Financial Goals

Portfolio Monte Carlo Simulation Overview

This Monte Carlo simulation supports planning for financial goals and related spending. Multiple cashflow goals can be applied based on different life stages, and the simulation supports the use of a linear glide path to transition from a career stage growth portfolio into a retirement stage income portfolio. The following simulation models are supported for portfolio returns:

Historical Returns - Simulate future returns by randomly selecting the returns for each year based on available historical returns
Forecasted Returns - Simulate future returns based on any forecasted mean and standard deviation of assets
Statistical Returns - Simulate future returns based on the mean, volatility and correlations of portfolios assets
Parameterized Returns - Simulate future returns based on the specified statistical distribution (single stage only)

Simulation Model Configuration

Planning Type

Years to Retirement

Glide Path Years

Portfolio Type

Initial Amount

$ .00

Simulation Period in Years

Tax Treatment

Investment Horizon

Federal Income Tax

Capital Gains Tax

Dividend Tax

Affordable Care Act Tax

State Income Tax

Simulation Model

Time Series Model

Use Historical Volatility

Use Full History

Start Year

End Year

Bootstrap Model

Block Min. Years

Block Max. Years

Circular Bootstrapping

Distribution

Degrees of Freedom

Expected Return

Volatility

Sequence of Returns Risk

Worst Years At Retirement

Inflation Model

Inflation Mean

Inflation Volatility

Rebalancing

Intervals

Percentile Intervals

Return Intervals

Asset 1

Asset 2

Asset 3

Asset 4

Asset 5

Asset 6

Asset 7

Asset 8

Asset 9

Asset 10

Total

Goal #1

Type

$ .00

Inflation Adjusted

periods

% of previous

Starts

years

Frequency

times

Goal #2

Type

$ .00

Inflation Adjusted

periods

% of previous

Starts

years

Frequency

times

Goal #3

Type

$ .00

Inflation Adjusted

periods

% of previous

Starts

years

Frequency

times

Goal #4

Type

$ .00

Inflation Adjusted

periods

% of previous

Starts

years

Frequency

times

Monte Carlo Simulation Results Save

Monte Carlo simulation results for 10000 portfolios with $1,000 initial portfolio balance using available historical returns data from Jan 1986 to Dec 2022 with monthly sampling. The historical pre-tax return for the selected portfolio for this period was 10.42% mean return (8.95% CAGR) with 15.31% standard deviation of annual returns. The simulated inflation model used normal distribution with 2.00% mean and 3.00% standard deviation based on the parameters. The generated inflation samples were uncorrelated with simulated asset returns. The available historical data for the simulation inputs was constrained by Global ex-US Stock Market [Jan 1986 - May 2023].

Portfolio Model

Asset Class	Allocation
US Stock Market	60.00%
Global ex-US Stock Market	40.00%
Save portfolio »

Financial Goals

Financial Goals
Purpose	Type	Starts In	Ends In	Frequency	Times	Total	Success
Spara	Contribute $1,000	1 month	10 years	Monthly	120	$120,000	100.00%
Uttag	Withdraw 8.00% of portfolio	10 years	74 years	Annually	65	-	100.00%
ISK-skatt	Withdraw 0.50% of portfolio	Now	74 years	Annually	75	-	100.00%
Fondavgifter	Withdraw 0.04% of portfolio	Now	74 years and 11 months	Monthly	900	-	100.00%
Total is the sum of expected cashflows in present dollars

Performance Summary

Summary Statistics
	10th Percentile	25th Percentile	50th Percentile	75th Percentile	90th Percentile
Time Weighted Rate of Return (nominal)	6.40%	7.59%	8.88%	10.28%	11.46%
Time Weighted Rate of Return (real)	4.25%	5.40%	6.73%	8.09%	9.28%
Portfolio End Balance (nominal)	$22,048	$48,191	$113,408	$282,493	$600,604
Portfolio End Balance (real)	$4,894	$10,992	$26,668	$66,379	$144,122
Maximum Drawdown	-93.96%	-88.87%	-80.15%	-69.46%	-60.36%
Maximum Drawdown Excluding Cashflows	-58.00%	-51.16%	-44.21%	-38.79%	-34.46%
Safe Withdrawal Rate	3.42%	4.70%	6.52%	8.75%	11.06%
Perpetual Withdrawal Rate	4.16%	5.20%	6.38%	7.55%	8.55%
10000 portfolios out of 10000 simulated portfolios (100.00%) survived all withdrawals.

