Portfolio Charts

[Summer]

@Tyler9000, Can you post a link to the source of your expected returns data (or the realised returns if you used them) you used to make your site for us? Please.

[Tyler9000]

http://portfoliocharts.com/methodology/

Follow the link to Simba's spreadsheet -- It's an excellent tool in its own right. That has everything but the 10-year treasuries, which you can find here: http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html

All of the calculations start from that source data and work from there.

[Summer]

Simba's spreadsheet seems overwhelming but I can manage it. Thanks.

[Tyler9000]

JP had a good suggestion for the website to add some kinda intro page for beginners. It could cover investing basics like "what's an asset allocation?" and also offer specific fund examples that correspond to the individual asset classes when people find a portfolio they like. I've been playing with that idea and working on the best way to do it.

Recently, it's come to my attention that there's a subset of highly educated investors out there that also don't get it. I know of at least one very smart person who trades options for a living who apparently doesn't know what an asset allocation or SWR is and who is mostly oblivious to passive investing strategies. It's like our Wheaton scales are completely orthogonal.

I feel like this kind of person is probably pretty rare, but who knows. Perhaps I could provide info not only introducing passive investing concepts for beginners but also comparing and contrasting it to other methodologies. To do that, I'd need to raise my own understanding as well. Does anyone have any good recommendations for resources that discuss the merits and drawbacks of a variety of different investing strategies? I'm talking beyond portfolio construction -- things like options trading, day trading, dividend growth, managing rentals, hedge funds, etc. Something as simple as one good link I could toss in for educational purposes might do the trick.

[Tyler9000]

So what's your favorite on the SWR calculator?

BTW, I've been experimenting more lately and am currently digging a simple 5x20% portfolio with equal parts large cap blend, small cap value, long term treasuries, short term treasuries, and gold. Working on a write-up, in fact. Keep an eye out.

[nestbuilder]

Your portfolio tool and associated commentary is much appreciated. As someone in the steep part of the investing learning curve who is preparing for an extended break from employment(January 2016), your charts and commentary are helpful in sorting out an allocation strategy and reminding one of the importance of volatility when considering the options. Thanks for sharing such a great tool.

[bryan]

Nice Golden Butterfly

@Tyler9000, do you consider pre-FI and post-FI portfolios to be distinctly different? Lump sum investing and sticking to an asset allocation is easy, but what if you throw in the idea of using dollar cost average your post-FI portfolio (via asset allocation changes over time into more equities). After all, "dollar-cost averaging just means taking risk later." So for the FI minded individual, it's an interesting trade off if you want to take your risk as soon as you FIRE (and maybe have to go back to work then) or take your risk at a projected future age (say 100). The later maybe is more appealing to someone who, once FIREd, wants to stay FIREd.

edit: though I guess the length of time post FI has a lot to do with it. 30 years is a lot different than 70.

[Tyler9000]

@nestbuilder -- Thanks! I'm glad you find it helpful.

@Tyler9000, do you consider pre-FI and post-FI portfolios to be distinctly different?

Short story -- no.

I personally believe the time to start developing good investing habits is when you first start investing, and one's strategy should not involve taking unnecessary risks before FI or changing portfolios after. For the most part I think the best advice is to pick an enduring financial strategy from the start and focus on maximizing savings rather than returns. If it's too risky to retire on, it's probably also too risky to guarantee with any amount of certainty the retirement date you want so badly. And if the volatility causes you to sell low every few years, it's most likely hurting you more than it helps anyway.

I also believe that much of the equity glide path advice comes from the over-simplified perspective that total stock and total bond funds are the only investing options available and that good returns (important for accumulation) and low volatility (equally important for retirement) are mutually exclusive. Too many people tackle the exclusivity problem for those two assets by adjusting the percentages over time rather than challenging the two-option assumption. Following modern portfolio theory, there are good portfolio options with solid returns AND low volatility with no adjustments required. That's a common theme of the site and the reason that there's an entire section dedicated to portfolio examples.

Regarding dollar-cost averaging, nobody gets their life savings up-front. The entire accumulation phase is dollar-cost averaged over many years. I prefer to put that money where you want it for the long run than to finally have your accounts fully funded only to start moving money somewhere "better".

But that's just me. There are always special cases, and obviously others may disagree.

[KevinW]

For the most part I think the best advice is to pick an enduring financial strategy from the start and focus on maximizing savings rather than returns.

+1

[Dragline]

Check this out:

An interview with the Man, the Myth, the Portfolio Charts Legend himself: http://www.thevoluntarylife.com/2015/10 ... tment.html

Nice work, Tyler! And you sound so friendly and normal.

[jennypenny]

That was great, Tyler. I really like the part about it not just being about the money a person wants to make, but about the experience they want to have making it.

