4 ms·

I think his formulas are based off of assumptions that don't fit reality for people. A good example is lifetime stock market average. I did a study recently w

I think his formulas are based off of assumptions that don't fit reality for people. A good example is lifetime stock market average. I did a study recently where I tracked the date and cash amount of every retirement contribution I've ever made, and pretended I simply bought an S&P-500 index fund on each of those dates. I then calculated my lifetime APY, and it was nowhere near the averages that the magazines claim. I've been a pretty consistent retirement saver but the point is that my savings past tracks what is probably true for most people - I've had more to save in years where times were good (and the stock market was higher), and less to save in years where times were bad (and the stock market was lower). When you take the same formulas that he claims as gospel and plug in more reasonable "stock market average performance" each year, you get vastly different conclusions.

rscale 14y ago
The standard figures are definitely optimistic, but when you check your returns make sure to include dividends reinvested. In recent years, they're good for about 2%/yr if you buy something like the S&P 500. I find it somewhat baffling how many financial tools ignore the effects of dividends when calculating returns.
- tunesmith 14y ago
  It is a good point - first time I ran the numbers I realized I was missing them, but now my numbers use the "adjusted close" from yahoo which take dividends into account. As of today, my all-time APY would be 6.02% - lower if you take inflation into account. And it's worth noting that almost all of the time before now would have had a lower APY than that.
  - rscale 14y ago
    Using the adjusted close assumes that you put your dividend receipts into a mattress so it's still slightly low, but I doubt that's more than .1% or .2% for a typical portfolio over a moderate timeframe. I wholeheartedly agree with you that it's dangerous to bet your retirement on a level of return that many won't achieve.
    - tunesmith 14y ago
      Actually, can you explain that more? Since yahoo adjusted close says it takes dividends into account, I took that to be the same as immediately reinvesting your dividends in the same holding. You're saying that instead, it's the same as issuing the dividends as cash and then forgetting about it? If so, then how do people actually backtest long term holdings to assume reinvested dividends? As far as free historical data sources, I thought it was basically yahoo or nothing.
      - rscale 14y ago
        I was wrong. I thought Yahoo adjusted for dividends incompletely but they appear to handle them fully. My apologies for the confusion.

rscale 14y ago

The standard figures are definitely optimistic, but when you check your returns make sure to include dividends reinvested. In recent years, they're good for about 2%/yr if you buy something like the S&P 500. I find it somewhat baffling how many financial tools ignore the effects of dividends when calculating returns.

tunesmith 14y ago
It is a good point - first time I ran the numbers I realized I was missing them, but now my numbers use the "adjusted close" from yahoo which take dividends into account. As of today, my all-time APY would be 6.02% - lower if you take inflation into account. And it's worth noting that almost all of the time before now would have had a lower APY than that.
- rscale 14y ago
  Using the adjusted close assumes that you put your dividend receipts into a mattress so it's still slightly low, but I doubt that's more than .1% or .2% for a typical portfolio over a moderate timeframe. I wholeheartedly agree with you that it's dangerous to bet your retirement on a level of return that many won't achieve.
  - tunesmith 14y ago
    Actually, can you explain that more? Since yahoo adjusted close says it takes dividends into account, I took that to be the same as immediately reinvesting your dividends in the same holding. You're saying that instead, it's the same as issuing the dividends as cash and then forgetting about it? If so, then how do people actually backtest long term holdings to assume reinvested dividends? As far as free historical data sources, I thought it was basically yahoo or nothing.
    - rscale 14y ago
      I was wrong. I thought Yahoo adjusted for dividends incompletely but they appear to handle them fully. My apologies for the confusion.