Estimated 2015 Performance of BlackRock Diversified Portfolio

Regular readers know my favorite investment chart is the BlackRock 20-year sector performance.  It details the relative performance ranking of asset classes on an annual basis as well as the performance of an easily replicated low-cost diversified portfolio comprised basically of 65% stocks, 35% bonds.  As can be seen by referencing the above link, the diversified portfolio returned 8.7% on an average annualized basis over the 20-years ended 12/31/2014.

The diversified portfolio allocation is an appropriate benchmark for many individuals in their 40s and even early 50s, depending on their specific risk tolerance.  The chart contains sufficient data, however, to construct a benchmark and analyze performance for any specific allocation; and, in fact, the allocation can be changed over time using the data in the table--as it should be as an individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term, after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Below is an update showing the estimated performance of the diversified portfolio's sectors for the 12 months ended 12/31/2015.  Overall, the portfolio returned approximately -.03%. This was a year pundits labeled "violently flat."  Although there were big up and down moves, well-diversified portfolios tended to be unchanged.

For the 12-month period, sector performance was mixed with small growth stocks doing best, followed by the investment grade bond market which eked out a small gain.  Small cap value stocks did especially poorly.  Commodities, including oil, had an especially horrendous year and were responsible for weighing down the broad averages.

Weight (%)	Fund	Return (%) 12 months ended 12/31/2015
35	AGG (Barclay’s Aggregate Bond Index)	+0.48
10	EFA (EAFE Index)	-1.00
10	IWM (Russell 2000)	-4.47
22.5	IWF (Russell 1000 Growth)	+5.50
22.5	IWD (Russell 1000 Value)	-3.97

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.

Year-to-Date Performance - 6/30/2013

Source:Capital Pixel

My favorite investment chart is the BlackRock 20-year sector performance.  It details the relative ranking of asset classes as well as the performance of an easily replicated low-cost diversified portfolio comprised of 65% stocks, 35% bonds.  The portfolio returned 12.2% over the 12 months ended 12/31/2012 and 7.9% on an average annualized basis over the past 20 years.

The diversified portfolio allocation is an appropriate benchmark for individuals in their 40s and even early 50s, depending on risk tolerance.  The table contains sufficient data, however, to construct a benchmark for any specific allocation; and, in fact, the allocation can be changed over time--as it should be as the individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Here is an update showing the approximate performance of the diversified portfolio for the 1st six months of 2013:

Weight	Fund	Return (%) 6 months ended 6/30/2013	Expense Ratio
35	AGG  (Barclay’s Aggregate Bond Index)	-2.54	.08
10	EFA (EAFE Index)	2.80	.34
10	IWM (Russell 2000)	15.36	.23
22.5	IWF (Russell 1000 Growth)	11.43	.20
22.5	IWD (Russell 3000)	15.62	.20

  The overall return of the diversified portfolio was approximately +7.01% over the first 6 months of the year.

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.

Performance - 1st Quarter 2013

Source: Capital Pixel

My favorite investment chart is the BlackRock 20-year sector performance.  It details the relative ranking of asset classes as well as the performance of an easily replicated low-cost diversified portfolio comprised of 65% stocks, 35% bonds.  The portfolio returned 12.2% over the 12 months ended 12/31/2012 and 7.9% on an average annualized basis over the past 20 years.

The diversified portfolio allocation is an appropriate benchmark for individuals in their 40s and even early 50s, depending on risk tolerance.  The table contains sufficient data, however, to construct a benchmark for any specific allocation and, in fact, the allocation can be changed over time--as it should be as the individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Here is an update showing the approximate performance of the diversified portfolio for the 1st quarter of 2013:

Weight	Fund	Return (%) 3 months ended 3/31/2013	Expense Ratio
35	AGG  (Barclay’s Aggregate Bond Index)	-0.11	.08
10	EFA (EAFE Index)	5.11	.34
10	IWM (Russell 2000)	12.39	.23
22.5	IWF (Russell 1000 Growth)	9.49	.20
22.5	IWD (Russell 3000)	12.22	.20

The overall return of the diversified portfolio was approximately +6.5% over the first 3 months of the year.

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.

How to Calculate Time Weighted Return

Bowser in the Snow

DIY investors need to know how their investments are performing. Many don't. I know because I ask. And when I do, many times, I get a non-comprehending look back. Some of you know that I get on the soap box from time-to-time and rant and rail about knowing investment performance. Too many times I've seen people say their advisor is doing great because he or she made him x number of dollars in the last 3 months. It seems to be news to some people that making 6% when the market or benchmark makes 8% is actually not a good thing. I know it's percentages, and I know percentages are about the point where a goodly percentage (see can't get away from it!) of the population started to hate math; but it is important to deal with them  to assess performance.

Over decades, a small under-performance can subtract a lot  from a portfolio.

Thankfully,  the portfolio calculation is getting easier by the minute. The technology that does all the work is spreading. In fact, a recent post on Schwab's Performance Calculator described how easy it is to get performance for both portfolios and benchmarks at their site.

