Investing in the stock market can be a great way to increase your wealth. However, choosing how to allocate your portfolio may be difficult. Portfolio Visualizer is a free investing tool with longitudinal historical data for back-testing and other statistical modeling applications that can help inform your allocations. The platform is not only easy to understand and use, but also provides powerful analytics for the average investor. In this blog post, we provide an overview of Portfolio Visualizer and a beginner’s guide to getting started.
Disclaimer: Please note that I am not being paid to write a review about Portfolio Visualizer and the content below is strictly for educational purposes. Additionally, while Portfolio Visualizer is a powerful planning tool, it does not replace the role of a financial advisor.
Below, we will walk through the steps on how to sign up and get started with Portfolio Visualizer:
Step 1: Sign Up
Portfolio Visualizer offers both free and paid plans, with the free version offering many of the analytical features of the paid plans. Please find the comparison of the plan features under the “Pricing” tab on the homepage:
I recommend starting with the free subscription plan to familiarize yourself with the platform. Click either the “Try Now” or “Start Trial” buttons to get started.
Step 2A: Create a Portfolio and Model Asset Classes
To create your first portfolio, enter a hypothetical allocation and review the historical performance. Start by doing the following:
- Click on the “Backtest Portfolio” tile on the homepage
- Select the “Backtest Portfolio Asset Allocation” link
- Enter the assumptions for your hypothetical portfolio configuration, as seen below:
- Pay attention to your initial amount and your future planned cashflow withdrawals settings: a) contributing a fixed amount, b) withdrawing a fixed amount or c) withdrawing a fixed percentage
- Next, Portfolio Visualizer allows you to enter specific asset classes (e.g., US equities, international equities, fixed income bonds, cash) that you would like to model for 1-3 hypothetical scenarios. Below, we include 3 asset classes for the conventional 60/40 equities/bond portfolio, with US and ex-US equities each representing 30%
After selecting the various asset classes and allocation weights, Portfolio Visualizer will automatically add up your allocation to ensure that it adds up to 100%. Click on “Analyze Portfolios” to view historical results and it will present the “Performance Summary” table which details the initial and final balance, best year, worst year and maximum drawdown for each hypothetical portfolio.
Note: The maximum drawdown is defined as the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. This provides perspective in terms of the maximum potential loss at any given time throughout the invested time horizon, but several studies have shown that if you stay invested for over 10+ years, your chances of losing money are significantly reduced to single digit percentages.
The other important tab is the “Annual Returns” tab below which breaks out the returns by year for the modeled time period. While financial professionals like to highlight that the stock market on average has returned 10% annually, a diversified portfolio has returned slightly less and this return is not guaranteed every year. In fact, the range of annual returns demonstrates the market’s volatility. The point is over long periods of time, the average annual return is roughly 7% when you look at the full-time horizon from 1987 to 2023.
It’s important to note that in recent history, the market has been on a bull-run given low interest rates since 2008 until the Federal Reserve’s hiking of interest rates in 2022. As an FYI, higher interest rates have an inverse impact on the valuation of equities given that the discounted future cash flows become less valuable given higher borrowing cost.
Conduct backtesting on various portfolio allocation scenarios to get a better understanding of the impact of risk and return for different asset classes and then save the portfolios that you want to prioritize.
Step 2B: Back Test A Portfolio Based on Ticker
Much like Step 2A, Portfolio Visualizer allows the user to not only back test asset classes but also individual ticker symbols. To backtest individual ticker symbols:
- On the homepage, click on the “Backtest Portfolio” link instead of the “Backtest Asset Allocation” link.
- For each asset within the hypothetical portfolios, enter the specific ticker symbol
See the example below where we’ve included both tickers for ETFs for the S&P 500, International Equities and total bond market as well as individual stock positions for Apple, Microsoft and Tesla:
You can choose as many or as few as you like. Once you’ve entered your hypothetical portfolio allocations, click on “Analyze Portfolio” and you’ll be able to view similar results as in Step 2A based on the historical performance.
