impact of spending. The value of the portfolio continued to decline until the end of the holding period as spending consumed principal. CONCLUSIONS Real, after-tax returns are relevant to a taxable investor who seeks to preserve and grow the real value of an estate. Because the differences between nominal and real after-tax returns have been so great, investors should not make investment decisions based on expected nominal results. Over the past 76 years, government bonds and Treasury bills have more or less preserved real wealth but have provided no real growth. Inflation adds an element of uncertainty to all returns. The real return of even Treasury bills is uncertain and has been quite volatile during periods of surging inflation. There is no riskless security. The real, after-tax return of stocks is less volatile that the nominal return because the absolute amount of tax varies with market returns, thus narrowing the distribution of outcomes. Long-term returns of stocks, bonds, and Treasury bills have been more stable than one would expect from compounding observed annual volatility. This suggests there has been a mean-reversion tendency. Most investors use risk parameters to estimate the potential for bad results. Mean reversion plus the higher average return for equities leads to the observation that for sufficiently long holding periods, perhaps 10 years, the observed worst real, after-tax results of equities have been better than those of bonds or bills. Based on the historic returns, if a portfolio is required to support ongoing spending requirements, it is the "safer" asset allocation strategies that have been more likely to produce destruction of the estate's value. However, the interim volatility of riskier strategies will be greater. Investors should consider the expected interim volatility in the value of a portfolio as well as the expected volatility of terminal results. We demonstrated that an investor can derive an efficient frontier chart that contains adjustments for income taxes and inflation. We plotted the expected future real after-tax value of a portfolio against the volatility of the estimates based on historic market returns. In this chapter we did not consider estate or transfer taxes, nor did we consider tax-advantaged entities. In the next chapter we will seek to derive a similar efficient frontier chart that also takes into account estate and entity issues.