7% return after inflation for 10 years? Where?

[BXHORN]

Im quite enamoured with your site.  But I struggle with a simpel challenge....

There is a simple assumption behind the concept of making a millionaire $10 at a time states: "If you save $796 per week for ten years, and get a 7% compounded investment return after inflation, you’ll have $600,000 sitting around ready to party for you." 

Where can I get a consistent inflation-adjusted return like that?

[arebelspy]

The US stock market returns that, over time.

MMM has a whole article answering this:
Dude, where’s my 7% Investment Return?

If you're asking this question, it likely would behoove you to read all of JLCollins' Stock Series:
http://jlcollinsnh.com/stock-series/

Seeing your location, your investment options (especially regarding available investment types and their expenses related to owning them) may differ, but investing still generally should supply a return similar, whether in stocks, real estate, or other forms of business loans or otherwise.

Good luck!

[Metric Mouse]

Im quite enamoured with your site.  But I struggle with a simpel challenge....

There is a simple assumption behind the concept of making a millionaire $10 at a time states: "If you save $796 per week for ten years, and get a 7% compounded investment return after inflation, you’ll have $600,000 sitting around ready to party for you." 

Where can I get a consistent inflation-adjusted return like that?

https://dqydj.com/sp-500-return-calculator/

Shows November 08 - November '16, dividends reinvested, inflation adjusted annualized return of 10.078%. Just one data point, I guess.

[Johnez]

^That was actually without reinvesting dividends-its 12.384% annual returns with dividends reinvested.

Ten year annualized return 11/2006-11/2016 is less than 5% though.

[arebelspy]

^That was actually without reinvesting dividends-its 12.384% annual returns with dividends reinvested.

Good catch.

Ten year annualized return 11/2006-11/2016 is less than 5% though.

10-year is a good one to use to try to avoid cherry picking (as a fixed number).

To the amount that this relates to the OP's question, naturally every 10-year period won't have a 7% return.  From the MMM article linked above:
10-year periods: Worst: -1.38% Best: +19.35%

The 4.803% of the last decade is right in that time frame, slightly worse than the average (which is around 7%).

Still, even if worse than average, if you were ER'd, that's plenty return to help your FIRE.. 4.8% real (6.734% nominal)? I think most early retirees would be okay with that.  If you weren't ER'd, but accumulating, lower than average returns is good to have while accumulating.

Either way, win-win.  :)

[seanmerron]

Probably 5% after taxes if not in a retirement account.

[Mr. Green]

Probably 5% after taxes if not in a retirement account.

If you pay any. ;)

[Metric Mouse]

Probably 5% after taxes if not in a retirement account.

If you pay any. ;)

Who do you think I am, Donald Trump!? :D

[arebelspy]

Probably 5% after taxes if not in a retirement account.

Nah, you shouldn't pay any taxes, if you do it right.

http://forum.mrmoneymustache.com/taxes/taxes-in-early-retirement-(gocurrycracker-links)/

Read at least the first post of that thread (and it has links to click if you're intrigued), but the bottom line is you can easily have income of $90k+ and pay $0 in taxes, and it gives real world examples of this, and how.

In 2013, for example:

Income this year was primarily from index fund and individual stock dividends, interest from a seller-financed mortgage on a property we sold a few years ago, and interest from our cash reserves and a municipal bond fund.

Total income was a little more than $37,037, which easily covered all of our 2013 travel expenses of $33,429 (although not our atypical and non-recurring expenses).

With this level of income, we had lots of opportunity to reduce future taxes.  We moved $12,028 into a ROTH IRA as part of an IRA Conversion, and also captured $44,197 of capital gains.

All together, our adjusted gross income was $91,752.  How much tax did we pay on such a high figure?  You guessed it… $0

[nawhite]

Probably 5% after taxes if not in a retirement account.

Nah, you shouldn't pay any taxes, if you do it right.

http://forum.mrmoneymustache.com/taxes/taxes-in-early-retirement-(gocurrycracker-links)/

Read at least the first post of that thread (and it has links to click if you're intrigued), but the bottom line is you can easily have income of $90k+ and pay $0 in taxes, and it gives real world examples of this, and how.

In 2013, for example:

Income this year was primarily from index fund and individual stock dividends, interest from a seller-financed mortgage on a property we sold a few years ago, and interest from our cash reserves and a municipal bond fund.

Total income was a little more than $37,037, which easily covered all of our 2013 travel expenses of $33,429 (although not our atypical and non-recurring expenses).

With this level of income, we had lots of opportunity to reduce future taxes.  We moved $12,028 into a ROTH IRA as part of an IRA Conversion, and also captured $44,197 of capital gains.

All together, our adjusted gross income was $91,752.  How much tax did we pay on such a high figure?  You guessed it… $0

Unfortunately I think the GoCurryCracker numbers in that post are a little optimistic compared to what most of us will see if ACA/Obamacare stays in effect. He lays it out in http://www.gocurrycracker.com/obamacare-optimization-vs-tax-minimization/. Basically GCC explictly didn't sign up for Obamacare because they live abroad almost all of the time.

