, I couldn't find the rationale.

But isn't it always good to own the property you live in ? If instead of paying $1000 a month for rent, you pay that $1000 a month for a loan for your own apartment you still have the same money to invest that you have now but you will eventually own the place you live in and free that money up. Of a big amount of that monthly payment will be interest, but at least not all of it is gone. This only works if you can actually finance a place for similar money as it would be to rent, which i am not sure of.

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