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Back-Tested Performance of the "Multi-Asset Portfolio" Concept
The fundamental (or core) concept behind the 7Twelve portfolio has been tested over a 40-year period from 1970-2009 using 7 of the 12 sub-assets: Large US equity, Small US equity, Non-US equity, Bonds, Cash, REITs, and Commodities. (These 7 sub-assets have performance histories back to 1970, whereas not all of the components in the 7Twelve do). Each sub-asset was equally weighted in the portfolio (14.3%) and annually rebalanced at the start of each year. Taxes and inflation were not taken into account.
The 40-year historical performance of large-cap US equities was represented by the S&P 500 Index, while the performance of small-cap US equities was captured by using the Ibbotson Small Companies Index from 1970-1978 and the Russell 2000 Index from 1979-2009. The performance of non-US equities was represented by the Morgan Stanley Capital International EAFE Index (Europe, Australasia, Far East) Index. US bonds were represented by the Ibbotson Intermediate Term Bond Index from 1970-1975 and the Barclays Capital Aggregate Bond Index from 1976-2009. As of late 2008, all Lehman Brothers indexes were renamed to "Barclays Capital" indexes.
The historical performance of cash was represented by 3-month Treasury Bills. The performance of real estate was measured by using the annual returns of the NAREIT Index (National Association of Real Estate Investment Trusts) from 1970-1977 (annual returns for 1970 and 1971 were regression-based estimates inasmuch as the NAREIT Index did not provide annual returns until 1972). From 1978-2009 the annual returns of the Dow Jones Wilshire REIT Index were used. Finally, the historical performance of commodities was measured by the Goldman Sachs Commodities Index (GSCI). As of February 6, 2007, the GSCI became known as the S&P GSCI.
Portfolio Performance Prior to Retirement (Accumulation Period)
The equally weighted multi-asset portfolio (far right column in the table below) had an average annual return over the 40-year period of 10.45% and a worst one-year return of –27.59%, which not surprisingly took place in 2008. Its worst 3-year cumulative return (%) was –13.30% and happened between 2006 and 2008. Prior to 2008, the worst 3-year cumulative return for the multi-asset portfolio since 1970 was +2.68%. That's how bad 2008 was! These performance figures assume a lump sum investment in 1970 with no additional investments or withdrawals. Taxes and inflation were not accounted for.
In the pre-retirement "accumulation" period, the multi-asset portfolio had long-run performance comparable to the individual equity sub-assets (stocks, REITs, and commodities), but with downside risk (as measured by worst 3-year cumulative return) that was one-third of the risk of the individual equity sub-assets.
Average Annual Returns (%)
Numbers in red indicate negative returns
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE
| Year |
Large US Equity |
Small US Equity |
Non-US Equity |
US Bonds |
Cash |
Real Estate |
Commodities |
Equally Weighted
Multi-Asset Portfolio |
| 1970 |
3.92 |
–17.43 |
–11.66 |
16.86 |
6.80 |
–4.00 |
15.17 |
1.38 |
| 1971 |
14.30 |
16.50 |
29.59 |
8.72 |
4.53 |
15.52 |
21.08 |
15.75 |
| 1972 |
19.00 |
4.43 |
36.35 |
