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Comment by teej | Hacker News Reader

Yeah, it's also using a 9% rate of return for the "conservative" scenario and 12% for aggressive. Due to the exponential nature of compound interest, just a single point of overoptimism in your real growth number leads to a massive overestimation of your results. 1.07 ^ 30 = 7.6, 1.09 ^ 30 = 13.3, and 1.12 ^ 30 = 30.0

It's baseline assumptions are way off.

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Wow, that's pretty crazy - ~5% bonds for conservative and ~7-8% for aggressive would have been more appropriate in my opinion. And I feel even those numbers may be a little optimistic.

Currently it's more like "what if you have a great market year every year until you retire" or "what if you can reliably beat the market" - neither of which is likely to happen.

To be fair the total annualized return of the S&P 500 over long periods is roughly 10%. You don't have to reliably beat the market to reach those numbers. It's interesting to play around with:

https://dqydj.com/sp-500-return-calculator/

I think you forgot to click the “inflation adjusted” checkbox. The real rate of return is closer to ~7%. Also caveat emptor - past performance is no guarantee of future results.

But the calculator you're criticizing does not adjust for inflation...

I think that’s the point. A projected savings balance is misleading without considering inflation, so if the calculator doesn’t make an explicit adjustment for it then there ought to be an implicit adjustment in the rate of return assumption.

Says who?

Projecting historically low inflation is no less reckless than ignoring it. Imo, you're better off looking at absolute returns and tweaking your expectations based in inflation as itnhaopens.

On the other hand, the Nikkei's still underwater from its peak almost 30 years ago, and has been more or less flat since 1995.

Even worse, "aggressive" is being used here synonymously with "higher rate of return." The risk isn't reflected in the graph at all. Why would anyone looking at this not choose aggressive? Look how much higher the total is! Really misleading without some visual indicator that your return might actually be lower for some time horizon ...

The graph should really be cone-shaped at the far end to reflect range of risk with aggro and conservative expectations. A gradient to show high-end and low-end of returns would be visually very instructive.

5% for conservative and 7% for aggressive would have been better choices...I know the goal was to make this calculator simple, but those values should have be configurable with saner defaults.

Yowzers! Please tell me what this magical investment is where I can expect an average rate of return of 9% (let alone 12%). That is off the charts optimistic.

Assuming dividend reinvestment, the S&P 500 has returned an annual average of 10% nominally (7% real), over the last 100 years or so.

The S&P 500 is the best reference index for US equities, but I'd be wary about using its history as a base case for retirement planning. The 60 years that its existed in its present form have seen the US economy grow consistently in a way that's almost unrivaled in human history. There are lots of good arguments for why the US will not grow as fast over the next 60 years, but for me the best one is just regression to the mean. Probably the US economy will grow at a rate closer to the lower rates common in our countries throughout human history, and over a long time frame the S&P 500 cannot grow much faster than the really economy.

Forecasting 7% long-term real returns from the current state of the S&P 500 ignores the current environment - the S&P 500 is currently priced very highly relative to historical prices.

There's an interesting bit of analysis that estimates an upper bound of 3.8% -- 3.95% real returns from US Equities. Worth a read.

> Valuations today are in the 97th percentile of all valuations in history and the 83rd percentile of valuations over the last twenty years (itself a period of very high valuations). Rather than assume that they will revert back to some past average, let’s start by granting the very bullish assumption that they will remain exactly where they are today forever.

http://www.philosophicaleconomics.com/2018/01/future-u-s-equ...

Edit: the same blog that has a great post "The Single Greatest Predictor of Future Stock Market Returns" which goes beyond "mean reversion" of equity valuations, to show how you can make a better explanation (and better long term forecasts) by considering supply and demand dynamics as investors, on average, shift their allocations of investments between equities, bonds and cash.

As previously discussed on HN: https://news.ycombinator.com/item?id=14948078

It's important to remember that it's average return over long term. There can be long dry periods.

https://finance.yahoo.com/quote/^SP500TR/chart?p=^SP500TR

SP500TR annualized return between 1998 - 2011 was just 2% (before inflation)

If you bought AMZN (Amazon) in 2000, you had to wait until 2010 before the price recovered.

