## 2.5 mil to 10 mil - are we on track

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Rafferty
Posts: 11
Joined: Sat May 10, 2014 8:54 pm

### 2.5 mil to 10 mil - are we on track

My goal is 10 million in 15 years – I will be 59

My wife and I’s combine income is 400,000

We save 125,000 per year after taxes and expenses (3 children in private school)

We have no debt

We have no mortgage payment – house is paid off

We have 2.5 million in vanguard funds, with a 60/40 S/B allocation

WE have half in tax deferred accounts, and half in taxable

Our home is worth 900,000 and paid

We have no chance of making more money in my field

Are we doing ok? Should we be more aggressive and be 70/30?

livesoft
Posts: 63013
Joined: Thu Mar 01, 2007 8:00 pm

### Re: 2.5 mil to 10 mil - are we on track

Math is not hard: 15 * 0.125 mill ~= 1.9 million. Add that to your 2.5 mill and will have less than \$5 million if your return is 0%. The "rule of 72" says that 72 divided by expected return is the number of years to double your money. So let's say you need to double your expected \$5 million in 15 years, so the return would be 5% which is probably doable. Except in year 14 when the stock markets pulls another 2000 or 2008 and drops by 50% which drops you down a few million.

Bottom line: I think you are not on track, but maybe someone will come along and refute my approximations.
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freddie
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Joined: Sat Feb 08, 2014 11:06 pm

### Re: 2.5 mil to 10 mil - are we on track

Assuming your don't increase your contributions and we are talking nominal dollars
5% = 7.3 million
6% = 8.1 million
7% = 9 million
8% = 10 million

8% is pretty high return for a 60/40 portfolio. Possible but not likely. I would vote for 6% as a reasonable guess given todays interest rate environment. Going to 70/30 doesn't really change things much. Obviously you can get more aggressive (lots of emerging markets, time for some small funds, just up the stocks to 90%....) it will increase your odds of having 10 million. It will also increase your odds of having 2.5 million.

anil686
Posts: 751
Joined: Thu May 08, 2014 12:33 pm

### Re: 2.5 mil to 10 mil - are we on track

Sorry - agree with the above - do not think so although nobody can be sure. On the bright side - at 6% - you probably will be at your goal within 3-4 years of that target.

Quick question though (or maybe not so quick) - I too I am investing 20 K per month after taxes and am interested in doing a 60/40 SB split. One of my concerns has been the potential difficulty maintaining that balance since stocks grow so much (typically) faster than bonds. I do not want to be 80/20 in 4-6 years even after putting all my continuing contributions to bonds (maybe unrealitic fear on my part). How have you maintained your balance and if you did it over again - would you have considered TM balanced? Also - for your taxable account - do you use the intermediate tax exempt muni fund or do you separate taxable being all equity and tax advantaged all fixed income? Thanks so much in advance if you do not mind sharing your thoughts.

anil

Rafferty
Posts: 11
Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

i use interned term TE in taxable
i rebalance with new money monthly
my tx def accts are in life strategy moderate

sounds like i won't reach my goal.

anil686
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### Re: 2.5 mil to 10 mil - are we on track

Anil

Random Musings
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Location: Pennsylvania

### Re: 2.5 mil to 10 mil - are we on track

Do you need \$10MM to achieve your financial goal at age 59 or is it more of a hitting the 8 digit club?

Since you are saving 125K for retirement and you won't need that during the withdrawal phase, I would think your actual net worth needs are a bit lower unless you have a target 2.8% SWR.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

White Coat Investor
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### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:My goal is 10 million in 15 years – I will be 59

My wife and I’s combine income is 400,000

We save 125,000 per year after taxes and expenses (3 children in private school)

We have no debt

We have no mortgage payment – house is paid off

We have 2.5 million in vanguard funds, with a 60/40 S/B allocation

WE have half in tax deferred accounts, and half in taxable

Our home is worth 900,000 and paid

We have no chance of making more money in my field

Are we doing ok? Should we be more aggressive and be 70/30?
Well, this is a fun post. You can use the rate function to determine what rate of return you need.

It turns out that =RATE(15,-125000,-2500000,10000000,1) = 6.79%. That seems quite doable to me, but you're going to need to take on significant risk to do it. I assume you mean nominal 2029 dollars, not today's dollars. If you need \$10M in today's dollars, well, I don't think that is realistic (although possible) with your current savings rate. I would think something in the 50-75% equity range would do it for you, but obviously there are no guarantees.

Why do you think you need more money in retirement than you're spending now? Planning a major lifestyle upgrade?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

allocator
Posts: 92
Joined: Sun Dec 23, 2012 12:10 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:My goal is 10 million in 15 years – I will be 59

Are we doing ok? Should we be more aggressive and be 70/30?
If by being "more aggressive" you mean taking on more risk, by definition you will be increasing the dispersion of your returns and, in turn, increasing the probability of falling significantly short of your goal. Are you prepared to work well past 59 if the markets provide the opposite of what you're hoping for?

Other questions you should ask yourself (IMHO):

1) What's the magic of \$10MM?

2) If you raise your equity allocation now, how will you go about reducing it in the relatively near future? How long can you actually be at 70/30 before you have to start pulling back as retirement nears? What's your "exit strategy"?

3) Why aren't you already at 70/30? And why didn't you jack up your allocation in, say, 2009, 2010, 2011, 2012 or 2013? And what did you do investment-wise during those years?

