Correct, it is using volatility estimate based on historical data, somewhere around 18%.Aha, thank you for clarifying how TPAW Planner arrives at its recommended stock - bond asset allocation.No, it's just the good old merton share.
If I follow the wikipedia page, the Merton share's fraction of the portfolio allocated to equities is given by (mu - r) / (sigma^2 gamma), where mu is the expected return of stocks, r is the risk free rate, sigma is the volatility of stocks, and gamma is some tunable risk aversion parameter.
So TPAW Planner can use its two forecasts for stock and TIPS real returns to evaluate mu - r, the expected return above the risk free rate, lets the user drag a slider to choose their own risk aversion parameter gamma, and then only needs an estimate of sigma, the volatility of the S&P 500.
Statistics: Posted by ivgrivchuck — Fri Oct 17, 2025 7:43 pm — Replies 13 — Views 1407