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Old 11-30-2012, 09:35 AM   #41
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Another source of future expected returns, real, nominal & inflation. I review Ferri's projections whenever he updates, but it's just another data point, albeit a good one IMO. Table summary near the end of The Portfolio Solutions 30-Year Market Forecast for 2012 Portfolio Solutions Portfolio Solutions
This link was referenced by the OP earlier in the thread.
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Old 11-30-2012, 10:14 AM   #42
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It's tough to know what will happen. Thanks for the links to various projections. I have aprox 50/50 allocation (53/47). My bonds include plenty of corporate and some emerging markets, so I hope those will at least keep up in real terms. I have a pretty well diversified equity allocation (large, med, small, foreign, REITs). If my portfolio can achieve 2% real return, I think I'll be more than fine. Fingers crossed!!!!
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Old 11-30-2012, 10:55 AM   #43
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The responses on this thread are interesting in light of historical returns. I am reading Jeremy Siegel's Stocks for the Long Run. He includes a table showing stock market returns over various periods. Over extended periods of time we have seen consistently a total real rate of return (after inflation) of about 6.8% annually. Of course, returns fluctuate significantly during shorter periods.

1802-2005 6.8
1871-2006 6.7
1946-2006 6.9
1982-1999 13.6
1966-1981 -0.4
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Old 11-30-2012, 11:03 AM   #44
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I have been thinking about rates of return going forward alot lately. I was offered an early buyout of my pension recently. I am 56 and plan to start taking my pension at 65. I would have to get 8% return average for the next 9 years to purchase an annuity that equals the monthly payout of my former employer. The lump sum was lowball at best.
I decided to leave that risk on them. I am expecting somewhere around 4% return average going forward.
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Old 11-30-2012, 11:58 AM   #45
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I use 2% real. But I also run Firecalc with 0 real and also 5-8 just to see.
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Old 11-30-2012, 12:09 PM   #46
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The responses on this thread are interesting in light of historical returns. I am reading Jeremy Siegel's Stocks for the Long Run. He includes a table showing stock market returns over various periods. Over extended periods of time we have seen consistently a total real rate of return (after inflation) of about 6.8% annually. Of course, returns fluctuate significantly during shorter periods.

1802-2005 6.8
1871-2006 6.7
1946-2006 6.9
1982-1999 13.6
1966-1981 -0.4
This is consistent with Vanguard's Model Portfolio of 100% stocks, which has averaged 9.9% per year over the last 85 years since 1926 (including the great depression and the 2000 tech bubble and the 2008 great recession). A 9.9% nominal return with 3.2% inflation is a 6.7% real return.

https://personal.vanguard.com/us/ins...io-allocations

Despite the data, some people are conservative by nature, and will always err on the side of conservative estimates. Also, people feel more comfortable making conservative predictions like "I know that stocks have returned 10% historically, but I am planning for 5% just to be safe" instead of "I am planning for at least 10% per year, maybe more." There is a perception on this board that the former prediction is accepted, while the latter will be criticized as too optimistic, regardless of whether it is supported by data.
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Old 11-30-2012, 12:38 PM   #47
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My personal inflation rate is much less than I promised DW on our honeymoon ...

Just to add some humor to a very depressing thread...

Seriously, if our joint portfolio (with a very large cash stash) retuned 2% over inflation (as it has over the last five years of retirement), we're happy...
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Old 11-30-2012, 01:24 PM   #48
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I use Inflation plus 3.5% for my planned withdraw rate for a portfolio of 60% US and European stocks, 15% US$-based bonds and 25% Brazilian Real-based bonds (the latter indexed to inflation).
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Old 11-30-2012, 01:54 PM   #49
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all i can say is this.after the go go 90's were for 3-4 years i was making 30 percent per year(and thought i would be rich) in the last 12 years i find i have made a total of 10 percent total-less than 1 percent a year.

the 2008 crash cost me about 50 percent of my money.i did not sell and it has come back to slightly over what i had 10 years ago.

these historical averages are just that. i do not believe that you can assume they will work in the future.
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Inflation Adjustment
Old 11-30-2012, 07:06 PM   #50
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Inflation Adjustment

I appreciate all the comments. The diversity of thought is interesting.

I've made some adjustments (current model: my funds run out when I turn 92 if I start next year at 55). My current spreadsheet assumes:

Withdrawl (~50% of current income) - increases inflation +1%
Pensions (Navy & SS at appropriate times) - decreases by inflation -2%
Savings return - equal to inflation

Since inflation is common across the row I cancel it out. For example, I'm assuming that if inflation is 10% for a year my income (savings return & pensions) would increase by 10% and my costs (funds needed to withdraw) would also increase by 10% so it cancels. Thoughts?
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Old 12-01-2012, 12:18 AM   #51
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Im not expecting an actual "return", all just 0001111001100010010010011100-0100's

I think we could see a rally in stocks and a shift away from bonds, but that's too predictable...

Therefore the best assets are no debt and land and housing and a good attitude in a state like SD where people still believe in the founding principles...
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Old 12-01-2012, 02:50 PM   #52
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I think a 50/50 portfolio should not expect to make more than 2% real return (2.5% inflation) over the next 30 years.
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Old 12-01-2012, 03:09 PM   #53
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these historical averages are just that. i do not believe that you can assume they will work in the future.
I think that is the issue with long term averages. They work fine for an endowment fund or Berkshire as they essentially have an unlimited time horizon. Most individuals, we have about 30-40 yrs of accumulation and then 20-30 yrs of retirement.
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Old 12-01-2012, 03:50 PM   #54
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I think a 50/50 portfolio should not expect to make more than 2% real return (2.5% inflation) over the next 30 years.
I think it's likely true for the next 8 to 10 years, but IMO the following decades are likely to be better.
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