Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The nominal rate must be used to calculate the number of dollars accumulated in the account (your original issue as well as my subsequent question) while the real rate addresses the purchasing power of those dollars.
The purchasing power is all I or anyone else cares about.
I'm still waiting for your alternative analysis. Been waiting a long time now....
I've never had a problem with this, and have never been confused about 100% gains and 50% declines, and I don't see what that has to do with the topic we are discussing.
I realize that future projections are a guess based on the past. Why would that make nominal numbers better to use than real? The only reason I can think of is if you believe that long term stock values have nothing to do with inflation, but rather we should expect the future prices to track the nominal price history regardless of inflation?
it has a lot to do with it . inflation effects your actual return big time based on the actual inflation numbers and their SEQUENCE order . it can make projecting that much harder .
since average returns are effected by sequences of GAINS AND LOSSES , as you saw in my simple example , you can make the skewing even greater with 2 unknown variables .
so you can guess at average returns and average inflation figures . but both are sequence sensitive if you want to project real return . .
in fact in retirement when spending down , how long the money lasts over 30 years can vary by 15 years using the same average inflation and average returns just by changing the sequence of them .
the more unknown variables you introduce the more skewed the results can be .
real returns work better after the numbers are in .
such as if i want to see what the actual growth was from 2000 to 2015 i would look at real returns because that is what counts.
since we would have to guess at inflation figures and sequencing and returns and sequencing combining together it makes the error potential off in the future way way bigger than it may be , both higher or lower
Last edited by mathjak107; 02-21-2018 at 10:13 AM..
since average returns are effected by sequences of GAINS AND LOSSES , as you saw in my simple example , you can make the skewing even greater with 2 unknown variables .
Both of these variables are absolutely necessary if you are projecting the value of your account. There is no getting around that.
Either you make a best guess on returns *and* inflation (or real returns), or you have no viable projection of account value at all.
nothing stopping you from figuring it any way you want .
i personally only use real return on the known . i don't bother on projections , never did , no reason to as projecting out can be difficult enough without adding in a guess at inflation too .
imagine the surprise of those in 1965 when they had a bit over 2% inflation and were at 3x that in 3 years and double that in 6 years . .
had i projected out in 2000 and went to sleep for 15 years , what a surprise i would have had when we went no where .
so all the years i have been investing which is over 30 and retired , i can say i never projected out for any purpose .
it is what it is , i saved as much as i could and i invested the best way i was able to . the balance is what it is when i get there .
even now , i am retired . there is zero reason for me to look at projecting out . but if you want to do it than do it and do it anyway you like .
what you will find when you get to that point in time is you were likely so off that it really was an exercise in futility .
i expected to have way way more than i do , but then 2000-2015 happened and 15 years of anticipated growth never happened .
Last edited by mathjak107; 02-21-2018 at 10:52 AM..
i personally only use real return on the known . i don't bother on projections , never did , no reason to as projecting out can be difficult enough without adding in a guess at inflation too .
I don't personally project either, because I don't need to. My finances are going to be fine regardless.
But the reason this diversion started was several people claiming that great riches would accrue to anyone who would simply start socking some money in the stock market when they were young. This isn't a reasonable expectation.
it has a lot to do with it . inflation effects your actual return big time based on the actual inflation numbers and their SEQUENCE order . it can make projecting that much harder .
since average returns are effected by sequences of GAINS AND LOSSES , as you saw in my simple example , you can make the skewing even greater with 2 unknown variables .
so you can guess at average returns and average inflation figures . but both are sequence sensitive if you want to project real return . .
in fact in retirement when spending down , how long the money lasts over 30 years can vary by 15 years using the same average inflation and average returns just by changing the sequence of them .
the more unknown variables you introduce the more skewed the results can be .
real returns work better after the numbers are in .
such as if i want to see what the actual growth was from 2000 to 2015 i would look at real returns because that is what counts.
since we would have to guess at inflation figures and sequencing and returns and sequencing combining together it makes the error potential off in the future way way bigger than it may be , both higher or lower
I'm beginning to think that this whole discussion is pretty much pointless. Given that rruff doesn't understand the basics of TVM, it's impossible for the rest of this to make much sense.
While that may be all that you care about, you hardly speak for anyone else, let alone "everyone."
When you are projecting how much wealth someone can expect to accrue in 30 or 40 years, the purchasing power of that wealth (real value) is all anyone *should* care about.
I'm beginning to think that this whole discussion is pretty much pointless. Given that rruff doesn't understand the basics of TVM, it's impossible for the rest of this to make much sense.
Good lord man, is your PhD in obfuscation?!
Do the damn analysis with your superior knowledge of TVM, and if you get a result that differs from mine, I'll be happy to show you what you did wrong.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