Portfolio Balance

Simulated Cashflows

Notes and Disclosures

IMPORTANT: The projections or other information generated by Portfolio Visualizer regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.
The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities. All use is subject to terms of service.
Investing involves risk, including possible loss of principal. Past performance is not a guarantee of future results.
Asset allocation and diversification strategies do not guarantee a profit or protect against a loss.
Hypothetical returns do not reflect trading costs, transaction fees, commissions, or actual taxes due on investment returns.
The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.
Refer to the related documentation sections for more details on terms and definitions, methodology, and data sources.
A Monte Carlo simulation is a mathematical technique used to provide a range of possible outcomes and to approximate the probability of certain outcomes by running multiple trial runs, called simulations, using random variables. The simulation results are displayed by percentile, a 5th percentile result means that 5% of the simulated portfolios did worse and 95% of simulated portfolios did better for the given return or risk metric. At the median point (50th percentile), half of the simulated portfolios did better and half did worse.
The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.
Compound annualized growth rate (CAGR) is the annualized geometric mean return of the portfolio. It is calculated from the portfolio start and end balance and is thus impacted by any cashflows.
The time-weighted rate of return (TWRR) is a measure of the compound rate of growth in a portfolio. This is calculated from the holding period returns (e.g. monthly returns), and TWRR will thus not be impacted by cashflows. If there are no external cashflows, TWRR will equal CAGR.
The money-weighted rate of return (MWRR) is the internal rate of return (IRR) taking into account cashflows. This is the discount rate at which the present value of cash inflows equals the present value of cash outflows.
Real return and balance are inflation adjusted values and show the growth of the purchasing power of the portfolio. Nominal return and balance show the portfolio gains without accounting for inflation.
Standard deviation (Stdev) is used to measure the dispersion of returns around the mean and is often used as a measure of risk. A higher standard deviation implies greater the dispersion of data points around the mean.
Correlation measures to what degree the returns of the two assets move in relation to each other. Correlation coefficient is a numerical value between -1 and +1. If one variable goes up by a certain amount, the correlation coefficient indicates which way the other variable moves and by how much. Asset correlations are calculated based on monthly returns.
A drawdown refers to the decline in value of a single investment or an investment portfolio from a relative peak value to a relative trough. A maximum drawdown (Max Drawdown) is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. Drawdown statistics are calculated from simulated monthly returns.
All risk measures for the portfolio and portfolio assets are calculated based on monthly returns.
The results are based on simulating 10000 portfolio return paths.
The probability of success is based on the number of simulations the portfolio survives with a positive end balance.
Safe withdrawal rate is the percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment without the portfolio running out of money.
Perpetual withdrawal rate is the percentage of portfolio balance that can be withdrawn at the end of each year while retaining the inflation adjusted portfolio balance.
The results assume annual rebalancing of portfolio assets.
Withdrawals are done at the start of each specified time period (fixed amounts before percentage based)
Contributions are done at the end of each specified time period

Portfolio End Balance Histogram

Maximum Drawdown Histogram Including Cashflows

Maximum Drawdown Histogram Excluding Cashflows

Simulated Assets - Correlations and Returns

Simulated Assets - Correlations and Returns
Name	US Stock Market	Global ex-US Stock Market	Inflation	CAGR	Expected Annual Return	Annualized Volatility
US Stock Market	1.00	0.72	-0.02	10.17%	11.53%	15.62%
Global ex-US Stock Market	0.72	1.00	-0.03	6.48%	8.19%	17.86%
Inflation	-0.02	-0.03	1.00	2.74%	2.74%	1.16%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1986 to Dec 2022

Expected Annual Return

Expected Annual Return
Percentile	1 Year	3 Years	5 Years	10 Years	15 Years	20 Years	25 Years	30 Years	40 Years	50 Years
10th Percentile	-11.22%	-2.77%	-0.23%	2.34%	3.49%	4.18%	4.67%	5.08%	5.52%	5.88%
25th Percentile	-1.16%	2.89%	4.24%	5.41%	6.03%	6.43%	6.67%	6.84%	7.11%	7.31%
50th Percentile	9.59%	9.17%	9.05%	9.05%	9.02%	8.97%	8.94%	8.88%	8.91%	8.94%
75th Percentile	21.24%	15.96%	14.17%	12.63%	11.91%	11.48%	11.28%	11.07%	10.75%	10.56%
90th Percentile	32.12%	21.97%	18.94%	16.03%	14.67%	13.85%	13.33%	12.94%	12.43%	12.06%

Annual Return Probabilities

Annual Return Probabilities
Return	1 Year	3 Years	5 Years	10 Years	15 Years	20 Years	25 Years	30 Years	40 Years	50 Years
>= 0.00%	72.62%	83.84%	89.34%	95.78%	98.17%	99.22%	99.66%	99.84%	99.99%	99.96%
>= 2.50%	67.24%	76.30%	81.80%	89.44%	93.46%	95.93%	97.54%	98.40%	99.29%	99.66%
>= 5.00%	61.36%	67.24%	71.53%	77.63%	82.13%	85.59%	88.08%	90.42%	93.03%	94.81%
>= 7.50%	55.16%	57.03%	58.44%	61.06%	63.21%	64.81%	66.44%	67.40%	69.78%	72.30%
>= 10.00%	49.16%	46.75%	44.76%	42.66%	41.26%	39.42%	37.47%	36.30%	34.54%	32.90%
>= 12.50%	42.96%	36.84%	32.73%	25.70%	20.78%	17.43%	15.06%	12.67%	9.69%	7.11%

Loss Probabilities

Loss Probabilities
Loss	Loss Probability Excluding Cashflows		Loss Probability Including Cashflows
Loss	Within Time Period	End of Time Period	Within Time Period	End of Time Period
>= 2.50%	64.81%	0.00%	0.09%	0.02%
>= 5.00%	54.23%	0.00%	0.09%	0.02%
>= 7.50%	45.89%	0.00%	0.09%	0.02%
>= 10.00%	38.52%	0.00%	0.09%	0.02%
>= 12.50%	32.17%	0.00%	0.08%	0.02%
>= 15.00%	27.25%	0.00%	0.06%	0.02%
>= 17.50%	22.33%	0.00%	0.05%	0.02%
>= 20.00%	18.21%	0.00%	0.05%	0.02%
>= 22.50%	14.59%	0.00%	0.04%	0.02%
>= 25.00%	11.78%	0.00%	0.03%	0.02%
>= 27.50%	9.54%	0.00%	0.02%	0.02%
>= 30.00%	7.60%	0.00%	0.02%	0.02%
>= 32.50%	5.82%	0.00%	0.02%	0.02%
>= 35.00%	4.65%	0.00%	0.02%	0.02%
>= 37.50%	3.71%	0.00%	0.02%	0.02%
>= 40.00%	2.87%	0.00%	0.02%	0.02%
Loss is measured against the original portfolio balance.