Volatility Primer 7: Portfolio Value Plots

The portfolio value plots show the accumulation of both risk and return in the investment account.

The bottom line on the graph below shows two standard deviations below the mean return. The probability of the portfolio being above this value is 97.7%. This line hits zero at age 78, therefore the probability of not running out of money through age 78 is 97.7%.

The second line from the bottom shows one standard deviation below the mean. The probability of the portfolio being above this value is 84.1%. The portfolio has a 84.1%probability of having money through age 90.

The third line up from the bottom, or middle line, shows the mean return. The probability of the portfolio being above this value is 50%. The mean value of the portfolio at age 78 is $825K.

The fourth line from the bottom shows one standard deviation above the mean. The probability of the portfolio being above this value is 15.9%.

The top line on the graph shows two standard deviations above the mean return. The probability of the portfolio being above this value is 2.3%.

 

Disclosure:

The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

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