Realistic Investment returns: 7-10 years

[LRDave]

Nobody knows nothin.

Hoping for a steady 3% over the next ten years. Expecting about 7% over the next twenty years. Planning for a minus 25% next year followed by a flat five years.

As your prediction perfectly matches my plans for Roth conversions of equities in the next 3-5 years, I am quite sure you must be correct.

 

[MRG]

Wonder we should merge these two? Seems like that's the answer.

http://www.early-retirement.org/forums/showthread.php?t=101195

 

[rodi]

Just a 'who could have predicted' commented on the McDonalds.... Is it a leased location, or would you own the land? The reason I ask is a local McDonalds is potentially closing because the supermarket/mall owner is completely redoing their property - kicking out all the tenants for a two years. They are still considering whether the local McD's and the carwash will remain under this redo. (Plan is in progress... I attend the local community planning meetings, which is the only reason I know this. ) The McD's owner is not happy, but not in the drivers seat of this decision.

I would ask very tough questions about length and guarantee of the lease if you purchase a McD's franchise.

 

[timbervest]

I basically plan for earning 5% annually over the long term and having my money run out when I am 100 years old. I figure that is pretty conservative so anything above that is gravy.

 

[wmc1000]

I just looked at a 2012 spreadsheet I created when I started my planning, (yes I was late to the planning!). Against the 2012 guesstimates I made my asset balances are almost twice what I had anticipated while my expenses are pretty close. Since the 2012 guesstimates showed we wouldn't run out of money even to 100 I guess we can now withstand a pretty severe correction.

 

[wmc1000]

Just a 'who could have predicted' commented on the McDonalds.... Is it a leased location, or would you own the land? The reason I ask is a local McDonalds is potentially closing because the supermarket/mall owner is completely redoing their property - kicking out all the tenants for a two years. They are still considering whether the local McD's and the carwash will remain under this redo. (Plan is in progress... I attend the local community planning meetings, which is the only reason I know this. ) The McD's owner is not happy, but not in the drivers seat of this decision.

I would ask very tough questions about length and guarantee of the lease if you purchase a McD's franchise.

Reading OP's post I believe he is or would be the lessor not the lessee.

 

[Spock]

I'm in the camp that the last 10ish years are an anomaly that will statistically correct itself over the next X years.
All that record debt is future consumption that has been pulled forward (and therefore will leave a flat spot in the future)
or stock buybacks that will stop when the credit slows.
I plan with a very low projected rate of return and then hope to be happily surprised if its better than that.

 

[JustCurious]

For long term planning purposes I use a 5% nominal return. I expect my estimates to be low.

 

[ExFlyBoy5]

Reading OP's post I believe he is or would be the lessor not the lessee.

I think y'all are in the wrong thread...

 

[pb4uski]

.... Bottom line: is 5.5% (NOMINAL). wishful pie in sky thinking? Is it a slam dunk? Is it sort of realistic? Would really appreciate your guesses or opinions on this...and specifically, what you feel a 60/40 portfolio might return over the next 7-10 years.

Thanks for reading.

5.5% is in between the 4.9% median and 6.3% 75th percentile projected return for a 60% global equity/40% bond portfolio for the next decade according to Vanguard... so probably realistic.

https://pressroom.vanguard.com/nonindexed/Vanguard_Global_Economic_Market_Outlook_2020.pdf

See page 41.

 

[OldShooter]

A good story I read that might even be true:

A couple of months before the D-Day invasion in 1944, a request came from headquarters to the "met" (meteorological) office to provide the planners with a forecast for the day. The met officers basically threw up their hands and sent back the message "We have no idea."

Back from the commanding general came the message: "Please provide a forecast. We need something for our planning."

 

[ExFlyBoy5]

A good story I read that might even be true:

A couple of months before the D-Day invasion in 1944, a request came from headquarters to the "met" (meteorological) office to provide the planners with a forecast for the day. The met officers basically threw up their hands and sent back the message "We have no idea."

Back from the commanding general came the message: "Please provide a forecast. We need something for our planning."

And the "mets" still have an issue figuring out the weather.

 

[NW-Bound]

I'm in the camp that the last 10ish years are an anomaly that will statistically correct itself over the next X years.
All that record debt is future consumption that has been pulled forward (and therefore will leave a flat spot in the future)
or stock buybacks that will stop when the credit slows.
I plan with a very low projected rate of return and then hope to be happily surprised if its better than that.

+1

My WR over the past 12 months is 1.5% of the current portfolio balance.

And I still have not drawn my SS. And I still have some expenses that will go away next year and beyond.

Maybe some other expenses will pop up, but currently I don't see any on the horizon.

So, no real need for more money, but if the market god gives me more, I will take it. Heck, I have been doing a bit of trading trying to get more. It's fun.

More is more. Money is one of those things that if having more hurts, then you are doing something very wrong.

 

[ncbill]

Pundits have been predicting future returns that were significantly lower than actual returns (sometimes by 2x or more) for at least the last decade, if not longer.

 

[RetireAge50]

In the 30 years I have been investing stocks have returned just under 10%. I’m going with this for a guess. Then adjust downward for any bonds you have.

