Monte Carlo Simulations can help investors project future values and the impact to portfolios from market movements and cash flows.
A Monte Carlo Simulation outlines the many possible outcomes of a situation with random variables, as well as the probability that any particular outcome will occur. It is used in a wide variety of professional fields from finance to engineering and even astrology.
In financial planning, Monte Carlo Simulations are most often by investors trying to ascertain how a variety of future market conditions may affect a portfolio's growth and ability to produce cash flows.
The Monte Carlo Simulation will produce a “probability of success” that your portfolio survives.
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