An “#OfficeHours with Michael Kitces” Periscope, looking at Monte Carlo investment assumptions in your retirement planning projections. For further details, see https://www.kitces.com/blog/monte-carlo-correlation-matrix-investment-assumptions-retirement-planning-projection/

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3 replies
  1. Mark Miller
    Mark Miller says:

    I am an individual investor who does my own Monte Carlo analysis for my portfolio. I've understood the point made here for some years, which I address by restricting the number of classes, i.e. total market index instead of large cap, mid cap, small cap etc., and then estimating R by taking the highest correlation between each class pair seen in recent years. This is a conservative assumption, and real experience should prove better than this. Therefore if this model gives a high percentage of successful runs, I can feel confident.

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  2. Paolo
    Paolo says:

    Why even bother with Monte Carlo analysis? Seems like a big inaccurate headache. Just use a conservative (relative to the allocation) growth rate and call it a day. Like 6% for a 60/40 portfolio for example.

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