What do the different portfolio abbreviations stand for?
Each set of letters stands for a different type of investing asset. For example, SCV stands for Small Cap Value and EUR stands for Europe. If you’re not sure what a particular acronym stands for, try looking it up on the Assets page.
How do I know the percentages of each asset for a portfolio on the list?
The Portfolio Finder assumes that each asset displayed is equally weighted. So if there are four assets listed they are allocated 25% each. And if there are five they are allocated 20% each. It is done this way to bound the problem just enough to make it solvable. Even now, there are more than 83,000 different possible combinations of assets. Vary the percentages of each asset, and it would quickly jump into the millions and overwhelm any normal spreadsheet.
The goal of the Portfolio Finder is to get you in the ballpark from a diversification perspective, but once you find a grouping of assets that seem interesting I recommend running them through other calculators that let you fine tune the percentages as you see fit.
Won’t the recommended portfolios change if you study different timeframes?
The Portfolio Finder looks at every possible start date to find the most consistent portfolios that met your long-term investing needs even in their worst possible years. So, like withdrawal rates, the reported numbers are completely independent of start date.
Still, I absolutely recommend studying all portfolios from a broader perspective that accounts for other important factors including longer and shorter investing periods than the Portfolio Finder accounts for. The Heat Map and Portfolio Growth calculators are particularly helpful for visualizing returns uncertainty and identifying historical trends. Consider the Portfolio Finder a starting point in your research, not the final stop.
Why did you choose 15-year periods?
15 years is long enough to bypass any short-term market volatility that would make any volatile portfolio look bad. But it’s also short enough to get 30 periods to study that span the high inflation 70’s, the roaring 80’s and 90’s, and the tumultuous run starting in the early 2000’s. The variety of economic environments is critical to the analysis.
In addition, for those interested in finding a retirement portfolio Michael Kitces has shown that 15-year real returns are also important metrics for long-term portfolio survivability.
But perhaps most importantly — despite the protests of the most stoic investors, 15 years is a really long time to wait to finally receive your expected average return. If it hasn’t manifested by then, the vast majority of people will have already changed course. So from a practical perspective rather than a theoretical one, it also makes pretty good sense.
What is the Baseline Return? Why not use the median or average?
The Baseline Return is the 15th-percentile 15-year real CAGR for a given portfolio looking at every possible start date we have access to. Or in layman’s terms, it’s the low end of the range shown in the Long Term Returns calculator that excludes a handful of particularly poor outliers. I like it as a reasonably conservative return that acknowledges the uncertainty involved in a portfolio without being excessively pessimistic.
By using the Baseline Return, it’s virtually impossible for any asset to gain an unfair advantage in a tool like this. Maybe gold was incredible starting in the 70’s, but the 90’s were a bloodbath. Stocks may look fantastic starting in 1985, but the 2000’s were pretty brutal. Averages of averages can still be quite deceptive depending on the data distribution, but conservative numbers pulled from the full range of real-life outcomes cut through the uncertainty and get to the core of what’s truly sufficient to meet your needs in the most consistent way possible.
What is the Ulcer Index?
The Ulcer Index is a composite number that accounts for both the depth and length of every historical drawdown of a portfolio. Basically, it’s a simple metric for portfolio pain. The larger the number, the more painful it was to hold. For more information, here’s a detailed explanation for how it works and why it’s valuable.
Why do you show the top-10 portfolios? Why not just invest in the best?
Smart long-term investing is about so much more than performance chasing. The single best portfolio you see there today will probably not be the best the next year. Also, the single best portfolio may include assets you are not personally comfortable investing in. Different people require different portfolios, and I prefer to present the full cloud of options so that each person can come to their own conclusions about what is “best”.
How can I see more portfolios beyond the top-10?
Try requiring some of the assets that are showing up on the list, and the calculator will narrow down the possible options and update the list accordingly. You can also try adjusting the minimum Baseline Return and maximum Ulcer Index and the list will change from there. There are more than 83,000 possible combinations of assets, and the Portfolio Finder will help you always find the top options for your needs.
How can I find the portfolio for a specific dot on the chart?
Each dot corresponds to a specific portfolio. So to identify a dot, start requiring assets. If you add a requirement and the dot stays green, you’re on the right track. Identify enough required assets, and the list will very quickly narrow down.
Why can’t I find a specific portfolio anywhere on the scatter chart?
For consistency, the scatter chart has been limited to only show portfolios with a minimum Baseline Return of zero and a maximum Ulcer Index of 25. However, certain asset combinations may fall outside of that range. These portfolios will not show up on the scatter chart but can still find their way on the top-10 list (although making it there with a long-term loss takes serious effort).