β1-Indexing®: Making Financial Simulation Relevant in Practice

Abstract

A successful long-term financial plan depends on the correspondence of projected returns and actual returns. Simulation results are subject to the effects of differences between implementation fund(s) attributes and asset class attributes used in the simulation. Thus, simulation outcomes and portfolio outcomes may be materially different. We would like to know that if the forecasted returns in our simulations are correct, the actual returns will be the same as the forecasted returns. β1 Indexing® addresses these issues with a guideline that uses reasonably available information: Best-Fit β and R-squared. β1-Indexing® and Beta1-Indexing® are registered trademarks of Vernon V Chatman III, CFP®.