Return Projections

otherwayup

I was wondering what % return Wealthify used for their various risk categories in their ISA 'projection' tool.  I'm bemused at the results.

E.g. a single initial investment, picking 'cautious' and looking at their 'mid' performance projected value for years 2 to 20, the rate of return each year changes (up and down), but gradually reduces from around 3.5% ave. for first few years to 1.8% ave. for last few years.

Similar reduction in guestimated return over time for their other risk categories.

This is an ISA tool, not pension/retirement age category type tool, so I don't see why the returns should trend down.

Any ideas?

dunstonh

Projections are a synthetic calculation using a range of assumptions.      If they have built their assumptions to assume you would de risk the investments as you get closer to the withdrawal point then that give the outcome you are seeing.

Synthetic calculations using straight line returns are usually pretty pointless.   So, I wouldn't be too concerned about it.

Bostonerimus1

otherwayup said:

I was wondering what % return Wealthify used for their various risk categories in their ISA 'projection' tool.  I'm bemused at the results.

E.g. a single initial investment, picking 'cautious' and looking at their 'mid' performance projected value for years 2 to 20, the rate of return each year changes (up and down), but gradually reduces from around 3.5% ave. for first few years to 1.8% ave. for last few years.

Similar reduction in guestimated return over time for their other risk categories.

This is an ISA tool, not pension/retirement age category type tool, so I don't see why the returns should trend down.

Any ideas?

They'll be looking at the historical performance of the assets and maybe assuming that the the asset allocation will change over time. You should really stop relying on these "black box models" and understand about the historical returns of various stock and bond markets and think about how you might change what's in your portfolio as retirement approaches.