Portfolio Charts Visualization Tool: Returns vs. Time (Holding Period)

When investing in stocks and bonds, it is important to take a long-term perspective. We’ve all heard that phrase. A new tool called PortfolioCharts.com lets you create charts that make it easier to visualize the relationship between returns and holding periods. Created by a fellow named Tyler, found via The Reformed Broker.

With the Pixel chart, you can customize any asset allocation and see that portfolio mix’s returns over a multitude of timeframes. Here’s the chart for The Swensen Portfolio, which is the closest “lazy portfolio” to my personal portfolio – 30% US Total, 15% Foreign Developed, 5% Emerging Market, 20 US REIT, 15% 5-Year Treasuries, 15% TIPS.

You can see that depending on your starting year, the returns over the next 1-9 year period could be pretty rough. But as long as you held for 10 years or more, you always got a positive real return above inflation. You can also see that the often-promised 5% real returns aren’t always guaranteed, although historically if you held on for 20+ years your odds were pretty good.

You may recall a similar style of chart from the NYT and Crestmont Research which includes additional data going back to 1920:

My favorite style is the Funnel chart:

The Funnel chart shows the changing uncertainty of compound annual growth rates over time. This demonstrates how long you may need to hold a portfolio to experience the average long-term returns it advertises. It also provides a nice snapshot of the range of 1-year volatility.

Here’s the Funnel for the same Swensen Portfolio:

The funnel chart also supports the notion – in an even simpler way – that if you can take a long-term perspective, your risk of losing money should decrease. Here’s a similar chart from the classic investing book A Random Walk Down Wall Street that was one of my early blog posts:

Finally, the Hurricane chart allows you to simulate what would have happened to your portfolio balance if you made annual withdrawals, such as in a retirement scenario.

Warren Buffett is another famous supporter of taking the long-term view. From a recent CNBC interview:

Buffett, who looks to buy stocks or business for their long-term prospects, said recent weakness in the market does not concern him.

“Stocks are going to be higher, and perhaps a lot higher 10 years from now, 20 years from now,” he said, adding that’s why he does not try to time the market.

Hopefully for those investors with a long runway ahead of them, this new tool will help you view your portfolio in a more patient manner. I’ll try to remember it when the next market panic arrives.