one (investing) question at a time

[deborah]

The NUMBERS are right. 8% seems a bit high if you are not counting INFLATION which usually runs at an average of about 3%.

[GardenFun]

The NUMBERS are right. 8% seems a bit high if you are not counting INFLATION which usually runs at an average of about 3%.

Inflation is the part of the rate of return equation where I struggle with numerical justification.  Historically, I used 3% during any calculations due to the average quoted above, but have recently went to 2%, hence the 7% overall return.  There isn't one thing that caused the move, more of a gut feeling that prices aren't going to increase as much as expected. 

[scrubbyfish]

Excellent, thanks all! I don't do projections for my own long term: I aim to invest wisely, then let it become what it becomes. But I'm grateful to learn what each of you anticipates/plans for. (And that I'm understanding how to do the math!)

[arebelspy]

Am I doing this math correctly?

Yes.

And is 8% a reasonable assumption in MMM land?

It's "not unreasonable".  As you know, that number can fluctuate quite a bit from year to year.

That is a good question and would be curious to see what other members use.  I've been using 7%, my best friend uses 6%.  We are both the type who would rather save extra $$ just in case.  But there comes a point where we are irrationally conservative. 

Run the numbers with 7% and 8%.  Over a 10 year time horizon, they will not look too different.  After 30 years, it can add up to be a noticeable difference.

Do you have a separate number for inflation, or is your 7% supposed to be real?

I'd probably use closer to 4-5% real, 7-8% nominal, personally, but it all depends on your crystal ball, as we're all just guessing here.

[GardenFun]

Am I doing this math correctly?

Yes.

And is 8% a reasonable assumption in MMM land?

It's "not unreasonable".  As you know, that number can fluctuate quite a bit from year to year.

That is a good question and would be curious to see what other members use.  I've been using 7%, my best friend uses 6%.  We are both the type who would rather save extra $$ just in case.  But there comes a point where we are irrationally conservative. 

Run the numbers with 7% and 8%.  Over a 10 year time horizon, they will not look too different.  After 30 years, it can add up to be a noticeable difference.

Do you have a separate number for inflation, or is your 7% supposed to be real?

I'd probably use closer to 4-5% real, 7-8% nominal, personally, but it all depends on your crystal ball, as we're all just guessing here.

7-8% nominal.  An attempt to justify an expected rate of return, albeit still a guess.