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)
Monte Carlo simulation results for 10000 portfolios with $100,000 initial portfolio balance using available historical returns data from Jan 1994 to Dec 2020 with annual sampling. 35-year linear glide path was used to transition from starting portfolio to retirement portfolio. The simulated inflation model used historical inflation with 2.18% mean and 1.17% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1994 to Dec 2020. 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 1994 - Nov 2021].
Total is the sum of expected cashflows in present dollars
Summary Statistics
Summary Statistics
10th Percentile
25th Percentile
50th Percentile
75th Percentile
90th Percentile
Time Weighted Rate of Return (nominal)
5.38%
6.16%
7.01%
7.84%
8.57%
Time Weighted Rate of Return (real)
3.16%
3.91%
4.72%
5.50%
6.21%
Portfolio End Balance (nominal)
$3,035,492
$4,540,554
$6,716,015
$9,798,219
$13,523,498
Portfolio End Balance (real)
$1,051,199
$1,565,449
$2,301,643
$3,312,575
$4,546,082
Maximum Drawdown
-36.70%
-28.77%
-24.61%
-17.58%
-14.50%
Maximum Drawdown Excluding Cashflows
-39.59%
-32.81%
-25.57%
-18.77%
-15.95%
Safe Withdrawal Rate
3.45%
4.46%
5.74%
7.13%
8.57%
Perpetual Withdrawal Rate
3.07%
3.76%
4.52%
5.22%
5.85%
9998 portfolios out of 10000 simulated portfolios (99.98%) survived all withdrawals.
Notes on results:
Past performance is no guarantee of future results, which may vary. All use is subject to terms of service.
Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time.
The projections and other information generated by the Monte Carlo simulation tool 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, and hypothetical returns do not reflect trading costs, transaction fees, or taxes.
A Monte Carlo simulation is a mathematical technique designed to provide a range of possible outcomes to determine the probability of a particular result or set of results. The simulation provides a distribution of possible results, which are used to derive the probability of different outcomes.
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.
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.
The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.
The probability of success is based on the number of simulations the portfolio survives with a positive end balance.
Maximum drawdown statistics are calculated from simulated monthly balances.
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 at the end of each year.
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
Simulated Assets - Correlations and Returns
Simulated Assets - Correlations and Returns
Name
US Stock Market
Global ex-US Stock Market
Total US Bond Market
Global Bonds (Unhedged)
Inflation
CAGR
Expected Annual Return
Annualized Volatility
US Stock Market
1.00
0.84
0.01
0.26
0.02
10.10%
11.41%
15.36%
Global ex-US Stock Market
0.84
1.00
0.02
0.42
0.04
5.33%
6.85%
16.86%
Total US Bond Market
0.01
0.02
1.00
0.60
-0.13
5.14%
5.20%
3.56%
Global Bonds (Unhedged)
0.26
0.42
0.60
1.00
0.01
5.70%
5.95%
6.82%
Inflation
0.02
0.04
-0.13
0.01
1.00
2.17%
2.18%
1.17%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1994 to Dec 2020
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
-9.90%
-2.58%
-0.07%
2.39%
3.59%
4.26%
4.68%
4.93%
5.20%
5.38%
25th Percentile
-1.17%
3.35%
4.17%
5.23%
5.75%
6.06%
6.16%
6.21%
6.18%
6.16%
50th Percentile
13.48%
9.32%
8.81%
8.25%
8.07%
7.88%
7.72%
7.54%
7.23%
7.01%
75th Percentile
19.54%
14.70%
12.80%
10.98%
10.16%
9.64%
9.18%
8.80%
8.20%
7.84%
90th Percentile
23.58%
18.26%
16.10%
13.32%
11.98%
11.12%
10.46%
9.89%
9.06%
8.57%
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%
73.77%
84.04%
89.75%
96.29%
98.75%
99.62%
99.88%
99.99%
99.99%
100.00%
>= 2.50%
70.27%
77.46%
82.04%
89.58%
94.40%
97.23%
98.55%
99.18%
99.82%
99.97%
>= 5.00%
70.27%
69.56%
71.27%
76.54%
81.43%
85.18%
87.41%
89.32%
92.06%
93.81%
>= 7.50%
66.74%
58.96%
58.15%
56.87%
56.48%
56.01%
54.10%
50.76%
42.49%
34.20%
>= 10.00%
55.65%
46.67%
42.64%
33.84%
26.77%
20.84%
14.54%
9.07%
2.80%
0.67%
>= 12.50%
55.65%
34.66%
26.80%
14.53%
7.42%
3.20%
1.19%
0.26%
0.00%
0.00%
Loss Probabilities
Loss Probabilities
Loss
Loss Probability Excluding Cashflows
Loss Probability Including Cashflows
Within Time Period
End of Time Period
Within Time Period
End of Time Period
>= 2.50%
63.00%
0.00%
27.87%
0.03%
>= 5.00%
48.37%
0.00%
19.65%
0.03%
>= 7.50%
42.39%
0.00%
12.45%
0.03%
>= 10.00%
37.48%
0.00%
11.84%
0.03%
>= 12.50%
32.85%
0.00%
11.79%
0.03%
>= 15.00%
30.89%
0.00%
3.97%
0.03%
>= 17.50%
19.45%
0.00%
3.81%
0.03%
>= 20.00%
15.13%
0.00%
3.78%
0.02%
>= 22.50%
12.93%
0.00%
0.56%
0.02%
>= 25.00%
10.74%
0.00%
0.53%
0.02%
>= 27.50%
8.98%
0.00%
0.27%
0.02%
>= 30.00%
7.71%
0.00%
0.27%
0.02%
>= 32.50%
6.91%
0.00%
0.06%
0.02%
>= 35.00%
4.28%
0.00%
0.06%
0.02%
>= 37.50%
3.44%
0.00%
0.03%
0.02%
>= 40.00%
2.78%
0.00%
0.03%
0.02%
Loss is measured against the original portfolio balance.