What should my assumptions be for returns on regular and retirement accounts?

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?


dan royer's picture

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).

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.

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's picture

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.

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