How confident can we be in past performance?


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By Paul Merriman. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Paul Merriman responds to a podcast listener who wrote: “I am convinced your 4-Fund Combo is a portfolio I want to add to my portfolio. My question is, how confident are you in the past performance of these four asset classes from 1970-2019 AND how confident can we be about any performance?"

Before digging into the specifics of the 4-Fund Portfolio, I re-read a 2015 MarketWatch article (written with Rich Buck) entitled, 10 things you should know about portfolio performance.

To help investors get a sense of how difficult it is to pin down future returns, I looked back at the period from 1928-1969 to see what an investor might learn about risk and return from these 4 asset classes. Questions to which I sought answers were:

  1. What were the nominal returns of the S&P 500 and 4-Fund Combo?
  2. What were inflation adjusted (real) returns?
  3. What were tax rates in 1969 compared to 2019?
  4. What were the 1929-1932 losses of the S&P 500 compared to the 4-Fund Combo?
  5. Is the commitment to build the portfolio for future income, build the portfolio for present income, or build the portfolio for family and charities after your death?

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