The Annual Returns chart sorts the frequency and distribution of every inflation-adjusted annual return for a given asset allocation.  Use this to study just how often a portfolio actually makes the average return it advertises, to visualize the volatility of a portfolio, and to prepare yourself for how frequently even the best portfolio will post an annual loss. 

Chart

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Overview

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The Annual Returns chart is a histogram that illustrates the distribution of real-world inflation-adjusted annual returns. Think of each column as a bucket 10 percentage points wide, and picture going through every year of the historical record for your selected portfolio and home country and sorting each annual return into the appropriate bucket. Blue columns represent gains and red columns represent losses, and the taller the column, the more often that outcome occurred. Hover over any column to see exactly how often the portfolio landed there and how many years that represents.

While most people think about annual returns in terms of an average, it is important to understand that you almost never receive that average in any given year. The AVG marker highlights the average annual real return, and the SD− and SD+ markers sit one standard deviation below and above it to frame the range where roughly two-thirds of all years landed. Everything outside those markers really happened, too. And it’s the wide years that test an investor’s resolve.

To dig deeper, drag the gray line left and right. The labels track how often the portfolio had an annual return less than or greater than the number you choose. It’s a quick way to answer practical questions like “how often did this portfolio lose more than 10% in a year?” Visualizing returns this way is helpful for understanding the natural variability of any investment decision.

Featured Discussion

A Layman’s Guide to Returns Uncertainty

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Calculations

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Average Return

The average annual real return since 1970. It’s the simple average of every inflation-adjusted annual return in the historical record, not the compound growth rate you’d experience over a full investing timeframe, which volatility always drags below the average. To study compound returns, check out the Long Term Returns chart.

Standard Deviation

The statistical uncertainty of the average real return. It measures how widely the annual returns are spread around the average, and is the most commonly quoted proxy for portfolio volatility. The SD− and SD+ markers on the chart show one standard deviation below and above the average return. Just keep in mind that standard deviation treats a pleasant upside surprise the same as a painful loss, so for a measure focused specifically on downside pain, take a look at the ulcer index on the Drawdowns chart.

Assumptions

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• All returns are adjusted for inflation and expressed in the home country’s currency.
• Portfolios are rebalanced annually, and returns include reinvested dividends.
• Returns ignore taxes and fund fees.
• Calculations cover every year since 1970 for the selected home country.

Discussion

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Articles

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