Monte Carlo Portfolio Simulator

The Monte Carlo simulator helps you understand the range of possible outcomes for your investments by running thousands of randomized market scenarios. Here's how to get the most out of it:

1. Choose your mode. "Growth" mode projects how your portfolio will grow over time with contributions. "Withdrawal" mode simulates retirement drawdowns. "Goal" mode calculates the probability of reaching a specific target.
2. Enter your starting portfolio value. This is your current invested balance — the amount you have in stocks, bonds, ETFs, or other market investments today.
3. Set your contributions or withdrawals. In growth mode, enter how much you plan to invest each month. In withdrawal mode, enter your planned annual withdrawal amount.
4. Choose your expected return and volatility. For a diversified stock portfolio, 7% return and 15% volatility are common starting points. A balanced 60/40 portfolio might use 6% return and 10% volatility. Lower returns with lower volatility give narrower outcome ranges.
5. Set your time horizon. Enter the number of years you plan to invest or withdraw. Longer time horizons create wider outcome ranges due to compounding uncertainty.
6. Read the chart. The colored bands show percentile outcomes. The median (50th percentile) is the middle outcome. The outer bands show best-case and worst-case scenarios across all simulations.

Adjust inputs to see how changes in savings rate, return assumptions, or time horizon shift your probability of success. The "success rate" tells you what percentage of simulated scenarios met or exceeded your goal.

Why Monte Carlo Instead of a Simple Projection?

A simple compound interest calculator gives you one number: "Your portfolio will be worth X." But real markets don't produce steady returns. Some years return +30%, others -20%. Monte Carlo simulation captures this randomness by running thousands of scenarios with different sequences of returns, showing you the full range of what's possible rather than a single optimistic or pessimistic line.

Understanding Expected Return vs. Volatility

Expected return is the average annual growth rate you anticipate. Volatility (standard deviation) measures how much returns fluctuate around that average. Two portfolios with the same 7% expected return but different volatilities will produce very different outcome ranges. Higher volatility means more uncertainty — wider bands on the chart and a lower probability of hitting specific targets.

What the Percentile Bands Tell You

The chart displays percentile bands: the 10th, 25th, 50th (median), 75th, and 90th percentiles. The 10th percentile means 90% of simulations did better than this line — it represents a poor-but-plausible scenario. The 90th percentile represents unusually good outcomes. For conservative planning, focus on the 25th percentile: if your plan works even in below-average markets, you're in a strong position.

Sequence of Returns Risk

Monte Carlo simulation is especially valuable for retirement planning because it captures "sequence of returns risk" — the danger that poor market returns early in retirement permanently damage your portfolio. Even with the same average return, withdrawing during a downturn depletes your portfolio faster than withdrawing during a bull market. The simulation shows how this risk affects your withdrawal sustainability.

Limitations to Keep in Mind

Monte Carlo assumes returns follow a normal distribution, which underestimates extreme market events (crashes, bubbles). It also assumes your inputs remain constant over time. Use these results as a planning guide, not a guarantee. Revisit your assumptions annually and adjust as your situation changes.