TARGET ACCURACY

The Target Accuracy chart measures the spread of real-world growth of a portfolio over every possible start year compared to the simple long-term average.  Use this to estimate the reasonable range of returns for a given asset allocation, to understand the accuracy of a portfolio for reaching an important goal, or to study the complex balance of investing returns and uncertainty.

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How To Interpret The Chart

The Target Accuracy chart studies the spread of real-world compound returns of a portfolio and maps them against the growth you might expect to see if you only looked at the long-term average. The gray line represents how a portfolio that simply earned the average inflation-adjusted return since 1970 would have grown over time. Think of it like a laser pointer that an investor is using to hit a desired target. The red and blue areas illustrate the range of portfolio growth for every investing timeframe we have data for. Some portfolios have the precise aim of a sniper rifle while others have the wide spread of a shotgun, and by studying the range of results you can get a good feel for how suitable a portfolio might be for meeting your important life goals.

When playing with the chart, you have the ability to change the starting portfolio value and it will adjust the results accordingly. In addition, changing the investing timeframe will sample the results and display various portfolio values at the bottom.

Note that the Y-axis is logarithmic. This represents percent changes as equal distances and helps visualize constant growth as a straight line rather than an exponential curve.

Calculations

Baseline Return

The baseline return is the 15th percentile return that marks the border between the dark and light red areas on the chart.  I personally use this number for my own financial planning as a conservative return excluding the worst outliers.

Average Return

This is the return for the average historical investor.  It uses the average return since 1970 and grows it over the specified timeframe at the same average amount per year.

Stretch Return

The stretch return is the 85th percentile return that marks the border between the dark and light blue areas on the chart.  While the odds are against you personally earning that return, optimistic investors may find it helpful for setting a realistic upper bound on their projections.