This is fascinating to me. Your examples expanded:OkieIndexer wrote: ↑Wed Jan 03, 2018 7:46 pmHistorically, the earnings yield of the market has been a pretty good predictor of long-term (7-20 years, roughly) real returns. The earnings yield is simply the reciprocal of the P/E ratio. Currently the Shiller P/E ratio is 33, so the earnings yield of the S&P 500 right now is 1/33 = 3%. Thus over the next 7-20 years roughly you can expect around a 3% total real return from the S&P 500. That's assuming inflation stays relatively stable. If inflation goes up more than expected, you could easily have a negative real return, even out to 20 years. If we get a deflationary depression, real returns could end up negative. But let's assume pretty steady 2% inflation and go with 3% real returns.

For bonds, the current yield is pretty much what you can expect your nominal return to be. The Total Bond fund yield right now is only 2.5%, so if we assume 2% inflation, your real annualized return can be expected to be around 0.5-1% with Total Bond.

Thus a 60/40 portfolio's expected long term real return right now = 0.6(3%) + 0.4(1%) = 2.2% real annualized.

Is a 2% real annualized return over the next ~7-20 years enough to meet your goals?If so, then 60/40 will probably be fine. If not, and you think you can emotionally sit through a couple of 50% plunges in equities, then you need to go with a higher equity allocation.

If you want to factor in international equities, just do the calculations above with a 22 P/E ratio (i.e. 4.5% real expected return long term), which is approximately what the Shiller P/E is right now for World ex-U.S.

Edit: I see you mentioned you want 20% international equities, so your expected real return = (0.2*0.6)(4.5%) + (0.8*0.6)(3%) + 0.4(1%) = 2.4% real annualized. Is that enough to meet your goals? If not, you'll probably need more equities.

60/40 AA (0.2*0.6)(4.5%) + (0.8*0.6)(3%) + 0.4(1%) = 2.38%

70/30 AA (0.2*0.7)(4.5%) + (0.8*0.7)(3%) + 0.3(1%) = 2.61%

75/25 AA (0.2*0.75)(4.5%) + (0.8*0.75)(3%) + 0.25(1%) = 2.73%

Assuming I save $8,500/month for the next 30 years each portfolio would return:

60/40 $5,709,768.33

70/30 $5,965,413.09

75/25 $6,104,150.59

Assuming my wife outlives me to 89 would mean a 27 year target of funds. At $15k/month (not counting additional returns during this period b/c I don't know the math) this is a portfolio value of $4,860,000. In theory I "win" with any of these AA - why not take the road with less potential stress?

There's obviously more unknowns to this - what the actual market returns will be, my ability to continue saving, my actual life expectancy, etc... But even if I was working off of a target of $5M at retirement, what % of buffer on this goal should be accounted for in my plan?