Annual returns for mutual funds for retirement in 25 years?

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schrute
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Annual returns for mutual funds for retirement in 25 years?

Post by schrute » Sun Jun 11, 2017 8:25 pm

I've looked at some mutual funds and the last 10 years I'm seeing returns of around 8%. In some cases, I see 10%. But the S&P 500 has been 15% over the last 75 years or so.

I'm looking to retire around 25 years from now.

livesoft
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by livesoft » Sun Jun 11, 2017 8:30 pm

I'd guess somewhere between 0.217% and 11.348%, but I can't be more precise than that.

OTOH, it doesn't really matter because what is the alternative?
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schrute
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by schrute » Sun Jun 11, 2017 8:32 pm

The alternative is to invest in stocks and have some bonds. Or consider closed-end funds.

Besides some mutual funds have different performances and the differences between 2% over 20 years could be many hundreds of thousands.

avalpert
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by avalpert » Sun Jun 11, 2017 8:39 pm

schrute wrote:The alternative is to invest in stocks and have some bonds. Or consider closed-end funds.
What is it you think you are investing in when you invest in mutual funds?
Besides some mutual funds have different performances and the differences between 2% over 20 years could be many hundreds of thousands.
And if you can correctly guess which mutual fund (or sector, or stock) will outperform others over the next 25 years you won't be posting it here - you'd be raking in your millions quietly and taking very early retirement.

You might want to start from the beginning.

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arcticpineapplecorp.
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by arcticpineapplecorp. » Sun Jun 11, 2017 9:20 pm

First off, past performance is no guarantee of future results.

Secondly, are you planning on holding 100% of your portfolio in stocks for the next 25 years? If not, then I wouldn't count on getting 15%/year (even if that was the return of stocks) because you'd only get that if you were 100% in stocks. Any amount you hold in bonds will reduce your overall return. So you have to factor that in. A poster a couple years ago was upset the market went up 10% but his target date retirement fund (which contained 60% stocks) only went up 6%. He got exactly what he deserved, but didn't understand that his overall portfolio performance was based on the sum of the weighted average returns of the asset classes (something like that). If you don't understand that, we can explain in greater detail.

Thirdly, can I ask where you are getting the S&P500 index earning 15% over the last 75 years? I don't see that anywhere. I think the best performance was from 1980-1999. The S&P500 index fund averaged 17.5% per year during that time. But that was only 20 years, not 75. I think the long term average (long term meaning more like a normal saving period of 30-40 years before starting to make withdrawals) has been closer to 8% per year and that has been before inflation. Though some have shown 8-10 percent too (like this one at Vanguard says 10.1% between 1926-2016. source: https://personal.vanguard.com/us/insigh ... llocations):

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The "Composite Index",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] source: https://en.wikipedia.org/wiki/S%26P_500 ... al_returns
So going back 75 years from today puts us at 1942. The S&P index only had 90 stocks between 1942-1956. So even if you're looking over a 75 year period, do you think it's an apples to apples comparison if some years during those 75 years the S&P had 90 stocks, some years 500 stocks and some years 510 stocks? Yes, 510 stocks. That's how many stocks right now are in the S&P500 index fund with Vanguard (source: https://personal.vanguard.com/us/funds/ ... undId=0040):

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HomerJ
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by HomerJ » Sun Jun 11, 2017 9:24 pm

schrute wrote:I've looked at some mutual funds and the last 10 years I'm seeing returns of around 8%. In some cases, I see 10%. But the S&P 500 has been 15% over the last 75 years or so.

I'm looking to retire around 25 years from now.
I don't think the S&P 500 has returned 15% over the last 75 years or so.

Long-term average returns have been in the 10% range, I believe.

"have been" being key here. No one can tell you what the returns will be over the next 25 years.

I'm planning on positive returns. Since the long-term average has been around 10%, I'm shooting for 6%, and hoping to be pleasantly surprised. If it's less, I'll retire with less or try to work longer.

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Re: Annual returns for mutual funds for retirement in 25 years?

Post by pkcrafter » Sun Jun 11, 2017 9:30 pm

schrute wrote:I've looked at some mutual funds and the last 10 years I'm seeing returns of around 8%. In some cases, I see 10%. But the S&P 500 has been 15% over the last 75 years or so.
This just shows you that 8-10 years means very little, and it provides no insight into the 8-10 after that. The S&P500 has had a return of about 10% annually since 1928, but that's not a very useful bit of information.


