Reasonable Growth Rate for IRA Investments

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BHrookie
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Joined: Mon Sep 03, 2012 3:21 pm

Reasonable Growth Rate for IRA Investments

Post by BHrookie »

Hello

I am a newbie to the BH group, so please bear with my initial few posts.

I am 37 and planning to use my traditional IRA (~six figures) for a ETF-based portfolio with one of the newer online portfolio management sites. I will leave the discussion about why I am using one of these sites for another post.

During the initial sign up process, the site is asking me a question like "How much would you like your portfolio to be worth when you start needing the money"

So, if I my starting investment is ~100K, what is a resonable return to expect if I want the start withdrawing at age 65?

BHR
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hoppy08520
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Re: Reasonable Growth Rate for IRA Investments

Post by hoppy08520 »

Risk and return go hand and hand. See Risk and return: an introduction. If you have a portfolio of 90% stocks and 10% bonds, versus a portfolio of 40% stocks and 60% bonds, the first is but will probably (given historical patterns) achieve a higher return in the long run (over your 23-year time frame). A more balanced 60/40 portfolio may come close to riskier portfolio but with less volatility.

See Historical and Expected Returns for some estimates on what kinds of returns you can expect from different asset classes. If you were to assemble a coherent portfolio around these asset classes, then you could use these estimates (weighted based on the proportion you hold each asset class) to come up with an estimated return.

Back to your question: I don't know what the program you're signing up for does with your answer. I imagine it will adjust your risk level in an effort to get the return you're seeking. Of course, there are no guarantees. You won't achieve high returns with a very conservative portfolio, but the converse is not true: there is no guarantee of higher returns with a riskier portfolio.

So, there really is no "reasonable growth rate" for IRA investments (or any other investments). It all depends on your risk level and investment choices.
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mhc
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Re: Reasonable Growth Rate for IRA Investments

Post by mhc »

BHrookie wrote:Hello

I am a newbie to the BH group, so please bear with my initial few posts.

I am 37 and planning to use my traditional IRA (~six figures) for a ETF-based portfolio with one of the newer online portfolio management sites. I will leave the discussion about why I am using one of these sites for another post.

During the initial sign up process, the site is asking me a question like "How much would you like your portfolio to be worth when you start needing the money"

So, if I my starting investment is ~100K, what is a resonable return to expect if I want the start withdrawing at age 65?

BHR
Welcome to the forum.

If this question is going to be used to determine the risk level (expected return) of your portfolio, I don't think I would go with the answer provided. I think your risk level should be set by what you can "stay the course" with. If this leads you to falling short of retiring at a particular age with a particular income, then you should save more, work longer, and/or spend less in retirement.

One of the biggest problems with investors is that they are constantly changing their portfolios. If this company gives you a portfolio with too much risk, you may not be able to stomach the next market crash.

If you have not done so already, take a look at the getting started wiki page. Also, get a couple of the books from the recommended reading list, and read them.

http://www.bogleheads.org/wiki/Getting_Started
pkcrafter
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Re: Reasonable Growth Rate for IRA Investments

Post by pkcrafter »

BHookie wrote:
I am 37 and planning to use my traditional IRA (~six figures) for a ETF-based portfolio with one of the newer online portfolio management sites. I will leave the discussion about why I am using one of these sites for another post.
Ok, but there are several things necessary to know. Are they offering index funds? What are the costs? Where is your IRA now?

As to their question, it's a rather silly one, but in today's dollars your portfolio needs to be about 25X more than the initial withdrawal you intend to make if you forecast 30 years in retirement. You can use your current living expenses to start with. If you figure in inflation, the portfolio will need to be about 2x more than that in 25 years. You need to understand what figure they are working with before answering.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Johm221122
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Re: Reasonable Growth Rate for IRA Investments

Post by Johm221122 »

BHrookie wrote:Hello

I am a newbie to the BH group, so please bear with my initial few posts.

I am 37 and planning to use my traditional IRA (~six figures) for a ETF-based portfolio with one of the newer online portfolio management sites. I will leave the discussion about why I am using one of these sites for another post.

During the initial sign up process, the site is asking me a question like "How much would you like your portfolio to be worth when you start needing the money"

So, if I my starting investment is ~100K, what is a resonable return to expect if I want the start withdrawing at age 65?

BHR
Why not use vanguard retirement fund.They are low cost,index funds.But try this and see if we can help
http://www.bogleheads.org/forum/viewtop ... f=1&t=6212
Good luck
John
Topic Author
BHrookie
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Joined: Mon Sep 03, 2012 3:21 pm

Re: Reasonable Growth Rate for IRA Investments

Post by BHrookie »

Thanks all for your thoughful replies. Below are 2 portfolios that that 2 companies I am considering provided for my IRA account. Any feedback on if these portfolios provide enough diversification? anything key that is missing? or are they overkill?

