PSDS Portfolio Design Inc.
Holly Bare
2152 E Copper Ave, Fresno, CA 93730 / 559-728-4473 / www.raymondjames.com/hollybare/
Portfolio Simulation
NOT FOR DISTRIBUTION
* Hypothetical Estimated Portfolio Values (EPV) reflect all distributions to client and advisor.
Distributions are either a static dollar amount or a percentage distribution based upon
the starting portfolio balance for any given year.
Assessing the impact of portfolio allocation and design on risk and reward
Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Holly Bare is not a registered broker / dealer and is independent of Raymond James Financial Services.
PSDS Portfolio Design Inc.
How the PSDS Tool Works
PSDS (Portfolio Stochastic Design Simulator) is an analytical tool which allows us to simulate the range of potential outcomes of a given portfolio while also exploring the impact asset allocation changes may have on risk and return. The platform can facilitate a rapid re-examination of a contemplated change in an allocation and its potential impact by looking back on what its historical effect could have been.
Our PSDS simulator and platform enables us to investigate portfolio risk-return dynamics over different time periods. We do this to exam how portfolio risk may shift in different economic and market periods. Our standard report focuses on 3, 5- and 10-year periods analyzing portfolio risk-return dynamics in a one million trial simulation for each period.
For each time period we start with a current allocation in each portfolio and run a stochastic Monte Carlo simulation 1000x to generate a mean portfolio Return, Standard Deviation and Sharpe Ratio. This differs from a historical hypothetical as we are looking at a more robust data set of potential outcomes given what historically occurred. The goal is to dive deeper into portfolio risk dynamics. By knowing the SD and Sharpe ratios we can explore mathematically the range of potential outcomes within one or two standard deviations.
We next randomly change the allocation using the same components and rerun the stochastic simulation. This generates a new mean portfolio Return Standard Deviation and Sharpe ratio as a data point.
We perform this function 1000x providing us greater insight into the range of potential outcomes for any given allocation. Analyzing the data helps us in decision making for portfolio design for various risk levels.
In addition, our stored database allows us to "shift" these time blocks covering a wider range of economic periods. We find this useful in reducing the effect an extended trending market cycle can have on historical risk-return dynamics. We find behavioral changes in various allocations as economic periods vary. Studying how different economic periods effect portfolios is useful in examining a robust range of potential expectations going forward.
While the PSDS simulator is a valuable component to our asset management process, it does not tell us which investments to use, rather it provides a metric standard which can be applied to any potential investment. The actual portfolio construct is unique to our practice and yet common in that almost all portfolios are assembled from a combination of the similar investment vehicles but differ in selection and concentration.
PSDS Portfolio Design Inc.
PSDS Definitions Page
18) PSDS Optimum Allocation is the risk adjusted point identified in the algorithm.
19) Standard Deviation for both PSDS Optimum and Current represents the average result of a 1,000 trail Monte Carlo
simulation where allocations were randomly changed within one Standard Deviation.
20) APR (Annual Percentage Return) for both PSDS Optimum and Current represents the average result of a 1,000 trail Monte Carlo
simulation where allocations were randomly changed within one Standard Deviation.
21) Sharpe Ratio for both PSDS Optimum and Current represents the average result of a 1,000 trail Monte Carlo simulation
where allocations were randomly changed within one Standard Deviation.
PSDS Portfolio Design Inc.
Formulas and Assumptions
Defintions
WAPR = Weighted Average Portfolio Return
IPV = Initial Portfolio Value
PV = Portfolio Value
PV# = Portfolio Value end of # shown (PV1 = PV at end of year 1)
TPC = Time Period Chosen
YPID = Yearly Portfolio Income Distribution (Dist. $ to Bucket)
IBA = Initial Bucket Amount
YBDA = Yearly Bucket Distribution Amount (IBA / Yrs chosen)
BA = Bucket Amount
A$C = Annual $ Contribution
A%C = Annual Percentage Contribution
B$C = Bucket $ Contribution (year 1 only)
1) EPV = Estimated Portfolio Value in a given year
Calculation = IPV + WAPR for single year chosen
2) EPV-10 = Estimated Portfolio Value for 10 years
Calculation = IPV + WAPR 10 years back from TPC = PV1
PV1 + WAPR 9 years back = PV2
PV2 + WAPR 8 years back = PV3
…continue through PV10
3) EPV-10 with Reserve Bucket and Annual Distribution
Est. Portfolio Value Calculation = (IPV + WAPR 10 years back from TPC) - YPID = PV1
PV1 + WAPR 9 years back - YPID = PV2
PV2 + WAPR 8 years back - YPID = PV3
…continue through PV10
Est. Reserve Bucket Value Calculation = (IBA - YBDA) + YPID = BA1
BA1 - YBDA + YPID = BA2
BA2 - YBDA + YPID = BA3
…continue through BA10
4) ACC-10 = Accumulated Portfolio Value for 10 years (no additional $ contributed; NOTE - ACC-10 with no $ contribution gets ½ year
WAPR year 1 to approximate 'phase in' of money during year 1, all subsequent years get full WAPR)
Calculation = IPV + (WAPR 10 years back from TPC / 2) = PV1 {with 1/2 yr interest year 1 only}
PV1 + WAPR 9 years back = PV2
PV2 + WAPR 8 years back = PV3
…continue through PV10
5) ACC-10 with Additional $ Contributed (Dollars) = Non-Bucket is annual contributions (NOTE - Annual contributions receive ½ year
WAPR for ALL years to approximate 'phase in' of money during each year)
Calculation = [IPV + (WAPR-10)] + [A$C + (WAPR-10 / 2)] = PV1 {with 1/2 yr interest year 1 only}
(PV1 + WAPR-9) + [A$C + (WAPR-9 / 2)] = PV2
(PV2 + WAPR-8) + [A$C + (WAPR-8 / 2)] = PV3
…continue through PV10
PSDS Portfolio Design Inc.
