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  • Crystal ball

    Hey Everyone,
    Please pull out your Crystal ball and tell me what tge market is gout to do over the next 20-30 years ...

    Obviously I am joking but I am interested in how optimistic/pessimistic everyone is.
    What does everyone use as an estimate when plugging numbers into future value calculators?
    How do you break it down? What do you use for inflation?
    I have been using 7% for nominal estimates for my total portfolio which is mostly equity.
    I use 4% for real.
    I just wanted to get a feel if others were similar or way off.
    Thanks for the comments and opinions.

  • #2
    I don’t use more than 5% real and I am heavy stocks.

    Comment


    • #3
      5% real but retirement is so far off I'll adjust expectations as I go.

      Comment


      • #4
        An awful lot of brain cells are used in emphasizing building pretax retirement accounts and the importance of having a handle on the spending rates.
        Spending levels are usually after tax.
        What effective tax rates do you plug in?

        Comment


        • #5




          I don’t use more than 5% real and I am heavy stocks.
          Click to expand...


          I'm trying to learn here so bear with me, I'm realizing that the market itself and AA is my big blind spot in personal finance.

          Given the history of the market with a heavily stock tilted portfolio isn't that kind of wildly pessimistic?

          Comment


          • #6
            7% nominal and 3% inflation sound about right. At least those are the numbers I use as US ballpark historical returns. I confess I do not do much in the way of forward modeling. They result in what I call inaccurately precise outcomes that I have no reason to believe since, hey, I made up the inputs. Instead, I focus on broad index stock funds (including international), with modest diversity in bonds and real estate. While I track my performance, I don’t worry too much about it because I don’t think I actually know enough to do any better than the market.

            Comment


            • #7
              I use a 5% real return while being heavy in stocks, as well.

               


              Given the history of the market with a heavily stock tilted portfolio isn’t that kind of wildly pessimistic?
              Click to expand...


              I wouldn't call it wildly pessimistic but it is certainly pessimistic. It gives me enough cushion that it will leave me confident with meeting my goal. Anything over my goal is just gravy.

              Comment


              • #8
                No. I’m actually inclined to go lower given market valuations right now.

                You can’t just look at some historical geometric mean from 1926. You do that and, sure, your nominal returns will be north of 10% and real around 8%. But those are means. What are the odds you’ll hit that mean in reality? About 0%. Returns, nominal or real, are a dispersion around a mean. Probabilities exist for where you’d fall over certain time periods, after doing a look back at rolling returns for the period you’re interested in. This is the essence of Monte Carlo analysis.

                If it’s safety of attaining a goal then you need to look at the probability that you’d beat X% over 5, 10, 20, or 40 years. Take a look at this calculator, for example:

                https://dqydj.com/investments-and-returns/

                Type in 5% return and account for inflation. You’d think the odds are nearly assured that you’d beat 5% real over 40 years, but you’d be wrong. 87% of the time you’d be right. When we talk about SWRs of 4% being unsafe for some asset allocations over longer periods the odds are still <10% that you’d run out of money. So FIRE folks use lower numbers. Shouldn’t attaining our goals be just as valuable/concerning? I want a very high probability that I’ll meet my goals in X years. This mandates additional savings now.

                The art of pessimism: you’re either right or pleasantly surprised.

                Comment


                • #9




                  An awful lot of brain cells are used in emphasizing building pretax retirement accounts and the importance of having a handle on the spending rates.
                  Spending levels are usually after tax.
                  What effective tax rates do you plug in?
                  Click to expand...


                  yes taxes are another unknown in the future. I use which is 15%  But I have no idea really.

                  Comment


                  • #10







                    I don’t use more than 5% real and I am heavy stocks.
                    Click to expand…


                    I’m trying to learn here so bear with me, I’m realizing that the market itself and AA is my big blind spot in personal finance.

                    Given the history of the market with a heavily stock tilted portfolio isn’t that kind of wildly pessimistic?
                    Click to expand...


                    I agree with others that if I am wrong I would rather be pleasantly surprised.  What do you use for your planning?  I realize that none of us actually have a clue.  It is nice to see that your savings rate(if that can be maintained constant)  will end up working out for us in a time period that is acceptable.