[C40]

I finally got around to playing with these charts. WOW!!! Wonderful work, Tyler. Thank you! They convey a huge amount of information. Changing the portfolio allocation is quick and easy. And the charts and the website look great. Wonderful work! This is the best utility I've seen for comparing the performance of different allocations.

[ThisDinosaur]

Tyler, I absolutely adore portfoliocharts.com and I spend an unhealthy amount of time comparing different allocations. So the new tool is excellent. I have a few hopefully constructive criticisms:

1)For the new comparison tool, there should be an easier way to change the start year than keying it in. I'm envisioning a scroll bar so you can watch how the line graphs intersect(or not) depending on the start year. Its possible that there is such a function and I haven't noticed it?

2)For the Withdrawal Rate Calculator (my favorite so far), if you enter in 50% SCV and 50% Emerging market, there is a nonsensical output. Not that anyone would recommend that allocation in reality, but I think I found a bug, and I'm hoping it doesn't invalidate other conclusions from the site.

3)Not so much a criticism as a suggestion; would it be possible to use all the data embedded in these calculators to determine THE ULTIMATE PORTFOLIO for various definitions? Like, to find the highest SWR of all possible allocations in the date range? Given how much you've accomplished with this site, this one seems like it should be reasonably straight forward. But maybe not; what do i know.

Really awesome site. I can't get enough of it.

[Tyler9000]

Nice work, Tyler! And you sound so friendly and normal.

01010100 01101000 01100001 01101110 01101011 01110011 00100001
My program has come a long way.

Thanks, all. The interview was fun, and Jake is a cool guy. I'm not as used to talking about these kinds of things as I am writing about them, so hopefully I communicated my points well enough without rambling too much. JP picked up on one of my favorite points, so I guess that's a good sign.

@ThisDinosaur: I'm glad you find it helpful! To answer your questions:

1) I use straight Excel and the tool I use to publish it online strips out any VBA, so I'm limited in some of the interfaces I can use. But that's a good idea and I'll look into it.

2) Yeah, that's an artifact of my iteration algorithm but it shouldn't affect any other conclusions. Good on you for noticing. Depending on the start value, very volatile assets sometimes have trouble converging on a solution. It tends to affect only a small number of combinations like the one you mention. I'll have to do more research to fix that permanently, but one simple workaround (that usually works) is to first set all values to zero and let that settle before entering the new allocation.

3) The short answer is yes. I've already built some calculators that do exactly that. But I have yet to find a hosting service that can run them without requiring the user to do too much (they require advanced features), and I am even a little hesitant to make them public without the right messaging. The results they spit out looking backwards are not always portfolios I would recommend, and I'm careful not to put what I consider bad advice on the site. So it's on my radar but nothing is imminent.

[slsdly]

@Tyler9000: I need to add my own effusive praise to the thread. It is addictive!

Any chance of adding the S&P/TSX Composite data as an "Total Canada" option? I understand any reluctance, as that will probably cause everybody to want their own country listed.

[Tyler9000]

I definitely can't accommodate everybody, but I'd love to get more international data. It just comes down to getting enough reliable data to make it worthwhile. If anyone knows where to get data back to 1972 for the variety of assets on the site in Canada, Australia, and the UK, please PM me!

[Tyler9000]

FYI -- I just added a new calculator that many here will find interesting. It shows just how much time a particular asset allocation has historically needed to achieve financial independence given a set savings rate. You can also do things like enter how far along you already are, and tweak the results based on anticipated spending changes at retirement. Check it out -- the results may surprise you.

Your Ideal Route to Financial Independence May Be Off the Beaten Path

Basically, it's a souped-up version of the famous chart from Jacob's book:


This one lets you enter your own personal AA instead of picking the returns curve, and accounts for how uncertainty affects the results.

[jacob]

Basically, it's a souped-up version of the famous chart from Jacob's book

Famous if rarely ever cited/credited ... so maybe more accurately: "widely used"

[bryan]

Brilliant. Have you gotten serious offers to be hired as a consultant or sell your website yet? :p

edit: also, the graphs look a bit silly for ERE types half way into accumulation. Not sure if it needs a fix or not.. I think having the constant axis is fine for this calculator so... yeah, not much you could change.

[Tyler9000]

Nah -- I'm still waiting for my first non-serious offer.

The fixed chart formatting does make the shorter timeframes data a little tight, but I sorta like it that way for the average reader to contrast just how different many saving strategies may be. My favorite feature is how the chart pretty clearly illustrates that low savings rates don't get you anywhere near the retirement goal even with aggressive investments. Plug in the typical 10%, and the results are appropriately jarring.

That said, I may play with the settings in the future depending on the feedback I get. The ways people use the tool may surprise me.