For the previous 15 years, buyers have been rewarded for doing one factor properly: proudly owning the S&P 500. Cap-weighted, growth-heavy portfolios dominated returns and strengthened expectations that robust current efficiency would persist. The danger just isn’t what these portfolios delivered, however what buyers now assume they are going to ship subsequent, and the way these assumptions maintain up as soon as the target shifts from beating a benchmark to funding retirement earnings.
When success is outlined by producing constant, absolute returns moderately than relative outperformance, the trade-offs change. Drawdowns matter extra, volatility turns into uneven, and the order of returns can overwhelm long-term averages, significantly as soon as withdrawals start.
Utilizing rolling 15-year information throughout main US fairness types, this evaluation addresses three sensible questions that matter for retirement outcomes:
- How do trailing returns affect future return expectations?
- How typically do totally different portfolio designs meet an 8% long-term return goal?
- How do withdrawals have an effect on drawdown threat as soon as buyers shift from accumulation to spending?
Utilizing rolling 15-year information throughout main US fairness types, this evaluation addresses three sensible questions that matter for retirement outcomes: How do trailing returns affect future return expectations? How typically do totally different portfolio designs meet an 8% long-term return goal? And, How do withdrawals have an effect on drawdown threat as soon as buyers shift from accumulation to spending?
1. Trailing Returns and Ahead Expectations
One of many hardest habits for buyers to interrupt is assuming that current efficiency will proceed, even when “current” means a decade or extra.
Which will sound discouraging for buyers in broad market passive or growth-oriented portfolios, however historical past has additionally proven a greater end result for methods that emphasised diversification or valuation self-discipline, corresponding to equal-weight, worth, or defensive approaches. For these portfolios, wanting again on the final 15 years has traditionally had little bearing on what the following 15 would carry. Even after robust intervals, diversified, value-focused, or defensive quality-oriented types didn’t expertise the identical sharp drop-off in returns that cap-weighted or progress buyers typically confronted.
One potential reason behind this divergence is portfolio development. Cap-weighted and progress portfolios systematically elevated publicity to current winners, magnifying returns throughout robust intervals whereas embedding dangers that solely surfaced throughout market stress. In contrast, diversified, value-focused, or defensive quality-oriented portfolios relied much less on a number of enlargement and extra on elementary drivers, whereas systematic rebalancing trimmed winners and added to laggards. These structural options enforced valuation self-discipline over time and helped mitigate the boom-bust sample that traditionally plagued concentrated progress exposures.
The info confirmed this instinct. As illustrated in Figures 1 to 7, rolling 15-year evaluation confirmed a powerful inverse relationship between trailing and ahead returns for cap-weighted and progress portfolios. Diversified, value-focused, or defensive quality-oriented types, alternatively, exhibited muted cyclicality. In different phrases, the portfolios that seemed most secure based mostly on robust trailing efficiency carried the best ahead threat, and people who appeared “boring” typically delivered extra secure outcomes throughout full cycles.
Determine 1: The Subsequent 15 Years: Rethinking Fairness Model Threat.
| Portfolio | Trailing 15‑12 months Return | Estimated Subsequent 15‑12 months Return | Median 15‑12 months Return | R² (Trailing vs. Ahead) |
| High 500 Development | 17.8% | 6.1% | 11.4% | .79 |
| High 500 Cap Weighted | 14.2% | 8.3% | 10.5% | .74 |
| High 500 Equal Weighted | 12.3% | 11.7% | 11.7% | .54 |
| High 500 Worth | 12.9% | 14.5% | 13.3% | .47 |
| High 500 Low Vol VMQ | 12.1% | 13.9% | 12.9% | .28 |
| High 500 Low Vol | 11.5% | 11.1% | 10.3% | .51 |
Disclosures: Previous efficiency is not any assure of future outcomes. All of the returns within the chart above are in reference to unmanaged, hypothetical safety groupings created completely for analytical functions. These are hypothetical types based mostly on describing traits. Please see appendix for definitions and citations.
Determine 2: Development’s Subsequent 15 Years Might Not Appear like the Final 15 Years.
