Return Assumptions over Next 15 years

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delrinson
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Return Assumptions over Next 15 years

Post by delrinson » Fri Oct 06, 2017 9:39 am

My invested assets are roughly 80% stocks (for the most part, invested in the entire market), 15% bonds, and 5% REITs. Like many of us, I have a spreadsheet with certain assumptions built in to track retirement savings projections. I am in my mid 50's....the spreadsheet distinguishes between return prior to age 70 and return after age 70.

Equity markets are clearly very high right now, with the Shiller PE above 31. Thus the 5% annualized return projection I had been using for prior to age 70 now seems unrealistic. Assuming the above portfolio allocation and reinvestment of all dividends, what strikes you as a more realistic return projection over the next 15 years? I'm thinking maybe 2-3% but am curious as to what others would use if they were in my shoes.

Thanks.

JBTX
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Re: Return Assumptions over Next 15 years

Post by JBTX » Fri Oct 06, 2017 9:56 am

delrinson wrote:
Fri Oct 06, 2017 9:39 am
My invested assets are roughly 80% stocks (for the most part, invested in the entire market), 15% bonds, and 5% REITs. Like many of us, I have a spreadsheet with certain assumptions built in to track retirement savings projections. I am in my mid 50's....the spreadsheet distinguishes between return prior to age 70 and return after age 70.

Equity markets are clearly very high right now, with the Shiller PE above 31. Thus the 5% annualized return projection I had been using for prior to age 70 now seems unrealistic. Assuming the above portfolio allocation and reinvestment of all dividends, what strikes you as a more realistic return projection over the next 15 years? I'm thinking maybe 2-3% but am curious as to what others would use if they were in my shoes.

Thanks.
Are you talking real returns or nominal? 2-3% real is probably reasonable. 4-5% nominal.

delrinson
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Re: Return Assumptions over Next 15 years

Post by delrinson » Fri Oct 06, 2017 9:57 am

I was thinking nominal since my spreadsheet takes account of projected inflation.

SimplicityNow
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Re: Return Assumptions over Next 15 years

Post by SimplicityNow » Fri Oct 06, 2017 10:11 am

I believe Jack Bogle states during recent interviews he expects a 4% - 5% nominal return for equities in the coming decade.

msk
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Re: Return Assumptions over Next 15 years

Post by msk » Fri Oct 06, 2017 10:18 am

It's all guesswork anyway, but at least a Monte Carlo simulation would give you a plausible range: https://www.portfoliovisualizer.com/mon ... simulation
Personally, I doubt that returns would be as bleak as many seem to expect. Why would anyone keep investing at a 2% real return long term? For the past 300 years business and industry delivered 5 to 6% in real terms. Productive Real Estate around 4% real. If the US cannot deliver around 5% annually in real terms investor greed will experience major shifts in investment locations/industries. That's why I am invested worldwide at market weight. Multi-nationals in general have far more opportunities, at double-digit nominal returns than their available capital. No need to be overly gloomy. Diversify and relax.

delrinson
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Re: Return Assumptions over Next 15 years

Post by delrinson » Fri Oct 06, 2017 10:31 am

For the purposes of my spreadsheet, I thought it might make sense to have it skewed a bit in the gloomy/pessimistic direction. I'd rather be pleasantly surprised than UNpleasantly surprised.

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MichaelRpdx
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Re: Return Assumptions over Next 15 years

Post by MichaelRpdx » Fri Oct 06, 2017 10:42 am

Each year I check the update to Vanguard's Economic and Market Outlook. Close to the bottom, they show the ranges and probabilities of returns for a variety of asset allocations. There are real and nominal projections. The document projects out ten years.
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Toons
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Re: Return Assumptions over Next 15 years

Post by Toons » Fri Oct 06, 2017 11:03 am

5%
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munemaker
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Re: Return Assumptions over Next 15 years

Post by munemaker » Fri Oct 06, 2017 11:17 am

For probably the last 5 years I have been reading about the experts saying stock and bond returns would be lower going forward. So far, they have been wrong. Yes, eventually they will be right, just like a broken clock is right twice a day. No one knows what the market is going to do.

deltaneutral83
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Re: Return Assumptions over Next 15 years

Post by deltaneutral83 » Fri Oct 06, 2017 1:22 pm

Do these projections include reinvested divs or not? I always see authors of these articles distinguish between real and nominal but not if the divs are reinvested.

alex_686
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Re: Return Assumptions over Next 15 years

Post by alex_686 » Fri Oct 06, 2017 1:24 pm

deltaneutral83 wrote:
Fri Oct 06, 2017 1:22 pm
Do these projections include reinvested divs or not? I always see authors of these articles distinguish between real and nominal but not if the divs are reinvested.
Everything I have read uses total returns.

Grt2bOutdoors
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Re: Return Assumptions over Next 15 years

Post by Grt2bOutdoors » Fri Oct 06, 2017 1:26 pm

deltaneutral83 wrote:
Fri Oct 06, 2017 1:22 pm
Do these projections include reinvested divs or not? I always see authors of these articles distinguish between real and nominal but not if the divs are reinvested.
It's total return, always. Capital appreciation is value of price increasing and distributions made and reinvested.
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kathyauburn
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Re: Return Assumptions over Next 15 years

Post by kathyauburn » Fri Oct 06, 2017 1:33 pm

delrinson wrote:
Fri Oct 06, 2017 9:39 am
My invested assets are roughly 80% stocks (for the most part, invested in the entire market), 15% bonds, and 5% REITs. Like many of us, I have a spreadsheet with certain assumptions built in to track retirement savings projections. I am in my mid 50's....the spreadsheet distinguishes between return prior to age 70 and return after age 70.

Equity markets are clearly very high right now, with the Shiller PE above 31. Thus the 5% annualized return projection I had been using for prior to age 70 now seems unrealistic. Assuming the above portfolio allocation and reinvestment of all dividends, what strikes you as a more realistic return projection over the next 15 years? I'm thinking maybe 2-3% but am curious as to what others would use if they were in my shoes.

Thanks.
I'm conservative and cautious, having lived through at least 3 bear markets that scared the bejeezers out of me. My current annualized projection is therefore 3.5% (I play with it with different scenarios in my head), and I feel quite comfortable that I will achieve it, thanks to a very modest allocation in stocks (so modest that I actually look forward to a bear market rather than fearing one--my current allocation lost ~5% in the bear market of 08-09) and a big amount in the TSP G fund. I keep forward projections at that and adjust previous years as they pass. Thankfully, I've been able to adjust up, so far. My hoped-for take is 3%, a bit more than the expected appreciation. If I'm lucky I'll end up with more money than I started with, and if I'm not lucky I will die long before I'm broke.

I believe the v-shaped "recovery" coming out of 08-09 has given many young investors today the wrong idea. In my opinion, some very wise folks were able to head off another Great Depression with financial wizardry. Less intelligent folks at the helm could have caused much more prolonged misery, a la the actual Great Depression. We got lucky.

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galeno
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Re: Return Assumptions over Next 15 years

Post by galeno » Fri Oct 06, 2017 2:04 pm

We hold a 40/60 port. We expect 4% CAGR from our equities and 2% from our FI. So the expected CAGR for our port = 3.6%.

We are retired and spend 3.5% of port per year. Inflation = 2.0%. ER = 0.18%. Taxes = 0.09%. Other port expenses = 0.01%.

For our portfolio to just tread water we need a CAGR = 5.9%. Call it an even 6%.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 2.8%. TER = 0.5%. Port Yield = 2.0%. Term = 35 yr. FI Duration = 6.2 yr. Portfolio survival probability = 100%.

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