I have been a user and a big fan of Smartfolio for some years now. I find Boris, the person who is in charge of the software, very helpful in supporting his product.
The product has its limitations, but it is now reasonably stable and useful.

Not understanding the full mathematical theory behind it is not necessary to make an interesting use of this tool. You need to be careful though to the following :
- in case you are investing via ETFs or other mutual funds, the performance of the said ETFs is to be compared to the appreciation of cash. At present time, cash returns nothing, but it has not always been the case and it might change in future in inflation comes back. To get a proper asset allocation optimization, you need to have a time series with the actual return of cash, and to define it inside Smartfolio as the risk free asset.
- in case you are investing through futures contract, you can avoid this problem because most of the cash remains yours and you can put it in money market funds which gives you the appropriate return for your cash.
This is obviously independent of the software you are using.

Hope this helps.
Pierre

I have been a user and a big fan of Smartfolio for some years now. I find Boris, the person who is in charge of the software, very helpful in supporting his product.
The product has its limitations, but it is now reasonably stable and useful.

Not understanding the full mathematical theory behind it is not necessary to make an interesting use of this tool. You need to be careful though to the following :
- in case you are investing via ETFs or other mutual funds, the performance of the said ETFs is to be compared to the appreciation of cash. At present time, cash returns nothing, but it has not always been the case and it might change in future in inflation comes back. To get a proper asset allocation optimization, you need to have a time series with the actual return of cash, and to define it inside Smartfolio as the risk free asset.
- in case you are investing through futures contract, you can avoid this problem because most of the cash remains yours and you can put it in money market funds which gives you the appropriate return for your cash.
This is obviously independent of the software you are using.

Hope this helps.
Pierre

I've been thinking of using one of the lower priced vendors you had listed … SmartFolio — however been hesitant to do so first given my quandary with the whole concept of MVO because of the idea of that to get around from getting an end result where in which an unusual over allocation is put into one asset you have to put lower and upper limit thus taking away the whole idea of using a quant method to determine the allocation % — not too mention that I'm also not too verse on the BL model which they utilize.

So I'm curious if anyone else has had any experience with SmartFolio and if you have any insight you can share with a novice like me.

http://www.bogleheads.org/forum/viewtopic.php?t...

You can download from this posting a free Excel workbook.

Here are a number of things this free Excel model does:
- Compose a portfolio by assigning percentage share to multiple asset classes, choose from 27 classes
- Set starting year, ending year, initial investment, minimum acceptable return (for Sortino ratio)
- Compute portfolio growth, CAGR, Std Dev, Sharpe, Sortino (all with our without annual rebalancing)
- Chart annual portfolio growth trajectory (both nominal and real returns)
- Chart annual maximum drawdowns
- Easily compare performance parameters for up to 5 different portfolios
- Also includes performance parameters of a number of ‘lazy portfolios’, including some recommended by well-known “gurus”

Annual performance data for the asset classes used in this model goes back to 1972.

I would just like to comment on the usage of such software and make you aware of a few flaws which can be met when using such tools.

Most of these software are made of two parts : an historical simulation, which is fine, and a forecasting module, which is most of time built on a theoretical model called “Monte Carlo” or “Brownian motion” simulation. This model makes the assumption that the financial returns follow a gaussian distribution, which has been proved wrong by recent theoretical works made and published by Mandelbrot (The misbehavior of markets) and Taleb (The Black Swan).

Using such software could give you the illusion that you are relying on very sound theoretical grounds, which are commonly used in finance, whereas the most recent research in mathematics have proven such theoretical grounds to be weak and not reliable for financial markets.

In the same order of idea, the calculation of historical correlation between asset classes, does not protect you from any change in such correlation in the future ; for instance, last october/november, we have seen correlation between asset classes converging to 1, and therefore portfolio diversification to not operate any more, which has led diversified portfolio to behave as if they had only one asset class.

These two flaws must not prevent your from using such software ; but you need to keep in mind that the strong technical background they are built on is not free from any defect and surely not take their future simulations for granted.

All the best,

Pierre

http://www.markovprocesses.com/products/mpistyl...

http://www.quantext.com/

$99/year

Platinum (end-of-day data, web-based, subscription with Optionetics.com)
OptionVue (hourly or half-hourly data, software subscription)
Thinkorswim's thinkback tab (end-of-day, broker platform, need acct, new/primitive but update coming)

They provide options data for approx the last 5 to 10 years.

All of them are not really “backtesting” – they can be used to “backtrade” strategies. Ie, you cannot set parameters and run automatic backtesting over the data and get a table of results/equity curves as you can with stock backtesting. They work by setting the calendar back to a previous date and then you trade your way forward in time. They are good at allowing you to practice options trading skills over a range of market conditions.