moneyFYI
Financial Freedom Is Merely Organized Common Sense
Sell Alaska
No one ever went broke taking a profit. Maybe it is time for the Americans to sell Alaska. Steve Mufson of the Washington Post published this piece on December 14th. To solve our debt problems, let’s sell Alaska His thesis is that Alaska is worth between $2.5 and $5 trillion. A nice deal considering its purchase price of $7.2 million. It is worth now, about 700,000 times more.
Other than noticing that selling Alaska would not make more than a dent in the US federal debt, what practical thing can we learn from that deal? How about this? There is no possibility that anyone can earn a large rate of return for a long time.
The Alaska sale results in a compound rate of return of just under 10% if the $5 trillion number is good and about 7.5%, if the $2.5 trillion number turns out to be real.
Those rates don’t seem hard to get, do they? I’ll bet you have had financial advisers that wanted to assume a long term interest rate of more than 7.5% when projecting your portfolio values.
Could be they can get it, but FOR HOW LONG?
The interest assumption in your plan is a key element. Do not just accept some number pulled from the air. If your time frame is more than 10 years you might want to consider being conservative and see what happens. It is probably best to behave like an actuary and use current rates in the short run and low rates for the later periods. Surprises on the upside are always easier to deal with.
On the opportunity side of this story, the real estate agent who puts this deal together will do just fine. I suppose they may need to accept less than their usual commission rate. Even 2% commission would be an interesting number. I wonder if the listing will show up on MLS.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com
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