I don't mean to be negative. Quite the opposite. You seem to have done the really important and difficult things right (paid off house, 30% savings rate, great schools for your kids). You're doing way more than "ok". Why fool with things now? Really - what's the motivation?

If you want more money later, save more now. Is having \$10MM worth more to you than having your kids in private school? Or cashing out of your house, downsizing and investing the difference? I'm guessing that the answers are "no". Which is fine. More than fine, actually (IMO).

Rafferty
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Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

10 million is needed for personal reasons
I would like 10 million in non-inflation adjusted dollars - so that makes it easier
With a 6.75 annual return, it seems like the vanguard guidance for a 60/40 mix is ~8% historically

I made a lot of money, early on, in individual stocks - aapl, pnra, cmg. I have sold all those holdings, took my profits, and I am now a diversified index investor. A large chunk of that 2.5 million was lucky stock picking, and I have decided to lower my risk and take my profits and use indexing and life strategy funds.

So, I did some work, but I also got very lucky, and it was great, but i am trying to just stay the course to achieve my goal using boglehead philosophies.

BogleInvestorLondon
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Joined: Mon Nov 25, 2013 10:16 am

### Re: 2.5 mil to 10 mil - are we on track

Why doesn't OP just put his money in Vanguard LifeStrategy 80/20? He will be diversified and might average around 8% a year over the long-haul. He does need to be more aggressive on his aa though.

YttriumNitrate
Posts: 1062
Joined: Tue Mar 26, 2013 12:13 pm

### Re: 2.5 mil to 10 mil - are we on track

EmergDoc wrote:It turns out that =RATE(15,-125000,-2500000,10000000,1) = 6.79%. That seems quite doable to me, but you're going to need to take on significant risk to do it. I assume you mean nominal 2029 dollars, not today's dollars.
Don't forget to factor in that Rafferty's annual contributions will likely rise with inflation. With a 3% annual rise in contribution amount the needed rate drops to about 6.5%.

Rafferty
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Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

YttriumNitrate wrote:
EmergDoc wrote:It turns out that =RATE(15,-125000,-2500000,10000000,1) = 6.79%. That seems quite doable to me, but you're going to need to take on significant risk to do it. I assume you mean nominal 2029 dollars, not today's dollars.
Don't forget to factor in that Rafferty's annual contributions will likely rise with inflation. With a 3% annual rise in contribution amount the needed rate drops to about 6.5%.

This was my calculation as well
But lets not count on the 3% rise

It seems like, if I make less than 7%, that I can achieve my goal!
That, i thought, puts me in the 60/40 category - which I don't plan on changing unless I have to

I am just trying to see if this is correct on a ballpark level

More importantly - what do i do, if 5 years from now, it looks like I am ahead of schedule? Or behind? Do people adjust their spending or lifestyle, or work longer, or all of the above? I assume it is different for everyone.

yukonjack
Posts: 576
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Location: Rocky Mountain West

### Re: 2.5 mil to 10 mil - are we on track

I would also try to calculate how big a hit putting three kids through private grade schools and equally good colleges will be. It seems to me that this will negatively impact your savings going forward depending on how old they are. Also will you cut them off at some point or continue to help them in their young adult years?

letsgobobby
Posts: 11693
Joined: Fri Sep 18, 2009 1:10 am

### Re: 2.5 mil to 10 mil - are we on track

From my 60/40 portfolio I hope for 5% nominal given current interest rates, inflation, and stock valuations. However rather than working this whip for 15 more years, my goal is to do it for only 5 more years, then partly retire and let the portfolio grow organically from that point forward. \$10 million is a lot of money. I don't see the need for it even though we don't have the cheapest lifestyle. A much smaller amount would more than do us as long as we don't have to draw on it for 10+ years, during which time I'd expect it to double again in real terms. In other words, I'd much rather retire part time much earlier, than arbitrarily shoot for a very big number which requires me to work so hard so much later in life. With my plan, by 45 I'm working half time and saving just a little out of habit but not out of need. That sounds more appealing than turning the screws til almost 60 just to have the 8 figure portfolio.

Grt2bOutdoors
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Location: New York

### Re: 2.5 mil to 10 mil - are we on track

livesoft wrote:Math is not hard: 15 * 0.125 mill ~= 1.9 million. Add that to your 2.5 mill and will have less than \$5 million if your return is 0%. The "rule of 72" says that 72 divided by expected return is the number of years to double your money. So let's say you need to double your expected \$5 million in 15 years, so the return would be 5% which is probably doable. Except in year 14 when the stock markets pulls another 2000 or 2008 and drops by 50% which drops you down a few million.

Bottom line: I think you are not on track, but maybe someone will come along and refute my approximations.
Agree - \$10 million is not realistic, \$5 million is more realistic and totally attainable.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bmelikia
Posts: 547
Joined: Mon Jun 15, 2009 9:23 pm

### Re: 2.5 mil to 10 mil - are we on track

EmergDoc wrote:
Rafferty wrote:My goal is 10 million in 15 years – I will be 59

My wife and I’s combine income is 400,000

We save 125,000 per year after taxes and expenses (3 children in private school)

We have no debt

We have no mortgage payment – house is paid off

We have 2.5 million in vanguard funds, with a 60/40 S/B allocation

WE have half in tax deferred accounts, and half in taxable

Our home is worth 900,000 and paid

We have no chance of making more money in my field

Are we doing ok? Should we be more aggressive and be 70/30?
Well, this is a fun post. You can use the rate function to determine what rate of return you need.

