Monte Carlo Simulation

This online Monte Carlo simulation tool provides a means to test long term expected portfolio growth and portfolio survival based on withdrawals, e.g., testing whether the portfolio can sustain the planned withdrawals required for retirement or by an endowment fund. The following simulation models are supported for portfolio returns:

You can choose from several different withdrawal models including:

To simulate multiple stages such as career and retirement with detailed cashflow goals use the Financial Goals planning tool.

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Monte Carlo Simulation Results

Monte Carlo simulation results for 10000 portfolios with $1,000,000 initial portfolio balance using available historical returns data from Jan 1972 to Dec 2017. The historical return for the selected portfolio for this period was 10.21% mean return (9.64% CAGR) with 9.93% standard deviation of annual returns. The simulation results are based on generated nominal returns and specified inflation adjusted withdrawals ($45,000 per year). The simulated inflation model used historical inflation with 3.98% mean and 1.32% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1972 to Dec 2017. 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 US Stock Market [Jan 1972 - Nov 2018].
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Portfolio Allocation

Asset Class Allocation
US Stock Market 60.00%
10-year Treasury 40.00%
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Summary Statistics

Summary Statistics
10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile
Time Weighted Rate of Return6.98%8.27%9.68%11.06%12.32%
Portfolio End Balance (nominal)$0.00$2,008,735$5,254,680$10,017,002$16,367,511
Portfolio End Balance (inflation adjusted)$0.00$605,446$1,636,563$3,225,871$5,456,860
Maximum Drawdown-100.00%-38.99%-27.85%-22.11%-19.36%
Maximum Drawdown Excluding Cashflows-30.81%-25.44%-21.80%-19.36%-16.13%
8961 portfolios out of 10000 simulated portfolios (89.61%) survived all withdrawals.
   
Notes on results:
  • Monte Carlo simulation uses historical data and thus assumes that the future will, to some extent, mimic the past. The actual future results may vary.
  • 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.
  • The results assume annual rebalancing of portfolio assets at the end of each year. Taxes and transaction fees are not taken into account.
  • Past performance is not a guarantee of future returns and data and other errors may exist. See Disclaimer and Terms of Use
  • Contributions and withdrawals are done at the end of each specified time period

Simulated Assets - Correlations and Returns

Simulated Assets - Correlations and Returns
NameUS Stock Market10-year TreasuryInflationCAGRExpected Annual ReturnAnnualized Volatility
US Stock Market1.000.06-0.0810.41%11.72%15.37%
10-year Treasury0.061.00-0.157.21%7.56%8.16%
Inflation-0.08-0.151.003.97%3.98%1.32%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1972 to Dec 2017

Expected Annual Return

Expected Annual Return
Percentile1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years
10th Percentile-4.42%1.42%3.08%4.99%5.91%6.33%6.74%6.98%
25th Percentile0.62%5.40%6.33%7.27%7.65%7.98%8.20%8.27%
50th Percentile11.16%9.90%9.80%9.69%9.67%9.67%9.70%9.68%
75th Percentile17.28%14.15%13.17%12.12%11.66%11.37%11.19%11.06%
90th Percentile24.90%17.86%16.01%14.20%13.39%12.98%12.56%12.32%

Annual Return Probabilities

Annual Return Probabilities
Return1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years
>= 0.00%80.04%93.29%96.92%99.77%99.97%99.99%100.00%100.00%
>= 2.50%73.65%86.61%91.98%97.53%99.33%99.80%99.95%99.98%
>= 5.00%69.74%77.17%82.10%89.97%94.20%96.63%97.95%98.68%
>= 7.50%63.15%63.65%67.47%72.89%76.66%80.44%82.99%84.77%
>= 10.00%56.55%49.42%48.39%46.35%45.76%45.01%44.50%43.62%
>= 12.50%43.25%34.01%29.52%21.62%16.35%13.43%10.38%8.47%