The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: NeoGenMike on April 08, 2017, 08:13:13 PM

Hey everyone! I was just wondering if anyone used any special rules of thumb for giving a rough estimate of what they think their stock will be worth in the future. I realize that the past doesnt mean the future will always be similar, but, for instance.
So and So's stock just doubles every five years. So, in 20 years, the 10 dollars I put in SHOULD be 160. Do you guys like to keep pessimistic or neutral?

Generally I use 6.8% per year for the growth of stock prices (after adjusting for inflation). This is the extremely long term CAGR of the US stock market. If you're not adjusting for inflation, 9.1% is the relevant number.
Note that these work if you're equally worried about errors in either direction. If you're more worried by the idea of having a lot less money than you expected in 30 years than the idea of having a more money than expected in 30 years, it makes sense to use lower growth rates than the ones above.

You definitely don't want to use any "rule of thumb" on So and So's stock.
The ENTIRE market? Sure, 7%.
This ONE company? No, there is no rule of thumb, and there can't be one.

Hey thanks, you two! Those are good numbers. Yeah, I meant the market in general, so I appreciate the responses.

Typically expected return is estimated as the forecast earnings growth rate plus dividend yield. Of course this is produces a very rough estimate, because actual earnings growth can turn out to be very different from analyst forecasts.

Rule of 72: Take a number very close to 70 and divide that number by the annual rate of return, and that's how long it takes to double.
Rule of 110: Take a number very close to 110, divide that number by the annual rate of return, and that's how long it takes to, ahem, treble. Many people here claim that a 6% real return is average via VTSAX. So $1 today should become $3 in inflationadjusted buying power in approximately 18 years.