 

[HI Bill]

Last week, Vanguard released its annual economic market outlook report, for 2020. They aptly named it "The New Age of Uncertainty". Here's the nutshell summary:

"Returns over the next decade are anticipated to be modest at best. Our expectation for fixed income returns has fallen because of declining policy rates, lower yields across maturities, and compressed corporate spreads. The outlook for equities has improved slightly from our forecast last year, thanks to mildly more favorable valuations, as earnings growth has outpaced market price returns since early 2018. Annualized returns for U.S. fixed income are likely to be between 2% and 3% over the next decade, compared with a forecast of 2.5%–4.5% last year. The outlook for global ex-U.S. fixed income returns is centered in the range of 1.5%–2.5%, annualized. For the U.S. equity market, the annualized return over the next ten years is in the 3.5%–5.5% range, while returns in global ex-U.S. equity markets are likely to be about 6.5%–8.5% for U.S. investors, because of more reasonable valuations."

https://www.google.com/search?q=van...e..69i57j0.12464j0j7&sourceid=chrome&ie=UTF-8

 

[NW-Bound]

Pundits have been predicting future returns that were significantly lower than actual returns (sometimes by 2x or more) for at least the last decade, if not longer.

Last year, Bank of America was sounding the alarm that many investors had too high a stock AA. Just now, I see the headline that BoA now predicts a stock "melt-up" in January.

Reminds me of a book published in 1999 claiming Dow would reach 100,000 by 2020. The Dow had not reached 10,000 at that point.

And then, in Nov 2000 as the dot-coms were falling apart, another book claimed the Dow would reach 36,000 "in a few years".

I think I would rather plan for meager returns.

 

[pb4uski]

Last week, Vanguard released its annual economic market outlook report, for 2020. They aptly named it "The New Age of Uncertainty". Here's the nutshell summary:

"Returns over the next decade are anticipated to be modest at best. Our expectation for fixed income returns has fallen because of declining policy rates, lower yields across maturities, and compressed corporate spreads. The outlook for equities has improved slightly from our forecast last year, thanks to mildly more favorable valuations, as earnings growth has outpaced market price returns since early 2018. Annualized returns for U.S. fixed income are likely to be between 2% and 3% over the next decade, compared with a forecast of 2.5%–4.5% last year. The outlook for global ex-U.S. fixed income returns is centered in the range of 1.5%–2.5%, annualized. For the U.S. equity market, the annualized return over the next ten years is in the 3.5%–5.5% range, while returns in global ex-U.S. equity markets are likely to be about 6.5%–8.5% for U.S. investors, because of more reasonable valuations."

https://www.google.com/search?q=van...e..69i57j0.12464j0j7&sourceid=chrome&ie=UTF-8

Also see post #35 for link the report.

 

[wmc1000]

I think y'all are in the wrong thread...

Nope - see OP post #3

 

[SnowBound]

I'm using 9.6% this year and sliding to 6.2% by 2026; then 6.2% in 2027 going forward. But planning to be plus/minus 20% of that in any year.

My big question: I'm using an inflation rate of 2.6% and SS increase of 1.8%. How far off am I?

 

[corn18]

Why do people use nominal returns for forecasting? I can't imagine converting all of my spreadsheets to nominal dollars and having to predict inflation. I just use 2% real for my 60/40 portfolio and put everything in now year dollars.

 

[NW-Bound]

I'm using 9.6% this year and sliding to 6.2% by 2026; then 6.2% in 2027 going forward. But planning to be plus/minus 20% of that in any year.

My big question: I'm using an inflation rate of 2.6% and SS increase of 1.8%. How far off am I?

Market return varying merely +-20% a year? Will we be so lucky?

Just recently, the S&P went from 19.4% in 2017 to -6.2% in 2018, and it's 27.3% so far in 2019.

There have been more violent fluctuations than the above. Since 2000, the highest return was in 2013 at 29.6%. The lowest was in 2008 at -38.5%.

PS. Note that in 2013, a $1 became $1.30. That is nice, but the pain to see your $1 become $0.61 in 2008 was excruciating. And that was not at the bottom either.

From $0.61 back to $1, you would need 100/61 = 64% gain!

 

[pb4uski]

Why do people use nominal returns for forecasting? I can't imagine converting all of my spreadsheets to nominal dollars and having to predict inflation. I just use 2% real for my 60/40 portfolio and put everything in now year dollars.

Because not all other income flows increase with inflation like SS does... most pensions are fixed, as are SPIA benefits... also, some types of expenses have different inflation rates, like health care or college costs.

 

[ERD50]

I'm using 9.6% this year and sliding to 6.2% by 2026; then 6.2% in 2027 going forward. But planning to be plus/minus 20% of that in any year.

My big question: I'm using an inflation rate of 2.6% and SS increase of 1.8%. How far off am I?

Come back in 2026, and I'll tell you.

What the heck is with people trying to predict the future?

-ERD50

 

[mountainsoft]

I'm using an inflation rate of 2.6% and SS increase of 1.8%. How far off am I?

I use a 3.2% inflation rate in my estimates, as that was the historical average I read somewhere. It has been lower in recent years, but certainly much higher in past years.

I use the Flexible Retirement Planner for most of my estimates and just specify that the SS cost of living adjustments track inflation. I also specify that I will only receive 75% of my stated benefits for when the SS trust fund runs out (assuming no fixes to SS).