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:
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
You can choose from several different withdrawal models including:
Fixed annual withdrawal or contribution - Apply a fixed annual withdrawal or contribution.
Yearly inflation adjustments are by default done for the specified withdrawal or contribution amount based on the selected model.
Fixed annual percentage - Withdraw a fixed percentage of the portfolio balance annually.
This model ensures that the portfolio never runs out, but the annual spending amount varies based on the portfolio growth.
The percentage based withdrawal can be smoothed by using the rolling portfolio average or a geometric spending rule.
Life expectancy based annual withdrawal - This model withdraws a variable percentage of the portfolio
balance based on life expectancy. This is the RMD approach where the withdrawal percentage is 1 / Life Expectancy.
Custom sequence - Import custom sequence of periodic cashflows from a file.
To simulate multiple stages such as career and retirement with detailed cashflow goals use the Financial Goals planning tool.
Monte Carlo simulation results for 10000 portfolios with $15,000,000 initial portfolio balance using available historical returns data from Jan 2008 to Dec 2019. The historical return for the selected portfolio for this period was 7.00% mean return (5.93% CAGR) with 13.24% standard deviation of annual returns. The sequence risk of returns was stress tested by having the worst generated annual return upfront. The simulation results are based on generated nominal returns and fixed 4.00% year withdrawals. The simulated inflation model used historical inflation with 1.70% mean and 1.32% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 2008 to Dec 2019. 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 All-Wld ex-US ETF (VEU) [Apr 2007 - May 2020].
10000 portfolios out of 10000 simulated portfolios (100.00%) 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.
Contributions and withdrawals are done at the end of each specified time period
Simulated Assets - Correlations and Returns
Simulated Assets - Correlations and Returns
Name
Ticker
IWD
VBR
VEU
VNQ
SHY
^CPIU
CAGR
Expected Annual Return
Annualized Volatility
iShares Russell 1000 Value ETF
IWD
1.00
0.95
0.88
0.74
-0.33
0.11
7.06%
8.37%
15.53%
Vanguard Small-Cap Value ETF
VBR
0.95
1.00
0.82
0.78
-0.33
0.12
8.75%
10.81%
19.33%
Vanguard FTSE All-Wld ex-US ETF
VEU
0.88
0.82
1.00
0.69
-0.26
0.11
2.14%
4.00%
18.87%
Vanguard Real Estate ETF
VNQ
0.74
0.78
0.69
1.00
-0.10
0.11
8.05%
11.15%
23.44%
iShares 1-3 Year Treasury Bond ETF
SHY
-0.33
-0.33
-0.26
-0.10
1.00
-0.23
1.48%
1.49%
1.17%
Inflation
^CPIU
0.11
0.12
0.11
0.11
-0.23
1.00
1.69%
1.70%
1.32%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 2008 to Dec 2019
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
-7.86%
-6.93%
-3.00%
-0.57%
0.72%
1.45%
1.96%
2.22%
2.77%
3.13%
25th Percentile
-2.01%
0.44%
1.66%
2.87%
3.41%
3.70%
3.95%
4.07%
4.35%
4.50%
50th Percentile
12.21%
8.11%
6.96%
6.41%
6.22%
6.11%
6.10%
6.07%
6.00%
6.01%
75th Percentile
20.23%
12.95%
11.43%
9.55%
8.88%
8.50%
8.20%
7.96%
7.69%
7.49%
90th Percentile
20.54%
16.67%
14.55%
12.20%
11.09%
10.45%
9.92%
9.58%
9.09%
8.73%
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%
66.89%
76.39%
81.65%
88.27%
92.68%
95.00%
96.79%
97.92%
99.07%
99.55%
>= 2.50%
66.89%
69.83%
71.31%
77.04%
81.04%
84.20%
86.79%
88.06%
91.60%
93.66%
>= 5.00%
66.89%
63.13%
60.33%
60.70%
61.82%
62.37%
63.47%
64.10%
65.97%
67.41%
>= 7.50%
66.89%
54.13%
46.51%
40.72%
37.79%
35.09%
32.45%
30.32%
27.56%
24.88%
>= 10.00%
58.55%
39.76%
32.69%
22.31%
16.57%
12.63%
9.32%
7.10%
4.31%
2.85%
>= 12.50%
42.34%
28.10%
19.11%
8.77%
4.38%
2.31%
1.09%
0.59%
0.20%
0.11%
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%
76.48%
0.44%
100.00%
20.12%
>= 5.00%
64.74%
0.42%
100.00%
19.30%
>= 7.50%
60.32%
0.39%
99.99%
18.57%
>= 10.00%
54.65%
0.38%
99.99%
17.95%
>= 12.50%
47.60%
0.36%
99.71%
17.32%
>= 15.00%
44.61%
0.36%
99.50%
16.69%
>= 17.50%
41.75%
0.33%
99.39%
15.89%
>= 20.00%
32.51%
0.29%
99.34%
15.09%
>= 22.50%
29.28%
0.24%
99.26%
14.32%
>= 25.00%
26.52%
0.22%
99.21%
13.76%
>= 27.50%
23.95%
0.19%
99.12%
13.12%
>= 30.00%
22.19%
0.19%
98.96%
12.46%
>= 32.50%
17.74%
0.18%
84.29%
11.72%
>= 35.00%
15.01%
0.18%
71.30%
11.11%
>= 37.50%
12.62%
0.14%
64.99%
10.60%
>= 40.00%
10.86%
0.12%
56.25%
9.81%
Loss is measured against the original portfolio balance.