ProFolio

The random variation of monthly or annual asset returns conform to a probability distribution known as the normal (Gaussian) distribution or bell curve. The probability distribution for the asset is described by its average return, or mean, and its volatility, or standard deviation. Standard deviation is the square root of the average of the squared deviations from their average value and is a measure of the dispersion of the data. A low standard deviation means the data is

In general, there is a correlation between increasing risk and increasing return. In order to get a higher annualized return, you will generally get higher annualized volatility, or risk, as well. Below is the annualized real return and annualized volatility for various assets for the time period shown. Real return subtracts inflation from the annual return to better represent the underlying asset's actual return. It also allows for better comparison between periods of tim

Volatility is a statistical measure of the variability of returns in a given asset or index. Volatility of returns is extremely important in calculating the probability of a future value of a portfolio, such as a retirement portfolio, which is used to generate an income stream. For example, when using a specific return, without factoring the affects of volatility, a retirement account may have an exact 100% chance of meeting a specific goal. Factoring the effects of volatil

Passive portfolios rely on historical performance for their relative weighting of assets. To the extent that future returns match historical averages, the portfolios perform as expected. The big 35 year bull market in bonds from 9/81 through 7/16 that saw yields on the 10-year US treasury fall from 15.32% to 1.50% skewed passive portfolios weightings in bonds such these portfolios have higher allocations to bonds than future bond performance would indicate. Bond returns for