*you did not have any new money going in your portfolio since 1996? so since then for every $1 that was in it, you have $352?*

**Of course not tj, we’ve been living off that money for more than 20 years, for every expense there is**… from food and clothing and mortgage payments, cars, airfare, house repairs, electric bills, computers, smart phones, insurance, movies, books, eating out, birthday cards, MF subscriptions, sending my daughter to college, tuition, **everything**, for my whole family. I see that you’ve never read the Knowledgebase as it’s all spelled out there exactly how I calculate it (at the beginning of Part 3). But just to make it clear to you here it is again:

*I retired in July 1996, so I’ve actually been taking out money to live on for the last 20 years, instead of adding money.*

*Here’s how to calculate your overall returns ignoring cash flow in or out. Say you start the year with $14,000. You want to equate that with 100% and calculate gains and losses from there. So you ask yourself “What number (factor) would I multiply $14,000 by to get 100?”*

*By simple arithmetic we have 14000 x F = 100*

*And thus F = 100/14000 = .0071428*

*Sure enough 14,000 x .0071428 = 100*

*Now say three weeks later you have $14,740 and you want to see how you are doing, you multiply that number by .0071428 and you get 105.3 (so you are up 5.3%). If you don’t add or subtract money, that factor will work for the whole year.*

*Now say you add $2300 of fresh money, but you don’t want that to screw up your estimate of how well you are doing.*

*You add the $2300 to the $14,740 and get $17,040 which is your new balance that you are investing with. That’s your new starting point. It doesn’t affect how you’ve done up to here. You haven’t suddenly done better because you added money. You can’t still multiply by .0071428 because you’d get 121.7 and it would look as if you were up 21.7%, when you are really only up 5.3%.*

*So you need to change your factor to make it smaller so it will still reflect just the 5.3% gain you’ve made so far. You figure: “What would I multiply my new balance ($17,040) by to get 105.3, to reflect my 5.3% gain so far this year?”*

*F x 17,040 = 105.3*

*F = 105.3/17,040 = .0061795*

*And that’s your new factor. If you multiply it by 17,040, sure enough you get 105.3. Now you continue to see how you will do for the rest of the year.*

*If a little later you are at $18,000, you multiply 18,000 by .0061795 and you get 111.2, so you know that your investing is now up 11.2% for the year.*

*Same, if you take money out. You don’t want it to look as if you lost money. You calculate a new factor so you start from the same percentage where you were.*

*On January 1st of the next year, you write down how you did for the year to keep a record, and start over at 100 for the next year.*

In other words, **every time I take money out I recalculate the factor** (which only takes 30 seconds or so) **so as to restart from the exact same percentage as I was before the withdrawal**. I hope that helps.

And since I’ve been taking money out for twenty years, **naturally I have only a tiny, tiny part of what I would have had if I never had to take anything out** and still had 352 times what I started with in 1989. **But the point never was to pile up money**. It was to make enough money by investing so that I could withdraw it, and **use it to help my family and me live comfortably**.

Saul

PS You should take the time to read the Knowledgebase. There’s a lot of interesting stuff in it. You may not agree with everything, but you are sure to get at least a few good ideas.