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I want to backtest several basic optimization methods (e.g. MVO, "most-diversified portfolio"), and I want to do this on a basket of different asset indexes. To start with, I want to simulate a 60/40 portfolio (will use this as a benchmark).

What price series should I use, in particular, for bonds? I want to use a free, open source of data, which usually means getting data off of Yahoo! or FRED. I want a long history, back to the 80's if possible.

Does anyone have an example of R code to fetch a good equity and bond portfolio and show the performance of a 60/40 portfolio?

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On the bond side, perhaps the yield on the 10-year constant maturity series available at the St. Louis Federal Reserve (FRED website).

On the equities side, S&P 500 or a global index such as MSCI are good but you might not have history thru the early 80s on the latter.

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  • $\begingroup$ Thanks! Two questions: (1) the 10-year constant maturity on FRED is an interest rate, right? Don't I need to convert that into a price to backtest a 60/40 portfolio? (2) Are you aware of any bond aggregate indexes? US 10-year isn't very diversified by itself... $\endgroup$
    – Belmont
    Commented Jan 3, 2012 at 0:40
  • $\begingroup$ For (1) - Yes - it is an interest rate. You don't need prices per se, you need the returns for each period. You can assume a par value of say $100 at the start of the series and back-out the price of the bond using the interest rate at some point in time. That would give you the capital gains. Then you could add in the accrued interest each period. (2) Barclays Capital US Aggregate Bond Index $\endgroup$
    – Ram Ahluwalia
    Commented Jan 3, 2012 at 1:32
  • $\begingroup$ Thanks for this thoughtful response. Regarding your first point, if you have the time/inclination, would you mind expressing that as an equation within the body of your answer? Having a hard time following. :) Imagine that I want to backtest a 60/40 portfolio and rebalance monthly, how can I compute the returns for bonds? Regarding (2), any idea where that is publicly available? Let me know if you think I should specify any of this as a separate question... $\endgroup$
    – Belmont
    Commented Jan 3, 2012 at 1:53
  • $\begingroup$ @Belmont a question about where to get the data would be a duplicate of this and would be closed. Furthermore, this site is for professionals and academics, who would presumably have access to this data from their employer or university. $\endgroup$
    – Tal Fishman
    Commented Jan 3, 2012 at 15:58
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The answer to your question largely depends upon how you will be using the results of your simulation. I strongly believe that you should match the index you choose for simulation as closely as possible to the actual mix of stocks and bonds in which you will ultimately be investing.

Having said that, the most popular indices for these asset classes are:

Equity

  • Russell 1000 - US large + mid cap - data since 1979
  • Russell 3000 - US all cap - data since 1979
  • MSCI USA/EAFE/World - International country/regional indices - data since 1970
  • S&P 500 - US large cap - data since 1950s or earlier (backfilled)

Fixed Income

  • Lehman/Barclays US Treasury - data since 1973
  • Lehman/Barclays US Corporate - data since 1973
  • Lehman/Barclays US Aggregate - data since 1976

I'm not sure where to get these data for free, but you should be able to get a monthly returns series at relatively low cost. See our data question for suggestions and leads.

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