It turns out that =RATE(15,-125000,-2500000,10000000,1) = 6.79%. That seems quite doable to me, but you're going to need to take on significant risk to do it. I assume you mean nominal 2029 dollars, not today's dollars. If you need \$10M in today's dollars, well, I don't think that is realistic (although possible) with your current savings rate. I would think something in the 50-75% equity range would do it for you, but obviously there are no guarantees.

Why do you think you need more money in retirement than you're spending now? Planning a major lifestyle upgrade?
Thanks for that Excel formula - that's pretty cool!
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

freddie
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Joined: Sat Feb 08, 2014 11:06 pm

### Re: 2.5 mil to 10 mil - are we on track

You are unlikely to get historical returns in next decade given that 40% of your allocation that is likely to return ~3% for the next decade. You would need a drastic stock market outperformance to get an 8% return.
Rafferty wrote:10 million is needed for personal reasons
I would like 10 million in non-inflation adjusted dollars - so that makes it easier
With a 6.75 annual return, it seems like the vanguard guidance for a 60/40 mix is ~8% historically

I made a lot of money, early on, in individual stocks - aapl, pnra, cmg. I have sold all those holdings, took my profits, and I am now a diversified index investor. A large chunk of that 2.5 million was lucky stock picking, and I have decided to lower my risk and take my profits and use indexing and life strategy funds.

So, I did some work, but I also got very lucky, and it was great, but i am trying to just stay the course to achieve my goal using boglehead philosophies.

TomatoTomahto
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### Re: 2.5 mil to 10 mil - are we on track

yukonjack wrote:I would also try to calculate how big a hit putting three kids through private grade schools and equally good colleges will be. It seems to me that this will negatively impact your savings going forward depending on how old they are. Also will you cut them off at some point or continue to help them in their young adult years?
The good thing about an expensive private grade and high school is that college expenses are not a shock

In northern NJ, a first rate private high school approaches \$35-\$40k per year per student.
Okay, I get it; I won't be political or controversial. The Earth is flat.

anil686
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Joined: Thu May 08, 2014 12:33 pm

### Re: 2.5 mil to 10 mil - are we on track

Wow the more I read this thread, I really want you to get to \$10 M in 15 years. I agree with Freddie above that your bond holdings (especially the municipals in the taxable) are going to drag down your rate of return. However, you could always blend two life strategy funds together (such as moderate 75% and growth 25%) for a blended SB ratio of 62.5 /37.5. Knowing that you need equity outperformance to reach that goal - you will be able to catch more of it without drastically changing your risk (of course your return will be less too than going 70/30 or 80/20).

Your question about the 5 year and 10 year marks are good ones. If realistically you are not where you want to be in 5 years - you have a shorter time horizon making taking on more risk - well - much more risky. You probably (IMO) do not want to be wedded to the \$10M number to the point where you reach for return. While I do not know much, it sounds like Yoda's warnings regarding fear, anger and hatred as paths to the darkside. Reaching for return 5 to 10 years from now may expose you to signficant downside risk. JMO.

Rafferty
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Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

It is interesting that people comment on private school - my question didn't ask about that, and I know the cost - I am writing the check, so obviously I am aware of the cost. Anyway, I appreciate your judgment and concern for my kids and their alternatives.

It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.

Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.

For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.

wesmouch
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### Re: 2.5 mil to 10 mil - are we on track

I am not sure about this fixation on \$10 million. You are likely living on about \$120,000 per year now. You would only need to replace that to keep your lifestyle. My calcuation of your numbers:
\$400,000 gross income
minus about \$120,000 taxes (federal and state) guessing
minus \$125,000 savings
minus \$40,000 per year private tuition for 3 kids (a guess)
Subtract the above and you are living on about \$115,000 today
To replace that with an ultra low SWR say 2% you only need \$6,000,000
I am looking at similar numbers myself and I have likewise made a lot of my net worth speculating in stocks but I have realized I was lucky rather than good.
I would rather turn \$2.5 million to \$6 million safely rather than take great risk and end up with \$2 million.

TomatoTomahto
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### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:It is interesting that people comment on private school - my question didn't ask about that, and I know the cost - I am writing the check, so obviously I am aware of the cost. Anyway, I appreciate your judgment and concern for my kids and their alternatives.
I mentioned it because I wondered how you were going to continue to save \$125k with private school and college expenses for 3 kids given that you said your combined income of \$400k wasn't going to change. I guess you held open the option of changing careers. However, no need to get (admittedly mildly) snarky.

It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.
i don't know what will happen, but for my personal planning, I usually assume some pessimistic rates (3% inflation and 5% nominal return).
Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.

For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.
it doesn't seem outlandish, but in guess that some of us find it difficult to reconcile that number with your moderate current consumption.
Okay, I get it; I won't be political or controversial. The Earth is flat.

letsgobobby
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### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:It is interesting that people comment on private school - my question didn't ask about that, and I know the cost - I am writing the check, so obviously I am aware of the cost. Anyway, I appreciate your judgment and concern for my kids and their alternatives.

It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.

Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.

