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Future projections

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  • Lordosis Lordosis 
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    Status: Physician
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    What does everyone use for their future estimates of returns?  Obviously it matters a lot on your portfolio so feel free to clarify if you want.

    I just want to make sure I am not making absurd assumptions that will lead me to either over save or under save.

    I currently have everything in equity but do plan to introduce bonds into the mix over the next couple of decades.  So I have been using 4% real and 7% nominal for a 80/20 diversified portfolio.  Right now mostly tax advantaged(75%) but taxable(25%) is catching up.  Likely will be 60/40  for most of my career.

    Am I hoping for too much, too little, or just right?

    As always I welcome questions, comments, discussion.

    Thanks!

    “Never let your sense of morals prevent you from doing what is right.”

    #204855 Reply
    Avatar JBME 
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    you’re making it way too complicated for me. I just make it a 6% return across the board. Right now I’m 90/10 equities/bonds and probably will stay that way for another 10 years, then go to 80/20. I’m sticking with 6% just to be conservative but also this way when I look at how I’ve performed over the year, I just amaze myself, so far, how much beyond 6% I got

    #204856 Reply
    q-school q-school 
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    6

    #204857 Reply
    CordMcNally CordMcNally 
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    I’ve always used 5% with the caveat that I know this is low but, you know, under promise and over deliver. Or is it over promise and under deliver? Sometimes I forget.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #204858 Reply
    Avatar Peds 
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    Status: Physician
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    Obviously it matters a lot on your portfolio

    Click to expand…

    6%.

    i dont recommend anyone being 100% in stocks, so i would re-evaluate that.

    #204861 Reply
    Liked by hatton1
    Lordosis Lordosis 
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    Wow 6% has it.  What do you guys use for real return?  AKA how much inflation do you account for?

    @peds I knew you would disapprove and so would a lot of others.  I am sure this has been hashed out plenty on the forum already but I am curious to your reasoning?  Is it the fact that I cannot rebalance?  Too much pressure in a big drop and I might sell low?  Bonds have to potential to outpace stocks for a moderately long time?

    Since I am young I do not have a very big portfolio it seems silly to me to make it overly complicated.  I took a lot of convincing to add in international stocks.  I realize that it is not that much more complicated to add in bonds but the funds available to me in my tax deferred accounts kinda stink so that also held me off.  I somewhat see my human capital as a way to smooth the ride right now.

    Sorry to hijack my own thread haha

    “Never let your sense of morals prevent you from doing what is right.”

    #204864 Reply
    hatton1 hatton1 
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    I also think you need some bonds.  The reason is another 2008-9 selloff.  Until you have lived through something like this you do not know your risk tolerance.  I think 6% is fine.  Inflation????  I used to use 3-4% but now about 2%.

    #204870 Reply
    Avatar Tim 
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    “I just want to make sure I am not making absurd assumptions that will lead me to either over save or under save.”

    4-7% ? Would it make any difference? Would you save more, work more or longer, change your allocation, work longer, change the ending date?

    I guarantee whatever you choose will be wrong. Just can’t tell you plus or minus or when or at the beginning or the end. Run them all. Is it the 90% or 50% probability? The trajectory is more important than the growth %.

    Is it a problem doing “too well”? If your at the 20% or plus, don’t worry. It’s a lot easier to spend more than cut expenses.

    #204871 Reply
    Liked by Anne
    q-school q-school 
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    we also quibble about 100% equities mean.  if you have a solid cash reserve E-fund, you are not 100% equities, according to some definitions.

     

    #204872 Reply
    Liked by Craigy, Zaphod
    Avatar Peds 
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    @peds I knew you would disapprove and so would a lot of others.  I am sure this has been hashed out plenty on the forum already but I am curious to your reasoning?  Is it the fact that I cannot rebalance?  Too much pressure in a big drop and I might sell low?  Bonds have to potential to outpace stocks for a moderately long time?

    Click to expand…

    like many things in personal finance, 100% of something is usually not required.

    i do believe in diversification, so that also includes a fixed income portion.

    re-balancing is one aspect, buts its to bring your risk back in line 1st, then going on a binge buying spree second.

    behaviorally some people have problems. but the same could be said for seeing less returns from a bond portion (but then theres intl to bring up the rear….).

     

    and the last point is my favorite one:

    – for the 10 year period from 2000-2010 VTSAX returned 0%. with dividends.

