What is a reasonable real rate of return in your mind? I am only using one investment period right now and I think my RROR of 1% for stocks is too conservative. Any thoughts?
Historical real return for stocks has been 6.7%, so using 1% is beyond conservative and is in the territory of historical worst cases. If you want to do worst-case modeling, don't do it in the deterministic model, do it in the historical modeling analysis feature. One of the great features in Pralana is the ability to not only show historical graph of results, but you can select a given year and see what would have happened. Picking a year like 1929 or 1965 will give you feel that things can get really bad, but after a while, they bounce back, you just need to have enough money left to take advantage when the bounce happens. Personally, I reject the top 30% or so of historical return cases as those occurred when coming out of a prolonged market crash and we clearly are not in that situation right now. So I tune my central rate of return assumption so my results are similar to the ~25-35% lowest percentile results.
