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 Save

Monte Carlo simulation results for 10000 portfolios with $1.00 initial portfolio balance using available historical returns data from Jan 2006 to Dec 2020. The historical pre-tax return for the selected portfolio for this period was 9.05% mean return (6.92% CAGR) with 17.68% standard deviation of annual returns. The simulation results are based on generated nominal returns and specified contributions ($200 per month not adjusted for inflation). The simulated inflation model used historical inflation with 1.90% mean and 1.31% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 2006 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 Vanguard FTSE Europe ETF (VGK) [Apr 2005 - Feb 2021].

Portfolio Allocation

Ticker Name Allocation
IVV iShares Core S&P 500 ETF 30.00%
EEM iShares MSCI Emerging Markets ETF 30.00%
VGK Vanguard FTSE Europe ETF 30.00%
VPL Vanguard FTSE Pacific ETF 10.00%
Save portfolio »

Summary Statistics

Summary Statistics
10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile
Time Weighted Rate of Return (nominal)0.48%3.82%7.38%10.62%13.34%
Time Weighted Rate of Return (real)-1.19%1.99%5.38%8.50%11.09%
Portfolio End Balance (nominal)$48,363$72,100$111,502$167,638$235,032
Portfolio End Balance (real)$34,045$50,207$76,508$113,508$158,247
Maximum Drawdown-57.45%-50.06%-43.54%-30.67%-22.93%
Maximum Drawdown Excluding Cashflows-72.65%-61.39%-52.24%-43.61%-28.10%
Safe Withdrawal Rate3.73%5.59%8.11%10.97%13.71%
Perpetual Withdrawal Rate0.00%1.94%5.09%7.82%9.98%
   
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.
  • Contributions and withdrawals are done at the end of each specified time period

Simulated Assets - Correlations and Returns

Simulated Assets - Correlations and Returns
NameTickerIVVEEMVGKVPL^CPIUCAGRExpected Annual ReturnAnnualized Volatility
iShares Core S&P 500 ETFIVV1.000.790.880.840.089.84%11.09%15.07%
iShares MSCI Emerging Markets ETFEEM0.791.000.860.860.115.87%8.56%22.36%
Vanguard FTSE Europe ETFVGK0.880.861.000.880.104.78%6.83%19.62%
Vanguard FTSE Pacific ETFVPL0.840.860.881.000.064.59%6.03%16.48%
Inflation^CPIU0.080.110.100.061.001.89%1.90%1.31%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 2006 to Dec 2020

Expected Annual Return

Expected Annual Return
Percentile1 Year3 Years5 Years10 Years15 Years20 Years
10th Percentile-11.85%-9.92%-5.64%-2.06%-0.48%0.48%
25th Percentile-4.85%0.24%1.20%2.75%3.35%3.82%
50th Percentile14.13%9.63%8.70%7.60%7.50%7.38%
75th Percentile24.11%16.60%14.78%12.27%11.16%10.62%
90th Percentile28.69%22.52%19.34%16.04%14.42%13.34%

Annual Return Probabilities

Annual Return Probabilities
Return1 Year3 Years5 Years10 Years15 Years20 Years
>= 0.00%74.02%75.29%78.04%84.65%88.55%91.54%
>= 2.50%67.51%70.36%71.11%76.03%78.73%82.18%
>= 5.00%67.51%65.36%63.57%64.07%66.08%67.34%
>= 7.50%61.03%57.99%54.78%50.58%50.00%48.87%
>= 10.00%61.03%48.37%45.00%36.73%32.40%29.48%
>= 12.50%61.03%38.71%34.47%23.79%17.93%13.85%

Loss Probabilities

Loss Probabilities
LossLoss Probability Excluding CashflowsLoss Probability Including Cashflows
Within Time PeriodEnd of Time PeriodWithin Time PeriodEnd of Time Period
>= 2.50%78.73%8.10%0.00%0.00%
>= 5.00%76.18%7.80%0.00%0.00%
>= 7.50%70.58%7.47%0.00%0.00%
>= 10.00%67.37%7.08%0.00%0.00%
>= 12.50%60.10%6.78%0.00%0.00%
>= 15.00%58.01%6.49%0.00%0.00%
>= 17.50%53.23%6.17%0.00%0.00%
>= 20.00%45.49%5.92%0.00%0.00%
>= 22.50%43.23%5.53%0.00%0.00%
>= 25.00%36.07%5.20%0.00%0.00%
>= 27.50%33.23%4.97%0.00%0.00%
>= 30.00%31.37%4.72%0.00%0.00%
>= 32.50%28.95%4.37%0.00%0.00%
>= 35.00%27.19%4.05%0.00%0.00%
>= 37.50%25.26%3.67%0.00%0.00%
>= 40.00%23.35%3.42%0.00%0.00%
Loss is measured against the original portfolio balance.