Realistic "real" returns for next 20 years

[kombat]

(Re: Passive funds charging fees of 2.5+%)

Actually take a look at them, it is buried in there. I was surprised when I actually took the time to analyze my 401K accounts before I transferred the ones I could to Scottrade. Some are fees within fees so it is a hidden cost and some were even as high as 5% plus whatever other fees were added after that. I used 2.5% as a low estimate.

Those are for actively managed funds, not passive. Nobody pays 2.5% for a passively-managed index fund.

 

[Texas Proud]

You can diss it all you want but we make 100% a year in bad years.

And how many years have you been investing


And what is a good year

 

[M Paquette]

(Re: Passive funds charging fees of 2.5+%)

Those are for actively managed funds, not passive. Nobody pays 2.5% for a passively-managed index fund.

Well, unless they are stuck with a 401K run by an insurance company. DS is stuck with one of these. Reading the prospecti is... interesting. One fund simply invests everything in QQQ, and charges a management fee of 1.2% this year. Definitely not vanguarding...

 

[EvrClrx311]

You can diss it all you want but we make 100% a year in bad years.

I'll stake you another $100K and I'll let you keep all of the returns above 50% a year...

wait, this smells a lot like a Ponzi...

Me--->

 

[Old Microbiologist]

Another article: Mutual Fund Trading Costs Go Unreported - WSJ.com

Perhaps it is more in line with 1.2% BUT reading on it I believe I am correct in what I am saying. There are a lot of hidden and deeply buried costs which may be hidden in the transaction fees. These funds are making their managers wealthy and operate at a profit. 1.2% is a bad business model so the money is coming from somewhere so you need to look closer at where that might be coming from. Plus they invest your money for their own purposes and do not share those profits with you.

For my corporate 401k I was not only charged fees as part of the mutual fund packages offered but also had to pay $150 a year for the privileged of having a 4091k with my company. As I said before I do not want or need anyone to manage and use my money.

 

[REWahoo]

1.2% is a bad business model so the money is coming from somewhere so you need to look closer at where that might be coming from. Plus they invest your money for their own purposes and do not share those profits with you.

I understand they invest heavily in tinfoil futures.

 

[brewer12345]

IOW...

 

[FIREd]

I don't know what kind of real returns to expect over the next 20 years, but if I can achieve 2.5-3% (right in line with my planned WR), I'll be happy.

 

[nun]

Another article: Mutual Fund Trading Costs Go Unreported - WSJ.com

There are a lot of hidden and deeply buried costs which may be hidden in the transaction fees. These funds are making their managers wealthy and operate at a profit. 1.2% is a bad business model so the money is coming from somewhere so you need to look closer at where that might be coming from. Plus they invest your money for their own purposes and do not share those profits with you.

The vast majority of participants in this forum probably agree with your sentiments regarding mutual funds. Therefore, they seek out low fees and are well aware of the transaction costs associated with mutual funds. I think you should research Vanguard Admiral Class funds.

 

[pb4uski]

Another article: Mutual Fund Trading Costs Go Unreported - WSJ.com

Perhaps it is more in line with 1.2% BUT reading on it I believe I am correct in what I am saying. There are a lot of hidden and deeply buried costs which may be hidden in the transaction fees. These funds are making their managers wealthy and operate at a profit. 1.2% is a bad business model so the money is coming from somewhere so you need to look closer at where that might be coming from. Plus they invest your money for their own purposes and do not share those profits with you.

For my corporate 401k I was not only charged fees as part of the mutual fund packages offered but also had to pay $150 a year for the privileged of having a 4091k with my company. As I said before I do not want or need anyone to manage and use my money.

The article is a perceptive glimpse of the obvious. The fact that transaction costs are not included in expense ratios and will vary with trading activity is well known, but an investor with a similar portfolio of individual stocks making the same trades would incur the same costs so it would be a wash.

 

[haha]

I think this may become my all-time favorite thread.

Ha

 

[pb4uski]

Where is Porky when you want him?

 

[REWahoo]

Where is Porky when you want him?

Day trading...

 

[pb4uski]

 

[Lsbcal]

Another article: Mutual Fund Trading Costs Go Unreported - WSJ.com

Perhaps it is more in line with 1.2% BUT reading on it I believe I am correct in what I am saying. There are a lot of hidden and deeply buried costs which may be hidden in the transaction fees. These funds are making their managers wealthy and operate at a profit. 1.2% is a bad business model so the money is coming from somewhere so you need to look closer at where that might be coming from. Plus they invest your money for their own purposes and do not share those profits with you.

For my corporate 401k I was not only charged fees as part of the mutual fund packages offered but also had to pay $150 a year for the privileged of having a 4091k with my company. As I said before I do not want or need anyone to manage and use my money.

Many of us here, as ReWahoo noted, use Vanguard. Also we are not locked in 401k's. Take a look at their ETF index funds which have ER's of 0.10%. Some of these ETF's with low bid ask spreads are: VTV (large value index), VEU (international), VOE (mid value index).

We are on thread drift here and I'll get off this subject.

 

[Lsbcal]

Besides inflation and healthcare costs as huge wildcards for those of us seeking FIRE in about 20 years, realistic annual stock returns are the great unknown in the next 20 years.

When I attempt to get to the "number" I need, I figure the overall market will return as follows. I would like to hear what others see as realistic after inflation returns:

total us stock index 4%
Total intl index 3%
Total bond index 1.5%

Am I too pessimistic?

Why not just look at FIRECalc over 20 year periods. That is history and it's the best set of period outcomes I can think of. Try to use non-overlapping periods. Look at the spreadsheet results for this.

