GrowthVisual

Monte Carlo SimulationInvestment Risk Analysis

Test your investment strategy with thousands of market scenarios. Discover the probability of reaching your goals and understand the risks involved in your financial plan.

Scenario Testing

Run thousands of market scenarios to test your investment plan

Success Probability

Calculate the likelihood of reaching your financial goals

Risk Analysis

Understand worst-case scenarios and portfolio volatility

Investment Parameters
1 year20 years50 years

Goal you want to achieve

Market Assumptions

Average expected return

Standard deviation of returns

What is Monte Carlo Simulation?

The Concept

Monte Carlo simulation is a mathematical technique that uses random sampling to model complex systems and predict outcomes. In investing, it runs thousands of "what-if" scenarios to test how your portfolio might perform under different market conditions.

How it works:

  1. 1. Define your investment parameters (amount, time, expected return)
  2. 2. Generate thousands of random market scenarios
  3. 3. Calculate outcomes for each scenario
  4. 4. Analyze the distribution of results

Why Use It?

1

Realistic Planning

Markets don't move in straight lines. Monte Carlo accounts for volatility and uncertainty.

2

Risk Assessment

Understand the range of possible outcomes, not just the average.

3

Confidence Building

Make informed decisions based on probability, not just hope.

Understanding Your Results

Success Rate

80%+: Excellent plan
60-80%: Good plan
40-60%: Moderate risk
<40%: High risk

Percentiles

90th: Best 10% outcomes
50th: Median result
10th: Worst 10% outcomes
Range: Shows uncertainty

Risk Metrics

Volatility: Return variation
Max Drawdown: Worst decline
Sharpe Ratio: Risk-adj return
Loss Prob: Chance of loss

Scenarios

Bear: Market crashes
Normal: Typical conditions
Bull: Strong growth
Range: All possibilities

Portfolio Types & Expected Returns

Conservative

5% / 8%
Return / Volatility
  • • 70% Bonds, 30% Stocks
  • • Lower risk, stable returns
  • • Good for near-retirees

Moderate

7% / 12%
Return / Volatility
  • • 60% Stocks, 40% Bonds
  • • Balanced risk/return
  • • Most common allocation

Aggressive

9% / 18%
Return / Volatility
  • • 80% Stocks, 20% Bonds
  • • Higher risk/return
  • • Good for young investors

Growth

10% / 20%
Return / Volatility
  • • 100% Stocks
  • • Highest risk/return
  • • Long-term focused

Monte Carlo Best Practices

✅ Do This

  • ✓
    Use realistic assumptions - Base expected returns on historical data
  • ✓
    Run enough simulations - Use 1,000+ for reliable results
  • ✓
    Consider multiple scenarios - Look at percentiles, not just averages
  • ✓
    Update regularly - Rerun simulations as circumstances change

❌ Avoid This

  • ✗
    Overly optimistic returns - Don't assume 15%+ annual returns
  • ✗
    Ignoring volatility - Low volatility assumptions underestimate risk
  • ✗
    Focusing only on success rate - Also consider worst-case scenarios
  • ✗
    Set-and-forget mentality - Markets and goals change over time

Related Financial Tools

Investment Calculator

Plan your investment strategy with goal-based analysis

FIRE Calculator

Calculate your path to financial independence

Portfolio Battle

Compare different investment strategies head-to-head

DCA vs Lump Sum

Compare investment timing strategies with Monte Carlo

Retirement Calculator

Plan retirement with Monte Carlo success analysis

Monte Carlo Guide

Learn more about Monte Carlo simulation concepts

Test Your Investment Strategy Today

Don't leave your financial future to chance. Use Monte Carlo simulation to test your investment plan against thousands of market scenarios and make informed decisions with confidence.

📊 Plan Your Investments📚 Learn More About Monte Carlo