Author Topic: Confused about real returns  (Read 2379 times)

ashg

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Confused about real returns
« on: May 19, 2014, 07:02:03 AM »
Hi, I'm new and a bit confused about what return to expect.

Looking to retire next year with total invest-able fund of $1.5 million which I am looking at conservatively (?) investing in a 50/50 split of stocks and bonds. I will be keeping around 2 years living expenses in cash above the investments and I was wondering what the community thought were realistic real returns that are achievable in todays markets.

Thanks

skunkfunk

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Re: Confused about real returns
« Reply #1 on: May 19, 2014, 07:34:31 AM »
It's pretty much impossible to tell you what the returns will be over the next two years. You need a longer time frame if you want to guess the average return.

ashg

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Re: Confused about real returns
« Reply #2 on: May 19, 2014, 07:38:59 AM »
Sorry I wasn't clear - I am looking at what a conservative return would be over the longer term. I am using a retirement calculator from MSN money and it asks for estimated returns - is 4% the usual answer?

skunkfunk

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Re: Confused about real returns
« Reply #3 on: May 19, 2014, 07:41:09 AM »
I'm no expert, but my gut feeling is a 50/50 split with index funds and bonds like that would yield something like 4% after inflation. Hopefully someone a little more knowledgeable can chime in.

foobar

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Re: Confused about real returns
« Reply #4 on: May 19, 2014, 08:10:03 AM »
http://www.researchaffiliates.com/Production%20content%20library/IWM_Jan_Feb_2012_Expected_Return.pdf

Look at the 60/40 returns for those different time periods. The realize we are starting in the <3% yield bond case  and see that you average 10 year return is ~2.5% real. Now there are small sample size issues involved.

The other way to go is to look at expert predications and you get something like (3% bonds + 7% stocks -2% inflation) 3%. Of you can assume you get the 8% average since 1920 and the 3% inflation and you will end up with 5%.

As you stretch out from a 10 year period to like a 50 year one, the crystal ball gets extra cloudy.  4% seems like a reasonable long term rate. Just don't expect it every decade.



I'm no expert, but my gut feeling is a 50/50 split with index funds and bonds like that would yield something like 4% after inflation. Hopefully someone a little more knowledgeable can chime in.

dragoncar

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Re: Confused about real returns
« Reply #5 on: May 19, 2014, 10:19:10 AM »

ashg

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Re: Confused about real returns
« Reply #6 on: May 21, 2014, 12:24:08 PM »
Thanks - looks like 4% is a pretty decent estimate.