Expected future returns?

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DPEMD
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Expected future returns?

Post by DPEMD »

I signed up for NewRetirement. They ask users to input expected future nominal returns for stock index (US & International) and intermediate Treasury Index funds. They specifically ask for optimistic and pessimistic numbers. What would you use?
Parkinglotracer
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Re: Expected future returns?

Post by Parkinglotracer »

Nominal after inflation How is 5.0% for equities and 3.5% for intermediate treasuries? Add / subtract 2% for equity best case / worst case and 1 % from those for best case / worst case for treasuries. It’s hard to make predictions especially about the future.


In my personal spreadsheet I predict my 65/35% portfolio will do 2.5% after inflation. I don’t rely on my forecast for anything really. If I needed my forecast to do anything for me I’d consider saving more because that is all I can really control. I am sure smart boglehead’s will have a better wild guess than I do.
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
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aristotelian
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Re: Expected future returns?

Post by aristotelian »

If this is some type of retirement calculator I would try it with 5%, 7%, and 9% for nominal returns.
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Re: Expected future returns?

Post by ScubaHogg »

Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Expected future returns?

Post by ScubaHogg »

Parkinglotracer wrote: Tue May 14, 2024 5:59 am In my personal spreadsheet I predict my 65/35% portfolio will do 2.5% after inflation.
Serious question. Why take a risk in equities at all if you think you will do hardly any better than an all TIPS portfolio?
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Expected future returns?

Post by RickBoglehead »

Why did you buy this?
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DPEMD
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Re: Expected future returns?

Post by DPEMD »

RickBoglehead wrote: Tue May 14, 2024 6:45 am Why did you buy this?
Some people on the message board said favorable things about it. It isn’t very expensive, so I figured I would try it our for a year. To set it up it asks for details about your accounts and asks for your optimistic and pessimistic rate of return. Since I’m still setting it up I dont have an opinion on it yet.
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Re: Expected future returns?

Post by Tamalak »

Nominal for stock funds (domestic and int'l both) are 10 year treasury + 4%, so about 8.5% now.

Optimistic/pessimistic would depend on the time range. The shorter the time range, the more extreme the optimistic/pessimistic outcomes would be. For 10 years I'd say 0.5% nominal pessimistic, for 30 years 4.5% nominal pessimistic. For 10 years 16.5% nominal optimistic and for 30 years 12.5% nominal optimistic.
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DPEMD
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Re: Expected future returns?

Post by DPEMD »

Tamalak wrote: Tue May 14, 2024 7:41 am Nominal for stock funds (domestic and int'l both) are 10 year treasury + 4%, so about 8.5% now.

Optimistic/pessimistic would depend on the time range. The shorter the time range, the more extreme the optimistic/pessimistic outcomes would be. For 10 years I'd say 0.5% nominal pessimistic, for 30 years 4.5% nominal pessimistic. For 10 years 16.5% nominal optimistic and for 30 years 12.5% nominal optimistic.
Thats really helpful. Thanks
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Re: Expected future returns?

Post by KneePartsPro »

My name is Knee Replacement Tutor and I confess I have no idea what to expect from my future returns.
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DPEMD
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Re: Expected future returns?

Post by DPEMD »

I ran the projections on NewRetirement. One thing that is obvious regardless of what assumptions you use is that to make your plan last until 100 years of age will lead to massive oversaving for the majority of people who don’t make it there
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Re: Expected future returns?

Post by DPEMD »

I ran the projections on NewRetirement. One thing that is obvious, regardless of what assumptions you use, is that to make your plan last until 100 years of age will lead to massive oversaving for the majority of people who don’t make it there
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Re: Expected future returns?

Post by watchnerd »

DPEMD wrote: Tue May 14, 2024 5:33 am I signed up for NewRetirement. They ask users to input expected future nominal returns for stock index (US & International) and intermediate Treasury Index funds. They specifically ask for optimistic and pessimistic numbers. What would you use?
50th percentile / median for next 10 years (not my numbers):

Global equity: 5.92%
Global bonds: 4.40%

Add as much Std Dev as you like to get optimistic and pessimistic.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
OMY
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Re: Expected future returns?