Nobody knows the future so why ask everybody to guess? But I know this is fun stuff. So here is my wild guess at 20 year future CAGR's:
stocks US & foreign = 5.5% real return
intermediate bonds = 2.0% real return

 

[Nords]

I don't know what kind of real returns to expect over the next 20 years, but if I can achieve 2.5-3% (right in line with my planned WR), I'll be happy.

No no no, you should start with $100 (like Buffett did) and then pray for 20 bad years.

That'll give you 100% APY for two decades, which my calculator claims is... apparently it exceeds the total of all the world's currencies.

 

[traineeinvestor]

No no no, you should [-]start with $100 (like Buffett did) and then[/-] pray for 20 bad years.

Not if you are in the withdrawl phase.

<sarcasm detector reactivated>

 

[obgyn65]

For what it's worth, I don't think you are being too pessimistic. I am planning for 3% overall return per year up to age 62 (I am 47), then 4% as I factor annuities in. My SWR is about 3.5%.

total us stock index 4%
Total intl index 3%
Total bond index 1.5%

Am I too pessimistic?

 

[Old Microbiologist]

Michael, you are correct. Day Trading is at regular rates and long term is 15%. If you live overseas it is all considered overseas earned income credit under (I forget this years number but something like $90k). Of course, there are other ways to declare this which is complicated but you can cut your tax liability.

Perhaps, I didn't make it clear though. We have 6 accounts at the moment. Two are brokerage which are for Day Trading (hers and mine). The rest are either Roth or traditional (roll-over's) IRA's and these we can trade fast (less than 1 year) or slow. Most of our money is in the latter accounts and most of these stay solid and don't need too much adjustment. In the brokerage accounts we earn the highest rate of returns. In the IRA's it is a lot less but still runs typically above 25%, better some years like this one where we loaded up with Apple, or worse on other years but we are still doing well on them. Sometimes it is better to be actively managing them and make trades to adjust the portfolio to avoid losses. In this case it is better to pay the taxes which for us are low.

I believe from my stories I have related that I have made it clear that Day Trading is risky. As I said there are 2 forces which ruin Day Traders, Greed and Fear. And, I know no one who doesn't screw up in the second year. If you can get past that and find a level emotional playing field then you can do well. The market is a very hostile and volatile place. Equity managers do this same work for you but are more conservative. However, if you are able to manage your own portfolio rather than a fund does, you will enjoy the benefits of your own decisions, not pay any fees to the fund managers and if you are any good at forecasting you can out-perform any mutual fund. If I was young this is what I would do and not mess with Day Trading. If I was in my late 50's and had little cash (perhaps after a divorce) I would learn as much as I could and try to earn enough for retirement.

 

[MichaelB]

Michael, you are correct. Day Trading is at regular rates and long term is 15%. If you live overseas it is all considered overseas earned income credit under (I forget this years number but something like $90k). Of course, there are other ways to declare this which is complicated but you can cut your tax liability.

The foreign earned income exclusion only applies to earned income. Capital gains are unearned income and cannot be excluded.

 

[nun]

Michael, you are correct. Day Trading is at regular rates and long term is 15%. If you live overseas it is all considered overseas earned income credit under (I forget this years number but something like $90k). Of course, there are other ways to declare this which is complicated but you can cut your tax liability.

If you are an NRA the US does not tax capital gains from the sale of stocks. Also the foreign earned income exclusion only applies to earned income.....not capital gains. As a US citizen resident abroad the IRS will tax your worldwide capital gains. You will also have to comply with local tax law and apply the relevant tax treaty.

 

[Ken11]

back on topic...

For my deterministic plan I use 3% inflation and 5.5% nominal returns from a 60/40 equity mix.

Prior to the crash based on input from a planner I would have assumed 7.5% returns.
Backing off the pre-crash return assumptions by over 25% (5.5 versus 7.5) seems like a good balance between reflecting current realities/uncertainties and being overcome with overly pessimistic recency bias.

Is there risk to this assumption - Yes.
Is there upside opportunity - Yes.
That indicates a balanced assumption IMHO.

A very low risk assumption is something different.

 

[pb4uski]

back on topic...

For my deterministic plan I use 3% inflation and 5.5% nominal returns from a 60/40 equity mix.

Prior to the crash based on input from a planner I would have assumed 7.5% returns.
Backing off the pre-crash return assumptions by over 25% (5.5 versus 7.5) seems like a good balance between reflecting current realities/uncertainties and being overcome with overly pessimistic recency bias.

Is there risk to this assumption - Yes.
Is there upside opportunity - Yes.
That indicates a balanced assumption IMHO.

A very low risk assumption is something different.

+1 Ken, did you somehow access my deterministic plan? My assumptions are exactly the same. I like the way you think.

 

[nun]

back on topic...

For my deterministic plan I use 3% inflation and 5.5% nominal returns from a 60/40 equity mix.

Prior to the crash based on input from a planner I would have assumed 7.5% returns.
Backing off the pre-crash return assumptions by over 25% (5.5 versus 7.5) seems like a good balance between reflecting current realities/uncertainties and being overcome with overly pessimistic recency bias.

Is there risk to this assumption - Yes.
Is there upside opportunity - Yes.
That indicates a balanced assumption IMHO.

A very low risk assumption is something different.

I use a return of 4%. I have $15k in rental income which is a big help in my planning. It is as close to guaranteed as you can get as I live in Boston and the rental market is strong with real estate being so expensive and the number of young professionals and college students around.