    – VBTLX went up 80%.

    i also love to cherry pick data…

    #204874 Reply
    Liked by Lordosis, Tim
    Avatar Anne 
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    Status: Physician
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    Joined: 11/07/2017
    I just want to make sure I am not making absurd assumptions that will lead me to either over save or under save

    Click to expand…

    You are almost certainly going to over save or under save.  The chance of you bouncing that last check the day you kick the bucket is infinitesimally small.  That also seems to be a very stressful way to spend those last days “am I going to make it?” but I guess it could add some excitement.   I would rather over save than under save, but that’s just me.  Spend as much as you need to to not worry about missing out on today in favor of tomorrow, and then let the rest do what it’s going to do.

    It’s fun to plan and all but the best laid plans of mice and men…

    That being said, I use 4-6% and look at the range when I do try to make projections.

    #204879 Reply
    Avatar Tim 
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    @peds,
    “behaviorally some people have problems. “

    In December I felt more comfortable with 30 yrs at 4% hoping I was right. But after the last 100 days, that seems rather light. But, I tend to get more gratification stay with a plan. By the way, I like the improvement.
    AA is risk tolerance and capacity. Nothing to do with projected growth rate. It is what it is.

    #204881 Reply
    IntensiveCareBear IntensiveCareBear 
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    Status: Physician
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    Joined: 12/22/2018
    Splash Refinancing Bonus

    Returns are only part of the picture. I would expect 8% on avg (conservatively 5% after taxes), but there will be years with +20% and years of -25% or worse.

    Instead of a percentage annually, think of it as cash flow. Consider a golden goose (monthly cash generated) versus egg (net worth). Pensions were the goose, 401 and the like are the egg. You would be wise to learn how to make your egg have some goose characteristics. If you can’t do that, a bad year or two, especially right before or early in your retirement, will be likely to DRASTICALLY change your standard of living for every year afterwards.

    …The much more important and real question IMO is cash flow. That is the issue people have in retirement… income and cash flow. They just chip pieces off the egg since they don’t have a goose. They no longer have job income, so their money needs to come from somewhere. Most people know nothing to drum up cash except cashing in shares or changing dividends from ‘reinvest’ to ‘pay cash’ and waiting for those dividends.

    If you are retired and your 2M portfolio went down to 1.5M in a crash, do you have the ability to generate some cash flow out of the shares to pay bills or take a vaca? Or are you forced to cash in some shares at an inopportune time or wait for dividends (which probably got reduced in a climate like that also)? If your answer to the first question is “no” or “wtf are you talking about,” I would seriously suggest learning.

    Just food for thought.

    "Hmm, that sounds risky." - motto of the middle class

    #204890 Reply
    Avatar ajm184 
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    Status: Other Professional
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    Joined: 07/14/2017

    What I do (YMMV)- 80 equities/20 bonds AA- project a 6.5% LT return.

    Couple thoughts:

    a. A projection is a collection of assumptions against a goal.  Given your length of time (several decades), small changes to projection inputs can have significant impacts.  Also the ‘projection’ has less actionable to potentially take the further in time you are projecting.  You might be better off not even doing creating a projection and rather have goals such as maximizing tax deferred contribution for x number of years, create a ‘taxable’ account for retirement with x of contributions by y date, getting a promotion to muckity muck with x dollars of additional earning.   The focus IMO should be upon the inputs you can control, contributions, work, and AA early in a career.

    b. Given your age, I’m good with your 100% equity AA for retirement as long as you have the discipline to hold when and contribute to accounts when there is a lot of losses/worry in the market.

    c. Real vs. Nominal (inflation adjusted)- Needless additional complexity for something that is a essentially a systematic risk that you cannot control.  Plus the input side (contribution amounts) will adjust (with some friction/time).

     

    #204891 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1307
    Joined: 01/26/2017

    What does everyone use for their future estimates of returns?  Obviously it matters a lot on your portfolio so feel free to clarify if you want.

    I just want to make sure I am not making absurd assumptions that will lead me to either over save or under save.

    I currently have everything in equity but do plan to introduce bonds into the mix over the next couple of decades.  So I have been using 4% real and 7% nominal for a 80/20 diversified portfolio.  Right now mostly tax advantaged(75%) but taxable(25%) is catching up.  Likely will be 60/40  for most of my career.

    Am I hoping for too much, too little, or just right?

    As always I welcome questions, comments, discussion.

    Thanks!

    Click to expand…

    bonds are overrated, stick with the equities my friend. we will get rich together.

    #204892 Reply

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