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Growth Assumptions

Pat38493
Pat38493 Posts: 3,133 Forumite
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I would be interested in opinions on these growth assumptions which are the default assumptions in the Voyant Adviser Go software.

These assumptions seem to be used used for the cash flow plan depending on the investment mix you specify, and also they are used in the Monte Carlo stress test and I think the historic test as well.

These seem higher than numbers that people often quote on this forum, but given that Voyant is a major player in this area I would think there must be some reason that these are their defaults.

In particular - investment grade bonds growth of 7% and higher than UK large cap stocks - really?


Comments

  • I use a range of growths from the historical averages down to a low of 0% to stress test my plan. I also run my tests with a range of standard deviations. I do the same with inflation.
    And so we beat on, boats against the current, borne back ceaselessly into the past.
  • wow, they do seem high but I’m sure have good reason to be set like that, what is the inflation figure used?
    I currently use inflation of 3% and investment growth of 4% (so net +1) which is very pessimistic but I figure if it stands up to that test, anything more is a bonus.
  • Pat38493
    Pat38493 Posts: 3,133 Forumite
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    NlghtOwl said:
    wow, they do seem high but I’m sure have good reason to be set like that, what is the inflation figure used?
    I currently use inflation of 3% and investment growth of 4% (so net +1) which is very pessimistic but I figure if it stands up to that test, anything more is a bonus.
    The default inflation seems to be 2.5% - I changed some of the settings to 3%.  This is a demo copy for 30 days that I have, but there are some Youtube IFAs who offer access to this product as part of a course you can sign up to - I am taking a look to see if I want to subscribe as you have to sign up to a training class to get the first year of access.
  • Linton
    Linton Posts: 17,944 Forumite
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    I think those growth assumptions are ridiculously high.  All the equity sector returns are above the 10-year average for funds in that sector.   Surely when planning retirement one should be pretty pessimistic on the grounds that excess return is far easier to deal with than insufficient.  What is the point in planning on optimistic assumptions?

    I also used 3% inflation and 4% (net+1) overall in my retirement planning.
  • dunstonh
    dunstonh Posts: 118,615 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    These seem higher than numbers that people often quote on this forum, but given that Voyant is a major player in this area I would think there must be some reason that these are their defaults.
    My guess is that it could be that firms would normally set their own assumptions based on their own data.  Or once you purchase, you get access to revised data.



    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Pat38493
    Pat38493 Posts: 3,133 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Linton said:
    I think those growth assumptions are ridiculously high.  All the equity sector returns are above the 10-year average for funds in that sector.   Surely when planning retirement one should be pretty pessimistic on the grounds that excess return is far easier to deal with than insufficient.  What is the point in planning on optimistic assumptions?

    I also used 3% inflation and 4% (net+1) overall in my retirement planning.
    To me it seemed like the bond assumptions that were more wacky.  The equity ones felt a bit high but they are in the same ballpark as the performance of large global tracker funds over the available period (Vanguard, HSBC etc).

    net+1 seems little on the low side unless you are invested in a very risk averse way. I guess it also depends on how you are dealing with volatility in your long term planning.
  • Linton
    Linton Posts: 17,944 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    Pat38493 said:
    Linton said:
    I think those growth assumptions are ridiculously high.  All the equity sector returns are above the 10-year average for funds in that sector.   Surely when planning retirement one should be pretty pessimistic on the grounds that excess return is far easier to deal with than insufficient.  What is the point in planning on optimistic assumptions?

    I also used 3% inflation and 4% (net+1) overall in my retirement planning.
    To me it seemed like the bond assumptions that were more wacky.  The equity ones felt a bit high but they are in the same ballpark as the performance of large global tracker funds over the available period (Vanguard, HSBC etc).

    net+1 seems little on the low side unless you are invested in a very risk averse way. I guess it also depends on how you are dealing with volatility in your long term planning.
    According to my calculation from a Trustnet graph over past 30 years the FTSE World index has averaged around 8.5%

    Net+1 is purely used for planning purposes.  When planning you really need a worst case base, it is not much help to know how rich you could be if everything turns out well.  You can probably deal with that "problem" at the time.
  • Albermarle
    Albermarle Posts: 26,033 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Pat38493 said:
    Linton said:
    I think those growth assumptions are ridiculously high.  All the equity sector returns are above the 10-year average for funds in that sector.   Surely when planning retirement one should be pretty pessimistic on the grounds that excess return is far easier to deal with than insufficient.  What is the point in planning on optimistic assumptions?

    I also used 3% inflation and 4% (net+1) overall in my retirement planning.
    To me it seemed like the bond assumptions that were more wacky.  The equity ones felt a bit high but they are in the same ballpark as the performance of large global tracker funds over the available period (Vanguard, HSBC etc).

    net+1 seems little on the low side unless you are invested in a very risk averse way. I guess it also depends on how you are dealing with volatility in your long term planning.
    I can not speak for the other posters, but at the start of this decade there were quite a few posters on the forum saying things like ' we have had a bumper decade ( 2010's) and surely it can not continue, so for the next 10 years we are going to dial down expectations to max one or two per cent real growth'
    You can argue that is only medium term rather than long term planning, but I suppose the shorter the time scale the more chance you have of being in the right ball park.
    Since Jan 1st 2020, HSBC GS Balanced ( 60:40 type) has grown 16.8% and inflation has been around 20%.
    So minus 1% pa in real terms .
    A more aggressive investment like VLS 80 would be about 1% pa up in real terms.
    So maybe some good forecasting !
    Hopefully the rest of the decade will bring better results though.

  • Pat38493
    Pat38493 Posts: 3,133 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Pat38493 said:
    Linton said:
    I think those growth assumptions are ridiculously high.  All the equity sector returns are above the 10-year average for funds in that sector.   Surely when planning retirement one should be pretty pessimistic on the grounds that excess return is far easier to deal with than insufficient.  What is the point in planning on optimistic assumptions?

    I also used 3% inflation and 4% (net+1) overall in my retirement planning.
    To me it seemed like the bond assumptions that were more wacky.  The equity ones felt a bit high but they are in the same ballpark as the performance of large global tracker funds over the available period (Vanguard, HSBC etc).

    net+1 seems little on the low side unless you are invested in a very risk averse way. I guess it also depends on how you are dealing with volatility in your long term planning.
    I can not speak for the other posters, but at the start of this decade there were quite a few posters on the forum saying things like ' we have had a bumper decade ( 2010's) and surely it can not continue, so for the next 10 years we are going to dial down expectations to max one or two per cent real growth'
    You can argue that is only medium term rather than long term planning, but I suppose the shorter the time scale the more chance you have of being in the right ball park.
    Since Jan 1st 2020, HSBC GS Balanced ( 60:40 type) has grown 16.8% and inflation has been around 20%.
    So minus 1% pa in real terms .
    A more aggressive investment like VLS 80 would be about 1% pa up in real terms.
    So maybe some good forecasting !
    Hopefully the rest of the decade will bring better results though.

    Thanks - it’s just curious because I would normally expect such software to be set to the long term average of that investment class.  It feels like it’s probably set to the 5 year growth up until quite recently.

    Mind you - the results that it comes out with are not that different to the Timeline software which uses historical data to measure your plan.  If the figures were massively over optimistic, I would expect to see much better results.  That said, my current investment mix includes no bonds as I moved into money market for the moment.
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