A stock market trader has more chance of securing enough cash to ditch the day job than a National Lottery ticket holder. But how much is enough?
According to a recent survey of 2,000 UK adults, the average person would need at least £5.4m before they burst into their boss’s room to deliver the good news that they were quitting. The odds of winning that sort of jackpot on the National Lottery are one in 45 million.
The research was conducted by online games destination, WinkSlots.com, as part of the Working after Winning report. It found that 36% would continue working if they won a substantial amount of money, 16% would work for a charity and 11% would retrain for a different career.
Security for the long-term future
Was it because a third of the respondents loved their job so much that they opted to keep working despite a big win? Or was it because most of us are cautious about having enough money in the long-term to last until retirement?
The fear of running out of cash is real. There have been several high-profile UK lottery winners who have ended up broke. In the US, the National Endowment for Financial Education has estimated that 70% of lottery winners go bust.
That could be why the Working after Winning survey found that 11% would retrain for a different career with 21% saying they would choose to do so in the digital media industry, 18% in film and 14% in music.
According to Stephen Womack, director of chartered financial planner David Williams IFA, deciding whether a windfall is enough to retire on is very much down to personal preference.
He said: “As a business we work with a number of successful entrepreneurs who have built, grown and sold businesses. Some come to us looking to preserve the real value of the capital they have built up; others are keen to find opportunities to keep on growing their wealth.
“I would say that the majority feel it is enough to know they will always have a comfortable roof over their head, they will never have to worry about day-to-day spending and that their family is looked after. Beyond that, additional wealth buys you choices and opportunities, be it the villa in the sun or the ability to bankroll the charitable project of your choice.”
Would £5.4m be enough?
With an ageing population and rising personal debt, early retirement seems like a pipe dream for many. Yet in January this year, the US Bureau of Labor Statistics Job Openings and Labor Turnover Survey reported that 3.2m workers quit their jobs. That was the most since February of 2001, in the wake of the dotcom bubble.
In the UK, some 60% of those planning to give up work in 2017 are doing so earlier than their projected state pension age, or company pension scheme retirement date, a survey by Prudential also found.
So, would the average Briton really need £5.4m to never work again and why for some would even this not be enough?
According to Womack, if you were to invest £5.4m in a relatively moderate risk portfolio and see it grow by 4% a year after all costs, you could draw an income of £150,000 per year.
This would grow with inflation at 2.5% for the next 50 years before the money runs out and if you can achieve 5% annual return on the investments, then the starting income rises to just over £180,000 per year.
He said: “It depends on the age of the investor (and of course their spending ambitions). £5.4m at age 25 looks very different to £5.4m at age 65 in terms of what you need it to provide for you. But let’s be honest, the vast majority of us would bite your hand off when offered that sort of sum to then not work again.
“It can buy you financial security for life providing your tastes are not too extravagant. Or it can buy you about one eighth of Premiership footballer Alex Oxlade-Chamberlain. If you aim to own a football club, then you just have to carry on dealing.”
Psychology of stock trading
There is a psychological aspect to stock market trading. Not only are traders forced to make quick decisions and be disciplined, but they also need to recognise that lots of stock market activity is affected by the emotions of investors.
As trading sees many losses, many analysts say half the battle of successful trading is perseverance and never giving up. Would these same traits make it harder to quit while ahead?
Occupational psychologist Kim Stephenson says in his experience it would because high flyers tend to decide that they want more. “They want a bigger house, a bigger car, and expensive holidays. Then, if they get all that, they want cars like Chris Evans, art like Saatchi, jets like Travolta, a Caribbean island like Branson. Then they want a Gates foundation.
“What’s next? Buy your own planet? Having enough depends on what you really value, what is important, not how to be the richest person in the graveyard.”
Stephenson, who is the author of the best-selling book Taming the Pound, adds that humans have evolved to compete and to want more. He says that if the ‘average’ wage in this country is about £28,000 it means that you’d only earn about £1.2m in your lifetime and £5.4m would buy more than most people will ever have.
“Deciding on what is enough depends on the individual, their goals, their belief in their abilities, how much income they feel they need and what they have to replace. What questions do you ask yourself to work out what is enough and when it’s wise to make changes?
“It can help provide a happy life, but only if you actually spend it on what will truly make you happy. If you simply buy stuff because you can, or to show off, there’s a lot of evidence you’ll end up very, very miserable.”
Day traders versus long-term investors
The temperament of a day trader versus a long-term investor might also play a role in deciding how much money is enough to quit?
Day trading is more time-consuming and requires a disposition that is comfortable with risk as they often take as many losses as profits during a day's trading. Investors tend to heavily research their investments and hold on to stock meaning wealth is grown over a longer period of time.
According to Womack, there are different personality drivers for day traders and long-term investors. He says: “For an active trader, half the fun is in the journey and the sense of satisfaction and enjoyment that they can take from having engaged in the excitement of trading and come out on top.
“Put another way, although the investor and the trader may be aiming for the same ‘mountain top’, an active trader will want to take on the most challenging cliff face. The longer-term investor is focused on the ultimate outcome and the route to the summit is less relevant than the view from the top.”
For some people then, it’s the process of making money that is fun and no amount of cash or assets, will ever be enough.