Although many random variables exhibit a normal distribution, equity and fixed income returns have exhibited a Laplace distribution over the past ten years. A Laplace distribution has fatter tails than a normal distribution, which increases the probability of extreme events relative to a normal distribution. In statistical terms, a Laplace distribution has kurtosis of 6.0, while a normal [...]
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15 ArticlesWhat happens if I set a return manually for an investment?
If you manually enter an annual return for an investment account, that number will replace the return normally pulled from the asset class or holdings you’ve assigned.For example, if you have assigned your account the “Growth Stocks” asset class, overriding the return means the system will ignore the default return for Growth Stocks and use the number you entered instead.Keep in mind, if you [...]
Why does my Monte Carlo simulation show a 0% success probability when I still have money in my retirement accounts?
WealthTrace can show a 0% Monte Carlo success probability when your taxable funds run out before you can access your qualified, tax-deferred retirement accounts.For example, if you retire before age 59½ and your taxable accounts are depleted, WealthTrace considers your plan unsuccessful even if you have significant funds remaining in your IRA or 401(k).A 0% success probability does not mean you [...]
Where does the historical data for standard deviations that are used in Monte Carlo come from?
For this data we use appoximately 40 years of historical data from these ETFs:Cash: 1 Month CD Rate From Federal Reserve DataShort Term Bonds: iShares Short Term Bond ETF (SHY)Medium Term Bonds: iShares Medium Term Bond ETF (IEF)Long Term Bonds: iShares Long Term Bond ETF (TLT) Value Stocks: iShares Russell 1000 Value Index (IWD)Growth Stocks: iShares Russell 1000 Growth Index (IWF)International [...]
Where does the historical data for correlations that are used in Monte Carlo come from?
For this data we use appoximately 40 years of historical data from these ETFs:Cash: 1 Month CD Rate From Federal Reserve DataShort Term Bonds: iShares Short Term Bond ETF (SHY)Medium Term Bonds: iShares Medium Term Bond ETF (IEF)Long Term Bonds: iShares Long Term Bond ETF (TLT) Value Stocks: iShares Russell 1000 Value Index (IWD)Growth Stocks: iShares Russell 1000 Growth Index (IWF)International [...]