Determine 3: Market Cap-Weighting’s Subsequent 15 Years Might Not Appear like the Final 15 Years.
Determine 4: Equal Weight’s Final 15 Years Have Been Constant With Lengthy‑Time period Norm.
Determine 5: Worth’s Final 15 Years: Proper in Line With Its Lengthy‑Time period Return Profile.
Determine 6: Low Vol VMQ’s Ahead Prospects Look Extra Constructive.
Determine 7: Low Vol’s Subsequent 15 Years Might Look Just like the Final 15 Years.
For cap-weighted and progress portfolios, the regression traces confirmed a pronounced detrimental slope: intervals of outstanding trailing returns had been sometimes adopted by a lot decrease ahead returns. For instance, during the last 15 years the High 500 Development delivered 17.8%, however the ahead 15-year expectation is simply 6.1%. This sample is in keeping with valuation imply reversion and the cyclicality of market management.
2. Benchmark Efficiency vs. Your Retirement Goal
This part analyzes rolling 15-year returns for main US fairness types with a concentrate on the sensible implications for retirement savers. Their success doesn’t rely on beating the S&P 500, however moderately, reaching constant, absolute returns required to hit retirement financial savings targets.
Most retirement plans depend on a return from equities of about 8% per 12 months, a quantity baked into many glide paths, actuarial fashions, and retirement calculators. That assumption is crucial as a result of it determines whether or not portfolios develop sufficient to fund future withdrawals.
Overshooting that focus on, because of robust markets or product outperformance, is a welcomed bonus. However undershooting it could be catastrophic. It could imply delaying retirement, at the price of valuable time, or accepting a decrease lifestyle for many years.
On the floor, the common cap-weighted or progress portfolio return seemed very engaging, even throughout a long time that included each bull and bear markets. However a more in-depth look revealed one thing troubling, in practically a 3rd of the 15-year intervals, these portfolios failed to succeed in the crucial 8% annualized return.
In contrast, diversified, value-focused, or defensive quality-oriented portfolios dramatically diminished that threat. In reality, the prospect of lacking the 8% goal dropped to just about zero for value-focused portfolios, and easy equal-weighted portfolios had solely a 15% shortfall threat. Whereas these approaches had been much less more likely to totally seize the very best intervals (suppose fewer “residence runs”), they’ve higher odds of assembly the aim that mattered most: totally funding a safe retirement.
Determine 8: Market Cap-Weighting Had the Most Sub 8% Returns.
Disclosures: Previous efficiency is not any assure of future outcomes. All of the returns within the chart above are in reference to unmanaged, hypothetical safety groupings created completely for analytical functions. These are hypothetical types based mostly on describing traits. Please see appendix for definitions and citations.
3. Withdrawals and the Amplification of Drawdown Threat
When buyers shift from saving for retirement to spending in retirement, the arithmetic of portfolio returns undergoes a elementary transformation. Whereas greater returns on common profit each savers and spenders, the consequence of weaker intervals disproportionately harm the spender.
In the course of the retirement saving interval, buyers expertise the advantages of greenback‑value averaging. That is the place volatility turns into an ally. The identical greenback quantity buys extra shares in down markets, thus boosting common returns 2%-3% as seen in Determine 10.
However as soon as withdrawals start, that very same volatility turns into a menace as losses are compounded, not repaired. The extra shares bought to offer earnings throughout down markets can by no means be repurchased. Furthermore, the robust markets that observe are additionally much less impactful as they’re lifting the market worth of fewer shares.
This dynamic, sequence-of-returns threat, is at all times current in retirement planning, nevertheless it turns into dramatically extra harmful as withdrawal charges enhance.
Stress Testing an 8% Withdrawal Assumption
Lately, some of the aggressive examples mentioned within the advisor group is an 8% withdrawal benchmark. This 8% rule has typically been related to public figures like Dave Ramsey who declare that fairness buyers can sustainably withdraw 8% yearly as a result of long-term inventory returns common 10% to 12%, thus offering an earnings of 8% plus a 2% to 4% inflation buffer.
