How to determine projected annual real growth of capital?


Recycles dryer sheets
Jan 1, 2006
Hi all,
Forgive my basic questions.....

How do I come up with a reasonable assumption for the projected annual real growth of my retirement portfolio?

For simplicity assume my portfolio is 100% Vanguard Target Retirement 2035 fund (VTTHX) and is valued at $400k and is equally split between Roth IRAs and 401(k) (if that makes a difference).

I have a book by one of our esteemed members here that states a reasonable assumption would be that earnings in a diversified portfolio would grow by 8% a year, or 5% per year in real terms (after subtracting 3% average inflation).

I'd like to understand the basis for this assumption so I can put together a "total savings worksheet" like the one in the book. How do you determine projected growth for your portfolio? Are there any tools available that can help me? Thanks.

First, I resign myself to the fact that I cannot predict the future. Second, there is no reason that the future average returns for a given asset class will have anything to do with the past average returns for the same asset class. Third, I track what we have done with our portfolio for the last couple of decades. It pretty much matches what Merriman's web site has reported for our asset allocation.
So I look in the table provided by Merriman's web site at this link:, ignore all the caveats I just made and I use that as an average total return going forward for our asset mix.
Another possibility is to simply use the tools at the Vanguard web site. If you have $250,000 invested with them, you can use their "Portfolio Watch" tab after entering ALL your assets. I do not believe it will put a higher average return than about 10% though. A simpler tool called "Portfolio Analysis" may be available to folks with less than $250K invested at Vanguard.
Thanks LOL, that's a very good and useful article and table that will help me come to a decision. We're about $50k away from Voyager service at Vanguard, but I'll look at the tools available to me now there.
Most research indicates that bond returns have no memory, and stock returns very little, so your future expectations are just todays current valuations. No valuation method is very accurate, so I just use the simplistic earnings yield for stocks and real yield for bonds.

Stock and reits expected real returns while saving = (1/pe) – costs
Bond and bills expected real returns while saving = yields – inflation – costs
rmark, is that 1/price-earnings multiple? I've never heard that before but like the simplicity.

rmark.... thinking out loud essentially annual earnings/price is what the idea is. Which is how many times the price goes into the earnings. So for one of my personal investments:

3.65/29 = 12.6% annual return. Which is good. Where I get stumped is if the price goes up, annual returns would go down. Say the price of this stock went to 35 but earning remained the same;

3.65/35 = 10.4%.

I think I get it. I'll add this thought to my research routine, thanks.

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