Confused about real returns

[ashg]

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]

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]

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]

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]

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]

With an easy split like that, I would run firecalc or cfiresim to see the different historical scenarios.  As always, nobody can predict the future.

(https://www.google.com/search?q=firecalc+or+open+source+fire+calculator&rlz=1C1CHFX_enUS532US537&oq=firecalc+or+open+source+fire+calculator&aqs=chrome..69i57.9991j0j7&sourceid=chrome&es_sm=93&ie=UTF-8#q=firecalc+or+cfiresim+site:mrmoneymustache.com)

[ashg]

Thanks - looks like 4% is a pretty decent estimate.