Gyroscopic Investing

Hi all,

I've been obsessing over Firecalc http://firecalc.com/ -- You can plug in all kinds of numbers, and it tells you the odds of your retirement stash going to 0.

Anyway, there's a tab where you can plug in your own investment strategy.  One of the options is:

A portfolio with random performance, with a mean total portfolio return of __% and variability (standard deviation) of __%. Assume an inflation rate of __%.

I can find good numbers for the mean return and for inflation, but what number would you plug in for the standard deviation?

Thanks.

Anyone? Bueller?  I tried searching online but found several different numbers.

1975-2012: 8.85% CAGR, 7.81% SD, 3.9933% CPI.

Thanks MachineGhost!

I've also been obsessed with Firecalc.  Rediscovered this thread last night and had a thought.

If we look at the real returns (after inflation), the performance from 1975-2012 is 4.76% CAGR, 6.84% SD.  While that reflects the same overall 4% inflation rate in the CAGR that MachineGhost references, the SD is a little lower.  I assume this is because PP performance is certainly not random relative to inflation -- the gold responds quite strongly.  As a result, the other thing I find fascinating is that the real returns are quite consistent across a variety of timeframes:

CAGR since 1975 is 8.81 nominal, 4.76 real
CAGR since 1990 is 7.56 nominal, 5.03 real

So here's the thing -- if you use the PP real return numbers in Firecalc and set inflation to zero accordingly, not only do I think that reflects performance more accurately, but also it appears to improve results slightly.  (Note that Firecalc can give vastly different results run-to-run with the random number generator, so run it several times to see the range).

Unless, of course, I'm doing it all wrong. 

TL;DR : Try the PP real returns as I think they're more appropriate for the tool.  4.76% CAGR, 6.84% SD, 0% inflation

[Edited for clarity]

But then doesn't that mean your spending is not tracking inflation in the FireCalc calculation?

EDIT: No, it doesn't. The Spending tab has an inflation tracking percentage adjustment separate from the Portfolio tab.