What % of returns to assume for investments?

[Scallywag]

What is a REALISTIC rate of return to assume for investments over the next 20 years? I have an all stock & stock-based mutual funds portfolio at this time and is unlikely to change for the foreseeable future.

I am considering selling all my individual stocks and moving into VOO and VTSAX.

Thanks!

[corn18]

Here's the 30 year rolling average for 100% stocks for every year since 1871:



Pick one you are comfortable with. And make sure you understand the difference between real and nominal returns. And returns and total returns. I like using real total returns because it includes inflation and dividends.

If it were me, I would pick 4% real total return for the next 20 years. You may be more or less optimistic.

[Singuy]

Short term, 15+%, long term, depending on rates. Look how strongly zero interest rates correlates with S&P shooting straight up and sees major corrections when interest rates are higher. I have so little concern about a market crash right now even in this high PE bubble.

https://en.macromicro.me/collections/9/us-market-relative/91/interest-rate-sp500

[corn18]

Short term, 15+%, long term, depending on rates. Look how strongly zero interest rates correlates with S&P shooting straight up and sees major corrections when interest rates are higher. I have so little concern about a market crash right now even in this high PE bubble.

https://en.macromicro.me/collections...est-rate-sp500

I am rooting for Singuy to be right and me to be wrong.

[kork13]

Historically, S&P500 returns have been just over 10%. Account for inflation, probably closer to 7-8% real returns (as corn's chart shows). For my projections, I use a conservative figure of 6% real returns, mentally expecting actual returns to be closer to 8%.

FWIW, my returns over the last 10 years (the only personal data that I have readily accessible), I've averaged 11.5% nominal returns ... inflation not included. Also, that is only ~90% stocks.

In the end, it's all just informed guessing anyway. Pick a reasonable figure (or a few, to account for more/less conservative estimates), and just keep saving.

[HundredK]

I use 6%. Like Kork said, pick a number and save save save, because it's really all just guessing so we can run scenarios. I like my scenarios to be very conservative.

[disneysteve]

I agree with the others. I use 6%. I assume it will actually be more like 8%. And in the end, I hope Singuy is right and we end up with way more than projected.

[Singuy]

Just to be clear, I am not saying 15%+ will be it going forward.

I would start out at 16%/year when interest rate is zero, then subtract 2% when interest rate becomes 1%, another 3% when interest rate is 2%, another 4% when interest rate is at 3% (meaning we are at 6% return when interest rate is at 3%). And keep going using this formula that I just made up given current high PE ratio. I fully expect S&P to return -% when interest rate is at 5%.

[disneysteve]

I would start out at 16%/year when interest rate is zero, then subtract 2% when interest rate becomes 1%, another 3% when interest rate is 2%, another 4% when interest rate is at 3% (meaning we are at 6% return when interest rate is at 3%).

Fortunately, I don't think we're going to see 3% rates anytime soon so the higher returns are probably going to continue for at least the next few years. I'm good with that since I'm approaching retirement. If our stock allocation can keep returning 10-15% for 3 or 4 more years, that will help a lot. If the return drops to 6-7% after that, that's okay with me as our portfolio will be plenty big enough by then.

[corn18]

I am planning on 2% real for a 60/40 portfolio. Pretty conservative, but I would rather be surprised with upside than downside.

I feel oddly helpless as we approach my last day of work (55 days). I have done everything I can to maximize my probability of success (Ps). Once the paycheck stops, we will be at the mercy of the market. Our plan is worst case, so I think we can survive most anything, but I dream of the upside. 5 years of 10%+ real returns to start off would be peachy.

[cypher1]

I'm being generous when I say my ideal would be 7-8%, but conservatively more like 5-6%. Also I'm at 90/10 for portfolio. If someone is set for 70/30 or so, I'd expect a lower value the more conservative they go.

Also the bulk of my stocks are VTSAX as well.

[Scallywag]

Here's the 30 year rolling average for 100% stocks for every year since 1871:



Pick one you are comfortable with. And make sure you understand the difference between real and nominal returns. And returns and total returns. I like using real total returns because it includes inflation and dividends.

If it were me, I would pick 4% real total return for the next 20 years. You may be more or less optimistic.

I just want to make sure I understood that chart right - the highest return was in 1931? Did I see that right?

I want to be conservative so I'll go with a lower rate of return as that would motivate me to save more. I would rather than be pleasantly surprised than hortibly shocked if the market performed better than I expected (at 5% after taxes & inflation are accounted for).

[corn18]

I just want to make sure I understood that chart right - the highest return was in 1931? Did I see that right?

I want to be conservative so I'll go with a lower rate of return as that would motivate me to save more. I would rather than be pleasantly surprised than hortibly shocked if the market performed better than I expected (at 5% after taxes & inflation are accounted for).

The chart shows the 30 year rolling average for a 100% stock portfolio. So if you pick 1931, that value is the average real total return for the next 30 years.

[LivingAlmostLarge]

I am planning on 2% real for a 60/40 portfolio. Pretty conservative, but I would rather be surprised with upside than downside.

I feel oddly helpless as we approach my last day of work (55 days). I have done everything I can to maximize my probability of success (Ps). Once the paycheck stops, we will be at the mercy of the market. Our plan is worst case, so I think we can survive most anything, but I dream of the upside. 5 years of 10%+ real returns to start off would be peachy.

Congrats on retiring! I read your thread on Bogelhead about SORR. I asked my husband on SORR on mortgage carry forward. The risk of the mortgage has a lot of variable mostly personal.

https://actuaryonfire.com/mathtastic-advice-sequence-of-returns-risk/

https://actuaryonfire.com/reprise-sequence-returns-risk/

I agree with Singuy on market. I went all in March figuring we'd have a bounce back and no more downside to the market for a few years as the Feds pushed QE. because of that i use 6% on returns for investments. I dropped all bonds too and moved into S and P because I'm that smart like Singuy and can't pick stocks worth a crap. I feel i can only time a market and hang on.

[disneysteve]

my last day of work (55 days)

I'm not jealous. Nope. Not a bit.