For the previous 15 years, traders have been rewarded for doing one factor nicely: proudly owning the S&P 500. Cap-weighted, growth-heavy portfolios dominated returns and bolstered expectations that robust current efficiency would persist. The chance is just not what these portfolios delivered, however what traders now assume they may 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 reasonably 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 usually do completely different portfolio designs meet an 8% long-term return goal?
- How do withdrawals have an effect on drawdown danger as soon as traders 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 usually do completely different portfolio designs meet an 8% long-term return goal? And, How do withdrawals have an effect on drawdown danger as soon as traders shift from accumulation to spending?
1. Trailing Returns and Ahead Expectations
One of many hardest habits for traders to interrupt is assuming that current efficiency will proceed, even when “current” means a decade or extra.
That will sound discouraging for traders in broad market passive or growth-oriented portfolios, however historical past has additionally proven a greater final result for methods that emphasised diversification or valuation self-discipline, similar 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 subsequent 15 would deliver. Even after robust durations, diversified, value-focused, or defensive quality-oriented types didn’t expertise the identical sharp drop-off in returns that cap-weighted or progress traders usually 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 durations 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 robust inverse relationship between trailing and ahead returns for cap-weighted and progress portfolios. Diversified, value-focused, or defensive quality-oriented types, then again, exhibited muted cyclicality. In different phrases, the portfolios that seemed most secure based mostly on robust trailing efficiency carried the best ahead danger, and those who appeared “boring” usually delivered extra steady outcomes throughout full cycles.
Determine 1: The Subsequent 15 Years: Rethinking Fairness Model Danger.
| Portfolio | Trailing 15‑Yr Return | Estimated Subsequent 15‑Yr Return | Median 15‑Yr Return | R² (Trailing vs. Ahead) |
| Prime 500 Development | 17.8% | 6.1% | 11.4% | .79 |
| Prime 500 Cap Weighted | 14.2% | 8.3% | 10.5% | .74 |
| Prime 500 Equal Weighted | 12.3% | 11.7% | 11.7% | .54 |
| Prime 500 Worth | 12.9% | 14.5% | 13.3% | .47 |
| Prime 500 Low Vol VMQ | 12.1% | 13.9% | 12.9% | .28 |
| Prime 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 solely 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 Could Not Seem like the Final 15 Years.
Determine 3: Market Cap-Weighting’s Subsequent 15 Years Could Not Seem 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 Could Look Just like the Final 15 Years.
For cap-weighted and progress portfolios, the regression traces confirmed a pronounced adverse slope: durations of outstanding trailing returns have been usually adopted by a lot decrease ahead returns. For instance, during the last 15 years the Prime 500 Development delivered 17.8%, however the ahead 15-year expectation is simply 6.1%. This sample is in step 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 give attention to the sensible implications for retirement savers. Their success doesn’t rely upon beating the S&P 500, however reasonably, 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 important 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 treasured time, or accepting a decrease lifestyle for many years.
On the floor, the typical cap-weighted or progress portfolio return seemed very engaging, even throughout many years that included each bull and bear markets. However a better look revealed one thing troubling, in almost a 3rd of the 15-year durations, these portfolios failed to achieve the important 8% annualized return.
In contrast, diversified, value-focused, or defensive quality-oriented portfolios dramatically lowered that danger. Actually, 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 danger. Whereas these approaches have been much less more likely to absolutely seize the very best durations (suppose fewer “dwelling runs”), they’ve higher odds of assembly the aim that mattered most: absolutely 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 solely 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 Danger
When traders shift from saving for retirement to spending in retirement, the arithmetic of portfolio returns undergoes a elementary transformation. Whereas larger returns on common profit each savers and spenders, the consequence of weaker durations disproportionately harm the spender.
Throughout the retirement saving interval, traders expertise the advantages of greenback‑price 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 risk as losses are compounded, not repaired. The extra shares offered to supply 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 danger, is at all times current in retirement planning, however it turns into dramatically extra harmful as withdrawal charges enhance.
Stress Testing an 8% Withdrawal Assumption
In recent times, one of the aggressive examples mentioned within the advisor neighborhood is an 8% withdrawal benchmark. This 8% rule has usually been related to public figures like Dave Ramsey who declare that fairness traders 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 essential determinant of outcomes when retirees are withdrawing from cap-weighted and progress portfolios. Excessive common historic returns create an phantasm that prime withdrawal charges might 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 targeted 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 carried out a +/- 2% ($40,000) buffer in Determine 9, which suggests annual distributions of lower than $120,000 have been thought of failures ($160,000 – $40,000).
Diversified, value-focused, and defensive quality-oriented portfolios did not maintain distributions of a minimum of 6% (>= $120,000) of their beginning steadiness solely 2% to three% of the time (inflation adjusted over 15-year rolling durations since 1965).
In contrast, the usual cap‑weighted broad-market portfolio was as much as eight instances extra more likely to fail in producing a minimum of 6% earnings of the beginning steadiness with a failure price of 17% (inflation adjusted over 15-year rolling durations since 1965).
As a result of the cap-weighted portfolio failed extra usually, pure instinct could lead you to consider {that a} cap-weighted portfolio additionally extra continuously delivered above the goal vary. Assume: extra strikeouts ought to result in extra dwelling runs. Information revealed the alternative. Not solely have been the diversified, value-focused, or defensive quality-oriented portfolios much less more likely to miss on the draw back, they have been additionally extra possible to supply a 12 months above the focused vary (>$200,000).
This hole is just not 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 danger extra evenly throughout market environments.
The conclusion subsequently is that though cap-weighted and progress portfolio could ship the very best particular person years (means 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 one of the difficult 15‑12 months home windows in trendy 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 have been frequently 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 basic flaw in assuming that 10% to 12% long-term inventory returns might assist an 8% withdrawal price: Averages didn’t matter when sequencing danger 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 solely 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 solely 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 exhibits that durations following concentrated, progress‑led surges usually 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 steady, goal-aligned outcomes, whatever the earlier interval’s efficiency. These extra risk-managed portfolio designs could not have captured the very best highs, however they lowered the danger of shortfalls through the transition from accumulation to withdrawals, when consistency mattered greater than outperformance.
For portfolios within the accumulation part, the implication is evident: Shift the main focus from chasing relative efficiency to designing portfolios that maximize the likelihood of assembly long-term retirement earnings goals.
For portfolios supporting retirement earnings, this stabilization of outcomes turns into much more important, as diversified, value-focused, or defensive quality-oriented portfolios missed the earnings aim of a minimum of 6% in solely 2% to three% of historic durations, 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 might 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, further asset courses, dynamic withdrawal insurance policies, and regime-based danger administration methods.
Distributions have 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 numerous portfolio designs have an effect on the completely different withdrawal strategies.
Appendix & Citations
Information Supply: Compustat.
Calculation: Hartford Fairness Modeling Platform.
U.S. Bureau of Labor Statistics, Shopper Worth Index for All City Customers: 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/collection/CPILFESL, January 9, 2026.
Model Definitions:
Prime 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 move/EV, income/EV, and B/P Yield (used solely in financials and actual property as a substitute to EBITDA/EV), then cap weighted.
Prime 500 Low Volatility: US Prime 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 every day customary deviation, then cap weighted.
Prime 500 Low Volatility VMQ: US Prime 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 every day customary 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 move/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 whole belongings.
Prime 500 Development: US high 500 shares high 30% based mostly on 5 years gross sales progress, then cap weighted.
Prime 500 Cap Weighted: US Prime 500 shares, cap weighted.
Prime 500 Equal Weighted: US Prime 500 shares, equal weighted.
