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<i>A 4% rate of return from an index fund is long-term average behavior.</i> Average return for S&P 500 from 1928 to 2012 is 11.3% [ source : http://pages.ster
by tosseraccount 13y ago
<i>A 4% rate of return from an index fund is long-term average behavior.</i>
Average return for S&P 500 from 1928 to 2012 is 11.3% [ source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... ]
Inflation rate averages about 3.2% [ source : http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_... ]
11.26 - 3.2 = 8.1 % real return.
Long term investment in a diversified set of equities is a very good investment and is very likely to secure your future finances.
- timr 13y agoYou missed the point: "Average return" != "real return in any arbitrarily chosen 10-year period" It's scary how many of you don't seem to know this. Did you all read the same book on investing and skip everything after the preface, or something?
- Dylan16807 13y agoWhen you're talking about being retired for fifty years, it's the average that matters.
- timr 13y ago"When you're talking about being retired for fifty years" Yeah. We aren't. This whole thread spawned because the claim was that you can retire in 10 years if you save 66% of your income.
- Dylan16807 13y ago>Yeah. We aren't. This whole thread spawned because the claim was that you can retire in 10 years if you save 66% of your income. I don't understand. Retiring after 10 years means you'll be retired for around 50 years, doesn't it?
- timr 13y agoIf you lose your nest egg in year 10 because the market takes a dump, guess what? You're not retired anymore. It's why real-life retired people don't put their entire savings in the stock market. Retirement funds tend to have most of your money in fixed-rate securities by the time you actually quit working.
- Dylan16807 13y ago'lose' If you had enough money to live off for fifty years, the market taking a dump isn't going to wipe it out. Especially if you invested part of it before the market got high, and your total without accounting for dumps would have lasted seventy years.
- tunesmith 13y agoI started retirement investing in 1993. I did an APY analysis where I pretended I invested every one of my retirement contributions into the S&P-500, on the day that I invested it. From then until today, that APY would have been 6.77% . That's a far cry from 11.26% .
- eatmyshorts 13y agoDid you include dividends when calculating that percentage? I have not done the math, but my intuition tells me that 6.77% is a little low. 11.26% is also high for that time period--I think that figure includes the post-WWII figure (and also includes dividends).
- tunesmith 13y agoYes, definitely - this is all based on the "adjusted close" values from yahoo's historical data feed. This is interesting - I've shared this multiple times in other discussions like this, and a comment like yours is always the first response, that it seems low, questioning if I included dividends. If anything it might just underscore how our collective "societal" intuition might be a bit off in terms of long term retirement performance. I think part of it is that people tend to contribute more to retirement when times are good, since they have the extra money, and contribute less when times are bad since they're just getting by. The problem is that the market tends to be high when times are good, and low when times are bad. So this will naturally depress performance for everyone. It's impossible to contribute a consistent amount every week/month without having a cash buffer (which would depress performance anyway).