Still, as a member in good standing of the "although I can multiple 2 numbers using a calculator it is still worth knowing how to do without a calculator" fraternity, I think those investors not totally allergic to math should know how to calculate performance. Again, with today's technology this is easy.

To begin, pick out the accounts you need to do the calculation for. This is easy on most discount brokerage sites. For example, if you have 5 accounts (2 brokerage accounts, a Roth IRA, and 2 traditional IRAs) and you just want to track performance for the IRAs, you can set up a grouping for these 3 accounts and call it "IRAs" or even "My IRAs"(pretty clever naming, huh?). If you want, of course, you can do the calculation for all accounts.

If there are no additions or withdrawals to the accounts, all  we need to do is divide the ending portfolio value by the beginning value. For example, if the accounts totaled $1,000 and now are at $1,200, we've made 20%--we're doing great!

Actually not so fast - hold the smiley face. If the benchmark (passive portfolio we are comparing ourselves against that is typically made up of market indices) is up 30%, we actually haven't done that great.

But what about cash in and cash out? Maybe we deposited $200 into one of the IRAs! This is where the concept of time-weighted return (TWR) comes into play. The trick is to calculate return to the point before the deposit and then calculate return starting from the point after the deposit and multiply them. This is called linking. This approach measures how the investment performed and is independent of the cash flows.


Some Math

Let's look at a simple example:

Start with $1000 and assume it grows to $1150, at which point you put in $300 and it grows to $1725. What is your TWR?  Easy:
1150/1000 = 1.15
1725/1450 (we've added the 300 deposit to the 1150) = 1.19.
Multiply and get 1.3685 and the TWR is 36.85%.

To go one step further, suppose this was over a 2-year period. Then you may want to convert to an average annualized return. This is easy:  just take the .5 root of 1.3685 and get 1.169. Thus, on  an average annualized basis, you made 16.9%.

A little bit of thought reveals that some care needs to be taken when looking at TWR. Suppose you start with $1,000 and it increases to $1,200, at which point a deposit of $10,000 is made and at the end of the period the portfolio is $11,200. You made a 20% return on the smaller amount and a 0% return once the $10,000 was in the account. 

For my clients, I handle all of this very simply. I get daily valuations of portfolios. This actually only takes a few minutes a day. Then at the end of the month, I look at the history of the accounts (again only a few minutes); and if there are withdrawals or additions, I make the adjustments. If the client is with Schwab, of course, I don't have to worry about any of this.

Determine Return on Assets With Schwab Application

How to calculate performance of a portfolio is a question I get quite often. Many times I go through the calculations for time weighted return; but, by looking at peoples' faces, I can tell they don't find this a lot of fun.

But I stress the need for DIY investors to understand performance and to compare against a benchmark. Well, Schwab has put it all together, including benchmark comparisons. Your broker may have a similar freebie online. It is why I urge people to check out all the tools at  their broker's site and putter around a bit.

Let's see how easy it is with Schwab to get performance info.

In previous posts, I showed how  to check out Schwab's models. Getting a model, i.e. deciding on an asset allocation, is where investors should put their effort. They should select a model that fits their risk profile, i.e. one they can pretty much stick with through thick and thin. Many would agree that the biggest mistake many investors made over the past few years was bailing out in the downturn and not participating in the recovery.

 The  model you pick is important for another reason - it will be your benchmark. It will be the ruler you measure performance against to ensure you are staying in line with the market (or "beating the market" if that's your goal).

Source: Schwab CLICK TO ENLARGE

If you're on Schwab, click the "Portfolio Analysis" tab on the entry page. At this point, following previous posts, you have set up a portfolio combining your accounts. The first three items on the graphic to the left have drop-down lists. Check them out. If you have identified various sub-groupings of your accounts and selected models, you can easily examine their performance. Run the report by clicking "Go" and this is what you get:

Source:Schwab CLICK TO ENLARGE

Notice performance for the portfolio is over various periods. You can set the periods however you want. At the bottom is the return on the benchmark. In this case, the benchmark was Schwab's "moderately conservative" model.

A footnote immediately below the table specifies the benchmark as "Moderately Conservative was composed of 50% Barclays Capital Aggregate Bond (Fixed Income), 5% Russell 2000 (Small Cap Equity), 25% S&P 500 (Large Cap Equity), 10% MSCI EAFE (International Equity), 10% Citigroup 3 month US T Bill (Cash Investments)."

This, again, is one of those situations where it takes considerably longer to explain than  to do. At the end of the quarter, when you are reading financial news and it talks about the markets, you can, in a few minutes, go online and see your performance.


It goes without saying that this only touches on what the investor can do with this app. For example, there is a nice graph below the table after you have run the report that shows the progress of the account.

It is my understanding that this may not have been made available to all Schwab clients and it may be in the latter stages of testing. If you have it, again, play around with it. It may be exactly what you are looking for. If you don't have it, make a phone call and request it.

Finally, the DIY investor is getting to the point where he or she has necessary tools to manage investments without it costing an arm and a leg.

I am not affiliated with Schwab and present this for informational purposes only.