5.16 |
4.24 |
8.01 |
42.43 |
17.09 |
| 1973 |
–14.69 |
–30.90 |
–14.92 |
4.61 |
7.46 |
–15.52 |
74.96 |
1.57 |
| 1974 |
–26.47 |
–19.95 |
–23.16 |
5.69 |
8.35 |
–21.40 |
39.51 |
–5.35 |
| 1975 |
37.23 |
52.82 |
35.39 |
7.83 |
6.08 |
19.30 |
–17.22 |
20.20 |
| 1976 |
23.93 |
57.38 |
2.54 |
15.60 |
5.23 |
47.59 |
–11.92 |
20.05 |
| 1977 |
–7.16 |
25.38 |
18.06 |
3.04 |
5.52 |
22.42 |
10.37 |
11.09 |
| 1978 |
6.57 |
23.46 |
32.62 |
1.39 |
7.67 |
10.98 |
31.61 |
16.33 |
| 1979 |
18.61 |
43.07 |
4.75 |
1.93 |
10.86 |
48.99 |
33.81 |
23.15 |
| 1980 |
32.50 |
38.60 |
22.58 |
2.71 |
12.71 |
33.12 |
11.08 |
21.90 |
| 1981 |
–4.92 |
2.03 |
–2.28 |
6.25 |
15.58 |
17.88 |
–23.01 |
1.65 |
| 1982 |
21.55 |
24.95 |
–1.86 |
32.62 |
11.66 |
20.91 |
11.56 |
17.34 |
| 1983 |
22.56 |
29.13 |
23.69 |
8.36 |
9.24 |
32.17 |
16.26 |
20.20 |
| 1984 |
6.27 |
–7.30 |
7.38 |
15.15 |
10.33 |
21.89 |
1.05 |
7.82 |
| 1985 |
31.73 |
31.05 |
56.16 |
22.10 |
7.97 |
6.50 |
10.01 |
23.65 |
| 1986 |
18.67 |
5.68 |
69.44 |
15.27 |
6.29 |
19.75 |
2.05 |
19.59 |
| 1987 |
5.25 |
–8.80 |
24.63 |
2.76 |
6.13 |
–6.59 |
23.77 |
6.74 |
| 1988 |
16.61 |
25.02 |
28.27 |
7.89 |
7.06 |
17.48 |
27.94 |
18.61 |
| 1989 |
31.69 |
16.26 |
10.54 |
14.53 |
8.67 |
2.72 |
38.28 |
17.53 |
| 1990 |
–3.10 |
–19.48 |
–23.45 |
8.96 |
7.99 |
–23.44 |
29.08 |
–3.35 |
| 1991 |
30.47 |
46.04 |
12.13 |
16.00 |
5.68 |
23.84 |
–6.13 |
18.29 |
| 1992 |
7.62 |
18.41 |
–12.17 |
7.40 |
3.59 |
15.13 |
4.42 |
6.34 |
| 1993 |
10.08 |
18.88 |
32.56 |
9.75 |
3.12 |
15.14 |
–12.33 |
11.03 |
| 1994 |
1.32 |
–1.82 |
7.78 |
–2.92 |
4.45 |
2.66 |
5.29 |
2.39 |
| 1995 |
37.58 |
28.45 |
11.21 |
18.48 |
5.79 |
12.24 |
20.33 |
19.15 |
| 1996 |
22.96 |
16.49 |
6.05 |
3.63 |
5.26 |
37.05 |
33.92 |
17.91 |
| 1997 |
33.36 |
22.36 |
1.78 |
9.66 |
5.31 |
19.66 |
–14.07 |
11.15 |
| 1998 |
28.58 |
–2.55 |
20.00 |
8.69 |
5.02 |
–17.01 |
–35.75 |
1.00 |
| 1999 |
21.04 |
21.26 |
26.97 |
–0.82 |
4.87 |
–2.58 |
40.92 |
15.95 |
| 2000 |
–9.10 |
–3.02 |
–14.17 |
11.63 |
6.32 |
31.04 |
49.74 |
10.35 |
| 2001 |
–11.89 |
2.49 |
–21.44 |
8.44 |
3.67 |
12.35 |
–31.93 |
–5.47 |
| 2002 |
–22.10 |
–20.48 |
–15.94 |
10.26 |
1.68 |
3.58 |
32.07 |
–1.56 |
| 2003 |
28.69 |
47.25 |
38.59 |
4.10 |
1.05 |
36.18 |
20.72 |
25.23 |
| 2004 |
10.88 |
18.33 |
20.25 |
4.34 |
1.43 |
33.16 |
17.28 |
15.10 |
| 2005 |
4.91 |
4.55 |
13.54 |
2.43 |
3.34 |
13.82 |
25.55 |
9.73 |
| 2006 |
15.79 |
18.37 |
26.34 |
4.33 |
5.07 |
35.97 |
–15.09 |
12.97 |
| 2007 |
5.49 |
–1.57 |
11.17 |
6.97 |
4.77 |
–17.56 |
32.67 |
5.99 |
| 2008 |
–37.00 |
–33.79 |
–43.38 |
5.24 |
1.51 |
–39.20 |
–46.49 |
–27.59 |
| 2009 |
26.46 |
27.17 |
31.78 |
5.93 |
0.16 |
28.46 |
13.49 |
19.06 |
| 40-Year Average Annualized Return (%) |
| |
9.87 |
10.64 |
9.49 |
8.33 |
6.01 |
11.04 |
10.01 |
10.45 |
| 40-Year Standard Deviation of Annual Returns |
| |
18.13 |
22.54 |
23.01 |
6.73 |
3.23 |
19.99 |
25.23 |
10.59 |
| Worst 1-Year Return (%) |
| |
–37.00 |
–33.79 |
–43.38 |
–2.92 |
0.16 |
–39.20 |
–46.49 |
–27.59 |
| Worst 3-Year Cumulative Return (%) |
| |
–37.61 |
–42.24 |
–43.32 |
6.15 |
4.22 |
–35.44 |
–39.72 |
–13.30 |
Past performance is no guarantee of future performance.
A rebalanced, equally weighted, multi-asset portfolio produces
superior risk-adjusted performance.
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