26 March 2024
For your financial planning and savings spreadsheet, here are some assumptions from the pro.s and sample spreadsheets you can adapt to support your needs.
CAPITAL MARKET EXPECTATIONS (CMEs)
This is about long-term Capital Market Expectations (CMEs). You may have a model already and you have have implemented your model into a spreadsheet tool, but it still needs to be adapted to a changing market environment if it's to provide best relevant projections. This article will help you create or update a long term CME model and implement it in a spreadsheet; and then do rolling annual updates to adjust expectations for risks and returns.
Estimates are nominal, meaning they include inflation as this is a variable not fixed; annualised, meaning estimates are of a yearly average rate of return; and calculated on a look-ahead 10-year horizon. CMEs are created for benchmark indices not for specific investment vehicles like ETFs or actively managed funds, meaning, CMEs do not include fees or taxes.
PROJECTIONS ARE NOT FORECASTS
A conservative approach would start from a look-ahead of 10 years and would assume lower real returns than those seen in past decades, for reasons mentioned below.
Also, the projections are for markets. Many investors chop and change strategies and investment vehicles and trying to beat the market indexes, do not achieve the full potential - ie expectations are about markets, but actuals depend on your "investment behaviour" too.
WHAT THE EXPERTS SAY
So here is what three counsellors have to say in answer to your question "What general assumptions can I make about long-term returns on my savings?".
Vanguard. Their outlook suggests a range for developed market (global equities) annualised returns of 7.0%-9.0% over the next 10 years.
https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/pressroom/press-release-vanguard-releases-2024-economic-and-market-outlook-12122023.html
These are nominal returns and do not account for inflation, which is a variable to deduct to get to actual returns ie your buying power - we should not assume the Central Banks will achieve their inflation target of 2%!
Fidelity. Their analysis notes the potential for international (including developed markets) stocks to offer higher returns than U.S. stocks over the long term, suggesting that mature, developed markets could outperform the U.S. in the coming decades.
https://www.fidelity.com/learning-center/trading-investing/international-stocks-outlook
This would mean considering a diverse investment approach that includes international exposure, even as specific return rates remain uncertain - Ramin of PensionCraft recommends a single lowest-cost MSCI developed-world ETF.
Monevator. Cautions against overly optimistic expectations for equity returns. Historical analysis suggests real returns for global equities around 7.6% over a past ten-year period, but as always, "returns will vary widely year-to-year, and past performance is not indicative of future results".
https://monevator.com/passive-expected-returns/
For your spreadsheet model (actual examples below), considering a more modest expectation for real returns from developed market equities - perhaps in the range of 4% to 5% after adjusting for inflation - could be a reasonable approach but keep in mind that historically high returns may be a thing of the past, the result of globalisation, "funny money" and absence of world war (jus sayin...!).
These projections are estimates not forecasts of course, actual results will still depend on economic conditions, market dynamics, geopolitical factors etc and your choices of strategies and timing and buy/sell frequencies.
If you believe you cannot beat Mr. Market as it is impossible to make sense of it except with hindsight, then "buy the haystack" ie buy passive trackers to cover the need to diversify across different asset classes (stocks, bonds, commodities) and geographic regions, to help manage risk across the emerging multi-polar global economies.
SPREADSHEETS
Not to start out from scratch, here are several examples to inspire, though I'm pretty sure you will already have developed something, but anyway...
TillerHQ. Offer a selection of seven free retirement spreadsheet templates, useful for planning financial futures and experimenting with various savings, investment, and withdrawal scenarios.
These templates cover inputs and variables such as current savings, investment vehicles, net worth, projected income needs for retirement, and they also model taxes
https://www.tillerhq.com/free-retirement-planning-spreadsheets/
SpreadsheetSolving. Provide a detailed guide on building a personal finance spreadsheet model, focusing on three key personal finance tips: earn more, spend less, invest wisely.
The guide walks through setting up spreadsheet inputs, constructing a projection model, and exploring scenarios like becoming a millionaire or achieving financial independence.
https://spreadsheetsolving.com/personal-finance-modeling/
ExcelSHE. Lists over 45 free savings goal tracker spreadsheets. These spreadsheets help you track your savings towards specific savings goals more than a year away, like house deposit purchase, car (which noone except travelling salesmen need these days), marriage, school fees, emergency funds, holidays. So effectively these are saving calculators.
Each spreadsheet allows for the tracking of individual savings goals, making it easier to manage and allocate funds.
https://excelshe.com/personal-templates/savings-trackers/
Maybe you are focused on long-term retirement planning, but these spreadsheets are also good for personal finance modeling, or goal-specific savings tracking. They are useful templates to start off from and then adapt to your needs.
SET INVESTMENT GOALS, CREATE AND TOOL A PLAN, CHECK PROGRESS
Track progress against your goals: how to set your goals, quantify them and build a portfolio that is likely to get you there; how to ensure that you stay on track by measuring and gap analysis, making adjustments based on actual performance and changing financial objectives.
https://youtu.be/VNunDJiAdT4?si=kHiDdyJcClMcNtkz
