How to measure if I'm on pace??

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StayPuft
Posts: 20
Joined: Sun Nov 10, 2019 2:29 am

How to measure if I'm on pace??

Post by StayPuft »

If I input a 3% inflation rate, hit "RUN", and look under "DETAILED VIEW", the median portfolio value column will have a value of every year going forward. You mentioned that all the values are in current dollars, so if I look at the value 10 years from now (2032) and it says $200,000, does that mean I'll have the spending power of $200,000 in A) today's dollars, or B) in 2032 dollars?

If it's A (today's dollars), and I want to see if I'm on pace to meet goals as I chug along every year, would I just eliminate the inflation input? As a result of deleting the inflation input, the dollar amount I see in the row 10 years from now would be much higher, but represent $200k in today's dollars. Is that right? So, that would be the amount I ACTUALLY need to have in my real-life accounts 10 years from now to have the same spending power as $200k in today's dollars.

I'm just trying to figure out how to measure if I'm on pace to meet the goal as the years go by, if that makes sense.
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: How to measure if I'm on pace??

Post by jimr »

StayPuft wrote: Sun Jan 23, 2022 11:24 pm If I input a 3% inflation rate, hit "RUN", and look under "DETAILED VIEW", the median portfolio value column will have a value of every year going forward. You mentioned that all the values are in current dollars, so if I look at the value 10 years from now (2032) and it says $200,000, does that mean I'll have the spending power of $200,000 in A) today's dollars, or B) in 2032 dollars?
A) today's dollars
If it's A (today's dollars), and I want to see if I'm on pace to meet goals as I chug along every year, would I just eliminate the inflation input? As a result of deleting the inflation input, the dollar amount I see in the row 10 years from now would be much higher, but represent $200k in today's dollars. Is that right? So, that would be the amount I ACTUALLY need to have in my real-life accounts 10 years from now to have the same spending power as $200k in today's dollars.

I'm just trying to figure out how to measure if I'm on pace to meet the goal as the years go by, if that makes sense.
I think it some cases, just zeroing out the inflation rate might do what you want, but I'm not positive about that in this specific case. There are a lot of moving parts and personally, when I need to convert a present value to a future value I use the excel FV() function. You can export the detailed results table data into excel by right-clicking any cell to get a menu that includes an export option. Then, after importing into excel, you could insert a new column next to the portfolio value column and use the fv formula there.

OTOH, I'm not a big fan of trying to carry future-value (inflated) dollars from a projection into the future. The value of those hypothetical future dollar amounts is so dependent on what the actual inflation rate has been over the period in question that it'll be tough to say if you're doing better or worse than you expected just by looking at projected nominal dollar amounts. For example, if inflation is much higher than you expected, your portfolio balance could be much higher than projected for a given year, but due to the higher inflation, its purchasing power will be much lower than projected. In other words, even though your portfolio value is much higher than the projection (in converted nominal dollars), you might actually be doing worse than you expected.

Personally, when I want to see if I'm tracking to plan, I update all my inputs, do a fresh run, then analyze the results to see how they look, just as I did when I first started using the planner.
StayPuft
Posts: 20
Joined: Sun Nov 10, 2019 2:29 am

Re: How to measure if I'm on pace??

Post by StayPuft »

Very interesting! Thank you! I'll try that!
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