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? firecalc "random performance"
08-15-2014, 01:17 PM
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#1
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Recycles dryer sheets
Join Date: Jun 2014
Location: seattle
Posts: 51
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? firecalc "random performance"
I enjoy the firecalc calculator very much but have recently been getting some results I don't understand when I try to use the "random performance" under the "your portfolio" tab.
3% withdrawal for 40 years with 50/50 portfolio = 100%
If I change to the "random performance" - 3% inflation, 9% total returns and 10% standard deviation =90% success
I thought my inputs above should historically mimic a 50/50 portfolio?
The real reason I care is that I was trying to account for projected lower returns in the future (aka total returns around 6-7%) but then I get abysmal chance of success. Is it that scary or am I doing something wrong?
Thanks
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08-15-2014, 02:01 PM
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#2
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Recycles dryer sheets
Join Date: Jun 2014
Posts: 406
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I think (not the expert) that the random performance means Monte Carlo simulation of what the market will do with those parameters ((% +/-10%). Which means it is possible to have several long down trends (I dumped the data once and checked and saw a decade or so of -ve returns).
So if you think past performance is no guarantee of future it makes sense. But historically it doesn't. The Flexible Retirement Planner does MC simulations but appears to through out simulations that are the bottom/top 10% to try and avoid this situation. Not sure if Firecalc does
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If money is the root of all evil I want to be a bad man
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08-15-2014, 02:40 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
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You are correct that 'random performance' = Monte Carlo. And no, I do not believe Dory36 attempted to prevent the possibility of having several back-to-back bad years in MC simulations.
My personal opinion is using the random performance option in FIRECalc is like reading a Playboy magazine wearing a blindfold. You're missing the good stuff! 
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Numbers is hard
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08-15-2014, 03:00 PM
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#4
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
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It is possible that we could have 1929 to 1932 (deflation), then the 1973-1974 inflationary recession, followed by the decline in 2000 to 2003, and then the crash of 2008-2009. Yep, but I'm not going to worry about that sequence.
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08-15-2014, 03:09 PM
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#5
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
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 Quote:
Originally Posted by Lsbcal
It is possible that we could have 1929 to 1932 (deflation), then the 1973-1974 inflationary recession, followed by the decline in 2000 to 2003, and then the crash of 2008-2009. Yep, but I'm not going to worry about that sequence.
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It seems equally possible that Martians will land in the parking lot and invite us in for a drink. 
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08-15-2014, 03:17 PM
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#6
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Moderator
Join Date: Apr 2012
Location: San Diego
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Did someone mention cocktails? I'm in. 
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08-15-2014, 03:19 PM
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#7
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Administrator
Join Date: Jan 2008
Location: Chicagoland
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__________________
In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.”
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08-15-2014, 05:00 PM
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#8
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Recycles dryer sheets
Join Date: Jun 2014
Location: seattle
Posts: 51
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Thanks to all the replies-now I get it.
I'm also relieved to know that if it is the-end-of-the-world-as-we-know-it there will be cocktails...
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