Comments on: Realistic Rate of Return – Part 1 http://myfinancialjourney.com/archive/realistic-rate-of-return-part-1 Wed, 16 May 2012 14:32:55 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: frugal http://myfinancialjourney.com/archive/realistic-rate-of-return-part-1/comment-page-1#comment-64 frugal Wed, 24 May 2006 05:38:48 +0000 http://www.myfinancialjourney.survivingkids.com/archive/realistic-rate-of-return-part-1#comment-64 You can calculate your returns easily by using my <a href="http://www.1stmillionat33.com/java_codes/retire.html" rel="nofollow">saving goal/retirement calculator</a>. It accounts for inflation and tax rates, and you can find out how much you need to save or how long you can retire by clicking on the text buttons. You can calculate your returns easily by using my saving goal/retirement calculator. It accounts for inflation and tax rates, and you can find out how much you need to save or how long you can retire by clicking on the text buttons.

]]> By: Doug Pedersen http://myfinancialjourney.com/archive/realistic-rate-of-return-part-1/comment-page-1#comment-63 Doug Pedersen Fri, 21 Apr 2006 05:05:12 +0000 http://www.myfinancialjourney.survivingkids.com/archive/realistic-rate-of-return-part-1#comment-63 Nice blog - I like your goal. It was mine, too at your age, and I am happy to say, I exceeded it. You can, too, though, I benefitted from strong returns in 2003-2004. I plunged entirely into small caps in fall 2001, and this was a very good decision, as it turns out. See the first post on my blog, www.strategicinvestor.blogspot.com, for some discussion of past and future equity returns. I agree with Miserly Bastard that we will have lower returns going forward, because stocks are simply more expensive now than they were at the beginning of the valuation period selected by most Wall Street promotional materials (1926, the year the S&P400 was established is usually used). Actually, it turns out that even historical returns are overstated, because they use averages, instead of compounding. We are very likely to have real rates of return in the low single digits from here, unless we see a major decline in prices, which is not out of the question. Nice blog – I like your goal. It was mine, too at your age, and I am happy to say, I exceeded it. You can, too, though, I benefitted from strong returns in 2003-2004. I plunged entirely into small caps in fall 2001, and this was a very good decision, as it turns out.

See the first post on my blog, http://www.strategicinvestor.blogspot.com, for some discussion of past and future equity returns. I agree with Miserly Bastard that we will have lower returns going forward, because stocks are simply more expensive now than they were at the beginning of the valuation period selected by most Wall Street promotional materials (1926, the year the S&P400 was established is usually used).

Actually, it turns out that even historical returns are overstated, because they use averages, instead of compounding. We are very likely to have real rates of return in the low single digits from here, unless we see a major decline in prices, which is not out of the question.

]]> By: Miserly Bastard http://myfinancialjourney.com/archive/realistic-rate-of-return-part-1/comment-page-1#comment-62 Miserly Bastard Mon, 10 Apr 2006 20:21:29 +0000 http://www.myfinancialjourney.survivingkids.com/archive/realistic-rate-of-return-part-1#comment-62 Going with a 100/0 equity-debt ratio is too high. You can achieve higher risk adjusted returns by adding debt to your portfolio. Going with a 100/0 equity-debt ratio is too high. You can achieve higher risk adjusted returns by adding debt to your portfolio.

]]> By: My Financial Journey http://myfinancialjourney.com/archive/realistic-rate-of-return-part-1/comment-page-1#comment-61 My Financial Journey Mon, 10 Apr 2006 13:38:45 +0000 http://www.myfinancialjourney.survivingkids.com/archive/realistic-rate-of-return-part-1#comment-61 Thanks for the comment! I was going to bring up inflation in one of the other series of posts as it is a very important component of your performance. Also I am currently 100/0 equity/debt and will probably stay this way for the next couple decades so long-term my annual returns should be slightly higher than a 60/40 ratio. Thanks again for your input! Thanks for the comment! I was going to bring up inflation in one of the other series of posts as it is a very important component of your performance.

Also I am currently 100/0 equity/debt and will probably stay this way for the next couple decades so long-term my annual returns should be slightly higher than a 60/40 ratio.

Thanks again for your input!

]]> By: Miserly Bastard http://myfinancialjourney.com/archive/realistic-rate-of-return-part-1/comment-page-1#comment-60 Miserly Bastard Mon, 10 Apr 2006 13:29:21 +0000 http://www.myfinancialjourney.survivingkids.com/archive/realistic-rate-of-return-part-1#comment-60 One thing you should start doing is stop thinking in terms of nominal rates of return, and start thinking in real (inflation adjusted), after-tax rates of return, net of fees. So I think it is clearly a mistake to assume historical equity rates (also because I think the historical equity rate will not be as high going forward). I personally think that a realistic ROR will be somewhere in the neighborhood of 4-5% annually, for a person whose portfolio is 60/40 equity/debt. Using nominal rates gives a highly distorted picture, because of the effects of inflation. One thing you should start doing is stop thinking in terms of nominal rates of return, and start thinking in real (inflation adjusted), after-tax rates of return, net of fees. So I think it is clearly a mistake to assume historical equity rates (also because I think the historical equity rate will not be as high going forward). I personally think that a realistic ROR will be somewhere in the neighborhood of 4-5% annually, for a person whose portfolio is 60/40 equity/debt. Using nominal rates gives a highly distorted picture, because of the effects of inflation.

]]>