Monte Carlo simulations are run on every backtest our tools perform, this tool provides the ability to test long term expected portfolio growth based on savings and account size, and portfolio survival based on withdrawals, and if a portfolio can survive the planned withdrawals during the retirement years. What the Monte Carlo simulation does is take the expected returns rate from the backtest and the volatility values from the backtest, and use these values to construct a normal distribution of expected returns and randomly choose outcomes up to 1000 times to give an expected portfolio return. Since results are based on the backtests return % and volatility % the results are only as accurate as the backtest is an accurate representation of future results. We also have stand alone Monte Carlo simulators for savings and withdraw, where users can manually input their expected return % and volatility %.
Calculation of the normal distribution has density: f(x) = 1/(√(2 π) σ) e^-((x - μ)^2/(2 σ^2)) where μ is the mean of the distribution and σ the standard deviation.
After each backtest the tool automatically runs a Monte Carlo simulation on the result, and allows the user to interact with changing the inflation, advisor fees, duration of simulation, and account size and deposit/withdraw amounts. To change from 'Savings' to 'Withdraw' mode select those options from the dropdown. In savings mode the strategy will allow users to simulate contributing to an account, and in withdrawal mode the strategy will allow users to simulate withdrawing from account each month.
We also have stand alone Monte Carlo simulation tools, called the Retirement Savings and Retirement Withdrawal tools, they allow users to input their expected % return and their expected volatility %.
To understand the purpose of each input in the Monte Carlo simulation tool please read our How to articles on the stand alone tools:
Please keep in mind the results are only as accurate as the information you put into the tools, therefore if you put in values for return and volatility and other entries that do not reflect future market conditions this tool will not show accurate information. These tools only shows possible futures, and is not a guarantee of future account success. RotationInvest.com takes no responsibility for the accuracy of results.
Strategies presented anywhere on this site are ideas only, and only for education.
RotationInvest.com/PortfolioBuilderInvest.com do not provide investment advice, and are not investment advisors.
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