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Advice on Specific Asset Class Rates of Return

 

AZ Wildcat
(@mashby)
New Member Customer
Joined: 11 months ago
Posts: 2
Topic starter  

I would greatly appreciate some general advice related to the real rates of return that I have assumed for my specific asset classes. I have attached a screen grab image from PRC Gold but also duplicated them below.

  • Vanguard Total Stock - Real ROR = 5.0%
  • Vanguard Total Intl Stock - Real ROR = 5.0%
  • Vanguard Total Bonds - Real ROR = 1.0%
  • Vanguard REIT - Real ROR = 5.0%
  • SPTN 500 Index - Real ROR = 5.0%
  • SPTN 500 Intl Index - Real ROR = 5.0%
  • SPTN US Bond - Real ROR = 1.0%

Are these values perhaps too conservative, not conservative enough or pretty close to the goldilocks zone?


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Bill Hines, Retirement Planner
(@hines202)
Estimable Member Customer
Joined: 1 year ago
Posts: 101
 
Posted by: @mashby

I would greatly appreciate some general advice related to the real rates of return that I have assumed for my specific asset classes. I have attached a screen grab image from PRC Gold but also duplicated them below.

  • Vanguard Total Stock - Real ROR = 5.0%
  • Vanguard Total Intl Stock - Real ROR = 5.0%
  • Vanguard Total Bonds - Real ROR = 1.0%
  • Vanguard REIT - Real ROR = 5.0%
  • SPTN 500 Index - Real ROR = 5.0%
  • SPTN 500 Intl Index - Real ROR = 5.0%
  • SPTN US Bond - Real ROR = 1.0%

Are these values perhaps too conservative, not conservative enough or pretty close to the goldilocks zone?

There's a thread titled "Asset Allocation" where we've been kicking some of this around recently. I'd read through that.

Bill Hines
Investment Advisor/Financial Counselor/Retirement Planner
Emancipare Investment Advisors LLC
https://emancipare.com
bill@emancipare.com


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AZ Wildcat
(@mashby)
New Member Customer
Joined: 11 months ago
Posts: 2
Topic starter  

Thanks Bill. I read the Asset Allocation thread, and I found your post on December 10 to provide the most clarity to my initial question. It sounds like things are pretty pessimistic for the next 10 years due to current circumstances (e.g., global virus, supply chain issues, inflation, etc.). For example, both the Vanguard Total Stock and SPNT 500 Index should perhaps be revised to a very conservative real ROR of 2.3%, and this is what should be used in my PRC Gold analysis scenarios. Along these lines, I have a few follow up questions for you and/or others.

  • Do you and others generally keep the asset class entries in PRC Gold super simplified? For example, do you keep them listed similar to what is provided in the help file (i.e., money market vs. equities vs. bonds), or do you break them out into specific ETF or index funds?
  • If things are super pessimistic for the next 10 years, do you then use PRC Gold’s periods 2 thru 5 to adjust the Real ROR for your various asset classes in the future (i.e., beyond the next 10 years)? If “yes”, what values or general approach do you use for estimating the ROR’s in these future periods?

Lastly, I just wanted to share that I recently discovered the website Portfolio Charts ( https://portfoliocharts.com/ ), and I have been very intrigued by the site’s various blog posts, calculations, graphs/charts and ability to query various asset classes. I would be curious to know if you or others think some of the tools and content on Portfolio Charts are useful and might add not only to this discussion but maybe other threads on the forum, such as the “Asset Allocation” thread you recommended previously.


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NC Cpl
(@nc-cpl)
Eminent Member Customer
Joined: 6 months ago
Posts: 46
 

Short article. Take from it what you will.


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Greg Golich
(@golich428)
Active Member Customer
Joined: 1 year ago
Posts: 9
 

First - As far as your real ROR assumptions go, I don't feel comfortable giving my personal opinion, however, here are two links to well respected advisors that I use as a guideline for my ROR assumptions. I have one other source that is behind a pay wall. The low expected returns over the next 10 years is mainly influenced by the relatively high valuations, especially for US.

Vanguard

Research Affiliates

Here is the one behind a pay wall. It has a lot of good stuff that is free if you are not interested in the plus site.

Money For The Rest Of Us

Second - Historical ROR go through periods of mean reversion over time due mainly to some pretty major valuation cycles. I have looked at this for the US and there is clearly a pattern but it is not perfect and it could change. If you have high rates of return like we have been experiencing, they tend to mean revert. I looked at 10 year ROR compared to subsequent 20 year ROR and when we have had low single digit real returns the first 10 years, it is followed by low double digit returns the following 20 years and visa versa. I did not look at shorter cycles. Keep in mind there is scatter in the data. The reason I looked at 10 years is because the returns a retire experiences the first 10 years correlates well with historical "safe" withdrawal rates.

Third - I keep things simple and only have Stocks, Bonds and Cash. My portfolio is primarily these asset classes and I just lump other asset classes into either a Risky bucket similar to equities or safe bucket similar to bonds. I don't think it pays to get to granular since we are not good at knowing the future returns of the broad asset classes let alone a certain etf or fund.


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