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Adjustments For A Conservative Return Assumption
Consider three scenarios: An individual investing a lump-sum amount for thirty years An individual saving a fixed percentage of a constant inflation-adjusted salary at the end of each year over a thirty-year accumulation period An individual withdrawing the maximum sustainable constant inflation-adjusted amount from a portfolio at the start of each year over a thirty-year…
Read MoreA Guide to a Conservative Return Assumption
A simple approach for building a financial plan is to decide on a rate of return for the investment portfolio and to plug that value into a spreadsheet to represent assumed asset growth. Historical data may be used to calculate historical average returns for different asset classes, which are then combined to create the overall…
Read MorePlanning For The Future – What About Bond Yields?
Adjustments for Current Bond Yields An important consideration is that current interest rates are lower than the historical averages. The historical average return is not relevant for someone seeking to estimate future market returns from today’s starting point. The general problem with attempting to gain insights from the historical outcomes is that future market returns…
Read MoreWhat To Do When Markets Plummet – Investor Behavior Gap
Another concern is whether investors are disciplined enough to stay the course with the investment strategy in order to earn the underlying index market returns. Studies on retirement spending from investment portfolios typically assume that retirees are rational investors who rebalance right on schedule each year to their rather aggressive stock allocations. They never panic…
Read MoreMaking Your Investments Work For You: Things To Consider
Inflation We must remove inflation so the numbers allow for a better understanding of purchasing power growth. Real returns will be less because they preserve the purchasing power of wealth over time. Providing the discussion in terms of real returns allows us to plan for the assumption that future spending will grow with inflation. Even…
Read MoreHow Much Can Retirees Spend On March 11, 2020? It May Not Be What You Think
Turbulent market volatility and declining interest rates are leaving many people wondering about the viability of their retirement plans. Given where markets are today, will you have enough to meet your retirement spending goals? Attention often turns to the 4% rule, which is a simple rule-of-thumb to guide retirement spending. It is the highest withdrawal…
Read MoreHow Much Should We Depend On The Stock Market?
Simple analyses, which look to historical returns as estimates for what retirees should expect in the future, tend to provide an incomplete picture that may overstate the potential for stocks relative to other strategies. We will investigate some of the adjustments that should be made to historical returns to obtain a better idea about the…
Read MoreInflation, Deflation, Confiscation & Devastation- The Four Horsemen Of Risk
Noted financial advisor and historian William Bernstein makes a compelling case for stocks in his e-book Deep Risk: How History Informs Portfolio Design. In the introduction, Bernstein begins by offering an operational definition of risk. Risk is the size of real capital loss times the duration of real capital loss. This gets at the idea…
Read MoreThe Coronavirus and Your Investments
The Coronavirus is scary. When it’s possible to make reasonable comparisons with the Spanish Flu, that should make you sit up and take notice. Aside from the reasonable precautions that you should be taking, what should you be doing to protect your investments from the disruptions that the Coronavirus may cause? We’ve already seen significant…
Read MoreThe Case for Stocks
The case for using an aggressive investment portfolio with a high stock allocation to fund retirement expenses rests on the idea that it will probably work. Stocks are expected to outperform bonds, and if and when that happens, a retiree will be able to spend more from their asset base in retirement. For example, in…
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