Traditionally the week before the New Year is the time when most blogs reflect on the past or ponder the future, but like the excited kid who just can’t wait to blurt out what he got you for Christmas I’ve got something special I really want to share. Between the turbulent financial markets that seem to have many investors questioning their portfolios, some fun tools that I’ve been tinkering with to help, and the college football bowl season that has me in the competitive spirit, there’s no time like the present to share one last holiday gift. So let’s save the melancholy contemplation and snarky lists for another day and have a little fun with some really interesting financial data.
Who is up for a good old-fashioned portfolio competition?
Inspiration comes in many forms, and in this case a particular visualization recently captured my imagination. As part of a recent post about baseline returns, I shared a custom chart showing how the 15-year baseline returns compare to the long-term averages for every portfolio on the site.
Pretty cool, right? I find having that level of detail right at your fingertips to be extremely handy when evaluating portfolio options, and the exercise got me thinking — how can I automate the process of generating charts like this for any metric you like? Well after a bit of experimentation, I’m happy to announce a brand new tool that should make relative portfolio comparisons easier than ever to navigate. I call it the Portfolio Matrix.
Think of the Portfolio Matrix as the decathlon of investing competitions that measures the relative performance of each asset allocation across ten different metrics at once. By selecting a particular category, you can not only sort the rankings by that measure but also see the final absolute score for every portfolio.
The default setting sorts the matrix by baseline long-term return — my personal favorite measure for conservative and realistic long-term portfolio expectations — but there are many options to choose from:
- Average Return
- Baseline Long-Term Return
- Baseline Short-Term Return
- Safe Withdrawal Rate
- Perpetual Withdrawal Rate
- Standard Deviation
- Ulcer Index
- Deepest Drawdown
- Longest Drawdown
- Start Date Sensitivity
I’ve described each in detail on the Portfolio Matrix page, but at a high level I’d like to point out two very important facts about these ten data points. First, I’ve deliberately kept it balanced with five “positive” return metrics and five “negative” risk metrics to keep every portfolio honest. And second, all of the metrics are start-date-independent and are completely free of recency bias. All portfolios have good and bad years, but these are all measures appropriate for the long haul and with a real sense of history.
I personally believe the resulting chart is helpful not only for taking a deep dive into a particular stat that is important for you but also for keeping an eye on the big-picture tradeoffs. That’s because even if you sort by one metric you believe strongly in, the other nine scores are always right there to offer proper context. For an excellent example of that, let’s sort the list by average return.
Now do you see why I’m always harping on how average return is not the be-all-end-all in portfolio metrics? While the total stock market indeed topped the list for average return by a good amount, it finished dead last in virtually every other measure! And it’s not just the “risk” metrics that suffered, as the total stock market also fell behind in some very valuable positive returns metrics such as safe withdrawal rates and baseline returns. While investing all of your money in a single stock market fund might be just fine for some investors, it clearly carries substantial tradeoffs. So why not glance down the list to see what other portfolios have to offer?
Another thing I enjoy about the Portfolio Matrix is its ability to quickly change the rankings of every portfolio based on the home country you’re studying. Too much investing advice is written from the perspective of US investors, but not every portfolio performs the same in other countries. For example, would you have guessed that the total stock market portfolio was NOT the top-rated portfolio by average return in Canada? That honor goes to the Pinwheel Portfolio, an asset allocation with only 50% stocks and a healthy dose of asset diversification.
Surprised? No matter where you live, I think studying how portfolio ideas performed out of sample in other countries around the world can not only help you avoid home country bias in investing decisions but also illuminate just how well the underlying portfolio theories handled very different sets of economic conditions. Find a portfolio that held up consistently well in multiple countries and you’ll be that much more confident in its ability to grow and protect your money no matter what the future holds.
Of course, each investor has different needs and not everybody will be drawn to the same portfolio. Regardless of what motivates you most — withdrawal rates, deepest drawdowns, or anything else — it’s really that balancing act of tradeoffs between multiple data points where the Portfolio Matrix shines. Play with it for a while, and not only will you appreciate the strengths and weaknesses of each portfolio but perhaps you’ll also expand your thinking on the types of measures that are important in your own decision making.
Before you go explore on your own, I think it’s important to make one point crystal clear — I will never include a portfolio on the site that I consider to be a bad idea. So while you will definitely see options in the Portfolio Matrix with lots of red, that does NOT mean that they are objectively poor choices. Think of this more like an Olympic competition of the best-of-the-best where there may be winners and losers in certain events but you really can’t go wrong with any choice. My goal is simply to help you navigate options, not to steer you in any one single direction.
Along that line, astute readers may notice that there’s a portfolio missing from the Portfolio Matrix list. Long story short, with the release of the new tool I also reevaluated my portfolio offerings and decided to retire the Desert Portfolio from the site. As Portfolio Charts continues to grow my bar for portfolio inclusion needs to grow as well, and I believe properly curating options to prominent ideas with thorough source material is an important part of steering people to good info. But make no mistake — I still think it’s a fine portfolio and encourage people to learn about it for themselves. Thanks, Desert!
Personally, I’m really excited about the Portfolio Matrix and hope you find it as interesting and useful as I do. You can locate it right at the top of the Portfolios section as a quick guide to the portfolio options before taking a deep dive into the more thorough charts on each individual page. My hope is that newcomers can use it to help get their bearings and veteran portfolio researchers will consider it a major time saver, but no matter your investing experience I think good data is always helpful.
Give the Portfolio Matrix a try, and hopefully it will help you find that investing winner you’ve been looking for.