Portfolio Allocation Calculator

Calculates historical compound adjusted returns (real and nominal) for portfolios consisting of all stocks, all bonds, and mix of both at 10% increments.
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Related to this calculator, check out our Retirement Withdrawal Calculator and Saving For Retirement Calculator.

This calculator builds 12 portfolios of varying stock and bond percentages and runs them from the start year to the end year. It computes the total return of $1000 and uses that to determine the following for each portfolio:

  • The Compound Adjusted Growth Rate in both real and inflation adjusted terms.
  • The standard deviation, which tells you how much volatility happened, higher values mean it moved more. Typically bonds have lower volatility than stocks, so they are considered less risky.
  • The worst 3 year run and the worst 5 year run. 
  • Returns include dividend reinvestment.

What this Calculator Means by Stocks and Bonds:

Stocks = S&P 500
Bonds = 10 year treasury bills

Compound Returns Not Average Returns:

Average returns are not computed (or meaningful) because with investing the sequence of returns impacts the final balance. 

Consider a portfolio with returns of +15%, -10% and +25%.  The average return is 10%, the final balance is +29.3% and the compound annual growth rate is 8.96% (eg a CD yielding 8.96% per year would be equivalent not counting risk).

Portfolio Allocations from Aggressive to Conservative:

  • All Stocks - most aggressive
  • 90% stocks, 10% bonds
  • 80% stocks, 20% bonds
  • 70% stocks, 30% bonds
  • 60% stocks, 40% bounds
  • 50% stocks, 50% bonds
  • 40% stocks, 60% bonds
  • 30% stocks, 70% bonds
  • 20% stocks, 80% bonds
  • 10% stocks, 90% bonds
  • All Bonds - least aggressive

Notes on Inflation:

This calculator finds the real value of the final balance in starting year dollars, and computes the real compound growth rate. This is useful because inflation has fluctuated over the course of history and that eats into actual purchasing power. Always look at REAL returns!

This calculator computes inflation adjusted (real) values per the US CPI using the provided start and end year.  This is particularly insightful as you can see the difference between the return on paper and the return in terms of how many widgets that money can buy.

Inflation was high in certain periods, like the 1970's, where returns look good, but in real terms they were terrible.  Almost all financial tools use nominal values because a) people forget to factor for inflation, b) it makes the numbers look better due to the inflated returns driving up the average.

Historical Data Used:

The data this calculator uses can be found here.

Past Performance Does Not Indicate Future Results:

Again, this calculator does backtesting. Past performance does not guarantee nor indicate future results. These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown.

DISCLAIMER: This calculator is provided for educational purposes and should not be considered financial or investment advice. We have checked the equations and code used and we think they are right. However, we offer you no guarantee of accuracy. If you find a bug please let us know so we can fix it for you!

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Comments (8):

Default Avatar Alan Davis Dec 20 2020 17:36 UTC

I love this. Well written. Much appreciated. How would I project or review private foundation returns, factoring in a 5% or 7% annual payout?

wealthmeta-admin Wealth Meta Admin Dec 20 2020 18:37 UTC

Alan - not sure what you mean by private foundation returns? Check out our Saving for Retirement Calculator and Retirement Withdrawal calculator for more ideas.

Default Avatar JB Jul 1 2021 15:12 UTC

Your comment: "Average returns are not computed (or meaningful) because with investing the sequence of returns impacts the final balance"....is somewhat misleading (to me).
Take a beginning balance of $1,000 and apply your example rates (+15%, -10% and +25%)...apply them in any order and the outcome is still $1,293.75.

Isn't the arithmetic average used when computing standard deviation? Am I missing something?

wealthmeta-admin Wealth Meta Admin Jul 1 2021 17:46 UTC

JB - correct, the average goes into the standard deviation.

As for average return vs CAGR, consider a 100% return followed by a -50% return. The average is 25%, but the resulting balance is unchanged. The compound adjusted growth rate is 0%, which is what the investor really cares about.

Another example: -50% return, then a positive 50% return. The average is 0%, but the resulting balance is -25%!

Default Avatar IB Nov 4 2021 19:49 UTC

Excellent tool. I am confused when you say that "bonds = 10 year treasury bills" because e.g. for the portfolio consisting of "all bonds" during 2019-2020 your diagram gives real return of 9.8%, which surely cannot be correct. 10 year t-bills have very small recent returns.

wealthmeta-admin Wealth Meta Admin Nov 4 2021 20:09 UTC

@IB -> bonds have appreciated due to all the rate cuts. The overall bond return includes the yield plus market value due to changes in interest rates. When rates drop, existing bonds go up in value.

Data source is here: http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/histretSP.html (scroll down to the bottom, look at 4th column (US T. Bond).

Default Avatar JB Nov 28 2021 16:13 UTC

To me, the CAGR is a backward looking statistic, ie, ...this is how I got here. My question is...where am I going...such as my retirement portfolio balance projections. Since volatility is such an important factor in analyzing my portfolio choices/balances, using the most accurate rate is very important. It appears the arithmetic average is more realistic. Sorry if I'm missing the point...not trying to be argumentative, just trying to learn.

...keep up the good work.

wealthmeta-admin Wealth Meta Admin Nov 29 2021 18:52 UTC

@JB -> It appears the arithmetic average is more realistic.

The arithmetic average is a misleading stat. See the above comment from Jul 1st 2021. Compound adjusted return is best for comparing sequences of returns apples to apples. In reality there is no "forward looking" indicator.

Std Deviation is a way to get at volatility. Stocks tend to have higher volatility and higher returns, while bonds have lower volatility and lower returns. That is the trade off, at least when we look at historical data. Past performance does not guarantee nor indicate future results.

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