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alex_686
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by alex_686 » Sun Jun 11, 2017 10:54 pm

Past returns don't predict future returns alas. There is no mean, there is reversion to the mean. One of the best predictors out there, with a explanatory power of about 30%, is Shiller's 10 year CAPE. It suggests stocks will return around 3% real over the next 10 years. So, below average.

For 25 years? I am somewhat arrogant that I can predict 10, there is no way I am going to predict 25 years.

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Re: Annual returns for mutual funds for retirement in 25 years?

Post by AlohaJoe » Sun Jun 11, 2017 11:20 pm

schrute wrote:I've looked at some mutual funds and the last 10 years I'm seeing returns of around 8%. In some cases, I see 10%. But the S&P 500 has been 15% over the last 75 years or so.
All of the other posts appear to have missed this salient detail:

Mutual fund returns over the last 10 years have been where they are because of 2008, which was the 2nd biggest annual drop in US history.

To the OP: did you not hear about 2008? It was kind of a big thing at the time.

dbr
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by dbr » Mon Jun 12, 2017 9:29 am

Even if you know the expected return for funds or a fund, that doesn't tell you what you will get over any particular period of time. Also, you can't know the expected return ahead of time, except as an estimate subject to uncertainty. I am saying that investing is uncertainty compounded on uncertainty and yet we do expect we will be better off doing it rather than not.

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Re: Annual returns for mutual funds for retirement in 25 years?

Post by carolinaman » Mon Jun 12, 2017 9:57 am

Many experts are forecasting lower than average returns in the next 10 years. This is an excerpt from Schwab:

"Our estimates show that, over the next 10 years, stocks and bonds will likely fall short of their annualized returns from 1970 to 2016. The estimated annual expected return for U.S. large-cap stocks from 2017 to 2026 is 6.7%, for example, compared with an annualized return of 10.3% during the historical period. Small-cap stocks, international large-cap stocks, core bonds and cash investments also are projected to post lower returns through 2026."

http://www.schwab.com/public/schwab/nn/ ... the-Future

Schwab is more optimistic than some other experts who are expecting 5% to 6%.

I suggest you do some research to get a better handle on realistic returns for the next 10 to 25 years, and plan accordingly. BTW, predicting future returns is a very inexact endeavor but there are sound reasons why experts are expecting lower returns.

See another forecast by McKinsey Institute:

http://www.mckinsey.com/industries/priv ... eir-sights

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HomerJ
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by HomerJ » Mon Jun 12, 2017 12:24 pm

carolinaman wrote:Many experts are forecasting lower than average returns in the next 10 years. This is an excerpt from Schwab:

"Our estimates show that, over the next 10 years, stocks and bonds will likely fall short of their annualized returns from 1970 to 2016. The estimated annual expected return for U.S. large-cap stocks from 2017 to 2026 is 6.7%, for example, compared with an annualized return of 10.3% during the historical period. Small-cap stocks, international large-cap stocks, core bonds and cash investments also are projected to post lower returns through 2026."

http://www.schwab.com/public/schwab/nn/ ... the-Future

Schwab is more optimistic than some other experts who are expecting 5% to 6%.

I suggest you do some research to get a better handle on realistic returns for the next 10 to 25 years, and plan accordingly. BTW, predicting future returns is a very inexact endeavor but there are sound reasons why experts are expecting lower returns.

See another forecast by McKinsey Institute:

http://www.mckinsey.com/industries/priv ... eir-sights
Anyone good at finding forecasts from the PAST? My Google-fu is not very good I guess, or perhaps financial sites don't care to keep old erroneous forecasts up on their sites.

I did find this from Research Affiliates..

https://www.researchaffiliates.com/docu ... Return.pdf

Page 6 of 7 says
As of late 2011, the expected annualized 10-year return for the equity market is 6%
That's nominal. Real prediction was 4% or less. Instead we've gotten like 11%-12% real over the past 6 years... But 10-years aren't up yet, so maybe they will still proven correct.

They had good reasons back in 2011.
With earnings today at a cyclical peak, developed economies mired in an historic debt-fueled economic contraction, unsustainable fiscal deficits, and aging demographics....
Were earnings at a cyclical peak in 2011? They seemed pretty certain about it.

Nobody knows enough to predict anything.