Any feedback on the allocation or 1st vs 2nd portfolio choices will be appreciated

BHR

1st Suggested Portfolio ( I need to pick the stock/bond split) and then they allocate as per below %s
___________________

STOCKS
• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index
BONDS
• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund


2nd Suggested Portfolio
____________________

Bonds
BND Vanguard Total Bond Market ETF 24.00%
JNK SPDR Barclays Capital High Yield Bond 8.00%
Asset Class Total 32.00%
Commodities
GLD SPDR Gold Shares 1.50%
IXC iShares S&P Global Energy 1.50%
Asset Class Total 3.00%
Emerging Market Stocks
EWX SPDR S&P Emerging Markets Small Cap 1.50%
VWO Vanguard Emerging Markets Stock ETF 3.60%
Asset Class Total 5.10%
Foreign Developed Stocks
EFG
iShares MSCI EAFE Growth Index 4.50%
EFV iShares MSCI EAFE Value Index 4.50%
SCZ iShares MSCI EAFE Small Cap Index 3.75%
Asset Class Total 12.75%
Inflation-Proof US Bonds
TIP iShares Barclays TIPS Bond 8.00%
Asset Class Total 8.00%
Real Estate
RWR SPDR DJ Wilshire REIT 3.90%
RWX SPDR DJ Wilshire Intl Real Estate 2.10%
Asset Class Total 6.00%
US Stocks
IJS iShares S&P SmallCap 600 Value Index 9.75%
IWV iShares Russell 3000 Index 23.40%
Asset Class Total 33.15%
Call_Me_Op
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Location: Milky Way

Re: Reasonable Growth Rate for IRA Investments

Post by Call_Me_Op »

Way too many funds in second portfolio.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
TA_Lurker
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Re: Reasonable Growth Rate for IRA Investments

Post by TA_Lurker »

BHrookie wrote: 1st Suggested Portfolio ( I need to pick the stock/bond split) and then they allocate as per below %s
___________________

STOCKS
• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index
BONDS
• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund
Two things come to mind immediately:

1) Since your Stock and Bond portfolios each add up to 100% what will be the overall weighting of Stocks vs. Bonds? This is very important and will dramatically impact the performance of your portfolio.
2) Your Stock portfolio is not market weighted (at least I don't see that it matches any of the market weighting mentioned in the Wiki). What are your reasons for tilting to these specific sectors?
pkcrafter
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Re: Reasonable Growth Rate for IRA Investments

Post by pkcrafter »

I tend to like the first portfolio over the second, although the first does not indicate asset allocation to stocks vs bonds.

And don't forget, advisory services have to justify their cost. This portfolio can be condensed even if you want to overweight.

STOCKS
• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index
BONDS
• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Modified
STOCKS
• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index<--Not really needed
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
<--Replace with total international
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index
<-- not really needed, but if you want to overweight, just use small value.
BONDS
• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Topic Author
BHrookie
Posts: 3
Joined: Mon Sep 03, 2012 3:21 pm

Re: Reasonable Growth Rate for IRA Investments

Post by BHrookie »

pkcrafter wrote:I tend to like the first portfolio over the second, although the first does not indicate asset allocation to stocks vs bonds.

And don't forget, advisory services have to justify their cost. This portfolio can be condensed even if you want to overweight.

STOCKS
• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index
BONDS
• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Modified
STOCKS
• 25% VTI: Vanguard Total Stock Market
• 25% IVE: iShares S&P 500 Value Index<--Not really needed
• 25% VEA: Vanguard Europe Pacific
• 10% VWO: Vanguard Emerging Markets
<--Replace with total international
• 8% IWS: iShares Russell Midcap Value Index
• 7% IWN: iShares Russell 2000 Value Index
<-- not really needed, but if you want to overweight, just use small value.
BONDS
• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Paul
Thanks Paul. Yes, I need to pick the stock/bond split. I am contemplating just going with the "your age in bonds" theory.

Also this company charges 0.15% for a 100K IRA with rebalancing done by them on a periodic basis.
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hoppy08520
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Re: Reasonable Growth Rate for IRA Investments

Post by hoppy08520 »

Portfolio 1 looks to be Betterment.com. From all I've read, it looks like a good option.

http://www.obliviousinvestor.com/better ... ff-option/

OP, there have been threads here; search betterment.
theCase
Posts: 15
Joined: Wed Jan 05, 2011 8:37 pm

Re: Reasonable Growth Rate for IRA Investments

Post by theCase »

BHrookie wrote:Hello

I am a newbie to the BH group, so please bear with my initial few posts.

I am 37 and planning to use my traditional IRA (~six figures) for a ETF-based portfolio with one of the newer online portfolio management sites. I will leave the discussion about why I am using one of these sites for another post.

During the initial sign up process, the site is asking me a question like "How much would you like your portfolio to be worth when you start needing the money"

So, if I my starting investment is ~100K, what is a resonable return to expect if I want the start withdrawing at age 65?

BHR
I've read/heard that a conservative, after-inflation, long-term rate of return from equities is in the 5.2% to 5.9% range. Obviously no one can predict the future, but it's probably not a bad starting point.
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Taylor Larimore
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A third choice.

Post by Taylor Larimore »

BHR:

Welcome to the Bogleheads Forum!

Have you considered this:

THE THREE FUND PORTFOLIO

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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