How to account for "high" standard deviation & small Sharpe ratio
Posted: Fri Jan 10, 2025 8:46 am
I've the following tIRA portfolio:
VFIAX 44.71%
VBTIX 46.23%
VTIAX 9.06%
I used daily returns from 11-27-2010 and calculated the following values:
Portfolio annual average return = 7.96%
Portfolio annual standard deviation = 8.94%
Sharpe ratio (with 3% as the reference) = 0.534
I want to account for the "volatility" of my portfolio to figure out my retirement (in a few months) expenditures, Roth conversion, etc. How can I incorporate the standard deviation? I know I can't use a normal distribution, so +/-2 or +/-3 standard deviations don't really mean much.
Thank you!
VFIAX 44.71%
VBTIX 46.23%
VTIAX 9.06%
I used daily returns from 11-27-2010 and calculated the following values:
Portfolio annual average return = 7.96%
Portfolio annual standard deviation = 8.94%
Sharpe ratio (with 3% as the reference) = 0.534
I want to account for the "volatility" of my portfolio to figure out my retirement (in a few months) expenditures, Roth conversion, etc. How can I incorporate the standard deviation? I know I can't use a normal distribution, so +/-2 or +/-3 standard deviations don't really mean much.
Thank you!