alex_686 wrote: ↑Thu Jul 29, 2021 2:13 pmIf you don't have market expectations then how do you come up with a equity/bond allocation?
Risk management.
I have ZERO market expectations except that there will be positive long-term real return, and that stocks will likely have a larger long-term real return than bonds.
That's how most people think.
Almost no one makes a plan around the numbers of "expected" returns.
The first 20 years, you don't even know what your retirement expenses will be. Most people are still progressing in their career, with only a vague idea of how much their salaries will be 15-20 years down the road. There is no precise retirement number goal at this stage of life.
You save a good chunk of your money, keep a small amount in bonds for safety/emergency fund, and put the rest in stocks, and you get what you get.
Absolutely no reason to care about valuations or "expected" returns at this point in life.
Later, as you get older, you have a better idea of what you'll need in retirement, and you see how are you doing. Still "X" (as in 25x) is still not easy to define, what with health care uncertainty.
I would suggest to anyone at this point to assume low returns, by historical standards, if one is planning on figuring how many more years to work and how much more to save.
You would have them use valuations to figure out how much they still need to save and how many years to work. Some people would try to use valuations to try to increase returns by changing their Asset Allocation so they could work less years or save less.
I think my way is more conservative. Plan around low returns... And adjust to ACTUAL returns, not making changes beforehand on "expected" returns (with large plus/minus 6% error bars)
But your way could work, I suppose.
But it certainly isn't necessary. No one has to have any kind of expectations about returns to make a retirement plan. The vast majority of successful retirees never bothered with valuations and expected returns.
You save, you invest, slowly move more to bonds as you get older to lower short-term risk, and you get what you get. If returns are good, maybe you retire early. If returns are poor, you work longer, or spend less.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59