How many years historical data to use when calculating return avg and std dev

[harkdh]

I'm right at retirement, age 62, and want to fine tune my portfolio model by entering actual return average and standard deviation specific to my portfolio. I learned how to make the appropriate calculations but have two questions;

1) In my situation, how many years of historical data should be used to calculate weighted average return and the creation of the covariance table?... 5, 10, or more?
2) If, for example, the answer is 10 years but one of my funds does not go that far back, how do I populate the data for the missing years, benchmark data for the fund's category maybe?

Also, I'm using the Additional Cash Flows table to make my Annual Retirement Spending based on age by using the Other Expenses category (overrides value on the the Plan Information screen). What should I set COLA to for these rows, No COLA or Track Inflation?

Thanks

[jimr]

I think if you ask 5 people how to do this you'll likely get 5 answers. I like to use a tool developed by someone on the Bogleheads.org forum called Simba's backtesting spreadsheet. The spreadsheet has historical returns for lots index funds that track common asset classes. You can enter your portfolio asset allocation and the spreadsheet computes the historical return/std deviation for the portfolio. If it doesn't have data on a specific fund, I just pick something that seems like a close match that it has data for.

https://www.bogleheads.org/wiki/Simba%2 ... preadsheet

In terms of adding other expenses, it sounds like you understand the big picture, but in case it's confusing, cash flows that you put in additional inputs are in addition to the cash flows on the main page, not instead of them. It's a good idea to check out the year-by-year detailed view tab after you run the planner to make sure it's doing what you expect. (hint: click the show more detail radio button on the top right of the window, then right-click on any column header and select show all columns to see all the year-by-year output data that's available. Also, right click on any table cell to get an option to export/copy the data for use in excel).

For the COLA, that's up to you and it depends on if you want the expenses to keep up with inflation. Usually track inflation makes the most sense for most expenses, but there may be circumstances when you'll want to do something else. For example, a mortgage payment is usually fixed in dollars, so you'd usually enter something like that as a "no cola" cash flow. Some people think medical expenses will increase faster than inflation, so they break those out as a special "other expense" in additional inputs and set the cola type to fixed and set the rate to 5% of 6% instead of just the standard inflation rate. These are just a couple of examples, but hopefully they help.

There's a bit more on COLA stuff here:
https://www.flexibleretirementplanner.c ... al-inputs/
Jim

[harkdh]

I like to use a tool developed by someone on the Bogleheads.org forum called Simba's backtesting spreadsheet

Dang! I searched for such a spreadsheet before learning how to build my own. But the exercise helped my understand the importance of standard deviation in a portfolio. Thanks for all the info.