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by neffy 3359 days ago
I remember, back in the 90's, going to one of those retirement planning/sales sessions, where they explained how much you would need to invest at what rates to have a good retirement. With the little I knew then about economics/investment, I knew there was no way they were going to be able to deliver the 8-12% annual return they assumed would be required to meet their projections.

So yes, I sympathise with people who allowed themselves to be lied to, i really do, because ultimately this is white collar crime we're talking about - but caveat emptor also applies.
2 comments
Spooky23 3358 days ago
Most pension systems assume 7% rates of return.

We educate individual investors to believe that they should achieve similar yields in their 401k accounts, why is only "white collar crime" when you need to fulfill the promise?

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aswanson 3359 days ago
Guaranteed 8% rate of return, let alone %12, violates historical data/mathematics. Anyone other than Renaissance Technologies advertising as much needs to be sued.
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vkou 3359 days ago
The average rate of inflation through the 80s was 5.6%

Given that, an expected 8% rate of return isn't unreasonable.

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aswanson 3356 days ago
That implies a 2.4 percent rate of real growth in a hyperinflationary era, so assume a 4.4 real rate of return in normal circumstances. That is the number we should be basing projections on, as it correlates more closely to real dollars in the retirement age years. 8-12 percent estimates are bs, and red herrings because they don't relate real returns.
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AstralStorm 3359 days ago
Historic data is not good enough to base a long term policy on. Not without precise risk valuation at least.
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vkou 3359 days ago
No, but it generally makes sense to talk about expected investment return over the rate of inflation. Hence, the raw number is meaningless - a 12% return rate in an environment with inflation of 9% is almost as reasonable as a 3% return rate in an environment with inflation of 0%.
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neffy 3358 days ago
That's one of several things to bear in mind - but it's not a straightforward one - the various causes of high inflation tend to mitigate against matching investment rates.

Leaving that aside - even at the time it seemed ridiculous - so learning 20 years later that the "professionals" involved have essentially bet everybody's future, on projecting those kinds of returns for 40 years...

... because we all understand I hope. When this thing blows up - its not going to be pretty.

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