Taking Uncertainty Into Account in Projecting Portfolio Accumulations

Taking Uncertainty Into Account In Projecting
Portfolio Accumulation


Professor, Consumer
& Textile Sciences Department, Ohio State University

Hopewell (1997) called for greater attention
by financial planners to uncertainty. This paper provides a unique approach
to dealing with the uncertainty of projecting stock accumulations. The
standard approach is to take mean rates of return in projecting portfolio
growth, with perhaps a separate discussion of the range of possible rates
of return (e.g., Mittra, 1995, p. 394). This paper provides a mean/worst
case approach that can be made understandable to clients. For accumulation
projections with a horizons of 10-15 years, the worst case projections
might be intimidating, as the worst case accumulations are less than 30%
of the mean accumulation for most horizons. However, the worst case projections
may serve to adequately inform clients of the range of possible outcomes.

View a
table from the paper
(In HTML format.)

NOTE: You can view and print the 3/98 version of the paper, presented
at the Midwest Finance Association in March, 1998. 

Acrobat version

View paper
in Acrobat format

To read and/or print this article in Acrobat format, you may need to
download a free Adobe Acrobat Reader. Click
here if you want to download the software.