Timeline’s Monte Carlo analysis enables users to test how a withdrawal strategy might fare under a wide range of market conditions by simulating sequences of random portfolio return. Timeline produces results for the selected withdrawal strategy based on 1,000 Monte Carlo simulations.
For instance, in a 30-year retirement period, Timeline generates 1,000 different 30-year scenarios with varying annual returns and inflation in each scenario based on the user’s input. The model is parameterised to simulate returns from a log-normal distribution that matches the behaviour of the portfolio.
The user is required to input their portfolio’s expected return, inflation rate, and corresponding standard deviation.
The user ensures that return, risk and inflation assumptions are reasoned and reasonable. Generally, the inputs should be based on long-term return expectations for the portfolio.
The inputs should be based on the total annualised nominal return of the portfolio, and/or the aggregate from the individual asset classes within the portfolio. Ultimately, the user decides which they prefer.