But for those of us who DO live in the US, there is an implicit tax on earnings through a decreased Obamacare subsidy. Not quite the same thing as an explicit income tax, but I'd argue that since each additional dollar of income won't equal an additional dollar of spending money in retirement that the effective tax rate is greater than 0%.

[arebelspy]

That's fair.

I'd still personally segment it as "no tax, health care costs," if I was charting out my annual spending, but since money is fungible, you can definitely shift that to say that the extra healthcare premiums aren't "health insurance" costs but "federal income tax" costs.

Regardless, when it comes to plotting your budget, you should see close to 0% taxes, even if your healthcare budget is higher due to the income.

[Metric Mouse]

Unfortunately I think the GoCurryCracker numbers in that post are a little optimistic compared to what most of us will see if ACA/Obamacare stays in effect. He lays it out in http://www.gocurrycracker.com/obamacare-optimization-vs-tax-minimization/. Basically GCC explictly didn't sign up for Obamacare because they live abroad almost all of the time.

But for those of us who DO live in the US, there is an implicit tax on earnings through a decreased Obamacare subsidy. Not quite the same thing as an explicit income tax, but I'd argue that since each additional dollar of income won't equal an additional dollar of spending money in retirement that the effective tax rate is greater than 0%.

Interesting framing, ACA premiums as a tax. May have to re-frame how I feel about them...

[BTDretire]

How about REIT preferred stocks?

CMO-PE   7.80% dividend
NLY-PE    7.88%  dividend
DX-PB     8.06%  dividend
RSO-PC   9.42%  dividend
CIM-PA   6.74%   dividend
IVR-PA   7.97%   dividend
IVR-PB   8.08%   dividend
There are dozens more.
You need too study and do you due diligence.

 They start at $25 par, you want to buy below $25, obviously the lower the better.
 Most are thinly traded, so make sure you won't need to get out at the wrong time.
 You want a cumulative dividend.
You need to see when the redemption date is and what are the odds of them actually redeeming.
(Redeeming is not bad, especially if you bought low)
What is the strength of the underlying company?
Most are taxed at regular rates. :-(
Hmm, I guess this isn't 7% after inflation for 10 years.
Oh well, at this time, I'm happy with 7%+.

[boarder42]

REITs aren't qualifying dividends. So those will be taxed as normal income. Also don't chase dividends

[Spork]

REITs aren't qualifying dividends. So those will be taxed as normal income. Also don't chase dividends

And, if I recall correctly (check me on this), the dividends for some of them (most of them?) reduce your cost basis.  I am sure there is a semi-logical(?) explanation as to why this happens, but I can't think of it on my own.  That doesn't mean "Never buy REITs."  That means "consider the taxes when you do."

[FrugalSaver]

We're in one of the worst 18 year periods in history for stocks. Maybe it's about to turn around but only time will tell. I am invested in stocks but the math is pretty amazing given some of the decisions for our economy in the last 2 Decades. If you started working in 2000, the returns are < 5% including dividends.

Here's to normalizing over the next decade!

[Metric Mouse]

We're in one of the worst 18 year periods in history for stocks. Maybe it's about to turn around but only time will tell. I am invested in stocks but the math is pretty amazing given some of the decisions for our economy in the last 2 Decades. If you started working in 2000, the returns are < 5% including dividends.

Here's to normalizing over the next decade!

Depends upon the stock one owns, I guess.

[FrugalSaver]

We're in one of the worst 18 year periods in history for stocks. Maybe it's about to turn around but only time will tell. I am invested in stocks but the math is pretty amazing given some of the decisions for our economy in the last 2 Decades. If you started working in 2000, the returns are < 5% including dividends.

Here's to normalizing over the next decade!

Depends upon the stock one owns, I guess.

Usually "the market" refers to something like VTSAX. Obviously with individual stocks, YMMV so DYODD

[BTDretire]

REITs aren't qualifying dividends. So those will be taxed as normal income.

That's kinda like saying, "Most are taxed at regular rates. :-( "

Also don't chase dividends

Do you know of any REIT prefereds that failed to pay their dividend, just curious.

And, if I recall correctly (check me on this), the dividends for some of them (most of them?) reduce your cost basis.  I am sure there is a semi-logical(?) explanation as to why this happens, but I can't think of it on my own.  That doesn't mean "Never buy REITs."  That means "consider the taxes when you do."

That is true of REIT's but I question with it is true of the prefereds.

[retired?]

Just went through the exercise of balancing rolling traditional IRA money to Roth vs. loss of ACA subsidy.  At some point, increasing the conversion made the actual tax (tax plus subsidy loss) about 22%. 

Fortunately, you can wait until the last few days of the year to do the conversion, at which time you'll have a pretty good if not exact idea of your income.

[boarder42]

its not about failing to pay dividends the act of chasing dividends decreases diversification and dividends inherently increase taxes vs just normal share gains.  Dividends arent magic, the company could reinvest in itself and the share price increase.  selling shares is better than getting a dividend tax wise.  there have been many threads discussing why its not as good a play as just owning a diversified portfolio not focused on dividend income. 

the act of chasing dividends is akin to paying down a low interest fixed rate mortgage IMO its an emotional suboptimal financial move.

