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.

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

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.

Taxes and Inflation:

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:

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.

Roll over 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 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 button. You will then be able to compare the portfolios. See expanded instructions below. 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

*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.