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Is it really that hard to draw 5-6% long term?
Posted on 8/10/16 at 2:15 pm
Posted on 8/10/16 at 2:15 pm
My plan is pretty simple. Next March I start putting away money monthly for the next 14 years. I won't have to touch this money until then. I'm not trying to beat the market or time the market to make truckloads of money, I just want a reasonable return in the 5-6% range. Looking at Vanguard's history, this seems pretty easy to do with a diversified portfolio of index funds with a heavy lean on bond funds to minimize risk ( Vanguard returns). Very few of their funds appear to have failed to meet this goal over the past 10 years (which includes the '08 crash) - so it seems like a diversified portfolio would be very low risk. What am I missing here?
This post was edited on 8/10/16 at 2:16 pm
4
Posted on 8/10/16 at 2:27 pm to 911Moto
I think you're generally thinking correctly about this.
I own bonds, and even when interest rates make bond and bond fund prices go down, there is a monthly interest payment, so there are a couple of ways you can look at the bond portion of this.
But 6% unrealized gain on an annual basis should be achievable.
Also, with respect to the bond fund, I'd look to see in their prospectus what percentage of their munis (as an example) are insured offerings, and tax free, or taxable. The tax free part would need to be coordinated depending on the vehicle you're doing this in. Is this a tax advantaged retirement account, or a taxable trading account? And so on... So I can't comment about a lot of that as I don't know exactly what you're doing, and probably wouldn't comment anyway. I'm just making some general observations at 30K feet.
I own bonds, and even when interest rates make bond and bond fund prices go down, there is a monthly interest payment, so there are a couple of ways you can look at the bond portion of this.
But 6% unrealized gain on an annual basis should be achievable.
Also, with respect to the bond fund, I'd look to see in their prospectus what percentage of their munis (as an example) are insured offerings, and tax free, or taxable. The tax free part would need to be coordinated depending on the vehicle you're doing this in. Is this a tax advantaged retirement account, or a taxable trading account? And so on... So I can't comment about a lot of that as I don't know exactly what you're doing, and probably wouldn't comment anyway. I'm just making some general observations at 30K feet.
Posted on 8/10/16 at 2:29 pm to 911Moto
Why are you waiting until March and why 14 years? Is that for retirement?
No, 5-6% is not that hard. Where people screw up is they get excited when times are good and freak when times are bad. So they get overly invested in risky stocks and then sell off after a crash instead of staying moderately risky or at a comfortable risk tolerance through thick and thin.
No, 5-6% is not that hard. Where people screw up is they get excited when times are good and freak when times are bad. So they get overly invested in risky stocks and then sell off after a crash instead of staying moderately risky or at a comfortable risk tolerance through thick and thin.
Posted on 8/10/16 at 3:30 pm to 911Moto
6% is doable over the long term, but exactly 14 years I would be worried about. With retirement, you have to be nimble. If you get hit with a correction is your first few years, you could be screwed.
Posted on 8/10/16 at 5:32 pm to baldona
I'm getting some other finances in order and have a pretty set budget, so around March will be when a decent chunk of money is available monthly for the long haul. And 14 years because my disability cuts off at that time. Virtually all of my income is non-taxable right now, so I don't have to worry about seeking tax-deferred investments, Likewise, capital gains taxes should be relatively kind to me in the future.
Posted on 8/10/16 at 10:11 pm to 911Moto
quote:
What am I missing here?
At the bottom of that Vanguard page:
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so that investors' shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited.
The next 10 years, the market may stay flat or decline.
That performance data is based on a lump sum invested at the beginning of the time period. So monthly contributions will give you a different result.
If I knew of a guaranteed and safe investment with annualized ROI of 5-6% for the next 10-15 years; I'd be all over it.
Posted on 8/10/16 at 10:34 pm to gpburdell
quote:
If I knew of a guaranteed and safe investment with annualized ROI of 5-6% for the next 10-15 years; I'd be all over it.
I think commercial real estate provides that kind of return actually. Correct me if I'm wrong because I've never actually looked into the numbers of it all.
Posted on 8/10/16 at 10:36 pm to gpburdell
Certainly the inherent risk of the market is a long term flatline or decline, but how often has that happened? The return rates for the past 10 year period include the major 2008-2009 crash, yet still exhibit solid returns pretty much across the board. Maybe I'm just an optimist. 
I'll have to settle for low risk.
quote:
guaranteed and safe investment
I'll have to settle for low risk.
This post was edited on 8/10/16 at 10:38 pm
Posted on 8/10/16 at 10:41 pm to Omada
quote:
I think commercial real estate provides that kind of return actually.
I've considered this option as well - especially since I have the option of taking a sizeable buyout from my disability insurance right now. But I'm leaning towards the long, slow burn.
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