How much do you expect from your investments?

Hello,
I read many various mid- / long-term calculations from mustachians on various blogs or forums and noticed that it’s not uncommon to see people expecting a good 5-6% yearly rate of return from their investments.

Doesn’t that sound a bit optimistic? What would be a reasonable return rate?

What’s the time horizon? 5-6% might be ok, but over very long time period, on shorter time periods there’s a fairly large sequence of return risk, you can do monte carlo simulation there are a bunch of them online (e.g. https://www.portfoliovisualizer.com/monte-carlo-simulation)

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6% kind of / unofficially applies in USD terms mostly, IMO. So in CHF terms the ROI will probably be lower corresponding to exchange rate gain CHF:USD in the same time you are analysing.
So VT will go up 6% p.a. (incl full dividend re-invested) but VWRL would only go up (6% - CHF appreciation).

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I expect 6% nominal and 5% real returns in CHF. But the past was much better than that. Better play it safe.

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I like this “post-it” size summary. It’s from the Economist 2015, so not quite current.
Today I would say “1985-2019 - 35 glorious years”.
As always past not equal future.

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I’m basing my expectation for stocks on a 30+ years investment horizon but am more conservative with my expectations of cash and bonds. My expected nominal CAGR are:

  • Swiss stocks: 10% (very light graphical analysis of past performance, nothing I’d rely on too much but I wanted a number to graph my progress so… here it was) ;
  • Cash: 0.30% ;
  • Bonds: 1% ;
  • Precious metals: 0%
  • Real Estate: 4% (there again, a pretty rough estimate as someone without the skills to optimize these kinds of investments).

These are numbers I’m using for myself, nothing to rely too much on. I’m optimistic on long term stocks returns but that has to do with the way I’m investing (individual swiss stocks with price-weighted allocations and/or hard entry/exit prices).

Why CAGR and not IRR?

Check out:

I recommend watching the whole, but for this case 3:00 would be enough

I have the following historical returns of s&p in my head: 10% nominal USD and 7% real, 3% USD inflation.

It varies a lot depending on the starting and ending point, that’s why it’s good to visualize it with a trailing return CAGR. For example this chart shows, what your average return would be each year if you invested for 20 years. As you can see, it varies a lot, and 20 years is not a short time.

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Lol at almost 0% real return for 20 years. Hopefully we won’t see this in our future.

I need to google for some DCA CAGR, not lump sum. Maybe it looks more smooth.

As always a good one to watch:

In summary: stay invested as a boglehead!

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