Post by OMY »

You did ask, so I will share under the guise of 🤷:

For straight line, long-term planning purposes I use (inflation + 1% - .3% fees). I guess inflation will average 3.3%, so I use 4% annual gains on 50/40/10 split. Again, 🤷
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Re: Expected future returns?

Post by Parkinglotracer »

ScubaHogg wrote: Tue May 14, 2024 6:41 am
Parkinglotracer wrote: Tue May 14, 2024 5:59 am In my personal spreadsheet I predict my 65/35% portfolio will do 2.5% after inflation.
Serious question. Why take a risk in equities at all if you think you will do hardly any better than an all TIPS portfolio?
I plan for the worst … I hope equities will do better though.
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

ScubaHogg wrote: Tue May 14, 2024 6:39 am
Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
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Re: Expected future returns?

Post by afan »

ScubaHogg wrote: Tue May 14, 2024 6:39 am
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
But you get the 2% real for a portfolio only if you are 100% TIPS. If you have some stock, then you have the possibilty of negative real returns. Those negative returns on stocks would drive down the portfolio returns even if TIPS had positive real returns.

Although TIPS guarantee a real return at maturity, before that their prices can be quite volatile and they can do down. A portfolio of TIPS will have a volatile value and will have negative retirns at times.

I use 1% real as my base case for simulations for a 70/30 portfolio. I also run it at 2%, just for curiosity.

How much money I will have in the future depends on what happens in the market. It does not depend at all on what I currently THINK will happen in the market.

I plan to be, long term, on average, a net saver through retirement. This means I will spend less than I think I could. That is fine with me. I would far rather save through retirement and eventually die with plenty of money than spend now and run out while still alive.

The former is simple good planning. The latter would be a disaster.
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DPEMD
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Re: Expected future returns?

Post by DPEMD »

Charles Joseph wrote: Tue May 14, 2024 10:17 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
Zero percent nominal returns over decades?
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Re: Expected future returns?

Post by Charles Joseph »

DPEMD wrote: Tue May 14, 2024 10:57 am
Charles Joseph wrote: Tue May 14, 2024 10:17 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
Zero percent nominal returns over decades?
Maybe not optimal but I didn't know how else to do it. And now that I'm retired I still simply divide my portfolio by 30 to estimate what I can spend (probably an underestimate of annual spending since nobody in my family has lived until 90, but one never knows).

Honestly, doing it any other way made (and now makes) me nervous.
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DPEMD
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Re: Expected future returns?

Post by DPEMD »

Charles Joseph wrote: Tue May 14, 2024 11:03 am
DPEMD wrote: Tue May 14, 2024 10:57 am
Charles Joseph wrote: Tue May 14, 2024 10:17 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
Zero percent nominal returns over decades?
Maybe not optimal but I didn't know how else to do it. And now that I'm retired I still simply divide my portfolio by 30 to estimate what I can spend (probably an underestimate of annual spending since nobody in my family has lived until 90, but one never knows).

Honestly, doing it any other way made (and now makes) me nervous.
I think a 100 %TIPs ladder would provide higher expected returns and less risk
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Re: Expected future returns?

Post by Charles Joseph »

DPEMD wrote: Tue May 14, 2024 11:06 am
Charles Joseph wrote: Tue May 14, 2024 11:03 am
DPEMD wrote: Tue May 14, 2024 10:57 am
Charles Joseph wrote: Tue May 14, 2024 10:17 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am

That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
Zero percent nominal returns over decades?
Maybe not optimal but I didn't know how else to do it. And now that I'm retired I still simply divide my portfolio by 30 to estimate what I can spend (probably an underestimate of annual spending since nobody in my family has lived until 90, but one never knows).

Honestly, doing it any other way made (and now makes) me nervous.
I think a 100 %TIPs ladder would provide higher expected returns and less risk
I am 50/50.
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ScubaHogg
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Re: Expected future returns?

Post by ScubaHogg »

afan wrote: Tue May 14, 2024 10:28 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
But you get the 2% real for a portfolio only if you are 100% TIPS. If you have some stock, then you have the possibilty of negative real returns. Those negative returns on stocks would drive down the portfolio returns even if TIPS had positive real returns.
If you assume equities aren’t going to return more than risk-free TIPS why invest in equities at all?
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Expected future returns?

