Our Upside Investing report is based on two simple assumptions:

  1. You invest in just two assets: stocks and safe assets. 
  2. You spend nothing out of your stock holdings until they have been converted to safe assets. In other words, you treat your stocks as casino gambling money and don’t spend out of any potential winnings until you’ve left the casino with something in your pocket. 

Calculating Your Discretionary Spending Floor

In producing your Upside Plan, MaxiFi first calculates your discretionary spending floor assuming all your initial stock holdings and any additional stock purchases become entirely worthless. That is, it assumes you’ll leave the casino empty handed. This discretionary spending floor, which, again, considers only your safe assets, provides your household with a stable living standard per household member over time unless you face cash-flow constraints. (see Cash Constraint) In the presence of such constraints, your living standard will increase once you are no longer constrained. Your spending floor will reflect any such cash constraints as well as changes through time in your household composition, e.g., a child leaves home or one spouse dies before the other.

Sample spending floor chart

Calculating the Potential Upsides to Your Living Standard

After building your living standard and spending floors, MaxiFi runs its Living Standard Monte Carlo® analysis. Specifically, it generates 500 future lifetime spending trajectories, corresponding to 500 possible paths of stock returns. Once you reach your initial age of conversion, MaxiFi withdraws from your stock holdings based on the length of your conversion period. 

For example, if you tell MaxiFi you will convert to safe assets starting at 55 and stop converting at 70, it will convert (into safe assets) 1/15th of your stock holdings, whatever they are, at 55, 1/14th of your stock holdings, whatever they are, at age 56, 1/13th of your stock holdings, whatever they are, at age 57, etc. Under each trajectory, the amount of stock holdings you convert in a given year during your conversion years will differ. 

Since MaxiFi lets you smoothly spend out of safe assets, your living standard floor rises each year you convert as long as your stock holdings remain positive. The amount your living standard rises (the extent of your upside), once you start converting will depend on how well your stocks performed along that trajectory.

Sample upside trajectories chart

The report displays a sampling of several trajectories generated by the monte carlo analysis. The 75th percentile trajectory, for example, shows the upside trajectory that produces the 75th percentile highest average discretionary spending out of all 500 such trajectories.