Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
What % of return to you guys use to plot your portfolio gains for future years?
Old 06-21-2010, 01:46 AM   #1
Recycles dryer sheets
 
Join Date: May 2010
Posts: 95
What % of return to you guys use to plot your portfolio gains for future years?

I'm trying to project out the returns I will receive on my portfolio for the next 5 years, in order to determine the soonest time I can retire.

I have a mix of stocks (75% right now), bonds (15% right now), and reits (10% right now). I'm using 5% for what I expect the annual average return to be. However, I have no real basis for this number. I just don't expect to get the usual 8% investment planners use for the stock market.

What are you guys using for future projections? And what is your rationale? I'm trying to keep it simple (i.e. the 5%). I realize it all comes down to speculation, but what do you think?
__________________

__________________
Hiredgun is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-21-2010, 05:18 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
For 5 years I wouldn't bank on much more than 5% - history says you can do better, but history didn't predict the terrible returns from 2000-01-01 through 2009-12-31. I'd hope for 7-8% with the mix which you have, but 5 years is a short period, so to get 7-8% you have to accept a wider range of uncertainty.

If I were planning to retire with in 5 years with my portfolio as my main asset, I probably wouldn't have 75% in stocks. Currently my wishful thinking target is 3-4 years, realistic is 5-6, and I have 40% of my total net worth exposed to the stock market. If you can live with 5% return then I'd suggest turing n down the percentage of stocks, or maybe put some in one of those "click" funds that lock in gains above a certain amount.
__________________

__________________
BigNick is offline   Reply With Quote
Old 06-21-2010, 06:51 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,649
Seems like a good guess. Better to guess low and be pleasantly surprised than high and be disappointed. I remember back in the late 90s (still using an FA) my FA was yapping about 15-20% annual returns as far as the eye could see. I looked at the models used in the various Monte Carlo schemes used at the time and used 7% real as my number. I wasn't sure I wanted to RE but I was interested in when DW and I would be FI so the choice would be ours. The 7% guesstimate ended up a lot closer to the money than the rosy scenarios.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 06-21-2010, 07:02 AM   #4
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
I use 6% return on a 60/40 (equity/fixed income) mix.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Old 06-21-2010, 07:03 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Jun 2010
Location: France
Posts: 1,195
I just crunched some numbers. If the market has years of +20%, +15%, +12%, +10%, and -15%, what do you think the average compounded gain is?

1. Guess. Write it down.
2. Open MS-Calc. Choose View/Scientific. Do 1.2 x 1.15 x 1.12 x 1.10 x 0.85. Click "x^y" and enter 0.2 (ie, take the 5th root of the number which you have). Now subtract 1.0 and multiply by 100 (or, just look at the numbers after the decimal point).

Disappointing, huh? That negative year hits you in two ways: firstly, 15% down more or less cancels the best year (20% up); secondly, the "divisor" (actually, the root) of the 3 remaining positive years is not 3 buy 5, because you in effect wasted two years.

See also this page which suggests that the historical, very-long-term return of the DJIA is about 1.64% over inflation.
__________________
BigNick is offline   Reply With Quote
Old 06-21-2010, 07:24 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,649
I didn't do the calculations but roughly adding up the numbers in my head and dividing by 5 I get about 8% average. Doesn't take much of a drop to blow the long term averages does it?
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 06-21-2010, 08:18 AM   #7
Recycles dryer sheets
 
Join Date: Feb 2010
Posts: 123
For a long term assumption I'm using 5.5% on a 60% equity allocation.
A few years back I would have used 7.5%.
This is per an FA.
However, all bets are off through 2011.
__________________
Ken11 is offline   Reply With Quote
Old 06-21-2010, 08:28 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,299
Quote:
Originally Posted by Hiredgun View Post
I'm trying to project out the returns I will receive on my portfolio for the next 5 years, ...
I think the question and its application is flawed. So, IMO, the answers are not really helpful.

The way I would look at it is - you cannot make a meaningful estimate of returns for any 5 year period. It's too short. Look at any graph of the market, 5 year periods swing all over. They may well be negative. Less so over 10, 20, 30 years.

IOW, you need to look at the long view - what will your portfolio do over your lifetime, not the next 5 years.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 06-21-2010, 08:33 AM   #9
Thinks s/he gets paid by the post
IndependentlyPoor's Avatar
 
Join Date: Jul 2009
Location: Austin
Posts: 1,142
Our allocation is pretty much 40%/50%/10% (equitites/bonds/cash, all index funds). Our total return history looks like this:
1 year12.3%
3 year1.0%
5 year4.1%
Sucks doesn't it? It wasn't long ago that we considered 6% return an inalienable right. I haven't the slightest idea of what the next 5 years will bring, but we are not counting on the historical higher returns. We have taken real decisions based on this too, like continuing to rent instead of buying a condo.
__________________
Start by admitting
from cradle to tomb
it isn't that long a stay.
IndependentlyPoor is offline   Reply With Quote
Old 06-21-2010, 08:58 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,649
Quote:
Originally Posted by ERD50 View Post
I think the question and its application is flawed. So, IMO, the answers are not really helpful.

The way I would look at it is - you cannot make a meaningful estimate of returns for any 5 year period. It's too short. Look at any graph of the market, 5 year periods swing all over. They may well be negative. Less so over 10, 20, 30 years.

IOW, you need to look at the long view - what will your portfolio do over your lifetime, not the next 5 years.

