The high-level goal of Portfolio Charts is to offer a neutral place to study the real-world performances of all types of investing ideas. My hope is that by painting a more complete and understandable picture of how different portfolios work, the charts will help people identify a simple and effective asset allocation to help them achieve their important life goals. Here’s how the returns for each portfolio are calculated.
1) All returns are taken as a snapshot on December 31st.
2) Returns include reinvested dividends.
3) Portfolios are rebalanced back to their target percentages annually.
4) Returns quoted are REAL. This means that all returns are adjusted for inflation. Inflation varies every year and is measured by CPI of each country.
5) Returns are expressed in the local currency of each country. For Euro Area countries, exchange rates prior to 1999 are in local currency and after 1999 are in Euro. Portfolio returns are primarily driven by changes in exchange rates, which make them neutral to the switch to the Euro.
6) For calculators like Portfolio Growth or Retirement Spending that account for annual contributions or withdrawals, those cash flows maintain constant purchasing power and adjust for inflation each year.
7) Returns ignore taxes. Individual tax situations are far too complex for a tool like this to model. Your mileage may vary.
8) The tools automatically calculate the expense ratio for each portfolio and account for those costs in the annual returns. The expense ratios assume that the portfolio is perfectly balanced, and normal percentage drift throughout the year may introduce a small amount of error depending on how often individual funds calculate and collect the fee.
9) Some tools allow for the selection of custom percentage-based fees such as adviser costs and wealth taxes. Returns do not account for fixed costs such as transaction fees. Your own fees may vary. When interpreting numbers, be sure to account for the expenses for your own personal investments.
Be sure to read the detailed notes on the individual Charts pages for application-specific assumptions and methodologies.
Verified vs. Estimated Returns
Most of the calculators include a designation of “verified” and “estimated” returns data. Historical returns come from a wide variety of sources, and reputable data is not always available all the way back to 1970. In these cases returns are filled in with similar-but-different assets to provide the best investing context available. For example, when there is no large cap value European data prior to 1975 I run the numbers using European large cap blend. To ensure that the results are accurate even with these alternative sources, every portfolio is tested to verify that it properly models the desired design intent.
For any given year prior to 1988, there may be one or more assets that have been supplemented with outside data. The compound growth of this “replacement portfolio” is compared against the desired portfolio over every investment period from 1988-present, measuring how well the model tracked the real thing. A “verified” portfolio account value remained within +/- 5% of the desired account value two-thirds of the time, and within +/- 10% 95 percent of the time. Basically, your brokerage account looked like this:
Note that a verified replacement “stayed in its lane” no matter what year you started the comparison. The analysis covers every available investing period and is independent of start date.
Any year that contains a replacement portfolio that does not track within the acceptable band is labeled “estimated”, and the data from that year is clearly called out on the chart. This information can still be very valuable for investing context and should not be entirely dismissed, but it is not as dependable as verified results.
Each calculator runs these calculations in the background for every investing year on a portfolio-by-portfolio basis, so you can rest assured that the historical results you see properly model the portfolio you are researching within a reasonable margin of error.
The one calculator excluded from this process is the Portfolio Finder, as the calculations are too complex to run on so many portfolios at once. So if you find a portfolio you like using the Portfolio Finder, be sure to test it in the other calculators as well.
The underlying data is a personal compilation from a number of free public sources. While there are absolutely no guarantees of accuracy, I’ve personally checked each series to make sure it reasonably models the intended asset using proper index methodologies. To study the sources in more depth or download numbers for your own personal use, be sure to visit the dedicated Data Sources page.
While I go to great lengths to double-check every source, the data has no guarantee of accuracy. Not only do I sometimes make mistakes, but the primary data sources also occasionally update their own numbers based on new information. Never make a decision based solely on the data you see here.
The numbers do not account for taxes. Properly managed they can be held to a minimum, but they can also take a big bite out of your returns depending in your personal situation. So be smart about it and plan conservatively. When in doubt, consult a tax professional.