Edit: Don't get me wrong. I'm not trying to say good times will continue forever. The next ten years may indeed give us poor returns. Bad times usually follow good times, and vice-versa. It's been running in cycles like that for more than a hundred years. But I would just accept that we don't know the future. We're going to get what we get. Assume a low conservative return number, and hope to be surprised.
Last edited by HomerJ on Mon Jun 12, 2017 1:07 pm, edited 1 time in total.

dbr
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by dbr » Mon Jun 12, 2017 1:03 pm

If someone is going to estimate the expected return they also need to estimate the variability and an estimate of error on those estimates. The Portfolio Solutions forecast at least includes an estimated standard deviation and also an estimate of inflation. Then the investor has to understand the implication of something being statistically variable and how to distinguish compound growth and average annual numbers.

https://portfoliosolutions.com/latest-l ... ecast-2015

Trying to decide how variable everything is the next ten years, the ten years after that, and the ten years after that is pretty tricky.

alex_686
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by alex_686 » Mon Jun 12, 2017 1:09 pm

dbr wrote:Trying to decide how variable everything is the next ten years, the ten years after that, and the ten years after that is pretty tricky.
I will slightly disagree with you. I personally think 10 year forecasts lie in the sweet spot. Economic crisis, bubbles, and irrational behavior make short term forecasts hard. At 10 years most of these transient forces dissipate leaving long term fundamental economic forces to dominate. However, extend more than 10 years and it is hard to see how various economic forces - in particular production technology - will change.

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Re: Annual returns for mutual funds for retirement in 25 years?

Post by NoVa Lurker » Tue Jun 13, 2017 8:35 am

alex_686 wrote:Economic crisis, bubbles, and irrational behavior make short term forecasts hard. At 10 years most of these transient forces dissipate leaving long term fundamental economic forces to dominate.
There is truth in this, but I do think many people learned the wrong lessons from 2008-12, and one of those "wrong lessons" is that a financial crisis / investor irrationality is by definition a short-term phenomenon. In 2008-09, the stock market completely crashed, then crashed some more, then crashed some. People were terrified. But essentially that all happened over the course of less than a year, and then markets rebounded. So people "learned" that you just have to stay the course and not sell when markets crash, because asset prices will soon roar back.

However, the wisdom of "past results do not predict future performance" still applies. The next downturn could last 10+ years, or 25+. We don't know, and a lot depends on government action in response to whatever events occur. Collective action and collective psychology are tricky things.

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Re: Annual returns for mutual funds for retirement in 25 years?

Post by Admiral » Tue Jun 13, 2017 9:19 am

schrute wrote:I've looked at some mutual funds and the last 10 years I'm seeing returns of around 8%. In some cases, I see 10%. But the S&P 500 has been 15% over the last 75 years or so.

I'm looking to retire around 25 years from now.
There are only three things under your control: 1) the amount of your contributions, 2) your asset allocation, 3) the expenses your investments will cost you.

Keep #1 as high as is affordable, #2 with whatever allows you to sleep at night, and #3 as low as possible (Total Stock/Total International are good choices for stocks).

Everything else is noise.

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Re: Annual returns for mutual funds for retirement in 25 years?

Post by KyleAAA » Tue Jun 13, 2017 11:45 am

I'd expect around 9% per year for the S&P 500 over the next 25 years, but i could be wrong. If i had to give an interval I was fairly confident in, I would say 6-12%.

rgs92
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by rgs92 » Tue Jun 13, 2017 11:52 am

livesoft wrote:I'd guess somewhere between 0.217% and 11.348%, but I can't be more precise than that.

OTOH, it doesn't really matter because what is the alternative?
LOL!

dbr
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Re: Annual returns for mutual funds for retirement in 25 years?

Post by dbr » Tue Jun 13, 2017 12:00 pm

The reason to want to know these numbers is so that one can decide what to do now, such as how much saving to do to hope for a future outcome.

The answer to the problem is that you recognize that returns are a sample from a distribution and you have to view the outcome as a range of possibilities. Then you can plan a strategy based on certain chances of getting various outcomes and deciding what chances to take. The problem is somewhat more complex because there is uncertainty in estimating the probabilities. There are various retirement calculators that present the results in this way. If one wants to question the certainty of the estimated distributions, one can impose a second level or one can vary the input distributions and run a sensitivity study.

As a practical matter one approaches retirement by successive approximations rather than by multi-decade plans. Often the approximations are upset by discontinuities handed to us by life.

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