Outcomes: Why Timing Luck Dominates Cap-Weighted and Development Outcomes
The info revealed that timing luck turns into the one most vital determinant of outcomes when retirees are withdrawing from cap-weighted and progress portfolios. Excessive common historic returns create an phantasm that top withdrawal charges will be secure. However retiring earlier than a weak market could devastate a cap-weighted or progress portfolio, typically completely.
The excellent news is that luck traditionally has solely a really minor impression on a diversified portfolio, one that’s centered on diversification, valuation, or defensive high quality.
The Methodology: 8% withdrawals Adjusted for Inflation
The 8% of the portfolio worth that’s distributed month-to-month is in comparison with the preliminary $160,000 goal (8% from a $2 million portfolio). To find out success or failure, we applied a +/- 2% ($40,000) buffer in Determine 9, which suggests annual distributions of lower than $120,000 had been thought-about failures ($160,000 – $40,000).
Diversified, value-focused, and defensive quality-oriented portfolios did not maintain distributions of at the very least 6% (>= $120,000) of their beginning steadiness solely 2% to three% of the time (inflation adjusted over 15-year rolling intervals since 1965).
In contrast, the usual cap‑weighted broad-market portfolio was as much as eight occasions extra more likely to fail in producing at the very least 6% earnings of the beginning steadiness with a failure price of 17% (inflation adjusted over 15-year rolling intervals since 1965).
As a result of the cap-weighted portfolio failed extra typically, pure instinct could lead you to consider {that a} cap-weighted portfolio additionally extra continuously delivered above the goal vary. Suppose: extra strikeouts ought to result in extra residence runs. Knowledge revealed the alternative. Not solely had been the diversified, value-focused, or defensive quality-oriented portfolios much less more likely to miss on the draw back, they had been additionally extra doubtless to offer a 12 months above the focused vary (>$200,000).
This hole just isn’t theoretical. It displays an actual, structural distinction in how portfolio designs have traditionally responded to prolonged market weak spot. Development and cap‑weighted portfolios have been way more uncovered to lengthy stretches of suppressed returns, whereas diversified, value-focused, or defensive quality-oriented approaches have distributed threat extra evenly throughout market environments.
The conclusion subsequently is that though cap-weighted and progress portfolio could ship the very best particular person years (method above the 8% aim/plan), the diversified, value-focused, or defensive quality-oriented portfolios extra reliably delivered the 6% to 10% earnings that purchasers budgeted from their equities.
A Actual‑World Stress Check: 2000–2015
The early‑2000s tech collapse adopted by the World Monetary Disaster was some of the difficult 15‑12 months home windows in fashionable market historical past. The broad market return was a paltry 4% with two drawdowns of fifty% or extra. That is notable as a result of there have solely been 4 50% drawdowns up to now 100 years. This era offered a transparent, real-world instance of how divergent the saver and the spender experiences can turn out to be from the averages in Determine 10:
The saver’s return jumped from 4% to eight%, just because contributions had been regularly added all through the downturns.
The spender, taking an 8% withdrawal (adjusted for inflation), depleted roughly half of the portfolio, successfully incomes –4% yearly after accounting for withdrawals.
This era illustrated the elemental flaw in assuming that 10% to 12% long-term inventory returns might assist an 8% withdrawal price: Averages didn’t matter when sequencing threat was excessive. The order of returns mattered excess of the magnitude.
Determine 9: Market Cap-Weighted Failed 17% of the Time.
Disclosures: Previous efficiency is not any assure of future outcomes. All of the returns within the chart above are in reference to unmanaged, hypothetical safety groupings created completely for analytical functions. These are hypothetical types based mostly on describing traits. Please see appendix for definitions and citations. Date Vary: 12/31/1964 – 12/31/2025.
Determine 10: Accumulators Benefited From Market Volatility.
Disclosures: Previous efficiency is not any assure of future outcomes. All of the returns within the chart above are in reference to unmanaged, hypothetical safety groupings created completely for analytical functions. These are hypothetical types based mostly on describing traits. Please see appendix for definitions and citations. Date Vary: 12/31/1964 – 12/31/2025.
