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different answers to the same question
Old 10-11-2007, 08:45 PM   #1
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different answers to the same question

I think FIRECALC is a great tool. I have notice that when I use the monte carlo method I get different answers even when I use the same input.

For example spend 75000, have 1500000, monte carlo 9%, 10% std,
soc s 2013 for me 2012 wife, if get success of 95%, 86%,91.9, 88.7%

I had expected much less variability in repeated calculations.

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Old 10-12-2007, 10:38 AM   #2
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I'll take a shot at it. Monte Carlo calcs use random series of possible returns to produce a complete investment "run". So you'll get different numbers from different runs. Firecalcs standard mode uses actual return data in sequence as it actually happened.

The benefit of monte carlo is more variability of returns, producing results that are more best and worst case than the actual data. The actual return data is a bit more middling because theres some year on year correlation in the data. When stocks go down,most people sell like crazy until things hit bottom, then when prices go up, most people buy like crazy until things top out. Thats pretty much backwards to common sense, but its what happens. That behavioral trend, which can run to multiple years or even decades is tough to simulate. Monte Carlo presumes no such multi year correlations and therefore can have 25 consective "bad" or "good" years in sequence, while that would be unlikely to happen in the real world.

Some monte carlo calculators try to put in correlations or attempt to normalize sequences. At best these are trying to fake real return sequences; at worst they're making up fake data that wouldnt bear much resemblance to a real series of returns, and therefore may be of little use.

I've said it before but not recently: all this calculation is interesting but the bottom line is whether your plan would survive two scenarios: the great depression and the 1964-1975 sideways period. If you make it through those, you've survived the worst that we've seen so far and you're probably good to go. Screwing around with monte carlo and other simulations is intellectually interesting, but personally I dont think theres a whole lot of value to it.

If your total portfolio is roughly 25x your expenses and you plan to invest in a rational manner, then you should be fine. If you've got less than 25x, you might want to work another year or two. More than 25x, what are you waiting for?

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Old 10-12-2007, 03:35 PM   #3
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Soooo - CFB are ya ready to put the Norwegian widow on your Christmas card list?

heh heh heh heh heh - plus we haven't had a rousing round of Pssst Wellesley in a while.

But, but calculators are fun - still like FireCalc and ORP. Then I spend depending on whether I feel cheap or rich.

heh heh heh - planning on 5% variable come 12/31 this year - we'll see. 3% if I get super nervous.
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Old 10-20-2007, 08:22 PM   #4
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Originally Posted by unclemick View Post
Soooo - CFB are ya ready to put the Norwegian widow on your Christmas card list?
She's never been off it. And I send her one of the GOOD cards from Costco, not the cheap ones from sams club.

Everyone has to go through their "calculator reassurance" phase. I thought it was helpful, but when I realized they all told me different and sometimes incompatible stuff, and anything they had to say was subject to the questionable guesses input that I provided.

Got a good bit of wellesley in my AA in the "short to medium money" bucket. Its pretty predictable.
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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