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FireCalc Question
Old 10-04-2016, 07:28 PM   #1
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FireCalc Question

When you use FireCalc, do you use the "historic market" returns for your portfolio - just adjusting for the percentage you hold in stocks? Or do you put in customized expected returns for stocks and bonds?

I hadn't realized they had the customized return option, and now I'm wondering if I'm being too optimistic by using the market returns and if I should adjust them down due to the historically low interest rates?

How do you handle it?
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Old 10-04-2016, 08:29 PM   #2
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Quote:
Originally Posted by Katiek View Post
When you use FireCalc, do you use the "historic market" returns for your portfolio - just adjusting for the percentage you hold in stocks? Or do you put in customized expected returns for stocks and bonds?

I hadn't realized they had the customized return option, and now I'm wondering if I'm being too optimistic by using the market returns and if I should adjust them down due to the historically low interest rates?

How do you handle it?
Historic returns are not necessarily more optimistic than an estimate based on a fixed return. The historical returns include periods where the stock market was awful. In fact, you must use historical returns or monte carlo analysis to get a feel for the way sequence of returns risk could affect your retirement plan.

Typically I will use different modeling methods (including a fixed return) to get a better feel for the risk associated with other assumptions in my plan.
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Old 10-04-2016, 10:31 PM   #3
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Do them all, just run it various ways to see if all roads lead to Rome !
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Old 10-05-2016, 05:52 AM   #4
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Do them all, just run it various ways to see if all roads lead to Rome !
Agree... plus a monte carlo analysis. If you have a long time horizon (many years) for your firecalc analysis, it will reduce the number of trials. You can actually get better results in some of these cases because some cases drop off the analysis.

Remember all these analysis provide is a warm fuzzy... not a guarantee. I have run many of these tools. I still remember that flexibility in spending is a good counter to an under performing market.
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Old 10-05-2016, 09:45 AM   #5
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Thanks, and I'm embarrassed to admit that even though I've posted here for over a year, I never realized this sub-forum existed. Thanks to the mods for moving my question to the right forum, and I see a lot of interesting threads to peruse.
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