Goal tracker

Goal Tracker projects the hypothetical performance of a portfolio using an asset allocation strategy and monitors how likely you are to achieve your goal. You can make adjustments to your inputs - such as monthly contribution amount, goal target date, the cost or outflow associated with the goal - and see how the likelihood of achieving your goals changes.

Why run simulations?

The future is unpredictable. Markets are volatile and future portfolio value can vary significantly, which is why it is important to consider several different return paths that your portfolio can take. Some paths will result in performance that exceeds expectations, while other paths may result in performance that disappoints. Goal Tracker uses a commonly used statistical simulation technique called Monte Carlo, to simulate a range of paths for portfolio performance, based on long-term return estimates and annual volatility around those estimates.

Goal tracker assumptions

One of the inputs for the Goal Tracker tool is an expected return and risk estimate of the underlying portfolio. To represent the varying return and risk levels of the Asset Allocation portfolios we offer and recommend to clients, we use hypothetical return estimates of 9% (for an aggressive asset allocation strategy), 7% (for a moderate asset allocation strategy) and 5% (for a conservative asset allocation strategy) and volatility estimates of 14%, 10%, and 7% respectively. Note that these numbers are not based in any way on the realized return and risk numbers of our Asset Allocation portfolios, and projected hypothetical portfolio values could differ significantly from the actual performance of any of our Asset Allocation portfolios.

To arrive at these hypothetical return and volatility estimates, we started off with the 10-year return and volatility estimates of the iShares Core Aggressive, Core Growth and Core Conservative ETFs1 at the time of writing this paper. (We selected these three ETFs because they are the benchmarks we use in managing and monitoring the performance of our Aggressive, Moderate and Conservative Asset Allocation portfolios). However, we felt that the realized Sharpe ratio for these benchmark ETFs over this 10-year period may not be sustainable going forward, since the last decade has been one of lower volatility and higher returns historically. Therefore, to account for this, we decided to adjust expected return estimates down, and expected volatility estimates up for our Goal Tracker assumptions. The adjusted lower return estimates (discussed in the previous paragraph) were sanity-checked against the return estimates for the 80/20, 50/50 and 30/70 stock/bond portfolios, calculated by Vanguard using historical data from 1926 to 2017 and with return, risk and sharpe ratio estimates of various asset allocation portfolios calculated by Norges Bank using data from 1961 to 20162. We have assumed annual commissions and management fees of 0.18% in generating the hypothetical return estimates set forth above3.

We may reevaluate and adjust these return and volatility estimates periodically as market conditions change, and will update this white paper accordingly at that time.

Different return scenarios

The Goal Tracker uses Monte Carlo simulations to chart a distribution of possible performance - the future values fan out to represent a range of future portfolio valuations. The top section of the range represents the optimistic case scenarios, while the bottom section of the range represents the pessimistic case scenarios.

Goal tracker tool

The tool displays the likelihood of meeting pre-set goals. It alerts clients that, based on inputs, the chances of meeting their goal are either ‘on-target’ (greater than 75%) or ‘manageable’ (50-75%) or ‘at-risk’ (25-50%) or ‘off-target’ (less than 25%).

Caveats and disclosures

The long-term return estimates used by the Goal Tracker tool are estimates intended to provide a general guideline for the potential returns of an investment in an asset allocation strategy. The projections or other information generated by the long-term return estimates regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results or the realized returns of any of our Asset Allocation portfolios, and are not guarantees of future results. Hypothetical projected portfolio returns assume reinvestment of interest and dividends and do not include taxes or inflation adjustments. Hypothetical projected portfolio values could differ significantly from the actual performance of any of our Asset Allocation portfolios. As such your likelihood of achieving your goals portrayed by the tool may be overstated and unrealistic, if we were to invest in one of our Asset Allocation portfolios.

The tool’s estimates and projections are hypothetical in nature, do not reflect actual investment results for your account, the account of any other Interactive Advisors client, or the realized returns of any of the Asset Allocation portfolios, and are not guarantees of future results. There is no guarantee that you will reach your goal(s), and assumptions not used in this tool and other market developments can affect the probability of reaching your goal(s). Interactive Advisors does not make any representation that any client will or is likely to achieve results similar to these by investing in an Asset Allocation or another portfolio on its platform. The tool’s estimates and projections can vary with each use and over time. These estimates and projections are provided for informational, educational and illustrative purposes and are not intended to constitute and should not be relied on as a full financial plan, comprehensive financial planning, legal or tax advice. Interactive Advisors does not in any way represent that the estimates generated using this tool are based on or meant to replace a comprehensive evaluation of a client’s entire personal portfolio. None of the tool’s projections should be construed as an offer, recommendation or solicitation to buy or sell any security. Past performance is no guarantee of future results, and all investments, including those in the Asset Allocation Portfolios, involve the risk of loss, including loss of principal (the money you invest) and a reduction in earnings.