Growth assumptions in your models/spreadsheets

optoutDB

Interested to see how others do their growth modelling and what numbers they use for things like global equity funds, UK property, Gold, Bonds, etc.

Up to now my modelling has simply used plug-in single figures for different asset classes, and I've been using conservative values. I am modelling the next 30 years (ages 56 to 85).  Everything is in Real growth terms  eg equities 1%, gold 0%, cash -1%, bonds ?, property ?  

But now I am adding 'scenarios':
-2  CRASH  (10%)
-1  Pessimistic  (25%)
 0  Mid      (30 %)
+1  Optimistic  (25%)
+2  OH YEAH  (10%)

I'm not using the probabilities yet but they give an idea of the the likelyhoods that I am thinking about.

I've also allowed for shaped 30 year returns (ie 30 different values for each scenario for each asset type). 

What are you using?

At the simplest level I'd like to know what avg growth people are assuming for Global equities. I've never looked at bonds, is there a general relationship to inflation? (to the extent that interest rates relate to inflation, but that rule may not apply anymore).

It may be that I end up with flat growth values for most things, but do some kind of monte carlo (or more likely run a set of profiles eg 10 profiles where 1 has an early crash) on the equities.

My model has adaptive discretionary spend, and I don't go bust even if I send my equities to zero over 10 years, so maybe I don't need to run any more complex analysis, but I enjoy it.

Hoenir

For many decades I've worked on the long term basis of a 2% return above the rate of inflation after making allowance for the impact of tax, trading costs and a contingency.  The only certainty when investing is uncertainty.  Prefer spending my time researching future opportunties. Rather than convincing myself I'm the first to find the Holy Grail of Investing. 

Aylesbury_Duck

What am I using?  Zero growth.  I've done all my planning so far using today's values and assuming that all my pensions will rise in accordance with inflation.  It's not very sophisticated but there are just too many variables to consider and I'm reasonably confident that it will prove to be a very prudent approach.

When I'm your age in a few years' time I may adopt a more sophisticated approach like yours, to help me pick the right age to retire.  I'd enjoy it, as you are!

HedgehogRulez

I think you can overthink this thing. Do as the duck and assume no growth and hope for upside.

QrizB

Aylesbury_Duck said:

What am I using?  Zero growth.

Pretty much this for me, too.

Cobbler_tone

Today's money and a bit extra as my DB may not be fully protected against inflation, depending on how the next x years pan out. 

SouthCoastBoy

I use equities 1% above inflation, cash 1.5% below inflation

thunderroad88

The average annual growth rates I’ve put in my model are equities +5%, fixed income/cash +4%, and inflation +3%. I’m hoping the equity figure is pessimistic…

Moonwolf

I'm another with mixed DB and DC that uses today's money, so assume spending and DB grow in line with inflation.

For DC which is mainly equities I assume as a default an average growth of 2% over inflation but I have modelled down to 0%. For cash I use 2% reduction annually.

For market crashes I uses guiide.co.uk for scenario testing as an 80s level market crash could happen any time from tomorrow to when I am 90 and that could have bigger impact than a 0.5% change in the average inflation.

Linton

20 years ago I assumed 3% inflation and 4% investment return.  In the event those figures have proved to be very pessimistic.  But if I was to repeat the planning exercise I would not change them.

dunstonh

The difference between the worst case and best case will be staggering.  I have had cases where people have the worst case being running out of money by age 77 and the best case of having over £2m at 77.

You need to decide how optimistic or pessimistic you wish to be on your projections and how willing you are to accept and being able to afford a scenario that is worse than your assumptions.

It probably works out best on your projections to assume zero growth if you are doing a simple straight line calculation.