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Portfolio comparison graph
Old 01-31-2015, 08:15 AM   #1
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Portfolio comparison graph

For the last 6 years pre-retirement Ive kept a weekly graph of my portfolio. It probably seems excessive to some but I like playing around with these things and looking back to see how my growth has been.

Now that I'm retired, I want to do something a little different. I want to plot a graph of my projected portfolio balances going forward based on my assumed returns with a second graph over layed on top showing my actual retirement portfolio. I want to see how I'm doing compared to how I expected to be doing as well as see the volatility compared to a constant return. That's easy enough but here's my question:

I'm not sure how to account for differences in my actual portfolio that are due to things I do differently than I had expected rather than due to unexpected returns. In other words, if I projected to spend $6000 per month the first year but actually only spend $5000 per month my "actual portfolio" graph will look better than I anticipated at the end of the year but I think I want any differences between the two graphs to show how much better or worse my portfolio returns have been than expected...not how much more or less money I have than I expected. Does that make any sense? Suggestions?
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Old 01-31-2015, 09:06 AM   #2
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Seems to me you want to track the %, not the absolute.

Every time you measure, add back any withdrawals you did since the last measurement, calculate the %-change and write it down.
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Old 01-31-2015, 04:19 PM   #3
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You can use the XIRR function to calculate your rate of return independent of additions/withdrawals from the portfolio.
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Old 01-31-2015, 05:00 PM   #4
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I guess I didnt explain myself very well. I know how to use the XIRR function including withdrawals. What I have is a weekly graph of my projected portfolio thru the end of the year including monthly withdrawals and assuming a 7.5% return. The line is a straight line since I'm using a constant return. I also have a line on the same graph that shows my actual return including my monthly withdrawals. Hopefully the "actual" line ends the year above the "projected" line, but if it does end the year higher and but its only due to the fact that I withdrew less money than I thought I would or because I hit the lotto and added that money to my portfolio, I want to be able to account for that.

I already have the entire year plotted for the "projected portfolio". I guess the question is should I adjust the "projected portfolio" line when there is an unexpected change in withdrawal or I add money for some reason, or should I just leave it and let the graph show that I have more money than I thought I would and that my retirement plan is working and it doesnt matter why?
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Old 01-31-2015, 05:29 PM   #5
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Why box yourself in with a linear plan? History gives us a whole range of outcomes e.g. see the FIRECalc spreads. The further out, the more spread.

I see the this as an interative procedure where each year gives another start point. One should define how much and how fast the worst case decline could be. That helps to set the AA and the withdrawal rate.

Personally I've grown fond of the VPW tool presented in another thread here and on Bogleheards.

Hope something I've said here will help.
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Old 01-31-2015, 05:36 PM   #6
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You could create a cash reserve to hold the money you didn't spend but had planned to spend, even if it's just a monthly box on your chart. Of course if it goes negative is that fair also?


I use an accrual-based budget, saving money for various irregular expenses. I project future investment performance by first excluding my accrued savings, as if I had spent it on day one. Makes it easier to spend when I need to, since it was never in the investment projections.
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Old 01-31-2015, 05:59 PM   #7
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If you really want to show the portfolio totals against your projections.... there isn't anything you can do to show what makes up the difference....

Now, if you want to keep track of your initial investment, your earnings and your withdrawals.... you can stack the three numbers...

Say you have $10,000.... you earn $1,000 but plan on taking out $500... if you did not take anything out your projection would show $10,500... your total would be $11,000.... but it would be made up of $10,000, $500 and $500... the first $500 is your net earnings (income minus distribution) and your second would be distributions not taken....


Seems like a lot of work to me with little to no value...
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Old 01-31-2015, 06:58 PM   #8
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Quote:
Originally Posted by utrecht View Post
.... I think I want any differences between the two graphs to show how much better or worse my portfolio returns have been than expected...not how much more or less money I have than I expected....Suggestions?
Hi Utrecht,
I gather you want to see compound annual growth rate (CAGR) without the impact of cash inflows and outflows. A pod caster I follow (J. David Stein) has a video & a downloadable Excel file that does this. He calculates a monthly return from which he calculates annual returns, 3 year annualized and 5 year annualized returns.
Here's the link: https://moneyfortherestofushub.com/performance/
His excellent podcast is called Money For The Rest of Us.

Good luck!
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Old 01-31-2015, 07:55 PM   #9
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Quote:
Originally Posted by utrecht View Post
... I want to plot a graph of my projected portfolio balances going forward based on my assumed returns with a second graph over layed on top showing my actual retirement portfolio. I want to see how I'm doing compared to how I expected to be doing as well as see the volatility compared to a constant return. That's easy enough but here's my question:
...
Huh?

It sounds to me you want to track yourself against some crystal ball fairy-world expectations.

What's the point? And more importantly, what would you do in response to this measurement?

I could see setting a benchmark on something like a 'couch potato' portfolio, to see if you really can beat it. But to measure against 'expectations'? What will that tell you? That your expectations were off? Or that your portfolio was off? How do you distinguish?

Suggestion - re-think this.

-ERD50
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Old 01-31-2015, 08:19 PM   #10
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I'd have a projected portfolio column and an actual portfolio column where the projected was based on 6000/mo for the future, and actual monthly expenditures for the past. In other words, go in every month and change the 6000 to whatever the actual was. And you'd grow your portfolio balance based on your monthly expected growth rate.

I'm not sure I would bother with it, though, since I try to only analyse things if there is action to be taken as a result. Speaking from experience, if you want to blow a lot of time on something, try to put an extremely fine point on asset allocation!
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