For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.
Bond valuations are currently high, and stock valuations are also high. Therefore future expected returns are lower, we could argue about how much lower but expecting average returns from above average starting valuations would be excessively optimistic.

No one's here to criticize your choices, but I would like to better understand the motivation for getting to \$10 million. As others have pointed out, that's about 60-80x your current spending, which seems unnecessary. The point is there may be other ways to reach your goals without having to take so much risk, without having to save so much, without having to work so long or so hard, etc. We're saving and spending an amount similar to you each year and feel we would do more than fine on a third or half of \$10 million, with part time work just meeting current expenses. That allows us to 'retire' (go part time) 15 years before you plan to quit. There's more than one way to skin a cat.

stan1
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### Re: 2.5 mil to 10 mil - are we on track

Very few people amass 25 times their career-high annual income by saving and investing in index funds. I'm not going to say its impossible because someone will post that they did it -- but its rare and does rely on market conditions you have no control over.

Sounds like you have an income (or capital appreciation) shortfall if you need the \$10M and your expenses are fixed.

You might want to start a successful, well managed business that you can sell for \$5M or more in 10 years. More risk, yes; you do have more control over your success.

yukonjack
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Location: Rocky Mountain West

### Re: 2.5 mil to 10 mil - are we on track

If you are dead set on hitting the 10M mark why not keep working past 59. Who wouldn't want to retire with 25 times top earnings and get out early. Short of that as others have mentioned ratchet up risk.

ot1138
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### Re: 2.5 mil to 10 mil - are we on track

You need to get Jim Otar's retirement calculator. It will give you an answer you can be confident of very quickly.

ot1138
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Joined: Sun Mar 10, 2013 12:46 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:It is interesting that people comment on private school - my question didn't ask about that, and I know the cost - I am writing the check, so obviously I am aware of the cost. Anyway, I appreciate your judgment and concern for my kids and their alternatives.

It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.

Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.

For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.
Couldn't agree with you more on all of these points. I personally think you have a good chance of hitting your target. There will be some luck involved but the truth that many people here won't admit is that luck plays a major role in retirement. You aren't that far off from making it IMO.

Leesbro63
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Joined: Mon Nov 08, 2010 4:36 pm

### Re: 2.5 mil to 10 mil - are we on track

freddie wrote:Assuming your don't increase your contributions and we are talking nominal dollars
5% = 7.3 million
6% = 8.1 million
7% = 9 million
8% = 10 million

8% is pretty high return for a 60/40 portfolio. Possible but not likely. I would vote for 6% as a reasonable guess given todays interest rate environment. Going to 70/30 doesn't really change things much. Obviously you can get more aggressive (lots of emerging markets, time for some small funds, just up the stocks to 90%....) it will increase your odds of having 10 million. It will also increase your odds of having 2.5 million.
My (about) 60/40 portfolio has returned, on average, 6.75% since I started tracking in in 1997.

HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:My goal is 10 million in 15 years – I will be 59

My wife and I’s combine income is 400,000

We save 125,000 per year after taxes and expenses (3 children in private school)
You live on \$175,000 now (or so) and that's with 3 kids in private school. (\$100k in taxes, \$125k savings)

Why do you think you need \$10 million to retire?

You can generate \$200,000 a year with \$5 million (4% withdrawal) or \$6.6 million (3% withdrawal), which is more money than you live on now, AND the kids will be gone.

Anyway, you'll probably have \$10 million in 15 years anyway... but you'll almost for sure have \$5 or \$6 million, so I think you're doing very well.

HomerJ
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### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.
I find it interesting as well... Many bogleheads here do indeed seem to think that times have changes, and it will be different going forward. I don't subscribe to that view, but it probably is prudent to plan conservatively.
Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.
Personally, I don't think you should cut back your current lifestyle to save money you don't need, but like you said, you have a personal reason to hit \$10 million, so I won't question that. Me, I'd keep going the way you are, and plan on \$6 or \$8 million, and then be pleasantly surprised when you quite likely hit \$10 million anyway.

HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

### Re: 2.5 mil to 10 mil - are we on track

TomatoTomahto wrote:
For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.
it doesn't seem outlandish, but in guess that some of us find it difficult to reconcile that number with your moderate current consumption.
Yeah, seems strange to live your life on \$175k (\$50k or so is going towards kids school, so you're really living on \$125k), and then plan a retirement where you can pull \$400,000 a year.

Rafferty
Posts: 11
Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

I have a personal cause that I would like to devote 5 million to, when I turn 60. I would live on the other 5 million. My goal of 10 million won't change, so thats that. Based on the responses, and the math, I think I need about a 6.75% annualized return. I think that historically, it is certainly possible to hit that annualized rate of return. I guess we will see. In the interim, my only reasonable choice is to save and invest more.
For those market predicting individuals who think the market will not fare as well in the future, could you please let me know at which % of interest rates and DOW level, that you think it will do well and outperform? That educated information on timing would be helpful for me to know for future planning. I have timed very many stocks with excellent results, but I threw in the towel recently to just index. With so many responses decrying the historical market return, I'm sure someone is aware of what situation will be in the future, so we can count on better than expected returns at some point. What are the triggers for better than expected returns? When people talk about the market being at a high, doesn't one have to be at a high to move even higher? I don't get the timing stuff as well as you experts perhaps, but I am willing to learn.

HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:I have a personal cause that I would like to devote 5 million to, when I turn 60. I would live on the other 5 million.
For those market predicting individuals who think the market will not fare as well in the future, could you please let me know at which % of interest rates and DOW level, that you think it will do well and outperform? That educated information on timing would be helpful for me to know for future planning. I have timed very many stocks with excellent results, but I threw in the towel recently to just index. With so many responses decrying the historical market return, I'm sure someone is aware of what situation will be in the future, so we can count on better than expected returns at some point. What are the triggers for better than expected returns? When people talk about the market being at a high, doesn't one have to be at a high to move even higher? I don't get the timing stuff as well as you experts perhaps, but I am willing to learn.
I think most Bogleheads need to read this sarcastic (hopefully, it's sarcastic) and spot-on reply, and realize that most of you ARE trying to predict the future with your many posts of "Oooh, going forward, we'll never match historical returns". That's not helping new members to this site at all.

Me, I see no reason not to expect historical returns over the long-term... with some variability thrown in there of course... Good to plan with a conservative number, but I do actually expect near historical returns.

letsgobobby
Posts: 11693
Joined: Fri Sep 18, 2009 1:10 am

### Re: 2.5 mil to 10 mil - are we on track

HomerJ wrote:
Rafferty wrote:I have a personal cause that I would like to devote 5 million to, when I turn 60. I would live on the other 5 million.
For those market predicting individuals who think the market will not fare as well in the future, could you please let me know at which % of interest rates and DOW level, that you think it will do well and outperform? That educated information on timing would be helpful for me to know for future planning. I have timed very many stocks with excellent results, but I threw in the towel recently to just index. With so many responses decrying the historical market return, I'm sure someone is aware of what situation will be in the future, so we can count on better than expected returns at some point. What are the triggers for better than expected returns? When people talk about the market being at a high, doesn't one have to be at a high to move even higher? I don't get the timing stuff as well as you experts perhaps, but I am willing to learn.
I think most Bogleheads need to read this sarcastic (hopefully, it's sarcastic) and spot-on reply, and realize that most of you ARE trying to predict the future with your many posts of "Oooh, going forward, we'll never match historical returns". That's not helping new members to this site at all.

Me, I see no reason not to expect historical returns over the long-term... with some variability thrown in there of course... Good to plan with a conservative number, but I do actually expect near historical returns.
Every serious investor agrees that current valuations predict future returns - including Bogle, Buffett, Graham, etc. Most of them also agree not to change your investing strategy, or not much at least, based on those expected future returns. But they don't say to just put your hand in the sand and imagine that stocks trading at PE10 40 (as they were in 1999) would return 10% per year over the next decade. That would have been ludicrous, and future results bore that out.

Especially considering rafferty's question, he just asked whether others thought he was on track. He solicited opinions, opinions were proffered. I don't get the sarcasm myself, if his original post was serious, or maybe it wasn't, it was something else entirely. Whatever.

Rafferty
Posts: 11
Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

I am just here to learn, not be sarcastic - my comment is not sarcastic in the least. It seems like there was a suggestion that investors can predict the future. I find that confusing, since when I read this site, people say that one cannot predict. I am trying to get clarification on when returns will be better than average, since it seems like they will be worse in the future. I apologize if my comments were taken sarcastically. I understand market timing - thats how I made money in the market. I held an iPod many many years ago and I bought the stock. I ate at panera and chipotle a long time ago (panera a really really long time ago), and loved the products, so i bought the stocks. I sold to pay off my home and index in a conservative fashion at 60/40, but I really would like to endow my cause, as professors are responsible for my success.

What are the boglehead triggers for market timing, and predictions, and how can we use those to change our expected returns. That information would be very helpful for future planning, as it may indicate that I need to plan to work longer or shorter.

If my goal is 10 million, and the returns are known to be lower, than I need to adjust my lifestyle and work expectations. On the other hand, if the winds of prediction change, then I can change.

livesoft
Posts: 63013
Joined: Thu Mar 01, 2007 8:00 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:What are the boglehead triggers for market timing, and predictions, and how can we use those to change our expected returns. That information would be very helpful for future planning, as it may indicate that I need to plan to work longer or shorter.
Returns will be better than average after a 50% drop in the stock market.

For myself, I can say that net worth more than doubled in the past 5 years since March 2009. That's like a [rule of] 72/5 ~= 15% annualized return and includes some relatively small annual contributions. So if you have \$5 million after a 50% drop in the stock market averages, then I think you can get to \$10 million or so after 5 years. Of course, that doesn't say anything about what you had before a 50% drop in the stock market averages , but I can tell you that it would probably be more than \$5 million.

Bogleheads triggers for market timing are really only triggers for rebalancing. What did you do in March-April 2009? Did you rebalance into equities then? Or did you simply do nothing?
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TomatoTomahto
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Joined: Mon Apr 11, 2011 1:48 pm

### Re: 2.5 mil to 10 mil - are we on track

I think the disconnect is between the known and the accounted for. I don't know that returns will be lower than in the past, but I want to be prepared for the possibility as best I can. For all I know, we'll all be living in caves, or perhaps we'll all live like the Jetsons. For anything less extreme, I want to be ready.

