£1,000,000 now or £10,000/month for 10 years?

[touch]

How many of us are disciplined enough to take the money and not dip into it other than the £10k month? I might be tempted with the £10k a month because of the restraint it places on my behaviour.

If you're not disciplined enough to trust yourself with the money then neither option is going to work well for you.
What happens after 10 years when you've become accustomed to blowing 10k per month and it stops?

 

[HangTime]

Which was the result of my calculation - £1.6M vs 1.5M.

It turns out I miscalculated anyway and the return needed to turn a decent differential is higher (4% ish), so you're probably right in that there's not a huge difference between them. The flexibility that £1m gives you would still sway me though, especially because predicting your life circumstances 10 years into the future is hard.

 

[englishpremier]

£1m now makes the most sense.

To make any real money you'd need to leverage some of it. So all out buying houses and renting them out doesn't make sense.

 

[Roar87]

It sounds like you'd be back to work in a few years after blowing the lot.

No. I just wouldn't spend my days trying to turn £1m into £1.5m while sitting at home hiding away buying crappy rentals and effectively doing painting and decorating for a living. You can travel without flying first class and staying in 5 star hotels.

 

[nine_tails]

£1m now so i can buy bitcoin.

 

[Psycho Sonny]

TLDR: both are actually about equal.

£10k per month is £120,000 per year or £1.2M after 10 years. £1M immediately is £1M.

However, that £1M has an earning potential. If invested prudently it should increase by around 5% each year and if you don't touch it your £1M will become £1.63M in a decade. Sauce for the goose is sauce for the gander and that £10k per month will also increase but the fund doesn't have such a head start. I can't be bothered to work out the full calculation but an approximation goes like this: (120,000 x (1.05^9)) + (120,000 x (1.05^8)) + (120,000 x (1.05^7)) + ... or (120,000 x (1.05^9 + 1.05^8 + 1.05^7 +...) which is a geometric series and gives a result of £1.51M. You lose the first year because you didn't have the full £120k. If you allow a monthly interest rate, a 5% return is (1.05^(1/12)) or 0.41% per month. The full calculation seems to break Windows Calculator but our series becomes much closer to the £1.63M.

Both calculations, however, assume you don't touch the money, don't pay any tax on it, etc etc. Reality is more complex and having the full £1M straight off gives you far more flexibility, like paying off your mortgage, car loan, and so on.

They aren't equal at all

Had you invested that million in the s&p 500 over the last 2 years you would be sitting on £1.6 million in just 2 years.

If you got £100k per year you would be much worse off.

 

[ianh]

I wouldn't actually outright buy much with my £1M but would still buy a nice house/car etc and just use the interest earned to pay the mortgage/car loan etc so the £1M still sits there pretty much unused.

 

[touch]

I wouldn't actually outright buy much with my £1M but would still buy a nice house/car etc and just use the interest earned to pay the mortgage/car loan etc so the £1M still sits there pretty much unused.

That's never going to work. The costs of a mortgage+car loan will be much higher than the savings interest on the £1M.

 

[builder22]

reminded me of this

£1M now or
1p that doubles every day for 30 days?

that's pretty surprising

 

[psd99]

Coke, and hookers. With the hookers, it would need to be DOGEgy style

haha good one, no doubt you got some seriously cool aspirations in life

 

[Feek]

£1m now.

I might not be around in ten years to keep taking the monthly payment. May as well enjoy it while I'm able.

 

[ianh]

That's never going to work. The costs of a mortgage+car loan will be much higher than the savings interest on the £1M.

Probably right for people who buy £500k+ houses and a supercar etc but, for me at least, I'd be OK. The interest on £1M monthly at 2.5% is around £2k a month (pre-tax - £1650 after) IIRC which would be a nice top up on my wages.

 

[randomshenans]

1m no questions asked.

I was doing some calculations with a friend on an HMO project (student lets etc) and you could quite easily invest that 1m into 20 HMOs, with a 10-13k return per month, not to mention the added asset growth over time.

 

[Quartz]

Had you invested that million in the s&p 500 over the last 2 years you would be sitting on £1.6 million in just 2 years.

That's cherrypicking: if you'd invested it in January 2000 you'd have lost 20% or more 6 months later. I assumed an average annual return of 5% over 10 years but the maths works out similarly whatever the annual return.

 

[Dis86]

£1m now.

I might not be around in ten years to keep taking the monthly payment. May as well enjoy it while I'm able.

Whilst accurate, jeez man thats grim! Don't think that way. Positivity!

 

[Psycho Sonny]

That's never going to work. The costs of a mortgage+car loan will be much higher than the savings interest on the £1M.

https://www.leaseloco.com/car-leasi...-150kw-543-kwh-5dr-e-cvt/25577/2-36-5000-12-0

£250 a month and it's not exactly a crap car. Mortgage on a decent house wouldn't be much either if you got it on a long deal and used your current homes equity as a deposit. Like £350 for every £100K borrowed. Which means you could borrow £300k (plus your current equity) for £1000 per month and that should be enough to get them their real world dream home.

