The Start Date Sensitivity chart studies the past and future returns of a portfolio at various points in time to illustrate how actual returns varied from expectations.  Use this to study the dependability of a portfolio over time, to find a stable asset allocation that reliably met its goals, and to serve as a reality check before trusting a tempting but potentially deceptive historic average with your life savings.

Chart

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Overview

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For each year on the chart, the calculator looks backward ten years and forward ten years and reports the inflation-adjusted CAGR for both. The red line tracks the backward-looking return that an investor would have seen when evaluating the portfolio, and the blue line tracks the forward-looking return they actually went on to receive. The shaded areas between them tell the story at a glance. Blue means the next decade turned out better than the one that preceded it, and red means it fell short of what the rear-view mirror promised.

Drag the vertical gray line to sample any reference year, and the callouts report both returns for that point in time. The chart also automatically marks the luckiest and unluckiest years with labeled diamonds, and summarizes the whole picture with the SDS number in the corner.

Studying the differences between those two numbers gives you a very good idea of the stability of returns over time. The closer the two lines, the less sensitive the portfolio is to backtesting start date bias and the more you can trust its historical averages. To see how every tracked portfolio compares on this measure side by side, check out the Portfolio Matrix.

Featured Discussion

Some Portfolios Are More Trustworthy Than Others

Calculations

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Luckiest

The best difference on record between the forward-looking return and the backward-looking return. This investor bought what looked like a mediocre portfolio and was rewarded with a decade far better than anything the past suggested.

Unluckiest

The worst difference on record between the forward-looking return and the backward-looking return. Imagine purchasing a fund based on a high previous 10-year return but personally receiving that amount less per year for the next ten years after you bought it. Talk about disappointing!

Start Date Sensitivity

The spread between the luckiest and unluckiest investors’ return differences, a measure of potential start date bias. Think of it as the spread in happiness relative to expectations among all of the different investors who bought the portfolio over time. I see it as a simple quantitative way to compare the relative dependability of two portfolios, as smaller numbers have historically been better at meeting investor expectations with less timing luck required to get the advertised return.

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.
• The comparison window is fixed at ten years looking backward and ten years looking forward.

Discussion

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Articles

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Insights that reference Start Date Sensitivity