Choosing Investment Return Assumptions
Learn how to choose reasonable return assumptions and avoid overfitting long-term calculator results.
5 min read
Why assumptions matter
Over long periods, a small change in assumed annual return can create a large change in ending value. This is a feature of compounding, but it can make projections feel more precise than they are.
Return assumptions should be treated as scenario inputs, not forecasts.
Use ranges
Instead of one return number, compare a range of outcomes. For example, a conservative case may use a lower return, while an optimistic case may assume stronger long-term performance.
The gap between cases can be more informative than the exact result of one case.
Include real-world friction
Taxes, expense ratios, transaction costs, inflation, and behavior can reduce realized returns.
If a calculator uses nominal returns, remember that purchasing power may grow more slowly after inflation.
Key takeaway
Good return assumptions are humble, scenario-based, and adjusted for the uncertainty of real investing.
Use the calculators
After reading this guide, you can return to the CompoundX calculators to compare your own assumptions. Results are estimates only and do not constitute investment advice.
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