Stock market returns

[mozar]

For those that have a hard time believing the stock market averages 7%:
(This is a mutual fund I got for my bat mitzvah)

Portfolio Returns* as of 12/05/2014 ?

Year to Date
Since 12/31/2013
11.21%
12 Month
Since 12/05/2013
15.66%
Average Annual
Since 01/21/1994
7.60%

[shuffler]

I assume this is nominal-returns and not real-returns (i.e. inflation-adjusted)?
I thought the historic 7% number was supposed to be real-return; having accounted for inflation (and including dividend payouts, etc.) already?

[pzxc]

No, the 7% is divided into 3% (inflation) and 4% (safe withdrawal rate)

mozar, what is your asset allocation?

[MDM]

No, the 7% is divided into 3% (inflation) and 4% (safe withdrawal rate)

Oh, no, not again.  See http://forum.mrmoneymustache.com/welcome-to-the-forum/but-aren't-we-ignoring-inflation's-impact-on-our-cost-of-living-in-retirment/

[pzxc]

Are you saying I am incorrect?

[MDM]

Are you saying I am incorrect?

Yes.  Not wildly so, but yes.

If you were to say an X% total return is divided into Y% (inflation) and Z% (real return), and X = Y + Z, that would be accurate enough*.

Safe Withdrawal Rate (as discussed in some detail in the thread linked above) may be somewhat related to historical average real return, but they aren't the same.


*It's really (1 + X) = (1 + Y) * (1 + Z) = 1 + Y + Z + Y*Z, so X = Y + Z + Y*Z, but when Y and Z are <<1 the simple version is accurate enough.  But that's off-topic for SWR vs. Real Return.

[shuffler]

No, the 7% is divided into 3% (inflation) and 4% (safe withdrawal rate)
...
Are you saying I am incorrect?

What you said is more of a non-sequitur than anything.  We're talking about the historic return of the market.  SWR (of any percentage) isn't part of the conversation.

Anyhow, I went and found MMM's post on it, if we want to consider him an authority:

On average, if the stock market continues its historical performance, your investments will return close to 7% per year even after keeping up with inflation.

http://www.mrmoneymustache.com/2011/06/06/dude-wheres-my-7-investment-return/

... so yes, it is a historic 7% return after inflation-adjustment.  Which unfortunately means that Mozar's return of a non-adjusted 7% has under-performed this historic rate, because it must still be adjusted for a decade of inflation.

[MDM]

Per http://dqydj.net/sp-500-return-calculator/:

Starting January 1994, ending December 2014.  Not adjusted for inflation

Annualized S&P 500 Price Return  7.3%
Annualized S&P 500 Return (Dividends Reinvested)  9.3%


The S&P 500 is not "the market" but it's one common benchmark.

[mozar]

Yeah, it's a crappy mutual fund that I've had since I was 12. Yes it's nominal. I have no idea what the asset allocation is. I haven't decided whether or not to liquidate the 7k or something.
I didn't mean to spark an argument. I just though it was cool.

[wtjbatman]

I didn't mean to spark an argument. I just though it was cool.

You made this mess, now you have to clean it up. Also your punishment is to reread the thread MDM linked over and over until your eyes bleed.

[arebelspy]

Yeah, it's a crappy mutual fund that I've had since I was 12. Yes it's nominal. I have no idea what the asset allocation is. I haven't decided whether or not to liquidate the 7k or something.
I didn't mean to spark an argument. I just though it was cool.

It is cool.  Thanks for sharing.  :)

[shuffler]

I didn't mean to spark an argument. I just though it was cool.

No argument, just discussion.  It's all good.

[mozar]

I thought it got a little heated.

You made this mess, now you have to clean it up. Also your punishment is to reread the thread MDM linked over and over until your eyes bleed.

This made me crack up.