Quote:
Originally Posted by Carpediem
I am using 3% inflation with 2% deviation.
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I haven't used FRP in a while, but just re-downloaded it. If you look at the first page under investing style, and pick Moderate Risk, it will show you a historical 55/45 portfolio with 8.0% return and 9.9% standard deviation. You may wish to lower the return based on current valuations, but that won't change the SD.
I see that FRP also has an SD for inflation, but I don't know what that number would be.
A 3% inflation estimate is reasonable for forecasting. It is actually higher than the long-term U.S. average of about 2.25%, but that average includes substantial periods of deflation prior to WWII. Conversely, almost all periods of inflation higher than 3% were associated with major wars - WW1, WW2 and Vietnam/Cold War. See this graph
US Inflation Rate