A back-of-the-envelope calculation on an LJ Permanent Account.

[randomness]

LJ permanent accounts are now on sale. I'm thinking aloud: does it make any sense for me?

My paid account costs me $19.95, charged to my credit card annually. A permanent account costs $150.

Assuming I can earn 3% interest on my $150--a rate I can easily get from a money market fund--that $150 grows to $195.72 over 10 years. (Today's average yield for a money market account in Massachusetts is 3.46%, according to bankrate.com.)

Ten years of a paid account works out to be $199.50.

Assuming that LJ doesn't raise its prices, and assuming that I can continue to earn 3% on my money, it will be 2017 before I come out ahead on my permanent account. (Of course, these assumptions may not hold.)

So the question is, will I still be using LJ in 2017? Will LJ even still exist?

Worth thinking about, anyway.

If there's something seriously haywire about my assumptions or my calculations, please let me know; I'm not an accountant, nor do I play one on TV. I'm sure there's someone on my flist who probably knows more about this than I do and can point out where I've screwed up.

Comments

[bookly.livejournal.com]

It looks like they're still donating to one of four charities. They're not charities I'd donate to ordinarily (since I hadn't heard of most of them!), but since it's an option, that would probably factor into my decision.

[bookly.livejournal.com]

(Especially since I now have soft spots--for separate reasons, that I think you're familiar with :)--for organizations working to prevent violence against women and to promote human rights. I'm less keen on the other two, but have no objections to them.)

[r-ness.livejournal.com]

Now that you know about the charities, though, you could easily simply donate to them and cut out the middleman. If you itemize deductions you could even save on your taxes doing it that way.

[bookly.livejournal.com]

True, but then I wouldn't have a permanent LJ account for $125. :)

[r-ness.livejournal.com]

If you think you'll get $125 of use out of it, perhaps it's a reasonable idea.

I'm just not sure I will.

[coraline]

well, for today it's $125 in my personal accounting, since $25 of it goes to a charity i would like to donate to anyways. and i also pay for gratuitous userpics, so my yearly amount is higher than the $19.95. but i was also just too lazy to do the calculation to see when it came out ahead :)

[bookly.livejournal.com]

Hee! I just made the same point. And I have to say, the donation element is making me seriously consider a permanent account, which I don't think I'd have done otherwise. So they know how to market to at least one potential customer.

[gravitrue.livejournal.com]

A question I'd ask is will you actually put $150 more into money market funds as a result of not doing it?

I suspect LJ will still exist, but real estate value might go down; the neighborhood could change into a place you don't want to spend as much time in.

[r-ness.livejournal.com]

My first thought is that I would add $150 to my Roth contribution this year, but since I'm probably going to max out this year (fingers crossed) that's not actually an option. But yeah, I should think about what else I would be doing with the $150. Speculating in the forex markets? :)

I like your real estate analogy, btw.

[(Anonymous)]

I think 3% is way pessimistic for what you could get with that money. Yes, you could put it in a money market account, but there are other, better options. However, I'm also not sure you're doing the present value calculation correctly, but I don't have time to think about it more and to check whether your way is the same as my way. (I would do the calculation for ten years by summing $19.95 + PV (19.95, 1) + ... PV (19.95, 9) where PV (x, t) is the present value of x paid at time t (with an implied rate of growth term). I don't recall if that's an equivalent comparison to the direction you went-- I sorta think not, but I'd have to do some math to check.) That said, I think you're basic point is sound: in order for lifetime memberships to be wins, you have to have a high enough implied rate of return to cover the risk that the entity will be dead (or dead to you), as well as a high enough rate of return to justify the substantial opportunity cost. This is very frequently not the case.

However, if you expect the costs of paid memberships to go up sufficiently, then it may make sense. (If Livejournal raises its rates 3%/year, then with 3% as your implied interest rate the present value of the future costs, not discounted for risk, would be the same as their price in today's dollars.)

Also, your economic prospects make a difference. If you expect to have lots more money in the future, the marginal value of those future dollars may be less than the marginal value of spending the extra money now. Conversely, if you expect to have less buying power in the future (and would not actually invest the extra money now if you don't buy the life membership), then your actual discount rate may be higher than suggested by the discount rate of the market as a whole.

--Adam

[r-ness.livejournal.com]

I think 3% is way pessimistic for what you could get with that money.

Oh, absolutely. I started out with a significantly higher estimated annual return, but I figured I'd use an exceptionally conservative yield estimate. (Safer to have you saying "You can do a lot better than that!" instead of someone else saying, "That's an absurdly high yield! Unfair!", because your comment strengthens my argument.)

[dartpoly.livejournal.com]

i think the 3% interest is a red herring.

i look at it this way, i'm currently paying $20/yr (already paid in March, for me). at $150, it'll be late in 2014 before it starts "paying for itself", and Spring of 2015 before it has any real impact on me. yes, i've been on here for a long time (5 years?), and i'll probably stick around for 8 more, at least...

i suppose if my income was high enough that $150 was "the kind of money you'd tip a waiter", i'd do it.

heh

[cthulhia]

I bought my permanent account for $100, about 6 years ago.

So, it has probably already paid for itself.

[starheptagon.livejournal.com]

Your math is a bit off. I would try to either compare 2007 dollars to 2007 dollars, or 2017 dollars to 2017 dollars. You're comparing $195.72 in 2017 dollars in the one case to $20 in 2007 dollars plus $20 in 2008 dollars plus $20 in 2009 dollars, etc, the other way.

Moving everything to 9 years out:

150 * 1.03^9 = 195.72

sum (i in [0,9]) 19.95 * 1.03^i = 228.70

So it will happen a few years sooner, but perhaps not soon enough to affect the basic premise. I would also tend to use either 5% or 7% for the time value of money, but I can understand wanting to be conservative for the sake of argument.

[(Anonymous)]

Thanks for posting this. I was about to do these calculations out, but you've saved me the effort.

--Adam

[r-ness.livejournal.com]

Sure, that's fair. And slightly over a year's difference is clearly within a range of reasonable variation in yield.

Thanks!