Page 1: Basic Input and Economic Projections

This page of the QPP Contents Guide goes over Page 1 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.

Figure 1: Screen shot of page 1 of QPP’s Portfolio Planning Report.

Current Age: Current age of portfolio owner.
Date of Retirement: Year in which the owner plans to retire.
Age at Retirement: (This is calculated by QPP.)
Annual Contribution (Current Dollars): This is the amount the owner plans to invest annually until retirement.
Current Portfolio Value: This is the amount that exists currently in the portfolio.
Inflate Contributions at Inflation? This is asking you if QPP should inflate the Annual Contribution at the specified Assumed Annual Inflation Rate. Answer Yes or No. You specify the Assumed Annual Inflation Rate on page 1 of QPP.
Inflate Income Draw? This is asking you if you would like QPP to inflate the amount that will be drawn from the portfolio in retirement. Answer Yes or No.

Next, you need to choose how the draw in retirement will be determined. Use one feature or the other:

Income in Retirement? Income in Retirement only accounts for money drawn from this portfolio; it does not include social security or pension income. QPP does not account for taxes.

Income in Retirement directs QPP to simply assume a fixed annual draw, inflated annually if the above box was filled with Yes. If Income in Retirement is used, set Target Percentage Draw and Minimum Draw to zero.

Target Percentage Draw/Minimum Draw: Target Percentage Draw only accounts for money drawn from this portfolio; it does not include social security or pension income. QPP does not account for taxes.

The Target Percentage Draw feature directs QPP to draw a certain percentage of the portfolio’s value, say 4%. However, this requires the specification of a Minimum Draw. (If the portfolio tanks, one would still need to draw a minimum amount to live on, even if it is greater than 4% of the portfolio’s value at that time.) If you are using this method, set Income in Retirement to zero.

The following is at the top, right side of page 1 of QPP:

Assumed Inflation Rate (Annual): This is the assumed average inflation rate of the market as a whole for the future. This quantity determines the rate at which QPP will inflate the owner’s contributions and Income in Retirement if Inflate Contributions at Inflation? and/or Inflate Income Draw? are filled with Yes. You can adjust this quantity.

Annual Standard Deviation of Market Return (% of normal): This piece of input establishes the assumed long term, future volatility of the market as a whole. It is important in that QPP uses reversion to the mean in projecting the value of the portfolio for the future, and this helps to determine the mean. “Normal” Annual Standard Deviation of the Market is 15.07% and this is accepted by entering 100% in this box. This value is derived and discussed in this article:
Equity Risk Premium

Quantext recommends tinkering with the Annual Standard Deviation of Market Return (% of normal) to test the sensitivity of your portfolio to this assumption; this type of exploration will give users a clearer sense of the range of possible futures for their portfolios.

Annual Standard Deviation: This is a measure of the volatility of the market as a whole. (It is calculated by QPP based on the user’s input in Annual Standard Deviation of Market Return (% of normal).)

Note: This quantity does not change from zero unless the username and password are entered correctly and the license is current. (The downloaded free trial must be correctly unzipped, as well.)

Delta Return: Delta Return is the input that allows the user to control the assumed future annual return of the market. Quantext’s default setting for this quantity is -2. (Please read the next definition for more detail.)

Average Annual Return of Market: This value is 10.3% plus the number that is in the Delta Return box. For example, if Delta Return is -2, then the Average Annual Return of the Market for the future is assumed to be 8.3%. This value is derived and discussed in this article: Equity Risk Premium

Quantext recommends tinkering with the Average Annual Return of Market to test the sensitivity of your portfolio to this assumption; this type of exploration will give users a clearer sense of the range of possible futures for their portfolios.