Btw, good job on what you plan to do with \$5M.
Okay, I get it; I won't be political or controversial. The Earth is flat.

ot1138
Posts: 146
Joined: Sun Mar 10, 2013 12:46 pm

### Re: 2.5 mil to 10 mil - are we on track

livesoft wrote:
Rafferty wrote:What are the boglehead triggers for market timing, and predictions, and how can we use those to change our expected returns. That information would be very helpful for future planning, as it may indicate that I need to plan to work longer or shorter.
Returns will be better than average after a 50% drop in the stock market.

For myself, I can say that net worth more than doubled in the past 5 years since March 2009. That's like a [rule of] 72/5 ~= 15% annualized return and includes some relatively small annual contributions. So if you have \$5 million after a 50% drop in the stock market averages, then I think you can get to \$10 million or so after 5 years. Of course, that doesn't say anything about what you had before a 50% drop in the stock market averages , but I can tell you that it would probably be more than \$5 million.

Bogleheads triggers for market timing are really only triggers for rebalancing. What did you do in March-April 2009? Did you rebalance into equities then? Or did you simply do nothing?
While this advice is true, it's also likely that returns will be better than average after a large increase in the stock market. Momentum chasing strategies work.

So dispensing with the largely inactionable advice, if you want to predict long-term equity returns - and it *can* be done, there is much research confirming this - then you should take a look at Schiller PE 10, dividend yields, and interest rates. I have explored this in great depth. Per many Bogleheads' advice, returns are likely to be lower than in the past. However, my models suggest that they will still be generous (2.5-9.0% in next 10 years, with 6.3% median return).

I do think that OPs idea of waiting for some period of above-average expected returns is futile however given that he has a limited window of opportunity.

Rafferty
Posts: 11
Joined: Sat May 10, 2014 8:54 pm

### Re: 2.5 mil to 10 mil - are we on track

So, given the lower equity returns, is it a "stock pickers" market? Seems like thats the inevitable conclusion. Someone mentioned that bogle, buffet, graham say the market will underperform historical norms. Are there a group of investment soothsayers that bogleheads agree to follow and accept their opinions, and others who they don't? Again, it seems contradictory to the boglehead philosophy, but if thats the prevailing wisdom, then I would accept their advice. It is really an odd thread, and not at all what I expected. Future predictions, investment futurists, and ways to predict that future returns - wow! I never in a million years expected that.

Nevertheless, I want to thank all for the advice, and will count on a lower return in index funds - so maybe will have to depend on a "stock pickers market" essentially. Ive had success with that, so it makes sense to me, but i will probably index for awhile to see if these predictions herein are actually going to happen.

I am trying to endow a gift for two professors who believed in me and gave me a break at my first research job as a student. If this step would not have been crossed, then I wouldn't have made it through college and probably failed in other ways. The advice here has been terribly unexpected, but will try to make adjustments over time.
Last edited by Rafferty on Sun May 11, 2014 8:35 pm, edited 1 time in total.

HomerJ
Posts: 11942
Joined: Fri Jun 06, 2008 12:50 pm

### Re: 2.5 mil to 10 mil - are we on track

letsgobobby wrote:Every serious investor agrees that current valuations predict future returns - including Bogle, Buffett, Graham, etc. Most of them also agree not to change your investing strategy, or not much at least, based on those expected future returns. But they don't say to just put your hand in the sand and imagine that stocks trading at PE10 40 (as they were in 1999) would return 10% per year over the next decade. That would have been ludicrous, and future results bore that out.
(1) "Next decade" isn't really long-term... Even the OP is looking 15 years ahead
(2) We're nowhere near 1999 levels, so I question the accuracy of predictions made when we are 25% above "normal" PE10 levels (instead of 150% above like 1999).
(3) You guys were predicting low returns a year ago, and we got 30% instead.
I don't get the sarcasm myself, if his original post was serious, or maybe it wasn't, it was something else entirely. Whatever.
It turns out he wasn't being sarcastic... And that's sad... he came here thinking that bogleheads claim "no one knows the future", and now he's finding a bunch of people who tell him we can predict the future. So he was not being sarcastic.. He now seriously wants you guys... bogleheads!!... to teach him how to predict the future, because he's reading... on these boards... that it is possible.
Rafferty wrote: Future predictions, investment futurists, and ways to predict that future returns - wow! I never in a million years expected that.
Ugh.
Last edited by HomerJ on Sun May 11, 2014 8:44 pm, edited 3 times in total.

HomerJ
Posts: 11942
Joined: Fri Jun 06, 2008 12:50 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:More importantly - what do i do, if 5 years from now, it looks like I am ahead of schedule? Or behind? Do people adjust their spending or lifestyle, or work longer, or all of the above? I assume it is different for everyone.
All of the above.

I'm assuming you have a ton of discretionary spending in your budget, so it should be pretty easy to adjust.

I am shooting for \$2 million by 55 (10 years from now).... If at 55, I'm a bit low (say \$1.8 million), I'll probably semi-retire and work part-time for a couple of years.

I'm also open to adjusting my discretionary spending if needed... Not that much of a hardship to only take 3 big trips a year instead of 5.

Watty
Posts: 14621
Joined: Wed Oct 10, 2007 3:55 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:I have a personal cause that I would like to devote 5 million to, when I turn 60. I would live on the other 5 million.

