Fair, but i'd say the 6% assumption is suspiciously high in that case. I think you might be doing something like ({mean SPY return} - CPI)
Except that CPI is a deviously misleading number. I wonder if the same approach applied in 1980 would come close to aligning with 2020 numbers (including healthcare, college, rent, energy, etc.)
Please be brutal in your response, I want to understand if my understanding of this is all wrong!
keep in mind, this is really just a back-of-the-napkin calculation. I'm certainly not an expert on the matter, but AFAIK 6-7% is generally accepted as the real rate of return on the S&P 500 (at least historically and over long periods of time). inflation calculations are always kind of messy thing though. in reality, some goods/services increase in price much faster than others, and CPI will be very sensitive to what goods/services you choose for your basket. even when you take into account overall inflation, college tuition is vastly more expensive than it was a few decades ago. it also gets tricky when you consider that the quality of goods can increase over time. a mainstream CPU costs about the same as it did in 2000, but is way more powerful. is that deflation, or is technological advancement a separate thing? I never got far enough in economics to know the answer.
Except that CPI is a deviously misleading number. I wonder if the same approach applied in 1980 would come close to aligning with 2020 numbers (including healthcare, college, rent, energy, etc.)
Please be brutal in your response, I want to understand if my understanding of this is all wrong!