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How is the projection calculated?

Our projections calculate the projected long-term return for each portfolio across a range of possible outcomes. These are illustrated as fan-charts over the 20 year term. Your portfolio comprises different assets, including equities and bonds, in different proportions depending on the portfolio risk level. In general, the higher the risk of a portfolio, the greater the proportion of equities and the higher the level of projected return.

A range of projected returns are calculated to create the values shown in the fan charts. For long-term equity return projections, Nutmeg uses data on historical volatility (1990-2017) to derive a return rate. We project equity returns equal to 30% of the projected volatility (risk) for that asset, which Nutmeg regards as a conservative assumption. Projected risk-free asset (cash) return is added. Finally, long-term bond projected returns are calculated based on our estimates of long-term economic growth, which are sense-checked from official and independent forecasts.

The projected value represents the portfolio value after costs and charges have been taken. The fan charts show the probabilities of achieving potential outcomes:

• More likely:
  This range of outcomes comprises the 20% to 80% probability range, being centred around the projected value.

• Projected Value:
  This is the projected expected value; the value in the middle of the full range of projected outcomes. In the language of probability, 50% of all outcomes fall below the projected value.

• Less likely:
  These outcomes comprise two ranges. On the low-side is the 5% to 20% segment. On the high-side is the 80% to 95% segment.

The projections include the effect of all costs, including Nutmeg fee, investment fund costs and effect of market spread. They do not include the effects of inflation, of tax on investment income or on capital gains, of changing your risk profile, or of future changes to our investment strategy. You should note, you don’t pay tax on income or capital gains from investments in an ISA. We also assume that income is reinvested and that any monthly contributions you make are maintained.

Any promotion applied to your account is not taken into account within the projection.