Revisiting the ITA Index

Long-time readers of ITA are aware of ITA Index, our customized benchmark.  Why use a benchmark such as the ITA Index?  While we watch the performance of VTSMX, an index fund that covers the entire U.S. Equities market, it is not an appropriate benchmark if one holds assets outside the U.S. Equities market.  Emerging markets is an example.  For this reason, I came up with a way to measure the performance of a portfolio that holds a variety of asset classes.

To use the ITA Index one must first lay out a Strategic Asset Allocation (SAA) plan.  For example, suppose we hold the following asset classes and the associated percentage in each.


  • U.S Equities = 30%
  • Developed international markets = 15%
  • Emerging markets = 5%
  • Domestic REITs = 20%
  • Bonds and Treasuries = 30%

The benchmark for U.S. Equities is VTSMX or VTI.  Therefore, one of our holdings will be VTI in the portfolio and 30% is multiplied by the IRR for VTI or VTSMX giving us that performance percentage of the portfolio.

Since developed and emerging markets are both international, I use VGTSX as the benchmark.  I could split these asset classes, but that is not necessary unless one wishes to fine tune the ITA Index.  Twenty percent (20%) of the performance of VGTSX is added to the above 30% calculation.  In this example we have accounted for 50% of the portfolio.

We are left with two more asset classes in this example.  For a REIT benchmark I use VNQ.  To calculate this portion of the ITA Index I multiply 20% times the IRR performance of VNQ and then add it to the above 50% calculation.

For the last asset class, bonds and treasuries, I use Vanguard’s Total Bond ETF, BND.  Thirty percent (30%) of the IRR value of BND completes the asset calculations.  I add this product to the above 70% to complete the ITA Index calculation.

All this is build into the TLH Spreadsheet, although each user will need to customize the calculations to meet the SAA portfolio plan as each portfolio is different.

If you have specific questions related to calculating the ITA Index, please ask.


Retirement Mistake #5: Underestimating Life Expectancy

Not only are we living longer, but we are living healthier lives.  When planning for retirement, what age should one project as the end-of-life year?  When running out retirement projections using the Monte Carlo calculations within the Quantext Portfolio Planner software, I use 100 as the end-of-life year when testing the probability of running out of money.  There are many assumptions that go into this calculation,  Here are a few.

  • Projected retirement age
  • Current portfolio value
  • Construction of portfolio
  • Inflation rate
  • Projected growth rate of S&P 500
  • Required income during retirement years
  • Level of acceptable risk

To view what a projection might look like, we can take the recent portfolio we are using in the optimization study.

Assumptions:  Here is a screenshot of the basic assumptions used for this calculation.

ITA 07 Feb. 08 03.19

Projections:  Based on the portfolio we have been using for the optimization study, below is the Monte Carlo calculation for retirement.  Note the 50% chance of running out of money by age 96.  Using the life expectancy age of 100, this portfolio is cutting it a little close.  I prefer to not push poverty by seeing a 20% to 30% chance of coming up short by age 100.  This portfolio, with the associated assumptions, is not too far off the mark.

ITA 06 Feb. 08 03.18