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 latest efficiency would persist. The danger isn’t what these portfolios delivered, however what buyers now assume they’ll 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 relatively than relative outperformance, the trade-offs change. Drawdowns matter extra, volatility turns into uneven, and the order of returns can overwhelm long-term averages, notably as soon as withdrawals start.
Utilizing rolling 15-year knowledge throughout main US fairness kinds, 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 threat as soon as buyers shift from accumulation to spending?
Utilizing rolling 15-year knowledge throughout main US fairness kinds, 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 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 latest efficiency will proceed, even when “latest” 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, comparable to equal-weight, worth, or defensive approaches. For these portfolios, trying again on the final 15 years has traditionally had little bearing on what the following 15 would carry. Even after robust durations, diversified, value-focused, or defensive quality-oriented kinds didn’t expertise the identical sharp drop-off in returns that cap-weighted or progress buyers usually confronted.
One potential explanation for this divergence is portfolio development. Cap-weighted and progress portfolios systematically elevated publicity to latest 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 basic 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 kinds, then again, exhibited muted cyclicality. In different phrases, the portfolios that appeared most secure primarily based on robust trailing efficiency carried the best ahead threat, and those who appeared “boring” usually delivered extra secure outcomes throughout full cycles.
Determine 1: The Subsequent 15 Years: Rethinking Fairness Model Danger.
| Portfolio | Trailing 15‑12 months Return | Estimated Subsequent 15‑12 months Return | Median 15‑12 months Return | R² (Trailing vs. Ahead) |
| High 500 Progress | 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 isn’t 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 kinds primarily based on describing traits. Please see appendix for definitions and citations.
Determine 2: Progress’s Subsequent 15 Years Might Not Seem like the Final 15 Years.
Determine 3: Market Cap-Weighting’s Subsequent 15 Years Might 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 Might Look Just like the Final 15 Years.
For cap-weighted and progress portfolios, the regression strains confirmed a pronounced unfavourable slope: durations of remarkable trailing returns have been usually adopted by a lot decrease ahead returns. For instance, during the last 15 years the High 500 Progress 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 kinds with a give attention to the sensible implications for retirement savers. Their success doesn’t rely upon beating the S&P 500, however relatively, attaining 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, due to robust markets or product outperformance, is a welcomed bonus. However undershooting it might be catastrophic. It might imply delaying retirement, at the price of treasured time, or accepting a decrease way of life for many years.
On the floor, the typical cap-weighted or progress portfolio return appeared very enticing, even throughout a long time 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 succeed in the important 8% annualized return.
In contrast, diversified, value-focused, or defensive quality-oriented portfolios dramatically diminished that threat. Actually, the possibility of lacking the 8% goal dropped to almost zero for value-focused portfolios, and easy equal-weighted portfolios had solely a 15% shortfall threat. Whereas these approaches have been much less prone to absolutely seize the very best durations (assume fewer “house runs”), they’ve higher odds of assembly the objective that mattered most: absolutely funding a safe retirement.
Determine 8: Market Cap-Weighting Had the Most Sub 8% Returns.
Disclosures: Previous efficiency isn’t 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 kinds primarily based on describing traits. Please see appendix for definitions and citations.
3. Withdrawals and the Amplification of Drawdown Danger
When buyers shift from saving for retirement to spending in retirement, the arithmetic of portfolio returns undergoes a basic transformation. Whereas larger returns on common profit each savers and spenders, the consequence of weaker durations 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, but it surely turns into dramatically extra harmful as withdrawal charges enhance.
Stress Testing an 8% Withdrawal Assumption
Lately, 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 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 Progress Outcomes
The info revealed that timing luck turns into the only most essential 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 protected. However retiring earlier than a weak market might devastate a cap-weighted or progress portfolio, generally completely.
The excellent news is that luck traditionally has solely a really minor influence 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 carried out a +/- 2% ($40,000) buffer in Determine 9, which suggests annual distributions of lower than $120,000 have been thought-about failures ($160,000 – $40,000).
Diversified, value-focused, and defensive quality-oriented portfolios did not maintain distributions of no less than 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 prone to fail in producing no less than 6% earnings of the beginning steadiness with a failure fee of 17% (inflation adjusted over 15-year rolling durations since 1965).
As a result of the cap-weighted portfolio failed extra usually, pure instinct might lead you to consider {that a} cap-weighted portfolio additionally extra incessantly delivered above the goal vary. Assume: extra strikeouts ought to result in extra house runs. Information revealed the other. Not solely have been the diversified, value-focused, or defensive quality-oriented portfolios much less prone to miss on the draw back, they have been additionally extra doubtless to offer a 12 months above the focused vary (>$200,000).
This hole isn’t theoretical. It displays an actual, structural distinction in how portfolio designs have traditionally responded to prolonged market weak point. Progress and cap‑weighted portfolios have been much 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 might ship the very best particular person years (approach above the 8% objective/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 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 previously 100 years. This era offered a transparent, real-world instance of how divergent the saver and the spender experiences can turn into 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 may assist an 8% withdrawal fee: Averages didn’t matter when sequencing threat was excessive. The order of returns mattered way over the magnitude.
Determine 9: Market Cap-Weighted Failed 17% of the Time.
Disclosures: Previous efficiency isn’t 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 kinds primarily based 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 isn’t 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 kinds primarily based 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 secure, goal-aligned outcomes, whatever the earlier interval’s efficiency. These extra risk-managed portfolio designs might not have captured the best highs, however they diminished the chance 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 evident: Shift the main target from chasing relative efficiency to designing portfolios that maximize the likelihood of assembly long-term retirement earnings targets.
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 objective of no less than 6% in solely 2% to three% of historic durations, in contrast with a 17% failure fee 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 may additionally incorporate longer time horizons, multi-factor portfolios, further asset courses, dynamic withdrawal insurance policies, and regime-based threat administration methods.
Distributions have been set as a share of the portfolio versus a tough preliminary greenback quantity, each sensible and behaviorally pushed. Nevertheless, there are a lot of different acceptable and generally used methods to take distributions, like the commonest 4% beginning quantity, then linearly adjusted for inflation (CPI). Future analysis may examine how varied 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 Shoppers: All Gadgets 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:
High 500 Worth: US high 500 shares high 30% primarily based 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 circulation/EV, income/EV, and B/P Yield (used solely in financials and actual property as a alternative to EBITDA/EV), then cap weighted.
High 500 Low Volatility: US High 500 Shares high 30% primarily based 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 day by day normal deviation, then cap weighted.
High 500 Low Volatility VMQ: US High 500 Shares high 50% primarily based 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 day by day normal deviation, then cap weighted. Then high 50% primarily based on mixed rating of fifty% worth, 30% momentum and 20% high quality. Mixed scores for monetary and actual property sector firms 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 circulation/EV, income/EV, and B/P Yield (used solely in financials and actual property as a alternative 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 Progress: US high 500 shares high 30% primarily based 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.
