Correcting Misleading Portfolio Illustrations Consumers Often Face

Craig Israelsen
Thursday, April 30, 2020 4PM EST
Live CPA
Program Id: 925971027
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This webinar addresses two misleading portfolio illustrations investors commonly face and introduces an "Almanac Of Asset Allocation."

The Almanac is a an in-depth review of the past 40 years of performance for seven major asset classes and three diversified, multi-asset portfolios. Unprecedented economic crisis spawned by the Coronavirus makes this analysis of diversified portfolio returns important and urgent.
An objective of this webinar is to help advisors avoid two misleading portfolio illustration mistakes investors commonly face:

1. Americans invest for retirement monthly but portfolio projections typically assume a lump sum investment, which produces a very different investor experience. The reality is that very few 401(k) and IRA accounts are lump-sum investments and it's important for advisors to show clients the difference.

2. When an investor is in the withdrawal phase of retirement and is decumulating assets, the performance characteristics of a diversified portfolio are much more sensitive to the “sequence of returns” whereas a lump sum investment (the standard industry assumption) is not affected by sequence of returns. Presenting a more accurate view of the returns that investors have experienced based on monthly investing is one of the learning objectives of this one-credit webinar for CFP professionals as well as CPA financial planners and private wealth managers, who are CFA charterholders.

A spreadsheet for illustrating retirement portfolios is used in this class is available for A4A members  to buy for only $250 and that includes updates. The spreadsheet is enables a advisors to illustrate how different withdrawal and expense assumptions affect portfolio balances over the long run. With returns on stocks, bonds and the rate of inflation so low currently, the impact of lower portfolio expenses is particularly useful to illustrate to clients and prospects. Play the two-minute video above for a demo of this feature.  

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Craig L. Israelsen, Ph.D., provides A4A members monthly classes on low-expense investing. Craig's taught family financial management at universities for over two decades, and his research for practitioners has been published monthly in Financial Planning magazine since 1996. He's currently Executive-in-Residence in the Financial Planning Program at Utah Valley University. If you're paying a TAMP or custodian for managed portfolios, Craig's classes can lower your fees and enable a business model better for your clients and you. He has partnered with A4A and leads classes monthly.



Q&A: Low Expense Portfolio Management Best-Practices

(May 2, 2020) Dr. Craig Israelsen's April 30 CE webinar received a 92% rating on a scale of 100. Below are answers to questions from A4A members who attended Thursday's live session.

1. Is REIT lump sum better due to higher dividends for REITs? Monthly investing wouldn't capture all of them.

Good thought.  That could likely be a factor if dividends are paid out quarterly which they are in the case of VNQ.


  1. Slide 25: isn’t this more a product of time value of money calculations than sequence of returns...meaning time is the greater factor?

Yes, the time impact on return is more pronounced when lump sum investing.  But, when monthly investing does outperform it tends to occur when there are higher returns in the latter months of the year.


  1. Assumptions on slides 39 and 40?

RMD-based withdrawals (starting at age 72).


  1. Wouldn't the 3 yr losses be greater also to bring down the annual return?


Not certain which slide your question is referring to.  But, as shown below, the Aggressive portfolio had a much larger “worst-case” 3-year return than the Conservative portfolio.







60% Fixed Income

30% Stock

10% Diversifiers

40% Fixed Income

40% Stock

20% Diversifiers

20% Fixed Income

50% Stock

30% Diversifiers

Average 3-Year Return

(445 rolling 36-month periods)




% of Rolling 36-month Returns Positive




Worst 3-year % Return







Have you run any simulations about lump sum versus monthly when a person has a lump sum and could go either way? The remaining funds would be invested in cash if going with the monthly options. (Inheritance, for example, when an investor might want to do dollar cost averaging.)

Great question.  This is a relevant scenario for a person who inherits a big chunk of money.  I have looked at this in the past.  The general finding is this:  lump sum investing will dominate in terms of account balance growth as the time period of the investment is longer.  The table below (from the Almanac) illustrates this.


Moderate Portfolio

Analysis from 1980-2019

Monthly Investment

Lump Sum Investment

Largest / Average / Smallest Ending Balance After 12 Months

($100 monthly vs $1,200 lump sum)

1,460 / 1,257 / 889

1,672 / 1,308 / 818

Largest / Average / Smallest Ending Balance After 36 Months

($100 monthly vs $3,600 lump sum)

4,978 / 4,121 / 2,565

6,536 / 4,662 / 2,721

Largest / Average / Smallest Ending Balance After 120 Months

($100 monthly vs $12,000 lump sum)

25,916 / 18,237 / 11,408

48,280 / 27,539 / 16,274



Inflation was higher in the earlier investing period (1980's) when there were fewer dollars at risk by investing monthly.  Later during the investing period when there were more dollars at risk, the inflation rate was much lower.  This accounts for the higher after-inflation amounts for the monthly investing compared with the earlier lump sum investment.

Good insight.


Slides 17, 18, 19: Isn't there a 5th answer? Most people begin investing for their first time right then, so there would be their "prior year" money earning the Second answer + new "investing monthly" money, which is the 4th answer. Further analysis would be a 5th answer, which is a combination of Second answer + Fourth answer.

Yes, you are exactly right.  Very good point.


Clients are going to be more interested in how many of those 3 year rolling returns were negative vs positive for each model. 

See table above in question 4.


Is getting down the mountain more dangerous. If so, why?

Yes, for several reasons.  A large loss experienced by the portfolio during the first 3-4 years after withdrawals begin can damage the potential longevity of the portfolio.  Secondly, the retiree can no longer add money to the portfolio (assuming they have truly stopped earning money in retirement).  Third, a young investor can let time heal their portfolio, whereas a retiree does not have time on their side.


Craig, As for the Portfolios and Lump Sum with Inflation, maybe the real returns were lower because of the runaway inflation of the 1980s?

Yes, inflation during the 70s and 80s was far higher than now.  The entire lump sum investment bore the brunt of the inflation in the 80s, whereas the monthly investment was still a relatively small amount of money at that point.


Craig, Thanks for that.  I will start using Physical Distancing, which is a correct description.

does this work the same for an indexed product, i.e., IUL or IA, because each option is a 12 month contract?

Yes, the mechanics would still be the same (except that the floor and ceiling of the indexed product would dampen the effect).


How much does the almanac cost?



More than 50 hours of CFP® CE credit and more than 100 hours of Investments & Wealth Institute® credit on replays available 24/7 to paying members ($120 annually) of CPAs are eligible to receive CPE for attending live webinars only. To learn how to receive continuing professional education credit viewing webinar replays, please see our detailed instructions.

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Interesting information

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excellent research. lot's to comprehend in an hour segment

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