Hi all... 12 years ago I set up a 457(b) when I got hired at my job. I was lucky enough to listen to older wiser people as a teen and got on that stuff from the first moment it was offered.

I hardly ever pay attention as I'm pretty young and have time on my side. Now that I see the light at the end of the tunnel (kinda) I'm paying a bit more attention.

I was trying to run some projections via online interest growth calculators and I went looking for my accounts growth results to plug in. To be clear, these are the calculators that want the following input:

- Starting balance
- Monthly contribution
- Time to grow
- Annual interest rate

Are the numbers that MassMutual lists as my "Personal Rate of Return" the ones I want to use? I ask, because they are outlandishly high... high enough that I feel it must be some marketing gimmick to make me, the under-educated consumer, happy instead of the actual numbers.

Specifically:
- This period: 13.33%
- YTD: 13.33%
- 1 Year: 6.0%
- 3 year: 38.50%
- 5 year: 43.18%

Last year about this time I called and I remember them saying that Inception to date was over 70%. I didn't think to ask for clarification at the time.

Can anyone shed some light? I'd be thrilled to even get the 13%, let alone the bigger numbers. I must be missing something, right?

Cumulative, not annualized.

If there are actual securities in your portfolio, I suspect much of the amount shown as "return" is actually market appreciation. Most stocks, and securities based on stocks have done pretty well over the past few years.

quote:

Originally posted by chellim1:
Cumulative, not annualized.

Soooo, is there a formula/procedure in place to convert that to the real number that I can use in the calculators?

quote:

Originally posted by architect:
If there are actual securities in your portfolio, I suspect much of the amount shown as "return" is actually market appreciation. Most stocks, and securities based on stocks have done pretty well over the past few years.

I'm afraid I don't really know what you mean. I am an ignorant fella in this arena.

Well the simple answer is the average return over the longest period. Foe example ytd you are above 13%. That isn’t a reasonable number long term. That 43% over that last five years is a more realistic rate of return. Just slightly over 8% a year. I believe that the avg stock market return yearly comes at to around 7ish % yearly.

Look up rule of 7’s for a quick math check. Basically divide you annual return (avg) into 72. That number is how many years for your money to double.

I don’t know if that clears anything up. Bottom line is the above guy is correct the really big numbers are cumulative.

Maybe go to a website like Morningstar and enter the mutual fund symbol(s) and see what their research shows.

quote:

Originally posted by pedropcola:
Well the simple answer is the average return over the longest period. Foe example ytd you are above 13%. That isn’t a reasonable number long term. That 43% over that last five years is a more realistic rate of return. Just slightly over 8% a year. I believe that the avg stock market return yearly comes at to around 7ish % yearly.

Look up rule of 7’s for a quick math check. Basically divide you annual return (avg) into 72. That number is how many years for your money to double.

I don’t know if that clears anything up. Bottom line is the above guy is correct the really big numbers are cumulative.

That helps a lot, thank you.

S&P 500 and other indices have done well since the beginning of the year (year to date) but fell in the latter part of 2018, so the lower one-year return fits what I am seeing as well.

That formula or inputs you are using is to calculate Future Value of known amounts, like: deposit $10,000 in bank, add $100 per month, and assume a 3% interest rate. How much will I have in 20 years.

If your 457b is invested in mutual funds or similar, that formula doesn't work, and there is no forumla, because the future return depends on what the market does - it cannot be predicted, only hoped for, based on past performance.

https://www.bogleheads.org/wik...and_expected_returns

If you really want to get into it, google "expected market return"

quote:

Originally posted by mikeyspizza:
That formula or inputs you are using is to calculate Future Value of known amounts, like: deposit $10,000 in bank, add $100 per month, and assume a 3% interest rate. How much will I have in 20 years.

If your 457b is invested in mutual funds or similar, that formula doesn't work, and there is no forumla, because the future return depends on what the market does - it cannot be predicted, only hoped for, based on past performance.

https://www.bogleheads.org/wik...and_expected_returns

If you really want to get into it, google "expected market return"

I understand that markets are mostly unpredictable, and far beyond my understanding. I do believe it’s pretty much all mutual funds.

Is it not fair to take the inception to date average return and use that as a measuring stick, so to speak? This account has a 12 year history behind it, so it’s got a little bit of context I think.

Or somebody mentioned 7% being a historical average.... even using that with my current value, plus expected contributions, and known time until I want to access the money, should get me in the ball park?

This message has been edited. Last edited by: thumperfbc,

Is it possible it is taking your contributions into account also?

For instance - if your starting balance was $10,000 and you contributed through your payroll an additional $3,000 ... that would 'inflate' the rate of return if they wanted to make the return 'artificially' higher...

But also - as others have said - equities have done very well for a few years now...

They tanked a bit in December around Christmas but have rebounded. So if you had a big year-end bonus contribution - that amount is probably up around 30% in 4 months (assuming it went 100% into the stock market).

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The average annualized total return for the S&P 500 index over the past 90 years was 9.8%, so you could use that. In my opinion it's too optimistic.

Over the next ten years, "experts" predict anywhere from

Vanguard 3-5%
Research Affiliates 0.7%
Morningstar 1.8%
JP Morgan 5.25%
John Bogle 4-5%
Blackrock 7%

https://www.morningstar.com/ar...-bond-returns-2.html

It’s important to know whether future projections are adjusted for estimated inflation.
Generally stocks and mutual funds are a pretty good hedge against inflation, as usually boom times are associated with more inflation.
The stagflation of the Carter years was the worst of both worlds.

I would never use the rate of return estimates from any brokerage account statement. These numbers are there to boast how wonderful a job they are doing for you and to get you to sign up for more investments. I have a financial background and have never been able to calculate a rate of return anywhere near what my broker or financial institution statements indicate. They are always grossly overstated.

Look up the calculations yourself or get someone who knows how to calculate them for you.

Say a fund has a 15% return for the year, but the investor bought in various times over the year. The investors ‘personal rate of return’ would be different, that investor never had a fixed amount in for the given year. That personal rate could be higher or lower, based on valuations at the times of purchase.

I have also seen some investment documentation where they add your contributions into total growth of investment. That makes it look great, but since it includes the purchase amounts, is not only the gains.

It should be easy to figure out if interested.

quote:

Originally posted by thumperfbc:
Is it not fair to take the inception to date average return and use that as a measuring stick, so to speak?

Short answer is: No, not if you're looking to forecast or set expectations.

Long answer is: If you are looking to estimate future performance, you want to look at averages over many different time periods. Today, stocks are very close to an all-time record. So, while your account-specific historic returns are correct, you have to bear in mind the time period your historical numbers came from ends very near a stock market record. That's not a normal case.

If you are looking to estimate/forecast results over time, what you'd want to do is how similary-risky investments have done on average over time. That'll give you a good starting point.