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Old 03-15-2013, 05:49 AM
 
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Debunking the myth of the 8% return - MarketWatch

He makes a pragmatic case for 2% returns after inflation and everything else is factored in.
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Old 03-15-2013, 07:28 PM
 
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Is this for real? I can see the first two not always being factored into averages, as people don't always get what is in an average.

The third is just plain bizarre. He just decides to shave a few points off because asset allocations often become more conservative over time. They do on average, but taking it out of the total ignores all the gains before changing allocations. It also assumes there is an "average" allocation that most people start with and end with, and takes an average where you see more gains at the start with money worth more...and fewer gains when money is worth less (and have more of it after years of higher gains).

Number 4 is lunacy, he just decides to "adjust for current market conditions" by lowering it a bit more. Why or how much is purely by his own decisions, even after record gains in the market.

Fees and poor timing...well how the heck does one estimate poor timing (and it's impact) on average?

This guy is just making numbers up and pretending like they are real because he feels justified. He's just offering his opinion and pretending like that is data to back it up. Even his other writers disagree on other touted articles at the bottom of his
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Old 03-15-2013, 08:02 PM
 
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I don't know how things will play out but i will say this.

Dr wade pfau is not just another guy.

Pfau is one of the most brilliant researchers in the industry as more and more of his work is adopted by financial planners all over the country.

He is one of the most influential writers for the journal of financial planning which is the equal of the american medical general.

Dr pfau has shaped the landscape for retirement planning for the entire industry.

I can say that most of the time his numbers,white papers and research is on the mark and it is us who judge things by the seat of our pants and what we believe to be true to be wrong.

More and more of the stuff folks doubted that he calculated correctly is panning out to be correct.
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Old 03-15-2013, 08:17 PM
 
Location: NJ
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its not really 2% returns, its 2% if you remove inflation (among other things). he makes it as if we dont realize that $1 million in 30 years wont buy as much as $1 million today. you still have the higher returns, its just that not all the returns is additional value. he is not debunking the 8% assumption, he is just translating the future value into todays value.
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Old 03-15-2013, 08:24 PM
 
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I am not a betting man but i would bet when all is factored in along with human behavior as well, he is not far from that 2% real return number.

I don't think a 50/50 mix of equities and bonds has even seen a 2% real return in 13 years.
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Old 03-15-2013, 08:29 PM
 
Location: NJ
22,834 posts, read 28,721,159 times
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Quote:
Originally Posted by mathjak107 View Post
I am not a betting man but i would bet when all is factored in along with human behavior as well, he is not far from that 2% real return number.

I don't think a 50/50 mix of equities and bonds has not had a 2% real return in 13 years.
you mean 2% without factoring inflation, so a negative real return? i dont think its fair to just subtract out inflation and pretend we all dont know already that money will be worth less in the future. by taking the "8% myth" and subtracting from there, he doesnt seem to be comparing apples to apples. nobody who uses the "8% myth" believes that its 8% after inflation is factored in, they all know its before inflation.
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Old 03-15-2013, 08:34 PM
 
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2% real return is after inflation
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Old 03-16-2013, 04:40 AM
 
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one thing i will say is i see my own life playing out with the factors pfau is figuring in. i was around 55 when i scaled back from my growth model to my more conservative income model .

i did not maintain a steady 80-100% stock once i aged a bit. that is an important point when projecting ahead.

we have negative real returns on bonds , we have inflation, fees , poor timing decisions and rebalancing points and a host of other factors that effect your return working against you.

while you cannot anticipate what someones buy in level is or their individual fees we do know this. folks will not buy in at the lowest points each year or rebalance at the exact highs and lows of things but we do know that for most of us they will act as a weight on your return when compared to projections on a chart..

sure that straight upward line showing predicted growth looks great on a chart ,but when real life factors are thrown in the amounts you end up with are no where near as great as they seem in todays dollars.

just think about historically the fact interest rates ran 5-6% . a 10% drop in equities meant that with 2 years you were whole again .

anyone want to compute how long a 10% drop at todays money market rates would take to break even?

when those charts projected for me 30 years ago showed me how much i could have they did not foresee 13 years of stagnant market growth ahead or the fact that the united states would no longer be the world prom queen. market growth going forward may be a fraction of what we saw the last 30 years.

my opinion as well as many others is pfau is not so far off, if in fact he is off at all. like i said, we went many many years without even seeing a 2% real return from equities. the entire 2.000's decade ran at about minus 3.4% real return.
perhaps pfau is to generous at 2% ha ha ha

Last edited by mathjak107; 03-16-2013 at 06:04 AM..
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Old 03-16-2013, 06:12 AM
 
65,090 posts, read 66,574,854 times
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you can see real returns were pretty poor since 1996 with losses wiping out the good years. the markets and the world has been a very different place to invest since the 2,000's . no one knows if the new norm is much lower investment growth going forward so caution and under-expecting can be your friend.

https://content.putnam.com/literature/pdf/II514.pdf

Last edited by mathjak107; 03-16-2013 at 06:34 AM..
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