Multi-Period Horizon

The classic optimization framework is a single-period model.  Geometric return implies a multi-period time frame, but investing is still a series of single period decisions.  If you want to show the efficient frontier over multiple periods, enter a Multi-Period Horizon in the Options Menu.  The Multi-Period Horizon must be greater than 0 and less than 100 years.  The multi-period horizon does not change the optimization results, but it does set the time frame for the displayed multi-period efficient frontier on the Efficient Frontier Chart on the Results Worksheet.  Though not a true multi-period analysis, the multi-period line uses the geometric mean to help you determine a sensible amount of risk over time.

The financial validity of multi-period return depends on assumptions about the nature of single-period return. Employing active weight optimization, specifically calculating return relative to a benchmark, generally invalidates multi-period return; so, the Optimizer does not permit multi-period horizons to be above one while active weight optimization is enabled. However, in many situations that do not involve active weight optimization, multi-period return can be helpful in understanding the consequences of an optimization, particularly in the case of leveraged investment strategies. For more detailed multi-period calculations, access LifeCycle.