Which Firecalc "Your Portfolio" option do you use?

[Carpediem]

I'm curious as to which option on the 'Your Portfolio' tab most people use in FC.

1. Total Market
2. Mixed Portfolio
3. Consistent Growth
4. Random Performance

I'm guessing the answer is #1. If so, do you also do FC runs using option #4 to simulate low returns (as some 'experts' like to predict)?

I use Flexible Retirement Planner mostly and I've been using an average return of 5% with a deviation of 2%. What are your thoughts on this setting? Is it being too pessimistic?

Thanks for the feedback.

 

[REWahoo]

Looks like a perfect question for a poll.

 

[USGrant1962]

Looks like a perfect question for a poll.

Make sure the poll can take multiple responses.

I do #1 and #4. #2 is not too useful because it is missing too many asset categories, and #3 is not too useful because markets just don't exhibit consistent growth.

IIRC, the standard deviation of a 60/40 portfolio is like 11%, not 2%. Something like 5% nominal return is reasonable with today's valuations. But what inflation rate did you assume? Real return is what matters over the long haul.

 

[Carpediem]

. But what inflation rate did you assume? Real return is what matters over the long haul.

I am using 3% inflation with 2% deviation.

 

[USGrant1962]

I am using 3% inflation with 2% deviation.

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

 

[Carpediem]

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.

Yes, I actually use the Custom setting for Return % (5%) and Std Deviation % (2%) because I felt the pre-entered percentages were too optimistic.

 

[pb4uski]

I use the default options of Total Market and Long Interest Rate and change the equities percentage to 60% to reflect my 60/35/5 AA.