I’ve added a new section of the site to house our unique new calculator, The Returns-Sequence Reality Checker.
Juicy Excerpt: The purpose of The Returns Sequence Reality Checker is to bring an end to the irrational stock cycles that for over 100 years have been causing us such economic turmoil. The calculator aims to do this by educating investors as to the types of return sequences that are truly in their best interests.
The Reality Checker permits the investor to assume any annualized return he chooses for a 30-year time-period. The average return we have seen throughout U.S. stock market history is 6.5 percent real. So you might want to use that as your assumption. But if you believe that the U.S. economy will be more productive in the future than it has been in the past, you may choose 7 percent or 8 percent as the annualized 30-year return, and if you believe that the U.S. economy will be less productive in the future than it has been in the past, you may choose 6 percent or 5 percent as the annualized 30-year return.
After choosing a 30-year return, the investor assigns hypothetical returns to as many of the 30 years as he pleases. The calculator then fills in the returns that would need to apply in the remaining years for the annualized return specified for the entire time-period to apply.
An option is provided for the investor to choose historical return sequences. For example, the default results (the results that appear before you enter any numbers of your own) compare the 30-year returns sequence we saw beginning in 1971 and the returns sequence we saw beginning in 1981.
The lesson taught by the Reality Checker is that stock cycles always apply and that the nature of the stock cycles that turn up during a particular time-period have a big effect on the return enjoyed by those investing in stocks during that time period. Few of today’s investors pay much attention to stock cycles. The calculator teaches us that we all need to be paying a great deal of attention to them.