As a kid growing up in Texas, I dreaded the evening sportscast in mid-July on the local news that announced that the Dallas Cowboys had started their training camp. Don’t get me wrong, I grew up idolizing players such as Roger Staubach, Tony Dorsett, Drew Pearson, Ed “Too Tall” Jones, Randy White, etc. One of the highlights of my youth were those Sundays that the Cowboys played at noon and the preacher would dismiss church 10 minutes early so no one would miss kickoff.
So, why the disdain for training camp? It was simple, it meant summer was almost over!
As I got older though, my contempt for Fall turned to affection. Baseball playoffs, football at all levels, and for most in the rural Piney Woods of East Texas, the three D’s of Dove, Duck, and Deer season were upon us.
I’ve even managed to marry some of these passions as the wonder of satellite technology now allows us to watch our favorite teams on TV while sitting around a fire at deer camp. Rarely, however, do I find the opportunity to apply my experience and knowledge from my day job to the campfire conversations. That was until a recent trip to the field when the mundane topic of hunting licenses came up.
For those of you that limit your hunting to aisle numbers at HEB, you should know that Texas requires you to purchase a license in order to hunt or fish. There are variety of choices when it comes to purchasing these government permission slips. As a citizen of the Great State, you can buy a Resident Hunting License and/or a Resident Fishing License. You can add stamps for archery, freshwater fishing, saltwater fishing with a red drum tag, upland game bird, and migratory game bird. If you want to have them all, you can purchase a “Super Combo”, which currently costs $68 annually. (Active duty military and disabled veterans are free, and for age 65+ it drops to $32.)
The conversation centered on the value of the Lifetime Resident Combination, which currently will set you back $1,800. Some of us there had purchased the Lifetime License when they were less expensive, as little as $600. Most of those folks felt that the purchase was a great deal as they had long ago “broke even” on their investment. For those that were still considering making the annual purchase, opinions varied wildly.
Since I generally don’t include things like an HP 10bII Financial Calculator in my gear pack when headed to the field, all I could do is more or less agree that the simple arithmetic of the 26+ years it would take to “break even” ($1800/$68) wasn’t a great bargain. But I left wondering how good or bad of a deal it really was. When I got back in the office on Monday, I started crunching some numbers.
If you think of the Lifetime License as an income annuity, one that provides at tax-free inflation adjusted payments for life, you can then calculate the returns based on the number of years payments are made and compare to returns of other vehicles to understand how competitive of an “investment” one of these licenses may actually be.
My first calculation added in a modest inflation rate. Assuming license prices increase at 2% per year, at the current $1,800 Lifetime License fee, it will actually only take about 22 years to recoup your investment. The internal rate of return (IRR) in year 22 is a whopping .25% per year. That’s not exactly a score you’ll be bragging about at Christmas parties in a few months.
By year 32, the IRR has risen to 3.08%. That compares favorably to what you would earn by purchasing a 30-year AAA rated Texas municipal bond today. By year 40, the IRR rises to 4.12%.
What if you put the $1,800 in a diversified stock index fund and drew out what you need each year for the license? You definitely would come out ahead, right? Well….
I ran a simulation with the same assumptions as above using a method known as Monte Carlo analysis. My financial planning software, Money Guide Pro®, makes this much easier than using my calculator. Think of the Monte Carlo as using a deck of cards, each with a particular year’s historical return of the stock market written on its face (in this case, I used a global equity portfolio similar in construction to our “All Equity” Accountable Portfolio that is allocated 60% US Equity, 20% International Equity, 10% Emerging Market Equity, and 10% Global REITs).
We shuffle and deal out the 42 cards and then tally the results using those returns in the order they are dealt. A successful outcome leaves you with at least $1 at the end of the 42nd calculation while a failure ran out of money somewhere along the way. This is considered a better way to model portfolio withdrawal scenarios versus using average returns because averages don't show the risks of how sequences of various returns that equal the same average can result in much different outcomes.
If you shuffle and deal 1000 times you can eventually get a decent idea of the likelihood of success of a particular strategy. In this case, the percentage of outcomes that resulted in having money left over was 63%. That’s better than a coin flip but far from the "no-brainer" I thought it may be when I started this article. Considering I bought my Lifetime License when they were only $1000, I’m feeling pretty good about my decision.
I feel even better about buying one for my son, who was only 8 years old at the time. There is one other benefit that can be especially attractive when buying the Lifetime License for a youngster, and that is if they ever move out of state they won’t have to buy a Non-resident Hunting License (currently $315 + applicable stamps a year) when they come home to visit.
So even if faced with making the purchase today, I would still buy one for him at the current amount because the math ain’t bad. At age 48, however, my decision would be based more on optimism or a burning desire to live long enough to stick it to the government.
Of course, anything that makes it easier to spend quality time with my “little” hunting buddy in the great outdoors is priceless. Happy hunting!