Reply to What % return would you assume for next 20-25 years

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[quote=Anonymous][quote=Anonymous]All our investments are currently in a mixture of broad index funds or target retirement date funds of 2050 or 2055.  If I’m using online calculators to project over the next 20-25 years what would assume for an average annual return?[/quote]

I've always assumed a real return of 2-3% (Nominal return minus inflation).  I use 2% for planning purposes.  I assume a 5% return for my investments and a 3% growth on expenses.  This way I'm pleasantly surprised at the end of every year my investments grew more than 5% and expenses grew less that 3%.

I also assume a reset - a percentage by which my entire portfolio gets reduced by - at least once every 10 years from which the market never recovers.  On Jan 1, 2022 my model had it at 50% given the length of time that had gone by without a proper bear market.  After the recent bear market, I've changed that to 20% (to account for a Black Swan) for 2023.  This will gradually be increased to 50% over the years.  If '23 ends up being a up year, a bull market will be in place and the market will march on for years.  I will be increasing the reset % to 25, 30, 35, etc. all the way to 50% over time.  The model itself takes us to when we are 100+ years of age and the objective is to show a positive net worth at the end of that period given the above assumptions.

Another note.  Get out of Target date funds.  They are charging you additional fees to manage that mix.  Look up the target date fund's investment mix at the beginning of each year and rebalance yourself (i.e. Buy a market index, bond index, etc. at the same % allocation as the TG funds).  Cheaper.

TL; DR - Plan conservatively - Assume 5 or 6%.  Be positively surprised;  Avoid target date funds.

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