Index Fund Return Assumptions
Index Fund Return Assumptions
When you run retirement age projections, what kind of return do you assume if you are investing in various index funds?
I have used 7% assumed return on S&P500 and Total Market funds.
4% on Bonds
I feel these assumptions are quite conservative, but I wanted to get a handle on what everyone else here is using.
I have used 7% assumed return on S&P500 and Total Market funds.
4% on Bonds
I feel these assumptions are quite conservative, but I wanted to get a handle on what everyone else here is using.
 TomatoTomahto
 Posts: 9526
 Joined: Mon Apr 11, 2011 1:48 pm
Re: Index Fund Return Assumptions
Are those returns real or nominal?
I always use pessimistic returns, because I prefer my surprises to be positive ones. I am okay with 0% real returns, and delighted with 2% real.
I always use pessimistic returns, because I prefer my surprises to be positive ones. I am okay with 0% real returns, and delighted with 2% real.
Okay, I get it; I won't be political or controversial. The Earth is flat.
Re: Index Fund Return Assumptions
The more conservative you are in your assumptions, the fewer surprises you will see in the future. Bogle says that using a 2.5% yield for 10 year bonds looks about right. You might consider that number rather than 4%.
PartOwner of Texas 

“The CMHthe Cost Matters Hypothesis is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
 SimpleGift
 Posts: 3396
 Joined: Tue Feb 08, 2011 3:45 pm
 Location: Central Oregon
Re: Index Fund Return Assumptions
For bonds, the current yield is a good predictor of future returns. Today, Vanguard's Total Bond Index is yielding about 2.5% nominal — less projected inflation of 2% (the current Fed target) — so the estimated 10year return for highquality, intermediateterm bonds is about 0.5% real.mpowered wrote:When you run retirement age projections, what kind of return do you assume if you are investing in various index funds?
For stocks, the earnings yield (inverse of the priceearnings ratio) is considered a good estimate of future real returns. Today, the Shiller PE10 for the S&P 500 is at 26.6, so 1/26.6 = 3.8% real.
Re: Index Fund Return Assumptions
I normally do everything in real rates. ~4% or so for equity. Zero or so for fixed income. Been a couple of years or so since I did this exercise.
I always wanted to be a procrastinator.
Re: Index Fund Return Assumptions
Would you happen to know the Shiller PE10 for Vanguard Total International Stock Fund??Simplegift wrote:For bonds, the current yield is a good predictor of future returns. Today, Vanguard's Total Bond Index is yielding about 2.5% nominal — less projected inflation of 2% (the current Fed target) — so the estimated 10year return for highquality, intermediateterm bonds is about 0.5% real.mpowered wrote:When you run retirement age projections, what kind of return do you assume if you are investing in various index funds?
For stocks, the earnings yield (inverse of the priceearnings ratio) is considered a good estimate of future real returns. Today, the Shiller PE10 for the S&P 500 is at 26.6, so 1/26.6 = 3.8% real.
1210
 SimpleGift
 Posts: 3396
 Joined: Tue Feb 08, 2011 3:45 pm
 Location: Central Oregon
Re: Index Fund Return Assumptions
Don't know of a source for the Vanguard Total International Stock Fund directly, but you can get CAPE data for individual countries worldwide from these two websites:1210sda wrote:Would you happen to know the Shiller PE10 for Vanguard Total International Stock Fund?
• Star Capital has CAPE data for around 50 countries, both developed and emerging, as of 9/30/14
• Research Affiliates also has Shiller PE10 data for 12 developed markets and 13 emerging markets
Using the individual country numbers, one could calculate a weightedaverage CAPE for most any international index.