What should my assumptions be for returns on regular and retirement accounts?
Submitted by Don46 on Tue, 03/15/2016 - 05:40
The economics based planning has me setting the assumptions for returns on my regular (taxable) and retirement account investments. My regular accounts are mainly in a Schwab broad stock index ETF plus some individual stocks; I set this category to 7.5 percent. My retirement accounts are presently in a Schwab intermediate term bond ETF, stable value funds, and (a small amount)in a Schwab international stock index ETF. I set the retirement accounts to 3 percent. I do not want overly optimistic assumptions here, but I don't want to err on the conservative side here either. Are these plausible estimates for returns on stock index?
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dan royer
Tue, 03/15/2016 - 11:21
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Hard to say. You can look at
Hard to say. You can look at historical returns of course. I have my regular assets at 2% because they are in short term and intermediate term bond funds. I have my retirement accounts at 5% (20/80 intermediate term bond/stocks).
Don46
Tue, 03/15/2016 - 20:35
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Dan, is that nominal or real
Dan, is that nominal or real (adjusted for inflation) return on investment. Is my counting on 7.5% nominal on the broad US stock market not historically sound?
I realize 3% on intermediate bonds is not realistic today, but over ten years that seems in line with historical averages.
chertz
Wed, 03/16/2016 - 00:03
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Dan, my question exactly,
Dan, my question exactly, before I even saw Don46’s reply. And if the return on your regular assets is 2% nominal, what inflation assumption are you using -- i.e. is that a negative real return?
dan royer
Wed, 03/16/2016 - 14:46
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Yes, I have inflation set at
Yes, I have inflation set at 2.5% so that's a negative real return, yes. I mess around with it of course. I change inflation to 3% and make it a 1% negative real return to see how much difference that makes etc. I do the same kind of experimentation with retirement assets to get a general range of expectations on discretionary spending. My regular assets are not pure bonds so I've been fortunate with my asset allocation to see on average around 4% nominal over recent years on those regular assets.