-ERD50
That makes a lot of sense. When I think about it, I made my 7% estimate as a long term (40 year) projection. Things were all over the place in the ensuing 5-10 years.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 06-21-2010, 09:16 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,906
According to Quicken, my return since I started investing in 1987 to date is 7.16%. The return since I ER'd at the end of 2002 is 7.36%. A 7% long term rate certainly has historical confirmation from my own personal data. The interesting thing is that although I'm currently at 60% stocks -40% bonds and cash the percentage in stocks was much higher before I retired.

But the dates that you pick make all the difference. I ran the same calculation using a March 2009 end date instead of to date. Then, the return from 1987 becomes 5.63% and the since ER return becomes 3.26%. This confirms on a personal level that short term predictions are a total crapshoot
__________________
ejman is offline   Reply With Quote
Old 06-21-2010, 09:21 AM   #12
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
I tend to calculate my expected long-term return in real (inflation adjusted) terms. I'm down to about a 55/45 mix right now, and I use 2.5% over inflation in my spreadsheet which looks at projections in current dollars. About half of my bonds are individual TIPS, most of which I purchased at the bottom in November 2008 at a real YTM of about 2.8% to 2.9%, so that part is more or less "locked in" (to the extent the CPI tracks real inflation) for varying terms (maturing in 2016, 2025 and 2032).
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 06-21-2010, 09:24 AM   #13
Moderator Emeritus
CuppaJoe's Avatar
 
Join Date: Jun 2007
Location: At The Cafe
Posts: 6,866
Retired almost two years. Rearview mirror shows about five percent gain (so nine percent) over those months. I'd be very happy to retain that gain over the next five years which, I think, would require a four percent return. A two percent would cut into that gain and my cushion and I'm planning for that. Minus two percent is possible and I can sleep with that.
__________________
CuppaJoe is offline   Reply With Quote
Old 06-21-2010, 09:44 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,906
Quote:
Originally Posted by Ken11 View Post
For a long term assumption I'm using 5.5% on a 60% equity allocation.
A few years back I would have used 7.5%.
This is per an FA.
However, all bets are off through 2011.
I think all bets are off for any time period, except of course for December 21, 2012 when, as we all know, the world ends.
__________________
ejman is offline   Reply With Quote
Old 06-21-2010, 09:56 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,627
I don't need to make future predictions, so I don't use any number. I'm happy with what I got for the last 3 years, so I expect to be happy with the next 3 years as well.
__________________
LOL! is offline   Reply With Quote
Old 06-21-2010, 10:07 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by Hiredgun View Post
I'm trying to project out the returns I will receive on my portfolio for the next 5 years, in order to determine the soonest time I can retire.

I have a mix of stocks (75% right now), bonds (15% right now), and reits (10% right now). I'm using 5% for what I expect the annual average return to be. However, I have no real basis for this number. I just don't expect to get the usual 8% investment planners use for the stock market.

What are you guys using for future projections? And what is your rationale? I'm trying to keep it simple (i.e. the 5%). I realize it all comes down to speculation, but what do you think?
What are you doing with the rusult?

Maybe you are making some commitment based on this number (e.g. telling your boss that you will difinitely be gone in XX months and he should be hiring your replacement now).

Maybe it's just a general idea for your own enjoyment (gee, it looks like I might be able to retire in just xx months, isn't that nice).

I'd be noticeably more conservative in the first case than in the second.
__________________
Independent is offline   Reply With Quote
Old 06-21-2010, 10:14 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,739
Send a message via Skype™ to kcowan
I use 7% over 30 years for cashflow planning and die broke purposes. Since we spend less than 3%, I am naturally cautious about actually getting 7% in a given year.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 06-21-2010, 10:30 AM   #18
Recycles dryer sheets
 
Join Date: May 2010
Posts: 95
I'm just using the 5% number as a gauge to run some numbers and determine the day I could ER if I wanted. Hopefully that is sooner than the 5 year deadline I have set for myself. I realize no one can guess the right number, even over long periods of time. I'm just looking for something that may be realistic in order to run the numbers.

I am hoping to increase my bond percentage (working on it right now) to 40-45% by the time I exit.
__________________
Hiredgun is offline   Reply With Quote
Old 06-21-2010, 10:37 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
bbbamI's Avatar
 
Join Date: Dec 2006
Location: Dallas 'burb
Posts: 9,039
I'd be tickled to death to average 3.5%. Anything above is gravy.

Both retired for over a year...35/50/15.
__________________
There's no need to complicate, our time is short..
bbbamI is offline   Reply With Quote
Old 06-21-2010, 10:53 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,020
I use 5% as a reasonable estimate for long term returns. But what's important is the real return, i.e. returns after inflation. The sequence of returns is also key. If you begin on a losing streak you are behind the eight ball.

I love to model scenarios using Excel. I enter a random series of returns (e.g. if I am modelling 5% on average, I might put in 3%, 4%, 5%, 6%, 4%, etc to simulate variation.) What if.....returns went to 3%? What if we had a bull market in 2015? A black swan in 2020?

Like bbbamI, if I get better than 3-4% real returns I will be happily surprised.
__________________

__________________
Meadbh is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
How to track your portfolio gains&losses correctly? smjsl FIRE and Money 22 10-20-2009 07:57 PM
What do you guys think of this portfolio? rec7 FIRE and Money 7 05-27-2009 12:08 PM
How to design a portfolio with 10% p.a. return? shorthair FIRE and Money 26 03-10-2008 05:08 PM
Future return rate? CCdaCE FIRE and Money 20 07-24-2007 07:41 AM
Bernstein's future equity return projections wildcat FIRE and Money 2 12-06-2005 10:35 AM

 

 
All times are GMT -6. The time now is 01:31 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.