Monte Carlo Simulation

This 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 initial portfolio balance using available historical returns data from Jan 1972 to Dec 2018. The historical return for the selected portfolio for this period was 11.45% mean return (9.98% CAGR) with 15.07% standard deviation of annual returns. The simulated inflation model used historical inflation with 3.94% mean and 1.31% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1972 to Dec 2018. 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 Large Cap [Jan 1972 - Jun 2019].
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Portfolio Allocation

Asset Class Allocation
US Large Cap 100.00%
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Summary Statistics

Summary Statistics
10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile
Time Weighted Rate of Return (nominal)5.58%7.73%10.04%12.32%14.31%
Time Weighted Rate of Return (real)1.45%3.56%5.89%8.12%10.12%
Portfolio End Balance (nominal)$5,103$9,328$17,656$32,622$55,229
Portfolio End Balance (inflation adjusted)$1,559$2,880$5,596$10,457$18,054
Maximum Drawdown-58.00%-49.57%-40.71%-34.23%-29.78%
Safe Withdrawal Rate3.52%4.97%6.96%9.34%11.72%
Perpetual Withdrawal Rate1.47%3.47%5.58%7.53%9.19%
   
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.
  • 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. 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 Large CapInflationCAGRExpected Annual ReturnAnnualized Volatility
US Large Cap1.00-0.079.98%11.24%15.07%
Inflation-0.071.003.93%3.94%1.31%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1972 to Dec 2018

Expected Annual Return

Expected Annual Return
Percentile1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years
10th Percentile-12.02%-4.12%-0.66%2.65%3.78%4.50%5.14%5.58%
25th Percentile1.25%3.36%4.92%6.48%6.93%7.22%7.51%7.73%
50th Percentile14.91%11.25%10.69%10.44%10.22%10.16%10.09%10.04%
75th Percentile22.88%17.83%16.00%14.23%13.28%12.93%12.59%12.32%
90th Percentile31.36%23.17%20.28%17.54%16.07%15.32%14.67%14.31%

Annual Return Probabilities

Annual Return Probabilities
Return1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years
>= 0.00%78.19%83.19%88.62%95.38%97.67%99.02%99.47%99.71%
>= 2.50%71.64%77.09%82.49%90.40%93.71%96.09%97.71%98.32%
>= 5.00%67.56%70.49%74.76%81.47%85.44%88.03%90.55%92.72%
>= 7.50%59.13%63.01%64.53%68.91%71.36%73.02%75.07%76.69%
>= 10.00%56.83%54.53%53.35%53.02%51.84%51.39%50.94%50.52%
>= 12.50%52.49%45.36%40.94%36.47%30.96%28.46%25.93%23.20%

Loss Probabilities

Loss Probabilities
LossWithin Time PeriodEnd of Time Period
>= 2.50%64.27%0.24%
>= 5.00%52.32%0.24%
>= 7.50%44.82%0.23%
>= 10.00%37.34%0.23%
>= 12.50%31.72%0.20%
>= 15.00%29.29%0.18%
>= 17.50%26.67%0.18%
>= 20.00%22.73%0.15%
>= 22.50%19.50%0.14%
>= 25.00%17.88%0.13%
>= 27.50%16.49%0.13%
>= 30.00%13.61%0.09%
>= 32.50%12.20%0.07%
>= 35.00%9.45%0.07%
>= 37.50%8.10%0.07%
>= 40.00%6.09%0.05%
Loss is measured against the original portfolio balance.