July this year marks the 9th year of Portfolio Charts, and so much has changed since my first meager posts ages ago. Not only has the site grown quite a bit, but so have my own skills and knowledge in the process. I appreciate each and every one of you for providing great feedback, supporting the effort, and helping to spread the word.
You’re truly the best.
In honor of the anniversary, I thought I’d try something new to show my continued thanks to the members who make everything possible. Starting today, there’s a new perk available that I hope you’ll enjoy. It’s called the Chart of the Month, and here’s how it works.
Like millions of other Elden Ring fans, I’ve been spending many hours recently killing everything in sight in the new Shadow of the Erdtree expansion. For anyone not familiar, Elden Ring is a popular videogame in the RPG genre that is a wonderful combination of beauty and lore requiring a lot of skill, strategy, and patience to master.
That skill and patience requiring thoughtful stat allocations may ring a few bells, as it shares a lot of parallels with investing. I wrote about that perspective last year when I discussed Asset Allocation for Gamers, but Elden Ring hits hard on an especially important concept that I think is underserved in many investing circles — the risk of ruin.
So if you’ve spent many frustrating evenings like me getting repeatedly wiped out by a certain flame serpent, let’s talk about avoiding the same fate in the markets.
If you’ve ever remodeled a home, you understand how even the smallest change can sometimes spiral into something much larger. One fixture you love clashes with something else, so you create a short shopping list. When you start pulling things out you realize that you should probably replace the wiring and plumbing. If you’re going that far, you might as well remodel the entire room. And before you know it you have a new kitchen.
Upgrades can be unpredictable like that.
I recently had a similar experience working on some new tools at Portfolio Charts. It began with redesigning the Toolkit to add some new charts and make it much simpler to enter data without so many steps. The result was so useful that I realized I could apply it to the site infrastructure to make my job way easier. If I was going that far, I might as well make some interface changes that I’ve been thinking about for a while now. And before I knew it I updated nearly every page on the site.
If you only have a few minutes, here are the major changes to be aware of:
All of the backtesting tools have a new interface with a more intuitive layout and built-in ETF-finding capabilities.
Some data has been tweaked, like the shift from total stock market to large cap blend funds in portfolio definitions and the elimination of expense ratios. So the resulting numbers may be slightly different than before.
Old bookmark links will no longer work, so you’ll need to save them again.
The Toolkit is massively easier to use. If you ever downloaded a free sample, you may receive an email with a new one to tinker with. And Toolkit owners should be on the lookout for an email with a free update.
If that sounds interesting, the full upgrade list is pretty extensive. Read on to learn more.
To understand the difference between expecting the average and planning for a long, safe life, look no further than the beautiful ocean communities of Japan. Picture a small fishing village with the local economy built around the sea. A colorful pagoda stands in contrast to the green mountain backdrop with a snowy white peak. Kids play in the water, as a Zen Buddhist painter contemplates the waves.
The interesting thing about quality art is its sense of history, and there’s perhaps no greater theme in Japanese art culture than the topic of waves. For example, the title image is a famous woodblock print called The Great Wave off Kanagawa by the artist Hokusai in 1831. It depicts a fierce tsunami off the coast of Mt. Fuji, and is memorable not just for its beauty but also for its deep local meaning. As an island on the Ring of Fire, Japan knows a thing or two about the impact of tsunamis.
The typical day in coastal Japan is quite wonderful, with people congregating around the average sea level. But wander up the nearest mountain and you may find an old stone that looks like this.
Placed after a deadly tsunami killed untold numbers of people in 1933, this one reads:
“High dwellings are the peace and harmony of our descendants. Remember the calamity of the great tsunamis. Do not build any homes below this point.”
Even the seemingly most peaceful ocean can quickly turn deadly with a single earthquake. And to this day, many locals heed these old tsunami stones to stay safe from harm. Historical markers are the guideposts that help them see beyond the average times and survive the worst.
To fight through the hectic modern culture and apply some of that Zen mindset to investing, I think it’s helpful to similarly seek any financial tsunami stones on the market shoreline. They’re all around if you just know where to look. So grab a cup of tea, and let’s talk about the impact of rolling investing waves.
Between my own independent research and the discussions of other investors I enjoy reading, it seems the topic of safe withdrawal rates has been bubbling to the top lately. One particular question recently captured my attention.
