Portfolio Simulator
Click the row headings on left to review information about each heading, which will
appear in this space.
Areas in gray will calculate automatically.
You can input your own data from your current portfolio(s) in the white data boxes.
Click on the IFA portfolio that was recommended at the end of your Risk Capacity™ Survey. You will see back tested data
from the last 50 years. Click the "Calculate "button. You will then be able to compare
the portfolios.
If you need assistance, please call an index funds advisor at 1-888-643-3133.
"Odds are, you don't know what the odds are." - Gary Belsky and Thomas
Gilovich, Why Smart People Make Big Money Mistakes
"Chance favors the prepared mind." - Louis Pasteur
Expected Risk:
What is the Annual Expected Risk (standard deviation) based on at least 50 years
of past data? IFA index portfolio data is 50 years simulated data. (Jan 1958 to
Dec 2007)
Note: Actively managed mutual funds have an average 10 yr standard deviation of
about 19%. See Efficient Portfolios
Expected Return:
What is the Annual Expected Return (%) based on at least 50 years of past data?
IFA index portfolio data is 50 years of simulated backtested performance data (Jan 1958 to Dec 2007.)
A maximum management fee of 0.9% and the current DFA expense ratios have been deducted
from the returns of the index portfolios for the entire 50 year period.
Note: The default number of 3.7% in OTHER column is based on the Dalbar Study. You
can alter that number. Updated in 2007,
the DALBAR study found that during the 20-year period from 1987-2006, the
average equity mutual fund investor earned returns of only 3.7% per year, while
the S&P 500 returned over 12.2%. This is before inflation, which was 3.0% annualized
over this period and taxes which may be estimated at 2.7% in taxable accounts.
Fees & Expenses:
What are the Annual Mutual Fund Fees (%), commissions, loads and Advisor Fees (%)?
You can also add a % to be deducted from your account for future withdrawals, like
5% or 6% per year.
Note: The average annual mutual fund fees are 1.6% and the average annual
fees for financial advice is 1.4%, or 3.0% total. Commissions average 1
to 2%, loads average 4.5% and transactions costs are 0 to 3%.
Schwab transaction fees average 0.20%/yr. based on $100,000 invested in Portfolio
90 through 100 over 10 years. For Portfolio 85 or lower, it would be 0.24%.
(sources: Morningstar, Money Magazine and Schwab)
DFA current expense ratios and IFA fees of 0.9% are
deducted from the returns in the backtested performance data, see bottom
of page.
What is the estimated annual percent taxes for your entire portfolio? We would estimate
2.7% or more of total assets for actively managed equity funds. Tax-managed index
funds result in very low taxes, for example:
|
Portfolio # |
Tax Impact |
|
Portfolio 100 |
0.99% |
|
Portfolio 95 |
0.96% |
|
Portfolio 90 |
0.93% |
|
Portfolio 85 |
0.96% |
|
Portfolio 80 |
0.98% |
|
Portfolio 75 |
1.01% |
|
Portfolio 70 |
1.03% |
|
Portfolio 65 |
1.06% |
|
Portfolio 60 |
1.08% |
|
Portfolio 55 |
1.10% |
|
Portfolio 50 |
1.13% |
|
Portfolio 45 |
1.15% |
|
Portfolio 40 |
1.18% |
|
Portfolio 35 |
1.20% |
|
Portfolio 30 |
1.22% |
|
Portfolio 25 |
1.25% |
|
Portfolio 20 |
1.27% |
|
Portfolio 15 |
1.30% |
|
Portfolio 10 |
1.32% |
|
Portfolio 5 |
1.34% |
Line 4 in the simulator includes 1.03% of taxes based on Portfolio 70. For other
index portfolios you may adjust the number according to the table above.
If you would like to adjust for inflation, we would suggest adding 3.1% to both
boxes in this row.
Note: Inflation: From 1927 to 2004, inflation was 3.1% annualized. It was
5.2% from 1973 to 2000, 3.4% in 2000, and 13.3% in 1973.
Taxes: If you are in a tax-deferred account, taxes are not paid until withdrawal.
Roth IRAs are pre-paid tax accounts, allowing your assets to grow tax free.
*Ending Wealth:
Ending Wealth is expressed as the average or Expected Return, but is definitely
not a guarantee of future returns. An expected value is simply
the combination of payoff and probability. The Monte Carlo Simulation of Probable
Outcomes and Ending Wealth below is based on the last 50 years of backtested performance
data of indexes (see footnote below). Each time you click Ending Wealth in the Chart
Mode, you will get an indication of just how variable your return could be, in fact
they are random within the approximate standard deviation of the portfolio, which
is adjusted for the time period. Of course, past performance does not guarantee
future performance. The range of ending wealth actually grows with time because
of the differences in compounding at low versus high rates. A reduced standard deviation
in the beginning lowers the range of ending wealth at the end of the time horizon
designated in row 6. It is clearly a wide range at the high end of risk.
Time Horizon:
Enter the period of time that best represents the holding period of your investment.
Then change the period to 1 year, 5 years, 10 years and 20 years and notice how
the chart below changes. The possible outcomes narrows with time and the compounded
return grows. The standard deviation of annualized returns declines by the standard
deviation of one year divided by the square root of the number of years. The histogram
presents the lower standard deviation adjusted for years in line 6.
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