Is it conservative to assume a 5% annual return on a S&S LISA - Vanguard 100

IAMIAM

Putting away £5000 per annum, for the next 12 years, then another 10 years of no deposit 'accrual'

= £80,000 after 12 years
= £130,000 after 22 years

MX5huggy

Yes conservative, but where is inflation in your equation? 

IAMIAM

Thanks, is 7.5%-10% more realistic?

I have excluded inflation and based it on todays money......as cash....not on buying power....

masonic

The old rule of thumb was 5% real (so call it 8% after 3% inflation (hahaha, good joke I know, with where inflation is now)). This may not be as likely going forward from high valuations, so realistic may lie between there and your conservative estimate.

Apodemus

My long-term investment planning rule of thumb is to expect my investments to keep pace with inflation and give me a 2.5% annual return on top of that.  Deeply conservative approach, perhaps, but this stuff is important and it is far better to underestimate future returns, because when the future arrives it is too late to change the approach!

JohnWinder

Here's an alternative: have a look at the wide range of finishing values that investing has thrown up over the last hundred-odd years. https://firecalc.com/

Enter your data at 'start here', then choose the 'your portfolio' tab to specify how you're investing.

cloud_dog

When projecting growth, I simply use 3% (and ignore inflation).

I've never known people to be upset by having more money than they thought at the end

Albermarle

Apodemus said:

My long-term investment planning rule of thumb is to expect my investments to keep pace with inflation and give me a 2.5% annual return on top of that.  Deeply conservative approach, perhaps, but this stuff is important and it is far better to underestimate future returns, because when the future arrives it is too late to change the approach!

Before the problems this year, many posters were talking about one or maybe two percent above inflation for the next decade. This was based on a ten year bull run in equities and good returns on bonds, both being reversed/struggling for the next ten years. Now with 2022 off to a bad start, I think 2.5% above inflation is not 'deeply conservative' at all over the next ten years, starting from Jan 1st 2022
Hopefully should be achievable over a longer period. 

barnstar2077

Other than investing regularly, I am personally planning on being flexible as to when I will need the money.  If nine years from now I have made incredible gains then I will probably move more of it to cash.  If on the other hand things are a bit stagnant then I may wait an extra year or three to access the money and stay working a couple of days a week to tide me over instead of retiring.  Hopefully this plan will bear fruit, I will let you know in ten years!

pjread

I generally model for 4% annual real-terms growth overall looking forward, but regularly rebase/correct for 'reality'.  That reality might well be +/- 2% or even wider, but so far it's been on the conservative to realistic side for the 15-ish years I've been tracking things sensibly. 

Worth examining why you care - motivational?  for decision making?  In my case it's more a model to try to steer inputs in the right direction than anything else, e.g. avoiding lifetime allowance on pension.  If it happens to bring me up short I'll either cut the cloth accordingly or defer retirement, but the regular rebasing would likely force my contributions up before that became an issue.

IAMIAM

Well if I put away £5k per annum for the next 11 years, currently have a balance of £10000, using 7.5%.

LISA value after all deposits to age 50 = £112k
LISA value with no deposits from 50-60 = £236k

Which is great as I want to cash this in and use to pay off mortgage and quit work at age 60 at the absolute latest.