What portfolio has the best safe withdrawal rate in the worst case scenario around the world?
You see, the vast majority of withdrawal rate research focuses on the United States. However, most people consider the US to be an extremely positive outlier, which raises legitimate questions about the appropriateness of determining one’s retirement plan by myopically focusing on only the best case country. Start exploring this question in earnest, and it draws into question not only our biases about what “normal” returns look like but also our assumptions about proper portfolio construction.
While it may sound like a simple question, answering it with real numbers is no small task. The reason that most retirement studies focus on a small handful of countries and portfolio options is that understanding the big retirement picture takes a lot of data. And not just raw source data, but also a mountain of creative calculations to do the topic justice.
Well, it so happens that creative calculations are a strength of mine and I have a few tricks up my sleeve. So let’s roll up those sleeves and talk about truly global withdrawal rates that look well beyond US borders.
Withdrawal rates have always been a passion of mine. Beyond a natural desire to judiciously plan and manage my own early retirement, I’ve also been fascinated with withdrawal rate mechanics from a purely intellectual perspective. Not only is it an interesting topic, but I also like how there’s still lots of room for new development.
So rather than simply defaulting to the same methodologies of the classic Bengen or Trinity papers, I’ve always strived to build upon their solid intellectual foundations while bringing my own unique perspective to the table. By tweaking the default assumptions like the retirement length, home country, or available fund options, I believe people can gain a greater appreciation for investing options far more interesting than the old 4% rule of thumb implies.
That desire for deeper understanding is only matched by my persistence in seeking ways to improve my calculations, and one project I’ve been working on for a while now is the way I calculate safe and perpetual withdrawal rates. I just released an important new update to the Withdrawal Rates tool, and to best explain it I think it might help to step back and start from the beginning.
So if you’ve ever used Portfolio Charts to research your own retirement portfolio or just want to stay up to date with the latest in withdrawal rate calculation techniques, read on.
Have you ever been so lost in a content feed that you feel temporarily satiated, profoundly bored, and strangely anxious all at the same time? Of course you have. No matter whether it’s your phone that you habitually check at every chance, the computer constantly streaming videos, music, and podcasts with no silent breaks, or the television screen you find yourself watching at the restaurant instead of the person in front of you, modern culture has programmed us all to crave constant input.
Assembling thousands of investing datapoints is a lot like solving a puzzle, and there’s really nothing like the feeling of slotting the last piece into place. The tactile sensation of the perfect fit just can’t be beat. And after countless hours of work, you can finally stand back and see the full picture.
As I mentioned when I updated all of the site data in early January, the results were only preliminary as there are always a few data stragglers. Well, the official numbers are finally in. And beyond a few revised datapoints, I also took the opportunity to update the data methodology.
When choosing a guide to carry supplies for a winding journey ahead, it’s worth taking a moment to evaluate the right person for the job. Their relative rank over time is usually not so simple. The strongest option might be painfully slow in the flat roads, while the fastest man on earth might falter at the first sign of mountain steps.
When the road is a mystery and you have no idea what obstacles may lie ahead, the challenge multiplies. At some point you have to stop optimizing for strength or speed and start thinking about well-rounded consistency. A guide who can handle any conditions pretty well can easily beat out a team of specialists.
Even if you’re not the outdoor adventuring type, investors face this challenge all the time. Your chosen asset allocation is your guide who carries your life savings on your financial journey, and you have no idea where the future road may lead. Finding a balanced portfolio with a consistent track record can make the process a lot easier, as you can rest easy knowing you’re in good hands no matter what happens.
To help with that evaluation process, I’ve just launched a brand new chart designed to compare the relative returns of many different portfolios at any time in history. Think of it as browsing the performance of dozens of guides at once under any conditions you choose. I call it the Rank Over Time chart, and it’s a great way to find your financial partner for the unknown road ahead.
No matter if it’s a fun new gadget or just some well-earned peace and quiet, I hope everyone received all they wanted for Christmas! And no, I haven’t forgotten about you. Now that we’re slowly easing back into normal routines, I have one more last-minute gift to round out the holiday.
The 2023 portfolio data has arrived!
Here’s a quick summary of everything you can expect to find.
