People love a good list. From the most memorable events of the year to best phones on the market, there’s never a shortage of ranked lists to get your attention and perhaps point you in the right direction. So it’s no surprise that I’ve received several requests over the years for a particular chart that is popular in financial circles for evaluating investing options — a returns quilt chart that ranks many options at once.
That’s a great suggestion!
While it has taken a little time to settle on a design angle that I like, I’ve definitely been thinking about the concept. In honor of the end-of-year list season, this seems like a great time to roll out the final result. So if you want to learn about a fun new tool to help you visualize the annual performance of every portfolio at once, this is your lucky day.
Patchwork inspiration
The most famous example of an investing quilt chart is probably the Periodic Table of Investment Returns by Jay Kloepfer at the Callan Institute. But if you search the internet there are tons of versions out there that all generally look the same. A color-coded patchwork of asset classes are arranged by return rank in the vertical axis and by year in the horizontal axis to create a colorful grid resembling a quilt that helps you visualize the change in relative asset rankings over time.
It’s a nice visual, for sure. But I’ve always had a few issues with the execution.
First, the use of individual asset classes sends a bit of a strange message by focusing on highly concentrated investing options. Sure, investing in a large cap stock fund is fine. But would any adviser agree that 100% emerging markets or real estate is a good plan? I seriously doubt it, and a grid with actionable portfolio options would surely be more helpful. By making a quilt from single-color patches and ignoring the entire world of intricate fabric patterns, you’re wasting a huge opportunity.
Also, simple rankings from year to year can be deceptive, as the worst portfolio in one year can actually perform better than the best one in another. Adding percentages helps, but be honest — can you pick them out?
And finally, the presentation lends itself to the message that returns are simply random. That’s perhaps helpful in terms of encouraging diversification over market timing. But I would argue that it also feeds a particular “nobody knows nuthin'” mindset that I’ve seen a few places which can become a barrier to learning about how proper asset allocation can create more reliable portfolios. So a few extra features to help people recognize informative patterns would be nice.
Of course, other smart investors have sought to tackle these issues. Portfolio gurus like Paul Merriman (author of the Ultimate Buy and Hold Portfolio) have published similar charts with their own portfolio recommendations mixed in. Others like Craig Israelsen (of 7Twelve Portfolio fame) have also taken the step of visualizing the returns values as well to look beyond the simple ranks. And some charts like this one from J.P.Morgan even have an interesting line feature to help you track one portfolio over time.
Those are all excellent ideas, and all they really need is a designer’s touch and a lot more portfolio data. So borrowing the best approaches from several good sources and sprinkling in my own take on data visualization, I’ve created my own version of the Callan classic. I call it the Returns Quilt.
How the Returns Quilt works
The default settings follow the same basic concept of your typical quilt chart but with a few notable differences. Most obviously, the traditional blocky quilt has been replaced with a cleaner “confetti” visual that is easier on the eyes.
But beyond the colored dots ranked by annual real return, allow me to point out a few more unique features.
- Instead of using the typical asset classes, every point is a full portfolio. And you can also compare your own portfolio ideas to every other option on the list.
- Rather than overwhelming you with many decades of data at once, the “starting in” setting allows you to single out individual years in the column on the left and display the decade starting in that year to the right.
- Select the portfolio you’d like to track, and it will draw a line between each point and highlight the values for that portfolio alone. So there’s no hunting required, and the visual is never cluttered with information you don’t need.
I think my favorite feature, though, is the “Scale by” setting at the top left. Change it from Rank to Return, and the chart looks like this. Now you can probably appreciate why I went with the dots instead of the more traditional rectangular quilt grid.
Note that the dots are in the exact same order as before, but they moved independently up and down the vertical lines to scale with the absolute return each year. See the maximum return of 9% and minimum of -14% in the column on the left? They correspond to the top and bottom points for the 2000 column on the right. And the -4% for My Portfolio is clearly labeled in the proper position. This lets you see the portfolio performance each year in true historical context and visualize the spectrum of returns rather than just rank.
Speaking of context, also look at the max and min lines on this chart. These check the portfolio you’re tracking and report the best and worst annual real returns for that portfolio not just in this 10 years but in the entire database since 1970. So you’ll always be able to compare portfolio performance not just against the best and worst alternative portfolios in one year, but against its own best and worst years on record.
The Returns Quilt in action
Despite the minimalist visual with colorful polka dots, there’s a ton of data packed into the Returns Quilt. It’s a deceptively powerful tool which offers the ability to study situations that are otherwise quite tedious to calculate.
For example, let’s say you want to study portfolio performance during an extended period in the US when stocks had a really tough time. By firing up the Returns Quilt and looking at the portfolio ranks starting in 2000, you can immediately see why people in that timeframe were very bearish on the Total Stock Market. But if you were invested in something like the Ultimate Buy and Hold or Sandwich Portfolio, you probably felt a lot less jerked around from year to year or tempted to switch portfolios at the wrong time. Consistency has its benefits.
Or let’s say you want something more out of sample like the performance of portfolios in Japan in the 1990’s. That’s often cited as a worst-case scenario for stocks to the point where “now do Japan” is a common retort in some backtesting circles. The Returns Quilt can do that, too. And by browsing different options scaled by return, you really start to appreciate allocations like the Global Market Portfolio, Larry Portfolio, and Swensen Portfolio.
And of course, the My Portfolio feature that allows you to model your own ideas and rank them on the list is also extremely useful. For example, perhaps you’re a Canadian investor who wants to look at how the traditional Classic 60-40 Portfolio compared to splitting your stock allocation between Canadian and US stocks during the 2010’s. With just a few portfolio entries, it’s easy.
Put it all together, and this is a particularly powerful tool for studying relative portfolio performance in all kinds of unique historical situations. No matter the portfolio, country, or timeframe you want to study, the Returns Quilt has you covered.
The data is there to explore
I could go on for ages with my own explanation, but like all of the Charts here at Portfolio Charts, the beauty of the Returns Quilt is its interactivity. The charts are all dynamic tools rather than stale images, and the true fun comes not in viewing my one prepackaged visual but in creating your own. The best way to learn is ultimately to dive in and explore for yourself. And since the chart page already includes extra information about the calculations, you should have everything you need to get started.
So instead of boring you with endless examples, I’ll open the door and step out of the way.
The Returns Quilt is a new tool that lets you easily create your own unique quilt chart to compare your portfolio ideas against a bunch of popular options. It’s fun, flexible, and completely free. Check it out!
/// Try the Returns Quilt ///
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