Historical returns and the appropriate time-frame for future value calculations: Implications for risk management and personal financial planning

Bradley T. Ewing, Mark Andrew Thompson

Research output: Contribution to journalArticle

Abstract

In future value calculations, investors often assume that the real return is constant over the planning horizon. We examine whether this assumption is appropriate. Our results suggest that investors can expect to earn the historical average real return provided their horizon is at least 15 years for stocks and at least 7 years for bonds, depending on the size of recent shocks. This "rule of thumb" assures reasonable insulation from the inevitable fluctuations of the market.

Original languageEnglish (US)
Article number2
JournalJournal of Business Valuation and Economic Loss Analysis
Volume7
Issue number1
DOIs
StatePublished - Jan 1 2012

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Financial planning
Investors
Real returns
Risk management
Fluctuations
Planning
Insulation
Rules of thumb

Keywords

  • Financial planning
  • Future value
  • Real returns
  • Risk management
  • Stationarity
  • Volatility

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

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