Steve Erb needs to show his clients how their asset allocation decisions will affect their retirement outcomes. He uses an inexpensive software program called the “Big Picture” to quickly demonstrate how different portfolios will perform based on historical data.
I spoke with Erb, a principal at Chesme Capital Management in DeWitt, Michigan, to get a better understanding of the Big Picture’s usefulness to advisors. He said that the software is easy, scalable, and understandable.
The Big Picture was created by Investments Illustrated as a client education and retirement planning tool. It uses historical return data going back to January 1926 to allow advisors to build and back-test potential portfolios for clients. The initial version of the program was launched about three years ago and new features were recently added. It builds upon Bill Bengen’s 4% rule, by looking at real-life market environments and sequences of returns, rather than a Monte Carlo simulation. The software is a companion to Investment Illustrated’s Big Picture® wall chart, which is more detailed and granular than the Ibbotson graph of asset class performance.
With the Big Picture software, advisors can test a variety of future income goals with clients while changing the withdrawal rate, legacy capital (i.e., the bequest left to heirs), retirement period, portfolio distributions and expense ratios. It helps advisors explain the relationship between spending levels and success rates.
New features include white-labeling, PDF reports, and the ability to set a confidence level for an outcome with a “solve-for” function. For example, given your inputs, you can solve for length of retirement, the safe withdrawal rate, or the necessary initial capital.
The Big Picture has been endorsed by Bill Bengen, Bob Veres, Joel Bruckenstein, and countless financial advisors.
Erb has been using the Big Picture for several years and cited its ease of use. Given the wide variety of clients that advisors serve, it has broad appeal – especially to advisors who are more quantitative and choose to visually show their clients how their retirement plans will work. According to Erb, the user interface is simple, intuitive, and easily explainable, whereas planning tools that use a Monte Carlo simulation are more abstract and difficult to explain to clients. Erb said this is because the Big Picture uses actual historical data, rather than assumptions and predictions as inputs.
