Rather than simply calculating the performance of a single asset allocation, the Optimizer searches every possible combination of the same portfolio assets and identifies the lowest risk, highest return, and most efficient alternatives.  Use this to evaluate portfolio tweaks and explore effective new ways to achieve your investing goals.

Chart

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Overview

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When evaluating a portfolio idea, it’s normal to wonder whether the percentages you’ve chosen are truly best for the job. To solve that problem, the Optimizer looks at each asset in a portfolio and not only studies the risk and return for that one allocation but also every other possible combination of the same assets. By visualizing the full landscape of alternatives as a point cloud, it’s much easier to see the big picture.

When you enter your asset allocation, the Optimizer first calculates the risk and return for your specific portfolio and plots it on the chart. Next, it looks at the top 10 assets in your portfolio (ranked by percentage) and calculates the risk and return for every possible combination of those assets in 10% intervals. Every portfolio combination gets its own dot. The end result is a cloud of up to 10,000 unique portfolios for study. You can click on any dot to see its composition. Clicking locks the selection so you can study its allocation, and switching the risk or return metric rearranges the entire cloud to show the same portfolios from a different angle.

When browsing the results, pay particular attention to the edge of the cloud to the top-left. That’s what professionals call the efficient frontier of options with the best risk/return tradeoffs.

Featured Discussion

Find Your Ideal Allocation With the Portfolio Optimizer

Calculations

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Beyond the asset allocation percentages, the Optimizer offers a variety of settings to study portfolios from different angles.

Risk

• Standard Deviation: The statistical uncertainty of the average real return. See Annual Returns.
• Ulcer Index: A composite measure of drawdown depth, length, and frequency. See Drawdowns.
• Deepest Drawdown: The deepest compound loss since 1970 using year-end data. See Drawdowns.

Return

• Average Return: The average annual real return since 1970. See Annual Returns.
• Long Term Withdrawal Rate (LTWR): The single rate that both the safe and perpetual withdrawal rates approach over very long retirements. See Withdrawal Rates.
• Real CAGR: The inflation-adjusted compound annual growth rate for every rolling period of your desired length. The full collection of rolling returns is run through a percentile filter to identify the measure you want to study: minimum, baseline (15th percentile), median, stretch (85th percentile), or maximum. Fully explained on the Long Term Returns chart.

Goals

The Optimizer offers 3 different search goals when scanning the cloud of options.

• Lowest Risk: The portfolio with the lowest risk.
• Highest Return: The portfolio with the highest return using your chosen metric.
• Most Efficient: The portfolio with the best risk-adjusted return. This is calculated by first finding a theoretical point with the maximum return and zero risk, and then measuring the distance from every point on the chart to that ideal. The portfolios are then ranked by distance, with the nearest portfolio ranked #1.

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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Insights that reference the Optimizer