Investment Risk & Return Modeler

Historical Asset Class Performance (Based on ETF Analysis)

The table below shows actual historical average annual returns and volatility based on maximum available data for each ETF through June 2025. These are historical averages, not forecasts. Past performance does not guarantee future results.

Asset Class (ETF)	Years Analyzed	Mean Annual Return	Annual Volatility
Cash/Short-Term Treasuries (BIL)	18.1	1.22%	0.50%
7-10 Year Government Bonds (IEF)	22.9	3.78%	6.88%
20+ Year Government Bonds (TLT)	22.9	4.69%	14.47%
Investment Grade Corporate Bonds (LQD)	22.9	4.87%	8.45%
High-Yield Bonds (HYG)	18.2	5.38%	11.15%
Large-Cap Value Stocks (VTV)	21.4	10.29%	18.85%
NASDAQ 100 Tech/Growth Stocks (QQQ)	26.3	13.23%	27.24%
Gold (GLD)	20.6	11.01%	17.59%

A Note on Market Volatility (The VIX Index)

You might see the "market fear gauge," the CBOE VIX Index, reported in the news. It's important to understand what it represents and how it differs from the "Annual Volatility" in this tool.

• The VIX Index: This measures the stock market's expectation of volatility for the next 30 days. It is a short-term, forward-looking indicator. A VIX reading of 20 means the market expects about a 20% annualized volatility over the next month. You can track it on Yahoo Finance or the CBOE website.
• Model's Annual Volatility: The slider in this tool represents a stable, long-term average annualized volatility for an asset over your entire investment horizon. It is a strategic assumption, not a short-term market forecast.

Historical VIX Perspective (1990-2025)

To help you better calibrate your expectations, here are key VIX statistics from over 35 years of market data:

• Long-term average: 19.5 — This is remarkably close to the often-cited 20 level that separates "calm" from "anxious" markets
• Normal range (90% of the time): Between 11.4 and 33.2 — The market operates within this band in most conditions
• Extreme lows: The VIX has dipped as low as 9.1 during periods of extreme market complacency
• Crisis peaks: The VIX spiked to 82.7 during the 2008 financial crisis, showing how fear can dramatically exceed normal levels

Practical insight: When the VIX is below 20 (which happens about half the time), markets are generally calm. When it rises above 30 (which happens only about 10% of the time), it signals significant market stress. Readings above 40 are rare and indicate extreme fear or uncertainty.

Key takeaway: While the VIX can spike dramatically during crises, it tends to revert to its long-term average around 20. For long-term planning, use steady volatility assumptions (like 15-20% for stocks) rather than reacting to temporary VIX spikes. The VIX tells you about today's fear, not tomorrow's returns.

Core Concepts Explained

Volatility (The Bumpiness of the Ride): Volatility means how much an investment's value bounces around. High volatility is like a stormy sea; low volatility is like a calm lake. It is the primary driver of risk and the range of potential outcomes.

Expected Return (The Uphill Trend): This is the average return you expect over the long term, like the general slope of a road. A positive return means the road slopes uphill. Even on a bumpy road (high volatility), an uphill slope makes it likely you'll end up higher than where you started. This is your reward for taking on risk.

Time Horizon (The Length of the Journey): Time is a critical, two-sided factor. When there is a positive expected return, a longer time horizon is your friend. It gives the "uphill slope" more time to work, allowing growth to compound and overcome short-term dips. However, a longer horizon also means you are more likely to *experience* a major storm (a big market crash) along the way. The key is having the patience to ride it out.