Graph of Probability of Running Out of Money
This page of the QPP Contents Guide
goes over Page 10 of the Portfolio Report, the main body of QPP. This guide will describe what the inputs and outputs mean. Also, default settings, if any, are given. Furthermore, links to articles illustrating the specific features will be given.
NOTE: Quantext is not a registered investment advisor. No information in this document should be taken as advice to buy or sell any asset. Any and all information obtained from Quantext is on an "AS IS" basis. Please note that the numbers/tickers used in the QPP screen shots and examples are for illustrative purposes only and are not to be taken in any way as advice.
Page 10 of QPP's Portfolio Report is simply a graph of the information from the chart on Page 4, entitled Probability of Running Out of Money. As a reference, the chart is shown here:
Figure 10a: Statistical projections of probability that the portfolio will be empty (by age of owner.)
The above projections are shown in the graph below.
Figure 10: This shows page 10 of QPP.
Note that the age of the owner in our example is 40 and she plans to retire at age 65.
General Information about this page:
This graph shows several possible trajectories of the portfolio into the future, specifically the 50th, 20th and 10th percentiles (explained in more detail below.) The projections reflect the owner's age, year of retirement, how much she saves, how much she intends to draw in retirement, the owner's assumptions about long term market behavior, and, of course, the projected risk and return of the portfolio. This graph will reflect the use of the Custom Savings/Draw Tool, (which is described in this guide
) if it is used. For more information on the use of this tool, please see the following article: http://www.quantext.com/CostOfVolatility.pdf
If the Custom Savings/Draw Tool is not used, QPP assumes annual savings as specified on page 1 of QPP up to and including the year of retirement (page 1 of QPP), and annual drawing of the specified amount (again, page 1) every year after the year of retirement.
Portfolio Value Over Time:
This graph shows part of the information from the Probability of Running Out of Money chart (from page 4 of QPP), specifically, the median, 20th and 10th projected percentiles.
The value of the portfolio at the given age of the owner.
Age of owner of portfolio.
The blue line (representing the 50th Percentile) shows the portfolio not running out of money when the owner is age 90. In fact, the projetions are showing that in 50% of this owners possible outcomes, this portfolio will grow steadily well beyond the lifespan of its owner.
The yellow line shows the portfolio, again, not running out of money by the time the owner is 90 years old in 20% of the possible projected futures. The chart shows the portfolio is projected to be empty when the owner is 92.
The red line shows the portfolio running out of money by the time the owner is 87 years old in 10% of the possible projected future.