Expected Returns
The returns assumed for the portfolios are expected based on our research, and the assumptions on which those expectations are based are described below. The assumed returns for each portfolio do not reflect actual trading or investment results of any NDVR client or of a client of another advisor, and they are not predictions or guarantees of future results. They are applied for illustrative purposes and to serve as a resource for you in evaluating the potential fees and investment expenses for an investment in a 60/40 allocation managed by NDVR or another advisor. You should not assume that any specific results shown will be realized or that the performance of an actual portfolio will not be materially lower than the assumptions used in the tool. You should not assume that any specific results shown will be realized or that the performance of an actual portfolio will not be materially higher than the assumed value, which would result in higher expected fees. Expected, targeted, hypothetical, and simulated return calculations have many inherent limitations, only some of which are described here.
Portfolio Configuration
This tool does not include all the features or strategies NDVR offers. The tool compares fees and investment expenses when investing in a 60/40 allocation at NDVR vs. at a Typical Advisor. NDVR clients may customize their portfolios in the NDVR Portfolio Lab, which is not possible in this tool.
In an actual NDVR portfolio, a client has more control over certain features and asset allocations. For example, a client could activate any combination of equity overlay strategies for the U.S. equity portion of their portfolio. Equity overlay strategies include momentum, value, low volatility, quality and extended market. Activating one overlay strategy or different combinations of strategies would produce different expected returns.
Calculations and Return Assumptions
Calculations: The "Starting Portfolio Value" is grown each month by the assumed gross return, and then estimated advisory fees, investment expenses, and taxes are withdrawn each month. The aggregate dollar total paid by the client is computed as the sum of the monthly dollar fees and investment expenses paid over the intended investment "Time Horizon."
Assumptions regarding Asset Allocations, Asset Class Returns, Taxes, and Fees
For the NDVR-managed portfolio presented, we assume:
- Asset Allocation:
- 60% to Passive U.S. Equity
- 40% to U.S. AGG (U.S. AGG is a 50:50 portfolio of Non-Treasuries and Treasuries)
- Asset Class Returns and Tax Rates:
- Passive U.S. Equity: 7.50% annualized return
- U.S. AGG (Non-Treasuries): 5.70% annualized return
- U.S. AGG (Treasuries): 5.50% annualized return
- Taxes:
- Estimated tax liabilities are calculated based on the tax residency you enter in "Zip Code". Filing status is assumed to be married, filing jointly, with $1 million of annual income.
- Equity returns are assumed to be taxed at the long-term capital gains rate (dividends are not distinguished, and so are assumed to be qualified).
- For the fixed income or "Bonds" portion of the portfolio, we assume the U.S. AGG exposure described above (a 50:50 portfolio of Non-Treasuries and Treasuries). Treasury coupons are taxed as ordinary income at the federal rate, but untaxed at the state and local levels. Treasury capital gains are taxed at long-term rates federally and at the state and local levels. Interest is taxed as ordinary income at the federal and state levels. Non-Treasuries' coupons are taxed as ordinary income at the federal and state levels whereas capital gains (or losses) are taxed at long-term rates at the federal and state levels.
- The Net Investment Income Tax (NIIT) of 3.8% is applied.
- Fees and Investment Expenses:
- Investment expenses: NDVR typically charges a tiered, annualized fee ("NDVR Fee") based on the market value of assets we manage per household. This tiered pricing is charged as follows, based on total household assets: First $2M, 0.75%; next $2M - $5M, 0.65%; next $5M - $10M, 0.55%; and over $10M, 0.45%. (When building portfolios, NDVR buys individual assets, such as U.S. stocks, U.S. Treasury securities, futures and options, directly so clients do not pay a fund manager a separate fee for those investments.)
- This NDVR Fee allows each client access to our advisors and tools. The NDVR Fee also enables each client to create multiple portfolios under NDVR management.
Assumptions regarding Asset Allocations, Asset Class Returns, Taxes, and Fees (cont)
For the Typical Advisor portfolio presented, we assume:
- Asset Allocation:
- 60% to Passive U.S. Equity
- 40% to U.S. AGG (U.S. AGG is a 50:50 portfolio of Non-Treasuries and Treasuries)
- Asset Class Returns:
- Passive U.S. Equity: 7.50% annualized return
- U.S. AGG (Non-Treasuries): 5.70% annualized return
- U.S. AGG (Treasuries): 5.50% annualized return
- Taxes:
- Taxes on all assets held in both the NDVR and Typical Advisor portfolios are calculated the same way.
- Fees and Investment Expenses:
- Investment expenses are assumed to be 0.038% per month (0.46% per year), which we derive from data published by BlackRock and described below.
- Advisory fees in the illustration range linearly from maximum of 1.00% for $1 million portfolios to a minimum of 0.70% for portfolios of $10 million or more, which we derive from data published by AdvisoryHQ.
The assumptions used in the tool are subject to change. Any change or inaccuracy in the assumptions shown would result in a change to any data shown. It should be expected that some assumptions will change or prove inaccurate. No representation or warranty is made as to the reasonableness of the assumptions made or that all assumptions used in constructing the performance have been disclosed.
Additional Disclosures
Advisory fees: The advisory fees charged to the Typical Advisor portfolio are based on multiple sources, primarily surveys conducted by Advisory HQ as well as reporting in the Wall Street Journal and other sources. General assessments of fees charged in the wealth management industry are imprecise and subject to change. The information is derived from sources NDVR deems reliable. It is not necessarily all-inclusive or guaranteed as to accuracy. There is no guarantee that industry participants do not offer services at lower costs than NDVR or that projected cumulative returns or savings will be realized. Reliance upon the information presented is at the sole discretion of the viewer.
Investment expenses: NDVR buys individual assets, such as U.S. stocks, U.S. Treasury securities, futures and options, directly so clients do not pay a fund manager a separate fee for those investments. For foreign investments that we cannot buy directly, we select low-fee, passive ETFs that generally charge between 1-8bps. The NDVR portfolio in the illustration does not invest in foreign assets so it would not hold ETFs. The estimated investment expenses in the Typical Advisor portfolio are derived from data reported in BlackRock's Spring 2021 Advisor Insights Guide.
BlackRock uses its own data and data from Morningstar to calculate expenses for each portfolio as a weighted average of that portfolio's holdings and then averages the expenses across portfolios. The portfolios analyzed represent a subset of the industry, and not its entirety. As such, there may be certain biases present in the data that reflect the advisors who choose to work with BlackRock to analyze their portfolios. The BlackRock data reflects expenses for assets that NDVR does not currently purchase for client portfolios. If NDVR were to purchase such assets for client portfolios the investment expense estimate for the NDVR portfolio would likely be higher than the one shown here.
Custodian Expenses: Custodian fees and brokerage commissions are not included in investment expenses or paid for by the advisory fee. They are charged and collected separately by the custodian.
Equity securities: Equity prices can be adversely affected by many factors. Focusing on equities in certain geographies or that exhibit certain factors (such as value or growth) subjects portfolios to the risk that their performance can be lower than the performance of portfolios that focus on other types of stocks or that have a broader investment style. Equity prices typically exhibit greater volatility than investments in some other securities, such as highly rated, short-term, fixed-income securities.
Fixed-income securities: Fixed-income securities are subject to credit risk as well as interest rate risk.
For further information regarding NDVR's services, including portfolio construction and management, fees, expenses, and risks, please see our ADV brochure.