Post by ScubaHogg »

Charles Joseph wrote: Tue May 14, 2024 10:17 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
If by “incredible trouble” you mean a couple hours one time in your life, sure. That seems like peanuts compared to the years of extra work you would need in order to save enough to mitigate 0% real returns

You are comparing apples to…I don’t know, mountains I guess
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Expected future returns?

Post by ScubaHogg »

Parkinglotracer wrote: Tue May 14, 2024 10:07 am
ScubaHogg wrote: Tue May 14, 2024 6:41 am
Parkinglotracer wrote: Tue May 14, 2024 5:59 am In my personal spreadsheet I predict my 65/35% portfolio will do 2.5% after inflation.
Serious question. Why take a risk in equities at all if you think you will do hardly any better than an all TIPS portfolio?
I plan for the worst … I hope equities will do better though.
If by planning you mean you are going to save enough to mitigate 2.5% real returns, I just don’t know why you’d take any equity risk at all

It’s better than assuming 0% real returns, which is almost masochistic, but still
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Expected future returns?

Post by watchnerd »

ScubaHogg wrote: Tue May 14, 2024 11:37 am
afan wrote: Tue May 14, 2024 10:28 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
But you get the 2% real for a portfolio only if you are 100% TIPS. If you have some stock, then you have the possibilty of negative real returns. Those negative returns on stocks would drive down the portfolio returns even if TIPS had positive real returns.
If you assume equities aren’t going to return more than risk-free TIPS why invest in equities at all?
A question I ask myself weekly at current stock prices.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Expected future returns?

Post by vanuber »

DPEMD wrote: Tue May 14, 2024 5:33 am I signed up for NewRetirement. They ask users to input expected future nominal returns for stock index (US & International) and intermediate Treasury Index funds. They specifically ask for optimistic and pessimistic numbers. What would you use?
I am using the free version of New Retirement and a 5% return rate on stock investments. I usually use 7% in my retirement planning which must be incredibly optimistic around here (0%, are you kidding me?!). 4% withdrawal rate.
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Re: Expected future returns?

Post by Wiggums »

DPEMD wrote: Tue May 14, 2024 5:33 am I signed up for NewRetirement. They ask users to input expected future nominal returns for stock index (US & International) and intermediate Treasury Index funds. They specifically ask for optimistic and pessimistic numbers. What would you use?
Rob Berger answers this exact question using New Retirement
(Starting at 4:56)

https://m.youtube.com/watch?v=Jq8JQuMj2sQ

We use the pessimistic number that Rob speaks about for planning purposes. Regardless of what number you use, you should always remember that the outcome of these tools is a range of outcomes.
"I started with nothing and I still have most of it left."
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Re: Expected future returns?

Post by Parkinglotracer »

ScubaHogg wrote: Tue May 14, 2024 11:41 am
Parkinglotracer wrote: Tue May 14, 2024 10:07 am
ScubaHogg wrote: Tue May 14, 2024 6:41 am
Parkinglotracer wrote: Tue May 14, 2024 5:59 am In my personal spreadsheet I predict my 65/35% portfolio will do 2.5% after inflation.
Serious question. Why take a risk in equities at all if you think you will do hardly any better than an all TIPS portfolio?
I plan for the worst … I hope equities will do better though.
If by planning you mean you are going to save enough to mitigate 2.5% real returns, I just don’t know why you’d take any equity risk at all

It’s better than assuming 0% real returns, which is almost masochistic, but still
No already retired. Luckily we have pensions that cover our retirement spending. I think 2.5 % nominal is a conservative estimate for a 65/35% portfolio. What would you use for the nominal return for equities and intermediate treasuries?
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

ScubaHogg wrote: Tue May 14, 2024 11:39 am
Charles Joseph wrote: Tue May 14, 2024 10:17 am
ScubaHogg wrote: Tue May 14, 2024 6:39 am
Charles Joseph wrote: Tue May 14, 2024 6:09 am How about planning for 0.00%, then saving until you have what you need? Then it's all gravy. There's a name for this, but I forget what it is. This is what I did.
That would be kinda silly given 2+% real rates from TIPS alone. Assuming 0% would require a lot of uneccesary sacrifices on a savers part.
That would only be if someone wants to go to the incredible trouble of using their entire portfolio to exclusively purchase a TIPS ladder. That is the only thing that will guarantee a real return of any sort. There's no guarantee for a TIPS fund; a portfolio manager may buy or sell TIPS before maturity, which could lead to losses.

