Looking Back ... Were the projections right?

[larrytbm]

I believe the last 10 years have actually been less than average for the SP500 over the period that FIRECALC uses (starting in 1871). Here's a calculator you can play with that shows this. If you plug in the last ten years (or 1/2003 - 12/2012), you get an annualized return of about 7% and an inflation adjusted annualized return of about 4.5%. For the entire period, the values are 8.9% and 6.7%

Fred123,
Thanks for the link, I just ran 10 year cycles back to 1872. Not as detailed as what FIRECalc uses since just 14 different cycles, but it shows that the most recent 10 years is one of the worst, it was 12 out of 14. Best was 1952-1962, second was 1982-1992. Still begs the question, is the last 10 years one of the best for investors or one of the worst?

 

[ERD50]

When I take my actual assets from 10 yrs ago, plus expenses, pension and SS and run FIRECalc, only 5 of 131 cycles have an end point higher than my current assets. That would make the past 10 years one of the best on record. Does that make sense? Is it really one of the top 6? ...

No, I don't think it makes sense. Please review my calculations and thought process to see if I'm off-base somewhere:

First, we can keep things simple and generic. Your pensions and spending are separate from whether the market was really the best 6/131. So here are my calcs:

A) I go to FIRECalc and enter a $1M portfolio, zero spend, and 10 year time frame.

B) As mentioned earlier, the 'market' about doubled in this time frame, and I checked and a more balanced approach (Wellesley) performed about the same. So I think 2X is close enough for expected gains of a 75/25 portfolio.

C) An inflation calculator shows ~ 27% inflation in that time, so I adjust the growth from $1M to $2M down to (.73 * $2M) = $1,460,000.
{edit/add: this is close to the number Fred123 supplied - 1.045^10 ~ 1.5529694 so $1,552,969}

D) Now look at the output of FIRECalc, and I eyeball $1,460,000 down around the bottom third of results. The top 6 cycles are up around $3M, around twice as good in performance.

You can run that FIRECalc profile here: link

Does that make sense?

Maybe your portfolio did much better? But that is still separate from stating that the 'market' was the best 6/131 cycles.

-ERD50

 

[pb4uski]

The last 10 years stock market results have been good, but not stellar.

The Vanguard Index 500 Admiral shares with dividends reinvested have more than doubled and returned 7.63% annually. Total Stock has done a bit better at 8.38% annual return for the 10 years. However, the average annual return for 1926-2012 was 10% annually.

https://personal.vanguard.com/us/funds/snapshot?FundId=0540&FundIntExt=INT#tab=1
https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT#tab=1
https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

 

[explanade]

Yeah after the crash, didn't they say the S&P had been flat for 10 years?

Of course the past 5 has been good.

 

[MooreBonds]

Fred123,
Thanks for the link, I just ran 10 year cycles back to 1872. Not as detailed as what FIRECalc uses since just 14 different cycles, but it shows that the most recent 10 years is one of the worst, it was 12 out of 14. Best was 1952-1962, second was 1982-1992. Still begs the question, is the last 10 years one of the best for investors or one of the worst?

It all depends on particulars:

---Did you reinvest dividends? (you might not have, but FireCALC and other data points with ETFs might assume that, or might assume no dividends in total return)
---Did you/when did you rebalance?
---What specific investments did you have? IF there were only 3 or 4 to choose from in the entire investment world, then it's easy to compare. did you have some individual stocks, or were you 100% in S&P 500 and one Vanguard bond index fund? That will effect comparisons.
---What specific dates are you using? Using January 1 of one year vs December 31 of that same "year" for your starting/ending points can make a big difference.

While Firecalc and other calculators can be great tools, there is a limit, pending a lot of variables (a few of which are above) that can greatly effect your specific outcomes.

 

[Steelart99]

Maybe I mis-understood FIRECALC, but I thought that it was missing updates for the last several years. Don't recall how many ... but if so, then using FireCalc to assess how it matched the last 10 years would be moot. Please correct me is I miss-state reality here.

 

[ERD50]

Maybe I mis-understood FIRECALC, but I thought that it was missing updates for the last several years. Don't recall how many ... but if so, then using FireCalc to assess how it matched the last 10 years would be moot. Please correct me is I miss-state reality here.

I think you are right, the data has not been updated.

But that isn't so important to the question that larrytbm has asked. He is trying to compare the past ten years with history. So take any of the published indexes, and compare to the 130 or so cycles that FIRECalc reports. He seems to be saying that the last 10 years are about #6 in rank among all those, and I don't see it.

See my post #52 in this thread.

-ERD50

 

[Steelart99]

I think you are right, the data has not been updated.

But that isn't so important to the question that larrytbm has asked. He is trying to compare the past ten years with history. So take any of the published indexes, and compare to the 130 or so cycles that FIRECalc reports. He seems to be saying that the last 10 years are about #6 in rank among all those, and I don't see it.

See my post #52 in this thread.

-ERD50

Ahhhh ... got it. That makes more sense.

 

[deserat]

We tracked our spending for quite a few years and the planned how we would allocate his pension, then mine, then our investments, etc. I would say we are semi-retired right now as we are both involved in consulting work that is quite lucrative, however, his pension would cover all of our lifestyle expenses and then some, so we are merely running up the score right now....we're still fairly young, so want to make sure the investments are well padded. It's weird because we look at each other and chuckle about where we are at this age (late 40s)----and consider ourselves so fortunate and yet we worked on it...for many years.

I've briefly looked at FIRECALC and several other types of caluculators, however, I rely more upon the data I've collected over the years regarding my spending and then what I need to earn/have as a stream of income to cover those costs. Having no mortgage really helps with that.