Sure if you are trying to buy a house in beverly hills it will only cover the rent for a few months but most smart folk wouldn't just blow it like some bin man who won the lottery.

 

[SexyGreyFox]

that's pretty surprising

Do it with a piece of A4 paper and double that up and see how thick it would be.

 

[arknor]

I'm clueless about money but this last two weeks Andi Peter's on GMB has been going on about a massive prize and you have a choice.

So OCUK, we have some money experts on here, £1,000,000 now or £10,000/month for 10 years and why?

inflation makes your 10k a month less than just getting 1mil now and investing it.

 

[dowie]

It turns out I miscalculated anyway and the return needed to turn a decent differential is higher (4% ish), so you're probably right in that there's not a huge difference between them. The flexibility that £1m gives you would still sway me though, especially because predicting your life circumstances 10 years into the future is hard.

You guys seem to just be figuring out what NPV is... Obvs the value of 10k this month is different to the value now of the promise of 10k sometime next year or 5 years from now and so on etc..

You can just use the NPV formula in excel, open office etc.. and get the present value of a bunch of future monthly or yearly cashflows given some discount rate (usually a near risk-free rate).

Since you're talking about annual returns if you want to simplify things, just to take a look at the principle of this, then look at 120k per year instead of 10k per month. Keep in mind that interest rates are v.low at the moment so cashflows won't be discounted too much.

Essentially you've got 1.2 million of future cashflows vs a 1 million lump sum, if you want to present value of those 1.2 million in cashflows and interest rates are low, we're looking at less than 1% for bond yields etc.. then the NPV of the 1.2 million in future cashflows ends up being worth more than the 1 million lump sum. So with no other considerations, the monthly payments are "better".

This is a slightly silly situation as generally, they should be about equal, in fact if you win a US lottery and turn down the lump sum in favour of future payments then the future payments option essentially comes from the same lump sum being used to purchase an annuity (which is in turn invested in safe govt bonds), the NPV of those future payments should therefore be the same as the lump sum you could choose to claim. There shouldn't be a "free lunch" here.

That begs the question of where are these cashflows coming from? If an annuity then can you sell it - you've got something (an annuity) that is maybe currently worth say 1.15 million now can you sell it now for say 1.1 million? Ergo taking the lump sum is leaving 100k on the table, taking the annuity and then immediately selling it gets you instantly more than the lump sum.

If instead, the future cash flows come from the company offering the prize then they're not risk-free and the discount rate being assumed for them to be equal to 1 million now (around 3.75% if we assume annual payments to keep it simple) might be a bad offer in terms of the risk re those cashflows being maintained - will the company still be around etc.. What returns could you get elsewhere for taking similar risk?

If you were going to invest either in say the stock market, property etc.. then (assuming annual cashflows for simplicity) anything over 3.75% makes taking the lump sum better.

this is all assuming that we're in the UK and there is no tax to pay - with US lotteries you have extra potential headaches with taking the cashflows, often they're across 30 years not just 10 - what if federal or state taxes increase in future, you have some minor benefit from your personal allowance or offsets, basic rate etc.. but when we're talking about a high 8 or 9 figure lump sum vs annual 7 figure payments that becomes moot, vast majority of it is getting taxed at the highest rate either way and if that increases in future then... Of course, if you win at a time of very high taxes and you believe some future administration will significantly lower them then... Also, 30 years is a long time, whether the annuity can be sold in general (or upon the death of the winner) is a key question - the beneficiaries of your estate could be left with an awkward inheritance tax situation otherwise if they inherit an annuity (or share of) with years of large payments left they'd be facing a big tax bill they can't necessarily afford to pay, would require some rather less than efficient borrowing against those future payments.

 

[dowie]

inflation makes your 10k a month less than just getting 1mil now and investing it.

Inflation isn't relevant for this comparison it affects both of them across the same 10 year period. You're interested in the returns you get from either.

I wish this wasn't the first thought of everybody and their dog.

Just shows how screwed up the property market is, that everybody just sees $$$ and investment potential, rather than house - a basic human need.

It shows nothing about how screwed or not screwed the property market is, it just illustrates that property has value as it always has done.

People 1800s or 1700s who came into a lot of money would have likely invested in property, perhaps even more so than today where there are plenty more investments other than property available in the form of shares in companies etc.. In fact the richest people today are people who own a substantial part of a company whereas in the past they were almost exclusively property/land owners.

You're essentially wishing that people to deny reality then, property whether shelter, land for farming or just areas of land/forest for hunting/foraging has always had value. I mean that isn't even exclusive to humans either, animals have their territory etc.. It's hardly something new relating to the current property market being "screwed" either.

In the middle ages a peasant, as the tenant in some manor, might have the right to different strips in different parts of some fields because they recognised that different parts of the fields were better/worse had different values so they were divided up. I'm sure most of them would much rather own the manor though.