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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (16714)	2/5/2004 2:10:20 PM
From: fatty	Read Replies (2) \| Respond to of 306849

>If you save $12,000 per year from age 30 to age 65, this will accumulate to $1,000,000.00 (expressed in today's dollar; already corrected for inflation), assuming ROR of 4.16%. This figure is also after tax. My cousin is making $30k a year before tax. And you want her to save $12k? She lives with her parents but has to keep a car because she needs a means of transportation.

To: Amy J who wrote (16714)	2/5/2004 4:48:13 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 306849

Amy, re: If you save $12,000 per year from age 30 to age 65, this will accumulate to $1,000,000.00 (expressed in today's dollar; already corrected for inflation), assuming ROR of 4.16%. This figure is also after tax. what are the assumptions here? what tax rate and what inflation rate are you assuming? if one assumes 25% tax and 3% inflation, then one is looking at 9.54% compounded return. i would sure like to know where one is going to get 9.5% compounded for the next 35 years. if one looks at dividend yield of about 1.6%, and considers that payout is over 100% for nonfinancial corporations vs. 45% historically, then the normalized dividend yield on SPX is 0.8%. div yield has made up about half of gains historically, with the rest coming from div growth, inflation, and PE expansion (recently). add 0.8% to 3% inflation gives 3.8%. add another 0.2% for div yield growth gives 4%. subtract 1% for PE contraction over time given current ludicrous valuations. this leaves an expected return of 3% before inflation; 2.25% after taxes; and -0.75% after inflation, or real return. a negative 1% real return on the SPX over the next several decades sounds about right to me. given this expected return, if it were me, i would be looking for somewhere else to plow those 12K yearly investments into. i just haven't found any place else where i could expect a 9.5% return. note that the expected return will vary according to the inflation rate. a lower expected inflation rate provides a lower expected return, and vice-versa.