[SugarMountain]

We're in one of the worst 18 year periods in history for stocks. Maybe it's about to turn around but only time will tell. I am invested in stocks but the math is pretty amazing given some of the decisions for our economy in the last 2 Decades. If you started working in 2000, the returns are < 5% including dividends.

Here's to normalizing over the next decade!

Only if you invested it all in 2000.  If someone started working in 2000 and has been investing annually for 16 years, they've done quite well.  2008-09 were particularly good years to invest.

[farmecologist]

One thing I try to point out to people is that psychology really comes into play in a down market.  For 'regular investing' to work, you must have the resolve to stick to it at all times.   Unfortunately, many people pull their money out of a down market and stop investing during a crash.  I have seen this behavior before...especially during the 2008 crash.  Basically, many people just can't handle it and end up making some VERY bad decisions.

I gather here that many readers here have not 'invested through' a massive crash like in 2008?  We all like to think we will be able to handle it.  However, the reality is that when a 50% loss is staring you in the face, the ability to keep investing is very, very difficult. 

 

   

[Ryland]

Also worth considering real estate. If you can find numbers that exceed the 1% rule, you'll be cash flowing ~7% per year.

Here's a great article on it: http://frugalvagabond.com/2015/08/09/evaluate-rental-property/

[Metric Mouse]

One thing I try to point out to people is that psychology really comes into play in a down market.  For 'regular investing' to work, you must have the resolve to stick to it at all times.   Unfortunately, many people pull their money out of a down market and stop investing during a crash.  I have seen this behavior before...especially during the 2008 crash.  Basically, many people just can't handle it and end up making some VERY bad decisions.

I gather here that many readers here have not 'invested through' a massive crash like in 2008?  We all like to think we will be able to handle it.  However, the reality is that when a 50% loss is staring you in the face, the ability to keep investing is very, very difficult. 
 

I'm unsure of why you would think that most readers were not investing in '08. I mean, that's only eight years ago. Even if everyone on this forum was only 30, they'd still have been investing during the crash.

[farmecologist]

One thing I try to point out to people is that psychology really comes into play in a down market.  For 'regular investing' to work, you must have the resolve to stick to it at all times.   Unfortunately, many people pull their money out of a down market and stop investing during a crash.  I have seen this behavior before...especially during the 2008 crash.  Basically, many people just can't handle it and end up making some VERY bad decisions.

I gather here that many readers here have not 'invested through' a massive crash like in 2008?  We all like to think we will be able to handle it.  However, the reality is that when a 50% loss is staring you in the face, the ability to keep investing is very, very difficult. 
 

I'm unsure of why you would think that most readers were not investing in '08. I mean, that's only eight years ago. Even if everyone on this forum was only 30, they'd still have been investing during the crash.

I guess what I'm referring to is having a substantial sum built up well before '08...and then see the value plummet when a crash hits. 

Frankly, I see many young contributors on MMM that I'm fairly certain have not been through a situation like this.  There seem to be some very, very pro-stock people people around here that appear to assume the stock market will continue to produce exceptional returns.   Looking at stock market valuations these days, I'm quite skeptical of this.

I'm just trying to issue a word of caution. 

By the way, to give a frame of reference, I'm a bit believer in the 'boglehead' style of investing ( see https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy ).  Maybe I'm just getting more 'conservative' in my 'old age' (mid 40s).  :-)

[GuitarStv]

Probably 5% after taxes if not in a retirement account.

If you pay any. ;)

Who do you think I am, Donald Trump!? :D

Personal attacks are forbidden by forum rules.  :P

[Metric Mouse]

Probably 5% after taxes if not in a retirement account.

If you pay any. ;)

Who do you think I am, Donald Trump!? :D

Personal attacks are forbidden by forum rules.  :P

Personal attacks of forum members. Does Mr. Trump frequent this site? I will apologize to him if he does, and was offended by what I said. Hopefully he doesn't read the "Realistic impacts of a Trump presidency" thread...

[GuitarStv]

Probably 5% after taxes if not in a retirement account.

If you pay any. ;)

Who do you think I am, Donald Trump!? :D

Personal attacks are forbidden by forum rules.  :P

Personal attacks of forum members. Does Mr. Trump frequent this site? I will apologize to him if he does, and was offended by what I said. Hopefully he doesn't read the "Realistic impacts of a Trump presidency" thread...

No, I meant that forum rules prevent anyone from calling you Donald Trump . . . because implying that you shared his character is a clearly insulting personal attack.

[aspiringnomad]

Personal attacks of forum members. Does Mr. Trump frequent this site?

Of course he does. That's why when he orders a shower it's not really gold - instead he repurposes human waste. Very Mustachian, IMO.

[Metric Mouse]

No, I meant that forum rules prevent anyone from calling you Donald Trump . . . because implying that you shared his character is a clearly insulting personal attack.

Touche!