Monte Carlo simulation is a popular tool for projecting a lifetime financial plan. When using Monte Carlo with a low failure rate, an underlying implication is that one is implicitly using a lower portfolio return assumption in order to have a plan that works in most any market environment. The plan has to work in poor market environments as well to get a high success rate. It must work even when the underlying compounded portfolio returns are low. But the portfolio return sequences are not usually seen as part of the output from Monte Carlo, and so this point may be missed.
Read the full article on Wade’s Retirement Researcher Blog Here: http://wpfau.blogspot.com/2014/07/new-research-on-how-to-choose-portfolio.html
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