                    Comment


                    • #11




                      The art of pessimism: you’re either right or pleasantly surprised.
                      Click to expand...


                      thank you that is helpful. again this is just an area where i am not very learned.




                      What do you use for your planning?
                      Click to expand...


                      I don't know TBH. I don't spend a ton of time looking at it although I probably should.

                      The assumptions I make in my head sort of run like this:

                      1. 20% has been non-negotiable for me from my first attending paycheck and continues now that I am married.

                      2. By doing that I think I am ahead of many docs who didn't save at all early.

                      3. Most people I meet in their 60s who didn't go nuts w/ money seem... fine to wealthy.

                      4. I do think there are lots of young-ish docs right now committed to 20% who are going to end up pleasantly surprised by a massive pile of money. When I plug where I am now into a compound interest calc, add our savings, and put in some reasonable rate of return it is... a lot of money.

                      Comment


                      • #12
                        i'm neutral. My husband is the pessimist. I use 5% when using retirement calculators.  I would rather underestimate and deal with having excess than the other way around.

                        i'm don't  worry about market much.  We have situated ourselves between passive dividend income, pensions, cash and the size of our retirement pot to weather a significant catastrophe. We have been FI for just shy of 10 years now and have been working still....so keep padding the pockets also is less worry. I worry more about taxation.   It would really suck to not be working (ie no wages) and fall into a 50% or more RMD taxation bracket along with capital gains at same rates. it is just hard to predict taxation.

                        Comment


                        • #13







                          The art of pessimism: you’re either right or pleasantly surprised.
                          Click to expand…


                          thank you that is helpful. again this is just an area where i am not very learned.




                          What do you use for your planning?
                          Click to expand…


                          I don’t know TBH. I don’t spend a ton of time looking at it although I probably should.

                          The assumptions I make in my head sort of run like this:

                          1. 20% has been non-negotiable for me from my first attending paycheck and continues now that I am married.

                          2. By doing that I think I am ahead of many docs who didn’t save at all early.

                          3. Most people I meet in their 60s who didn’t go nuts w/ money seem… fine to wealthy.

                          4. I do think there are lots of young-ish docs right now committed to 20% who are going to end up pleasantly surprised by a massive pile of money. When I plug where I am now into a compound interest calc, add our savings, and put in some reasonable rate of return it is… a lot of money.


                          Click to expand...


                          I agree we will probably all do fine.  If you live like a resident until student loans are paid off and are always contributing 20% to retirement and plan to work a reasonable career 25-30 years.  Now the FIRE folks have it a little harder.

                          Comment


                          • #14


                            @MPMD,
                            “a lot of money”, maybe.
                            Given that mathematical calculations are completely based on the assumptions, I simply point out that with your background in science you know the difference between accuracy and precision.

                            You are basically using a GPS tool calculate time of arrival. Looks good, put some cushion in. When is starts rerouting of giving you choices, make choices based on accuracy. Congratulations you are making great progress. Of course the GPS doesn’t comprehend gas, food, personal errands. In the end, “you have arrived”.

                            At least you know you are headed in the right direction and an accurate margin of error.

                            Comment


                            • #15




                              @mpmd,
                              “a lot of money”, maybe.
                              Given that mathematical calculations are completely based on the assumptions, I simply point out that with your background in science you know the difference between accuracy and precision.

                              You are basically using a GPS tool calculate time of arrival. Looks good, put some cushion in. When is starts rerouting of giving you choices, make choices based on accuracy. Congratulations you are making great progress. Of course the GPS doesn’t comprehend gas, food, personal errands. In the end, “you have arrived”.

                              At least you know you are headed in the right direction and an accurate margin of error.
                              Click to expand...


                              dude, if we aren't going to be set then no one is going to be set.

                              that's not bragging or self-aggrandizement, but we are dropping well over $100k/year into retirement. if that doesn't lead to "a lot of money" in 25 or 30 years then i don't know what will.

                              a bit of paranoia can be healthy, but it's still paranoia.

                              Comment

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