Total modeled gain
This is the total gain achieved by the model, over the period shown on the allocation plan page (generally starting 1-JAN-2002), including reinvestment of dividends, a $10 transaction fee for any buy/sell, using a 10% tracking stop loss (forum post with details on stop losses), not including any taxes or additional fees (such as mutual fund loads or redemption fees).
We say "modeled" gain because we did not achieve these gains. They are the result of testing the model against historical data.
Modeled Compound Annual Growth Rate
This is the constant gain that would achieve the same "Total modeled gain". Please note that this IS NOT the average annual gain; which is generally a significantly higher humber. We blogged about the between annualized gain and average annual gain. Please read that to understand the difference, and know that we always report annualized gains, which will be lower than the often reported average annual gain.
How do you calculate annualized gain?
Our volatility index is calculated by first calculating the annualized gain. We then calculate the RMS (root-mean-square) of the difference between the total modeled theoretical gain and the annualized gain at date in the period. The value is expressed as a percentage.
What this means is that if the total modeled theoretical gain exactly matches the annualized gain (or constant gain) then the volatility index is 0. A higher number means that the total modeled theoretical gain had higher deviation from the annualized gain.
Remember though that we always report annualized gains - that is the gain, that when compound, actually results in the total gain. Annualized gain is not subject to "grade inflation" like average annual gain numbers. (That is, in our judgement, average annual gain number over report the gain your are expecting.)