It's important to save over long time and reduce risk before retirement.

S&P 500 annualised returns over:

5 years - 15.79%

10 years - 8.49%

15 years - 9.92%

20 years - 7.19%

25 years - 9.69%

If you followed basic financial advice since the 80s you'd achieve those retirns.

You can get guaranteed 11% returns at https://www.twino.eu/

I used it for a while; it did work and their published financials are solid, but being happy with some risk I decided stocks where a better play.

Still, it's a useful baseline.

tino shows a default or delayed rate of around 25%. That means your returns are not risk free.

That doesn't matter, because for the highest rated loans (Buyback and PG) Twino guarantee payments even in the case of defaults or delays.

That just shifts your risk to whether or not Twino succeeds. This may be lower risk than the original loans, but it is still risk.

That's not what "guaranteed" means.

In what sense? The company guarantees you will get paid back for the loans at 11%. For higher rates there is risk, but that isn't what I'm talking about.

"Guarantees"

Just like the "guarantees" Bernie Mandoff made to his "investors."

The money has to come from somewhere and the underlying assets producing returns are speculative.

If the underlying assets don't produce enough return for the company to offset losses, then that guarantee is worth the paper it's written on.

Like I said, they have solid financials. The loans they sell are at much higher rates.

Their "solid financials" don't change the fact that their "guarantee" is entirely based on speculative investments. If the returns are lower than expected they can't fulfill the "guarantee."

I say this as someone who invests in P2P loans. They are speculate investments.

Man, you really don't like this company for some reason. It's more like a bank than a pyramid scheme, except they have higher reserves. Sure, theoretically something could happen and all their customers may default on their loans, but by your logic even cash is "speculate" because your house could burn down.

There's also issues with the suggestions. It suggests driving for Lyft or Uber for a cool $28k more a year, but the article linked doesn't seem to account for costs of that work, just revenue.

Turns out after accounting for costs Uber drivers MIGHT even make less than minimum wage https://www.npr.org/sections/thetwo-way/2018/03/02/590168381...

And why "Uber?" Cuz it's cool? Why not "Starbucks barista" or "shelf stocker?" Because what we're really talking about is "work more" I guess "part time job" doesn't sound as hip as it used to...

Flexibility and "being your own boss" (deciding when you're going to drive by yourself, not with some kind of manager) is important to a lot of people.

Is that actually a suggestion? If you make an upper middle class salary (like a programmer does) and reasonably control your expenses, I think you only are going to miss making retirement if you have an expensive medical disaster or you invest too heavily in the market then sell during a crash to make rent, or some weird thing like that. I'm not sure if $20000 is going to make your difference

This effect of tiny changes having massive impacts is why Gordon Brown’s smash and grab raid on the private sector pensions, coupled with artificially low interest rates was so damaging and lead directly to the property bubble and the financial crisis in the UK.

>it's also using a 9% rate of return for the "conservative" scenario...

If 9% is good enough for most federal, state, and local pension estimates, it's good enough for us, too. /s

If you want a fun story of making terrible long term choices based on faulty rate of return numbers, look no farther than MLB player Bobby Banilla (https://en.wikipedia.org/wiki/Bobby_Bonilla).

The Mets wanted to get rid of Bobby in the year 2000 but owed him $5.9M. Mets owner Fred Wilpon thought it a good idea if he asked Bobby to defer payments on that $5.9m for 11 years. Fred would invest that $5.9M today and make out in the black. Fred would just turn around and get a 10% return from his buddy Bernie Madoff and have over $16M in 11 years.

Lets just say that story doesn't have a happy ending. Bobby Banilla will get paid $29.8M dollars over 25 years for a season he never played. http://fivethirtyeight.com/features/the-bobby-bonilla-retire...

Hell, no! Google for "unfunded pension liabilities". 9% is wildly unrealistic for those estimates as well, but the folks who negotiate those hope to be retired and gone far away by the time when those obligations come due for large numbers of retirees.

Not only that but people change risk throughout their lifetimes with their age and life situation. You're probably going to start out very aggressive in your 20s and end up a bit more conservative by your 50s. Usually.

Yikes!

Double Yikes!

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