gratefuled
Recycles dryer sheets
- Joined
- Oct 1, 2004
- Messages
- 178
So it's generally held that 11% is the plug-in rate for long-term nominal equities returns, based on history. Problem is: prove it.
The number I'm most inclined to use in my own modeling is the SSA's estimate that long-term real equities return has been 6.5%. Great, so if I use that I can avoid a CPI deflator in my model (3.41% average since 1914, by the way.) But I don't believe CPI (or PPI) is comprehensive enough, and the maddening thing is that if I inflate the 6.5% return by the 3.41% CPI average, I'm still nowhere 11%.
My conclusion after a few hours of research is that there's much convention and little science in 11%. I've searched this board for a similar thread and I've Googled all of cyberspace, and I haven't found a firm footing for that number. Maybe I'm missing something?
Ed
The number I'm most inclined to use in my own modeling is the SSA's estimate that long-term real equities return has been 6.5%. Great, so if I use that I can avoid a CPI deflator in my model (3.41% average since 1914, by the way.) But I don't believe CPI (or PPI) is comprehensive enough, and the maddening thing is that if I inflate the 6.5% return by the 3.41% CPI average, I'm still nowhere 11%.
My conclusion after a few hours of research is that there's much convention and little science in 11%. I've searched this board for a similar thread and I've Googled all of cyberspace, and I haven't found a firm footing for that number. Maybe I'm missing something?
Ed