Formulas and Assumptions
Defintions (continued)
6) ACC-10 with Additional $ Contributed (Percentages) = Non-Bucket is annual contributions (NOTE - Annual
contributions receive ½ year WAPR for ALL years to approximate 'phase in' of money during each year)
Calculation = {IPV + (WAPR-10)} + {[(A%C/100) x 100] + [(WAPR-10/100)] / 2)} = PV1 {with 1/2 yr interest year 1 only}
(PV1 + WAPR-9) + {[(A%C/PV1) x 100] + [(WAPR-9/100)] / 2)} = PV2
(PV1 + WAPR-8) + {[(A%C/PV2) x 100] + [(WAPR-8/100)] / 2)} = PV3
(PV1 + WAPR-7) + {[(A%C/PV3) x 100] + [(WAPR-7/100)] / 2)} = PV4
(PV1 + WAPR-6) + {[(A%C/PV4) x 100] + [(WAPR-6/100)] / 2)} = PV5
(PV1 + WAPR-5) + {[(A%C/PV5) x 100] + [(WAPR-5/100)] / 2)} = PV6
(PV1 + WAPR-4) + {[(A%C/PV6) x 100] + [(WAPR-4/100)] / 2)} = PV7
(PV1 + WAPR-3) + {[(A%C/PV7) x 100] + [(WAPR-3/100)] / 2)} = PV8
(PV1 + WAPR-2) + {[(A%C/PV8) x 100] + [(WAPR-2/100)] / 2)} = PV9
(PV1 + WAPR-1) + {[(A%C/PV9) x 100] + [(WAPR-1/100)] / 2)} = PV10
7) ACC-10 with Bucket $ Contributed = Bucket is one time, year 1
Calculation = IPV + (WAPR-10) + [B$C + (WAPR-10 / 2)] = PV1 {with 1/2 yr interest year 1 only}
(PV1 + WAPR-9) = PV2
(PV2 + WAPR-8) = PV3
…continue through PV10
PSDS Portfolio Design Inc.
DISCLAIMER
Disclaimer: Portfolio Simulations are designed to allow plan sponsors, plan advisors, other financial services professionals, and individual investors to demonstrate and evaluate various allocation strategies in order to report their clients’, or their own financial goals. Investment allocations, results and any other information presented on the report is for research purpose only. There are no guarantees that any of the software will perform this function. The report is provided as general information only, and is not intended to provide investment, tax, legal, financial planning, or other advice. This report is for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security, which may be referred herein. No investment recommendations are made, and customers should evaluate the suitability of each investment for their own holdings on their own or seek professional advice. They are generic in nature and do not take into account your detailed and complete personal financial facts and needs. You alone are responsible for evaluating the information provided and to decide which securities and strategies are suitable for your own financial risk profile and expectations. Consult with your financial, legal, or tax adviser with regard to your individual situation.
Financial estimates are generated by using many assumptions made by the program, clients, advisers, and the user. No person or software program can predict the future with any degree of certainty. No warranty as to correctness is given and no liability is accepted for any error, or omission, or any loss which may arise from relying upon data generated from reports produced by these programs. Information provided by the report could be time sensitive and out of date. There is no guarantee for accuracy and completeness for the contents on the report. Contents are subject to change without notice. There is no guarantee for future results in your investment and any other actions based on the information provided on the report including but not limited strategies, portfolios, performance data and results of any tools.
Forward looking data is subject to change at any time and there is no assurance that projections will be realized. All investments are subject to risk. There is no assurance that any investment strategy will be successful. The projections or other information generated by PSDS Portfolio Design regarding the various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. PSDS Portfolio Design results may vary with each use and over time. The return assumptions in PSDS Portfolio design are not reflective of any specific product, and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific product may be more or less than the returns used in PSDS Portfolio Design.
Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.
Investors should consider the investment objectives, risks, charges, and expenses of an investment company carefully before investing. The prospectus contains this and other information and should be read carefully before investing. The prospectus is available from your investment professional.
Assessing the impact of portfolio allocation and design on risk and reward
"It's a tool not a rule"