You might be able to reach your goal easier but using some sort of combination of a charitable remainder trust or donor advised fund to greatly reduce your current tax burden so that more money could be accumulated each year to support the cause your want to support.

freddie
Posts: 920
Joined: Sat Feb 08, 2014 11:06 pm

### Re: 2.5 mil to 10 mil - are we on track

What is your logic? If you can pick above average return stocks it doesn't matter if the market returns 10% or 5%. In your case, if things don't work out, just wait another 5 years to fund those chairs.

By the way I am really good at predicting the future. In the next 25 years there will be a 20% correction and then a bull market where stocks will go up 25%. Figuring which of those 25 years though is the hard part:) The low returns is more than just looking at pe ratios. It is saying that 40% of your portfolio is in an asset that is likely to return ~3% over the next 15 years given current yields. To get up to 8% return you need huge stock performance. There haven't been many 15 year periods where you average ~13%return after taxes on divs and fees.

Rafferty wrote:So, given the lower equity returns, is it a "stock pickers" market? Seems like thats the inevitable conclusion. e.

LH
Posts: 5490
Joined: Wed Mar 14, 2007 2:54 am

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:It is interesting that people comment on private school - my question didn't ask about that, and I know the cost - I am writing the check, so obviously I am aware of the cost. Anyway, I appreciate your judgment and concern for my kids and their alternatives.

It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.

Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.

For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.
Human beings have zero clue what the market will bring. Its like death of equities businessweek cover of 1979. Or the IMF april 2007 report.

https://www.imf.org/external/pubs/ft/gf ... /chap1.pdf

There you go, top of the line thought. I really recommend reading those two. Its fun to go back and read books, newspaper articles from past times. Very similiar to whats said today, just different variations. No one knows. Its funny really.

Basically, at best they take some formulas that have been extant since the 1950s at least, choose inputs, then come up with projections, that match human straightline extrapolation of recent events. Thats about all there is to it. Its hardwired behavior, dressed up in some math. Usually, they just tell a story. Humans like stories.

People have zero clue in 1929, of the depression, zero clue in 1979, 1981 of the 17 year 17 percent average annual stock boom of the 80s and 1990s. Zero clue in 2007.

If we have a great depression II, I would not be a bit surprised rationally (though emotionally would still hit me hard), if we have a stock boom for 10 years I would not be surprised, nor muddling along.

All thats changed from 2007 for me, is that I can really see a GDII happening now, whereas before, it was more of a "well possible, but wont happen" type of deal. I was probably just fooling my then : ) Looking around at the financial debt structure is highly interesting, will make for a great econ class discussion in 2040 quite possibly.

rinse repeat.

jackholloway
Posts: 965
Joined: Mon Jul 08, 2013 3:45 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:So, given the lower equity returns, is it a "stock pickers" market? Seems like thats the inevitable conclusion. Someone mentioned that bogle, buffet, graham say the market will underperform historical norms. Are there a group of investment soothsayers that bogleheads agree to follow and accept their opinions, and others who they don't? Again, it seems contradictory to the boglehead philosophy, but if thats the prevailing wisdom, then I would accept their advice. It is really an odd thread, and not at all what I expected. .
It is shorthand.

There are some simple realities - anyone who truly knew what the market will do is going to end up richer than God in a very short time, and almost certainly not by telling others how, or by taking their money. Since many of the respected names here do one or both, they are not certain.

Read common sense on mutual funds, and Bogle lays out his ideas. They are not the same as Graham, nor Bernstein, nor Swedroe, all of which are worth reading too, but there are some very similar ideas, namely:

Markets rise and fall. When they are low, there will probably be good returns, but there have been times where they fell further, sometimes all the way to zero. When high, they usually fall, but sometimes they climb sideways or go up another 30%. The one thing we do know is that even the best in the business can often only be recognized in retrospect.

People do not change. When something is hot and has already gone up, people pile in, and when it is out of fashion, they flee. This will be eternally true, but the pro tour knows that too, and happily bets against the crowd.

The market generally responds to fundamental valuations, but there are worlds of difference between a 2% growth rate for a decade and a 50% fall followed by four really good years! especially if you bought in at the bottom. Or sold. Further, it can remain irrational longer than you can remain solvent, because markets live for centuries, while you have only three or four decades of high income.

You get rewarded for diversification and compensated risks. You do not get rewarded for taking a sucker bet, like a single stock, except by chance. Now betting on a diversified stock pool can work, but you need an answer for why your pool of 20 stocks is better than the whole s&p 500.

Costs matter. If returns are 2-7% real, and someone takes 1% off the top from hundreds of people, guess who buys the Tesla. It looks very much like there is such a thing as fund manager skill, but it is roughly equal to fund expense ratio.

In the end, an index approach gives you market return in an inexpensive way. It is simple enough that you are difficult to cheat and that makes it hard to lie to yourself.

You see a great many smart people here chasing yield. Most use index funds and tilts to do it rather than individual stocks, but the desire is very human, and almost certainly misguided in most of the cases. That said, some will be right, and will make more than the others that are satisfied with market return. Some of those will write articles and books extolling their vision. I have learned a lot from the previous books written by the past lucky winners, because those lucky winners were also smart and well trained, but I take them with a grain of salt. That does not make them wrong - it makes them no more and no less than the winners of the last round, in a game with skill, luck, and a lot of hidden state.

