Compounding continual investment growth with withdrawal strategy?

[loneill1811]

Good evening all,

I would be really grateful for your help on this. I have a situation at the moment with an investment, where I appear to be miscalculating how much, and at what point to withdraw an income whilst maintaining growth of my investment capital.

Please forgive this explanation, but I will try to make it as succinct as possible (unlike this intro!)

I buy product "x" for £50

Product "x" will pay me £1 per day for 55 days continuously before "expiring". Once expired, this product is gone forever. Therefore product "x" has given me a ROI of 10% after 55 days.

I bought 77 of product "x" on day 0.

Each product "x" earns me £1 therefore at the end of day 1, I have earned £77.

I reinvest 100% of my earnings into buying more product "X" at £50 each every day.

At day 55, by my calculations I have 230 of product "X".

On day 56 this drops to 150 (my initial 77 expire and I repurchase 3)

From this day on I continue to reinvest 100% of my daily earnings. Whilst understanding that the product "X" I bought on day 2 will be expiring tomorrow etc etc.

I continue this for another 55 days. By my calculation this will leave me 205 of product "X".

That is my situation. Now for my questions.

What is the withdrawal strategy that will allow me to take out maximum amount of funds whilst still increasing my number of product "x"?

This doesn't have to be continual linear growth, but certainly and definite upward trend in amount of product "X" held.

The methods proposed to me are:

• A daily 91/9 reinvestment strategy i.e. withdraw 9% of daily earnings and reinvest 91% into repurchasing "X"
• A weekly withdrawal. Reinvest 6 days earnings and withdraw all earnings on the final day
• A weekend withdrawal. Reinvest 5 days earnings and withdraw all earnings on final 2 days

Someone quoted me that "providing you remain over a 70/30 reinvestment split, you will continue to increase your product "x" holdings."

I wouldn't class myself as bad at maths, but as product "x" expires at 10% ROI, wouldn't the maximum you could take out be 9% from earnings without starting a long term decline in your product "x" holdings?

Your collective advice and help would be greatly appreciated (and preferably within 55 days!)

Many thanks in advance,

Michael

 

[loneill1811]

Weird problem...but looks like fun :cool:


In other words:
you made a loan of £50, and charged an interest
rate that resulted in 55 payments of £1.

Expanded, could be looked at this way:
Loan amount : 55000
Monthly payment : 1000
Term: 55 months

Yes?

Yes, that is a way of looking at it. Bearing in mind using this analogy, I'm providing as many loans I can everyday subsequently on identical terms using the repayments and interest earned up to 110 days. It is then at this point, where I want to continue offering an increasing amount of loans whilst taking a regular income.

I hope that makes sense

thanks for the initial reply

 

[Ishuda]

If I'm understanding you correctly see below for some spread sheet results with a draw of 9% per day. At a 10% draw, I eventually get a decrease but you still have about 102 shares at the end of about 3 years and it looks like maybe it would be at least another 3 years before you were down to zero. Note that I don't get the values you gave at the end of 55 days.

Draw	0.09	0.91
Day	Buy Items	Total Items	Income	Draw
0	77.000	77.000
1	1.401	78.401	$77.00	$6.93
2	1.427	79.828	$78.40	$7.06
3	1.453	81.281	$79.83	$7.18
4	1.479	82.760	$81.28	$7.32
5	1.506	84.266	$82.76	$7.45
...
53	3.580	200.281	$196.70	$17.70
54	3.645	203.926	$200.28	$18.03
55	3.712	130.638	$203.93	$18.35
56	2.378	131.615	$130.64	$11.76
57	2.395	132.583	$131.62	$11.85
...
108	2.746	150.065	$150.90	$13.58
109	2.731	149.151	$150.07	$13.51
110	2.715	148.154	$149.15	$13.42
111	2.696	148.472	$148.15	$13.33
112	2.702	148.779	$148.47	$13.36
...
548	2.805	154.127	$154.12	$13.87
549	2.805	154.132	$154.13	$13.87
550	2.805	154.137	$154.13	$13.87
551	2.805	154.142	$154.14	$13.87
552	2.805	154.147	$154.14	$13.87

 

[loneill1811]

Thank you Ishuda,

I drew a similar conclusion in that a 9/91 daily withdrawal would maintain a small but albeit gradual increase in holdings.

What i'm struggling with, is whether a weekly withdrawal (6 day/1 day) or 5 day/2 day withdrawal would give the same effect or even a more beneficial?

My workings are that a one day withdrawal per week, would be approx 14% withdrawal and therefore 4% higher than the "interest" the "x" is earning. Even with compounding during the other 6 days, it is not enough to off set the withdrawal and would lead to a decline.

With a 2/5 day split, the withdrawal would be closer to 30% and therefore the decline would be significantly quicker.

I'm slightly unsure of the formula to work out, but if I were to work on a 110 cycle, i.e. withdraw 1 day per week (14%) on the value of holdings 110 days ago, this would be enough to sustain a regular income and grow my holdings gradually.

Again your help would be appreciated, and thanks for the time so far.

Mike