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Investing 101

Investing 101

Monte Carlo Analysis

“Do I have enough money to live the life I love for the rest of my life?”
This, really, is the only question. Luckily, there is only one answer.

You see, it’s not just about organizing your financial life. That’s relatively simple. Listing your investments, insurance, pensions, social security, debts, budgets, expenses, wills, etc. can be done using our financial organizer. You can do that yourself.

But putting them all together, and adjusting for the random swings of the stock market, the bond market, inflation, taxes, and mortality, as it relates to the likelihood that you will still have money on the day, or even after, the day you die, requires multivariable calculus. It requires a comprehensive financial plan that includes a Monte Carlo analysis.

This analysis, named after the famous casino in Monaco, looks at all your information, and performs 1,000 tests based on incremental changes in data. For example, it calculates all aspects of your plan with inflation at 1.0%, at 1.1%, at 1.2%, at 1.3% and on and on depending upon the statistical likelihood of those samples. At the end it comes up with a number that reflects that percentage of tests that were successful (in which you still had money at the end).

This sort of analysis can help you see into the future, by giving you the statistical probability of various scenarios. Of course nobody can predict the future, but if you knew now, that your chance of success was 5% instead of 95%, you’d probably change your strategy.

We can help you do just that. We can help you ensure you have the financial wherewithal to live the life you love.

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