Broader Implications: The Dangers of Counting on Market Cap-Weighted Portfolios
Historical past reveals that intervals following concentrated, progress‑led surges typically ship disappointing future returns for the Cap-Weighted S&P 500 or progress investor. Portfolios constructed with broader diversification, valuation sensitivity, lower-volatility, and high quality traits delivered extra secure, goal-aligned outcomes, whatever the earlier interval’s efficiency. These extra risk-managed portfolio designs could not have captured the best highs, however they diminished the danger of shortfalls in the course of the transition from accumulation to withdrawals, when consistency mattered greater than outperformance.
For portfolios within the accumulation part, the implication is obvious: Shift the main focus from chasing relative efficiency to designing portfolios that maximize the chance of assembly long-term retirement earnings targets.
For portfolios supporting retirement earnings, this stabilization of outcomes turns into much more crucial, as diversified, value-focused, or defensive quality-oriented portfolios missed the earnings aim of at the very least 6% in solely 2% to three% of historic intervals, in contrast with a 17% failure price for cap-weighted or progress portfolios.
Limitations and Future Analysis
The evaluation is predicated on rolling month-to-month 15-year home windows from 1965 to 2025 and could possibly be improved in future analysis utilizing moment-match parametric Monte Carlo simulations or bootstrapping from noticed returns.
Future analysis might additionally incorporate longer time horizons, multi-factor portfolios, extra asset lessons, dynamic withdrawal insurance policies, and regime-based threat administration methods.
Distributions had been set as a proportion of the portfolio versus a tough preliminary greenback quantity, each sensible and behaviorally pushed. Nevertheless, there are lots of different acceptable and generally used methods to take distributions, like the most typical 4% beginning quantity, then linearly adjusted for inflation (CPI). Future analysis might examine how varied portfolio designs have an effect on the totally different withdrawal strategies.
Appendix & Citations
Knowledge Supply: Compustat.
Calculation: Hartford Fairness Modeling Platform.
U.S. Bureau of Labor Statistics, Shopper Worth Index for All City Shoppers: All Objects Much less Meals and Power in U.S. Metropolis Common [CPILFESL], retrieved from FRED, Federal Reserve Financial institution of St. Louis; https://fred.stlouisfed.org/sequence/CPILFESL, January 9, 2026.
Model Definitions:
High 500 Worth: US high 500 shares high 30% based mostly on composite worth as outlined by a number of equally weighted valuation metrics to reach at an aggregated valuation metric. Valuation metrics embrace: P/E, EBITDA/EV, working money stream/EV, income/EV, and B/P Yield (used solely in financials and actual property as a substitute to EBITDA/EV), then cap weighted.
High 500 Low Volatility: US High 500 Shares high 30% based mostly on a composite volatility rating outlined by a number of equality weighted volatility metrics to reach at an aggregated volatility metric. Volatility metrics embrace three-year weekly beta and six-month each day normal deviation, then cap weighted.
High 500 Low Volatility VMQ: US High 500 Shares high 50% based mostly on a composite volatility rating outlined by a number of equality weighted volatility metrics to reach at an aggregated volatility metric. Volatility metrics embrace three-year weekly beta and six-month each day normal deviation, then cap weighted. Then high 50% based mostly on mixed rating of fifty% worth, 30% momentum and 20% high quality. Mixed scores for monetary and actual property sector corporations are assigned weightings of 65% Worth and 35% Momentum. Composite worth as outlined by a number of equally weighted valuation metrics to reach at an aggregated valuation metric. Valuation metrics embrace: P/E, EBITDA/EV, working money stream/EV, income/EV, and B/P Yield (used solely in financials and actual property as a substitute to EBITDA/EV), then cap weighted. Composite momentum equally weights Final 12 ex-1 month-to-month returns and final 6 ex-1 month-to-month returns to reach at an aggregated momentum metric. Composite high quality makes use of gross profitability to complete property.
High 500 Development: US high 500 shares high 30% based mostly on 5 years gross sales progress, then cap weighted.
High 500 Cap Weighted: US High 500 shares, cap weighted.
High 500 Equal Weighted: US High 500 shares, equal weighted.