Step 3: Simulate Portfolio Performance
Beyond conducting initial “back testing” on hypothetical portfolios, Portfolio Visualizer also offers advanced statistical models that allow users to generate prospective returns for each portfolio. We will not cover all of the various statistical features, but will cover “Monte Carlo Simulations” to provide an example of forecasted returns. The Monte Carlo Simulation allows the user to specify factors that incorporate future individual needs and economic conditions such as: future cashflow withdrawal amounts, withdrawal frequency, simulated period as well as displaying returns factoring in inflation as well as pre vs. post-tax estimates.
To get started, on the homepage, click on the “Monte Carlo Simulation” link under the “Monte Carlo Simulation” tile. Next, enter your input parameters into the Simulation Model Configuration which we’ve assumed as:
- Initial starting balance of $100,000
- 4% annual withdrawal percentage
- 30-year simulation period
- Show returns in terms of pre-tax basis
- Inflation-adjusted using historical inflation estimates
- Assumes that we rebalance the portfolio annually (which means we maintain the same allocation that we specify for each asset class)
- The tickers below that we are modeling include the total US stock market, total International stock market and the total bond market, respectively as part of our 30/30/40 allocation
Step 4: Run Simulation & Analyze Results
Once you’ve entered your input parameters, click on “Run Simulation” to view results. Please note that the Monte Carlo Simulation results shown represent the results of 10,000 portfolios using available historical returns data for the maximum available time period available for the tickers indicated.
As seen below, the “Performance Summary” table shows the time weighted rated of return as well as the portfolio’s end balance in both nominal and real terms where nominal returns and balance show the portfolio gains / losses without accounting for inflation. The results of the simulated portfolios are structured from the 10th percentile through the 90th percentile of the 10,000 simulated portfolios as seen below:
Step 5: Implement and Monitor
Once you prioritize your portfolio scenarios, implement and review its performance. Be sure to regularly review your portfolio and make adjustments as needed to ensure that it continues to align with your investment goals and risk tolerance. If you have a financial advisor, meet with them regularly to discuss your portfolio. Some common questions to consider may include:
Appreciation
- What allocation across asset classes (e.g., US domestic vs. international equities vs. bonds) will provide the optimal appreciation given my financial needs and across various macroeconomic conditions?
- How might the portfolio allocation evolve near-term vs. long-term time horizon?
- Beyond traditional stocks and bonds, what other asset classes should be considered? (e.g., real estate, gold)
Income and Taxes
- What is the overall income generated from my portfolio, including any cash that is invested in money market / settlement funds?
- How often (e.g., monthly, quarterly) will I get paid?
- How much of my income is taxable vs. tax-exempt and how can this be optimized based on my allocation, where I live (e.g., local state & city income tax treatment) as well as tax-advantaged retirement accounts (e.g., Roth IRA, Roth 401Ks)
Fees
- What are my total fees in terms of % and dollars and how does it vary based on the selection of ETF index funds, mutual funds and stocks in my portfolio?
- What is my annual risk-adjusted return before and after fees for my portfolio allocation?
In conclusion, Portfolio Visualizer is not only an excellent free investing tool to inform portfolio allocation decisions, but it’s also extremely easy and user-friendly to get started for beginners! Don’t take our word for it, check it out yourself. With regards to actual portfolio allocation decisions, please keep in mind that since everyone’s financial needs, risk appetite and situation are different, portfolio allocation is an art and NOT a science. Ultimately, you’ll need to decide what investment allocation decisions are best for you given your own investment goals, evolving market conditions. We hope this tutorial is helpful.
If you are interested in the free investment tools that we use to inform our research and analysis, please check out the following:
- Portfolio back-testing: Portfolio Visualizer
- Stock screener research: FinViz.com
- Company fundamentals analysis: Stratosphere.io
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