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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
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Monte Carlo Simulation Results Save

Monte Carlo simulation results for 10000 portfolios with $100,000 initial portfolio balance using available historical returns data from Jan 1992 to Dec 2025 with annual sampling. 10-year linear glide path was used to transition from the starting portfolio to the retirement portfolio. The simulated inflation model used historical inflation with 2.55% mean and 1.18% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1992 to Dec 2025. The generated inflation samples were correlated with simulated asset returns based on historical correlations. The available historical data for the simulation inputs was constrained by Global Bonds (Unhedged) [Jan 1992 - Aug 2026].

Starting Portfolio

Asset Class Allocation
US Stock Market 52.00%
Global ex-US Stock Market 28.00%
Total US Bond Market 16.00%
Global Bonds (Unhedged) 4.00%

Retirement Portfolio

Asset Class Allocation
US Stock Market 13.00%
Global ex-US Stock Market 7.00%
Total US Bond Market 64.00%
Global Bonds (Unhedged) 16.00%

Financial Goals

PurposeTypeStarts InEnds InFrequencyTimesTotalSuccess
Career SavingsContribute $1,5001 month35 yearsMonthly420$630,000100.00%
CollegeWithdraw $40,00012 years15 yearsAnnually4-$160,000100.00%
Retirement SpendingWithdraw $3,50035 years49 years and 11 monthsMonthly180-$630,00099.38%
Total is the sum of expected cashflows in present dollars

Performance Summary

10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile
Time Weighted Rate of Return (nominal)5.15%6.20%7.32%8.44%9.44%
Time Weighted Rate of Return (real)2.49%3.55%4.65%5.76%6.74%
Portfolio End Balance (nominal)$2,333,492$4,395,356$7,805,217$13,350,559$20,727,862
Portfolio End Balance (real)$651,594$1,243,714$2,223,176$3,821,606$5,965,120
Annual Mean Return (nominal)5.91%6.89%7.94%9.00%9.94%
Annualized Volatility8.90%9.31%9.77%10.24%10.64%
Sharpe Ratio0.300.400.520.640.75
Sortino Ratio0.410.560.750.951.15
Maximum Drawdown-50.78%-40.72%-32.85%-26.63%-21.79%
Maximum Drawdown Excluding Cashflows-49.95%-42.58%-34.47%-27.84%-23.67%
Safe Withdrawal Rate3.20%4.25%5.72%7.46%9.16%
Perpetual Withdrawal Rate2.44%3.43%4.45%5.45%6.32%
9938 portfolios out of 10000 simulated portfolios (99.38%) survived all withdrawals.

Portfolio Balance

   

Portfolio Survival

Simulated Cashflows

Portfolio End Balance Histogram

Maximum Drawdown Histogram Including Cashflows

Maximum Drawdown Histogram Excluding Cashflows

Simulated Assets - Correlations and Returns

NameUS Stock MarketGlobal ex-US Stock MarketTotal US Bond MarketGlobal Bonds (Unhedged)U.S. Consumer Price IndexCAGRExpected Annual ReturnAnnualized Volatility
US Stock Market1.000.810.150.450.0010.50%11.75%14.98%
Global ex-US Stock Market0.811.000.170.590.015.69%7.16%16.54%
Total US Bond Market0.150.171.000.63-0.174.47%4.56%4.11%
Global Bonds (Unhedged)0.450.590.631.00-0.064.79%5.09%7.50%
U.S. Consumer Price Index0.000.01-0.17-0.061.002.54%2.55%1.18%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1992 to Dec 2025

Expected Annual Return

Percentile1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years40 Years50 Years
10th Percentile-9.79%-2.67%-0.04%2.36%3.49%4.19%4.59%4.88%5.09%5.15%
25th Percentile1.77%3.65%4.33%5.38%5.85%6.23%6.45%6.54%6.37%6.20%
50th Percentile13.78%9.60%9.11%8.62%8.47%8.42%8.40%8.33%7.77%7.32%
75th Percentile18.89%15.01%13.28%11.74%11.08%10.65%10.37%10.06%9.13%8.44%
90th Percentile23.59%18.47%16.52%14.23%13.13%12.54%12.06%11.60%10.32%9.44%

Annual Return Probabilities

Return1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years40 Years50 Years
>= 0.00%76.70%84.11%89.92%96.04%98.15%99.23%99.66%99.85%99.98%99.99%
>= 2.50%70.87%78.17%82.54%89.63%93.47%95.81%97.49%98.32%99.33%99.75%
>= 5.00%70.87%70.29%71.96%77.38%81.78%85.54%87.38%89.14%90.86%91.31%
>= 7.50%67.86%60.26%59.23%59.44%60.14%61.39%62.44%61.92%54.86%45.83%
>= 10.00%59.23%48.15%44.46%38.63%34.72%31.35%29.12%25.83%13.12%5.08%
>= 12.50%59.23%36.78%28.96%19.84%13.96%10.21%7.08%4.97%0.71%0.06%

Loss Probabilities

LossLoss Probability Excluding CashflowsLoss Probability Including Cashflows
Within Time PeriodEnd of Time PeriodWithin Time PeriodEnd of Time Period
>= 2.50%61.30%0.00%25.59%0.78%
>= 5.00%47.42%0.00%19.29%0.77%
>= 7.50%41.46%0.00%13.85%0.75%
>= 10.00%37.59%0.00%13.37%0.75%
>= 12.50%32.69%0.00%7.79%0.75%
>= 15.00%30.63%0.00%4.44%0.75%
>= 17.50%21.10%0.00%4.30%0.75%
>= 20.00%17.43%0.00%4.05%0.75%
>= 22.50%15.72%0.00%1.25%0.74%
>= 25.00%12.09%0.00%1.10%0.74%
>= 27.50%10.68%0.00%0.87%0.74%
>= 30.00%9.30%0.00%0.87%0.74%
>= 32.50%8.13%0.00%0.81%0.74%
>= 35.00%5.56%0.00%0.79%0.73%
>= 37.50%4.37%0.00%0.77%0.73%
>= 40.00%3.56%0.00%0.76%0.73%
Loss is measured against the original portfolio balance.

Glide Path

  • 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. Other investments not considered may have characteristics similar or superior to those being analyzed.
  • 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.
  • Risk-free returns are calculated based on U.S. 3-Month Treasury Bill Rate.
  • Inflation is calculated based on U.S. Consumer Price Index.
  • 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.
  • Invesco QQQ is a paid sponsor of the SRL Analytics Tool, Portfolio Visualizer. The model portfolios are for illustrative purposes only and do not constitute a recommendation or suitability for any investor. Inveso is not affiliated with SRL Global.
  • 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 (dollar amount withdrawal).
  • 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 (percentage withdrawal).
  • The results assume annual rebalancing of portfolio assets.
  • Sharpe and Sortino ratios are calculated against the historical average 2.56% risk-free rate.
  • Glide path based portfolio allocation changes are done at the start of each year
  • 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