# Assumed Stock Market Returns



## cash (Mar 5, 2011)

I'm in my 20's, working, starting to save for retirement. All of the retirement models assume that the stock market of the future will perform like the stock market of the past. They will say something like "stocks have averaged 6% real return for the past 50 years, so you can get that going forward." What happens if this is false? Nobody knows for sure, it might happen, it might not. If future returns are similar to past returns, then everything will be fine. If not, what's a guy to do?


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## slacker (Mar 8, 2010)

Shotguns and canned goods my friend.


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## MoneyGal (Apr 24, 2009)

Not all retirement models assume historic trends will continue, or are trends, or assume straight-line returns over time. Some assign probabilities to various outcomes based on forward expectations, not past performance (and sometimes you can adjust the assumptions for which probabilities are calculated). 

But the short answer (besides guns and canned goods) is that you should not rely on your plans being accurate over long periods of time. You need to engage in continuous course correction, based on new information. Being somewhat conservative in your assumptions will also help. 

Practically speaking this means redoing your plans every year. The Apollo rockets were apparently only on-course about 2-3% of the time during each flight - but they got to the moon because they made the adjustments necessary after they were in flight in order to reach their targets.


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## financialnoob (Feb 26, 2011)

I can't remember the exact form of the original quote I read on this, but I found a variation on this MoneySense press release:



> We can't control what the markets do or how the economy performs, but we can control how much we pay in investment fees, how we diversify our savings, and how we spend. Over time the factors we can control override those we can't.


How to be money-smart in tough times - from MoneySense magazine

Though as slacker mentioned, you may want to factor in a shotgun and canned goods to your portfolio. Think of it as extreme diversification...


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## Sampson (Apr 3, 2009)

MoneyGal said:


> The Apollo rockets were apparently only on-course about 2-3% of the time during each flight


I thought you were going to say there are 48 rockets with spacemen attempting to get to the moon still out there.


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## GoldStone (Mar 6, 2011)

cash said:


> If future returns are similar to past returns, then everything will be fine. If not, what's a guy to do?


Don't fret about something you can't control.

Here's what you CAN control:

1. Invest in yourself to maximize your future earnings. Lucrative career generates guaranteed returns.

2. Increase your savings rate. Assume low market returns going forward. Save more to compensate for low returns. If market returns end up better than you expected, great! Freedom 55, here you come!

3. Minimize investment fees. Refuse to invest in mutual funds/ETFs that charge more than 0.5% annually.

4. Maximize RRSP / TFSA contribution rooms to defer / minimize taxes.


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## Patience (Mar 8, 2012)

The value of a plan is in the planning. Planning should consider different situations such as the worst case and expected case. If the worst case is unbearable, work towards improving the worst case. Maybe save more, reduce debts earlier, make more money, etc.


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## Square Root (Jan 30, 2010)

Goldstone has it right. At your age do those things and you will be fine. Too much uncertainty over too long a period to do otherwise.


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## Zeeshan Hamid (Feb 28, 2012)

At this age predicting the return is far less important. What's more important is taking advantage of all venues (RRSP, TFSA), figuring out your short-term goals (house downpayment etc) and establishing proper saving habits (aka, save first, spend the rest). Your personal situation will change so many times between now and your "middle age" that your "plan" will be mostly meaningless anyway.


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## KaeJS (Sep 28, 2010)

Zeeshan Hamid said:


> At this age predicting the return is far less important. What's more important is taking advantage of all venues (RRSP, TFSA), figuring out your short-term goals (house downpayment etc) and establishing proper saving habits (aka, save first, spend the rest). Your personal situation will change so many times between now and your "middle age" that your "plan" will be mostly meaningless anyway.


^ Best Choice.
Save, Save, Save.


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## kcowan (Jul 1, 2010)

Zeeshan Hamid said:


> At this age predicting the return is far less important. What's more important is taking advantage of all venues (RRSP, TFSA), figuring out your short-term goals (house downpayment etc) and establishing proper saving habits (aka, save first, spend the rest). Your personal situation will change so many times between now and your "middle age" that your "plan" will be mostly meaningless anyway.


Having a plan enables you to immediately assess the impact of any changes (rather than reacting inapropriately). It is a tool, not The Answer.


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