RedJunglefowl
Posts: 30
Joined: Sun May 26, 2013 4:28 pm

### Re: 2.5 mil to 10 mil - are we on track

Rafferty wrote:I have a personal cause that I would like to devote 5 million to, when I turn 60. I would live on the other 5 million. My goal of 10 million won't change, so thats that. Based on the responses, and the math, I think I need about a 6.75% annualized return. I think that historically, it is certainly possible to hit that annualized rate of return. I guess we will see. In the interim, my only reasonable choice is to save and invest more.
For those market predicting individuals who think the market will not fare as well in the future, could you please let me know at which % of interest rates and DOW level, that you think it will do well and outperform? That educated information on timing would be helpful for me to know for future planning. I have timed very many stocks with excellent results, but I threw in the towel recently to just index. With so many responses decrying the historical market return, I'm sure someone is aware of what situation will be in the future, so we can count on better than expected returns at some point. What are the triggers for better than expected returns? When people talk about the market being at a high, doesn't one have to be at a high to move even higher? I don't get the timing stuff as well as you experts perhaps, but I am willing to learn.
Of course no one can predict the future, but surely a reasonable guess for bond fund returns is the current yield assuming the time ahead we are projecting isn't drastically larger than the duration of the fund? Once we have a reasonable guess on the return of the bond component of your portfolio, we might be able to see what the stock return would have to be to let you reach your goal and see if it looks low or high relative to historical returns. I think some of the comments you are reacting to might be implicitly using some of that reasoning, but even if they aren't, there is no universally accepted "historical return" anyway! Vanguard's 10 year projection looks reasonable enough to me but I don't put a lot of confidence in any projection: https://pressroom.vanguard.com/press_re ... .2014.html

lululu
Posts: 1378
Joined: Thu Apr 10, 2014 4:23 pm

### Re: 2.5 mil to 10 mil - are we on track

HomerJ wrote: Me, I see no reason not to expect historical returns over the long-term... with some variability thrown in there of course... Good to plan with a conservative number, but I do actually expect near historical returns.
We're in a major restructuring of the economy. In the U.S., a lot of good jobs are gone forever. A lot more people are in poverty or living a much lower lifestyle. There will be very significant, in some substantial cases, catastrophic weather events, sea level changes, drought. The Fed is wedded to low returns ad infinitum it seems, so the 13% of the population that is financially conservative seniors is up the creek.

I don't expect historical returns.

Big Jim
Posts: 8
Joined: Fri Mar 21, 2014 12:07 am

### Re: 2.5 mil to 10 mil - are we on track

LH wrote:
Rafferty wrote:It is interesting that people comment on private school - my question didn't ask about that, and I know the cost - I am writing the check, so obviously I am aware of the cost. Anyway, I appreciate your judgment and concern for my kids and their alternatives.

It is also interesting that people think we are going to be below historical returns, yet this board has a principle - that one cannot predict future returns. How can it be boglehead-ish to predict that we will underperform historic norms, but yet also say that we can't predict the future, and we therefore should stay the course. Seems paradoxical.

Anyway, I will look into other ways to get to 10 million, seems it feels like there is pessimism. It may mean cutting back a little and saving a little more. At my age of 44, it seems like a 60/40 s/b mix is appropriate, and i don't envision changing it too much.

For some, the goal of 10 million seems outlandish, but remember that there is a population out there that might think that 1 million is outlandish. That population would be 95% of the world's several billion population. So everyone has a set point.
Human beings have zero clue what the market will bring. Its like death of equities businessweek cover of 1979. Or the IMF april 2007 report.

https://www.imf.org/external/pubs/ft/gf ... /chap1.pdf

There you go, top of the line thought. I really recommend reading those two. Its fun to go back and read books, newspaper articles from past times. Very similiar to whats said today, just different variations. No one knows. Its funny really.

Basically, at best they take some formulas that have been extant since the 1950s at least, choose inputs, then come up with projections, that match human straightline extrapolation of recent events. Thats about all there is to it. Its hardwired behavior, dressed up in some math. Usually, they just tell a story. Humans like stories.

People have zero clue in 1929, of the depression, zero clue in 1979, 1981 of the 17 year 17 percent average annual stock boom of the 80s and 1990s. Zero clue in 2007.

If we have a great depression II, I would not be a bit surprised rationally (though emotionally would still hit me hard), if we have a stock boom for 10 years I would not be surprised, nor muddling along.

All thats changed from 2007 for me, is that I can really see a GDII happening now, whereas before, it was more of a "well possible, but wont happen" type of deal. I was probably just fooling my then : ) Looking around at the financial debt structure is highly interesting, will make for a great econ class discussion in 2040 quite possibly.

rinse repeat.
This is my first post and I just wanted to say, I love this place! Posts like this make me smile--the differing opinions from very intelligent people are great.

rafferty-- If you've done so well picking stocks in the past, why don't you continue to do it with a small portion of your nest egg now? Some people really *are* good at it. If you have the emotional discipline and such as well, well then… I like the sounds of how you went about it too, you invested in companies you thought had strong products and could do well, and you were right. Seems pretty "Buffety" and "Grahamy" to myself.

BundyBundy
Posts: 33
Joined: Sat May 10, 2014 8:52 pm

### Re: 2.5 mil to 10 mil - are we on track

Look into diversifying into other areas. The stock market is at an all time high and some people believe that the market is currently overvalued. It is really risky to reallocate to a 70-30 split, but who knows. Also, rates are likely to rise too which will hurt bond prices.

Maybe you can look into diversifying into other areas - real estate, etc.