Of course stocks and nominal bonds have no guarantees either. So, 0.00% estimate works. I mean, who knows? Others have stated on here that they've used zero returns as a planning estimate.
If by “incredible trouble” you mean a couple hours one time in your life, sure. That seems like peanuts compared to the years of extra work you would need in order to save enough to mitigate 0% real returns

You are comparing apples to…I don’t know, mountains I guess
"Apples and bowling balls, Tony." (Phil Leotardo in the Sopranos, talking to Tony behind the Bing)

I dunno. I retired at 59. I just saved until I had enough.
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

vanuber wrote: Tue May 14, 2024 12:44 pm (0%, are you kidding me?!).
What, what's the problem? I just saved until I had enough and then retired at 59.

I don't get all the outrage.
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

vanuber wrote: Tue May 14, 2024 12:44 pm
DPEMD wrote: Tue May 14, 2024 5:33 am I signed up for NewRetirement. They ask users to input expected future nominal returns for stock index (US & International) and intermediate Treasury Index funds. They specifically ask for optimistic and pessimistic numbers. What would you use?
I am using the free version of New Retirement and a 5% return rate on stock investments. I usually use 7% in my retirement planning which must be incredibly optimistic around here (0%, are you kidding me?!). 4% withdrawal rate.
It's your choice to use 7% of course, and your guess is absolutely no better or worse than anyone else's, but no professional analysts are predicting 7% for a stock/bond portfolio allocation. From memory, the ten-year outlook from Vanguard for example is maybe 4.5% for US stocks, 6-8 for exUS, 4.5 for bonds. Those are medians as I recall.

7%, are you kidding me?! :wink:
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Re: Expected future returns?

Post by watchnerd »

Charles Joseph wrote: Tue May 14, 2024 4:28 pm It's your choice to use 7% of course, and your guess is absolutely no better or worse than anyone else's, but no professional analysts are predicting 7% for a stock/bond portfolio allocation. From memory, the ten-year outlook from Vanguard for example is maybe 4.5% for US stocks, 6-8 for exUS, 4.5 for bonds. Those are medians as I recall.

7%, are you kidding me?! :wink:
Vanguard's 10 year outlook as of the 4/23/24 update:

US stocks: 4.7%
ex-US stocks: 7.9%
Global bonds: 4.4%

Weighted 60/40: 5.31%
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

watchnerd wrote: Tue May 14, 2024 4:36 pm
Charles Joseph wrote: Tue May 14, 2024 4:28 pm It's your choice to use 7% of course, and your guess is absolutely no better or worse than anyone else's, but no professional analysts are predicting 7% for a stock/bond portfolio allocation. From memory, the ten-year outlook from Vanguard for example is maybe 4.5% for US stocks, 6-8 for exUS, 4.5 for bonds. Those are medians as I recall.

7%, are you kidding me?! :wink:
Vanguard's 10 year outlook as of the 4/23/24 update:

US stocks: 4.7%
ex-US stocks: 7.9%
Global bonds: 4.4%

Weighted 60/40: 5.31%
Thanks watchnerd. hey I was pretty close from memory! Not bad for this old guy. 8-)
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Re: Expected future returns?

Post by nps »

Charles Joseph wrote: Tue May 14, 2024 4:25 pm
vanuber wrote: Tue May 14, 2024 12:44 pm (0%, are you kidding me?!).
What, what's the problem? I just saved until I had enough and then retired at 59.
There is no doubt that you could have retired with "enough" years earlier under a 2 percent real return assumption.
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Charles Joseph
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Re: Expected future returns?

Post by Charles Joseph »

nps wrote: Tue May 14, 2024 6:51 pm
Charles Joseph wrote: Tue May 14, 2024 4:25 pm
vanuber wrote: Tue May 14, 2024 12:44 pm (0%, are you kidding me?!).
What, what's the problem? I just saved until I had enough and then retired at 59.
There is no doubt that you could have retired with "enough" years earlier under a 2 percent real return assumption.
Nope. For a wide variety of personal reasons, no. But of course, you'd have zero insight into the many facets of my personal situation anyway. So your comment is, well, odd.
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