The Monte Carlo simulation is a statistical model used widely for portfolio management and financial planning. Our model runs thousands of possible outcomes to simulate market volatility, which helps us to project which outcome has a reasonable probability of success. This is a projection, and your actual outcome may vary with each use over time.
The simulations do not consider taxes, which will reduce the performance of taxable accounts. The simulations assume that your account will be rebalanced each year and do not consider the impact of a significant investment loss or gain.
To gauge if a portfolio is on track, not on track, ahead of schedule or complete, we provide an educational tool that reviews the difference between your current portfolio value, and the simulated projected value at the 50th percentile based on the years remaining to your target date, your repeating transfers, your risk comfort level, and goal.
To account for possible short term market risk as you approach your goal date, we apply weak market conditions (15th percentile) to the simulator when you are one year or less to your goal date. This means that the on track message may sometimes prompt you to have more than your goal target amount, as a cushion against any potential losses in the final year before your target date.
The simulated potential outcome does not reflect your account’s actual future performance and is not a guarantee of a future outcome.
You can read more about the Monte Carlo simulation and on track notifications in our Methodology & Assumptions.