Risk-Return Reality Lab

Busting the "Guaranteed 10–12% Zero-Risk" Myth with Sequence-of-Returns Reality

Model Controls Empirical Bootstrap
True Equity
Risk-Free Cash
Guaranteed 11%
Pitch Reality Auditor
Test any promised return & claimed guarantee:
Fraud Likelihood: Ponzi / Scam Alert
Promising 11% with "zero risk" yields an implied infinite Sharpe ratio above the 4.2% risk-free hurdle. This breaches the capital market line.
Portfolio Projection & Uncertainty Fan 1,000 Bootstrap Paths
10th – 90th Percentile Range
Median (50th %) Path
Average Market Outcome
Historical Crisis Overlay (2000 & 2008)
Expected Median Final Balance
$672,750
Worst-Case Drawdown Risk
-42.8%
Paths with >15% Annual Drop
84.2%
Avg Recovery Duration
3.2 Years
Underwater Drawdown Profile (Peak-to-Trough) Historical Reality vs. Guaranteed Illusion

True equity investing guarantees painful underwater valleys. The Dot-Com crash (2000–2002) dropped -44% and took 7 years to recover. 2008 plunged -51% peak-to-trough.

Understanding the Core Definitions Why Averages Are Never Guarantees

1. Target Return

An aspirational investment goal (e.g., an endowment aiming for 8%). Targets express desired capital growth but carry zero contractual obligations and no downside buffer.

2. Historical Nominal Return

The empirical past average (e.g. S&P 500 ~10.2% nominal since 1926). In any single year, actual returns have swung wildly from +37.6% (1995) down to -37.0% (2008).

3. Contractual Guaranteed Yield

Legally enforceable return backed by sovereign balance sheets or audited collateral (e.g. US Treasuries at ~4.2%). Zero-risk yields cannot mathematically exceed the risk-free rate.