How confident can we be in past performance?

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 …

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:

 What were the nominal returns of the S&P 500 and 4-Fund Combo?
 What were inflation adjusted (real) returns?
 What were tax rates in 1969 compared to 2019?
 What were the 1929-1932 losses of the S&P 500 compared to the 4-Fund Combo?
 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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