Simulating VWCE for FireCalc portfolio

[Tica_229]

I'd like to run my FireCalc simulations as if investing 100% in VWCE rather than the default portfolio focusing on the US market.

Instead of selecting "Total market" on the "Your portfolio" tab, I've selected "A portfolio with random performance" and input the VWCE values of a mean total portfolio return of 8.37% and standard deviation of 13.14%. Along with an inflation rate of 2%.

Am I doing it right?

 

[Alan]

Welcome to the site, why don't you introduce yourself here
https://www.early-retirement.org/forums/f26/

I don't see VWCE on the Vanguard US site. Is it this VWCE you are referring to?
https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001I3S0

If you reside in the USA I don't believe you can easily invest in overseas funds.

But what you propose doing in FIRECalc sounds good to me. I expect some more experienced FIRECalc users can give better advice and hopefully they will be along shortly.

 

[Tica_229]

Hi Alan, thanks for your response.

I'm a German citizen, based in Germany. Haven't been able to find a German/EU specific FIRE calculator that matches FireCalc in functionality

Indeed, VWCE is an accumulating fund that mimics FTSE All-World. From September 2003 to December 2023 it had a CAGR of 8.6% (minus 0.22% TER) in the Euro currency.

Though I'm now realising the values change based on currency (i.e. 8.32% CAGR and 15.67% standard deviation in US Dollars).

 

[Alan]

Hi Alan, thanks for your response.

I'm a German citizen, based in Germany. Haven't been able to find a German/EU specific FIRE calculator that matches FireCalc in functionality

Indeed, VWCE is an accumulating fund that mimics FTSE All-World. From September 2003 to December 2023 it had a CAGR of 8.6% (minus 0.22% TER) in the Euro currency.

Though I'm now realising the values change based on currency (i.e. 8.32% CAGR and 15.67% standard deviation in US Dollars).

In that case I definitely think that what you propose may give you some good guidelines but do be aware that, I believe, FIRECalc relies on historical data on the US Stock and bond markets. It looks at how your portfolio would have done in the past to give an idea of the chances of success going forward.

How it works - the philosophy:
FIRECalc makes a single fundamental assumption:
If your retirement strategy would have withstood the worst ravages of inflation, the Great Depression, and every other financial calamity the US has seen since 1871, then it is likely to withstand whatever might happen between now and the day you no longer have any need for your retirement funds.

If you accept that assumption, then just tell FIRECalc how much you have and how much you'll be spending, and FIRECalc will tell you how often your strategy would have worked throughout {US} history. Or what you need to change to make it all work.

How can FIRECalc predict future returns from past performance?

It can't. And it doesn't try. In fact, it tries to predict what will not happen. This might sound confusing, but it's really simple.

 

[Tica_229]

From my understanding, by selecting the "A portfolio with random performance", FireCalc does not use historical US stock market data and instead bases the forecast on random performance within the given parameters - similar to a Monte Carlo simulation - but happy to be corrected here!

i.e. when selecting " A portfolio with random performance" you'll get a different result each time as each generation is based on a new set of random performance data.

 

[Alan]

From my understanding, by selecting the "A portfolio with random performance", FireCalc does not use historical US stock market data and instead bases the forecast on random performance within the given parameters - similar to a Monte Carlo simulation - but happy to be corrected here!

i.e. when selecting " A portfolio with random performance" you'll get a different result each time as each generation is based on a new set of random performance data.

I'd forgotten that it supports Monte Carlo simulation, so you should be in good shape with the random performance selection. When I was saving to be FI I used to use the calculators on Vanguard and Fidelity for Monte Carlo simulations and used FIRECalc as my "backcaster".