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Monte Carlo reports forecast success of your portfolio

3 min read

While I was playing a round of golf with Nevillewood neighbors, our conversation began on Uber, driverless cars and all possibilities of this exciting technology.

Game changers? Maybe. Game influencers? Certainly. Who hasn’t used Uber from the airport? Paying $25 gets you home quickly and safely.

Technological advances are affecting every industry, from transportation to financial services. The key is to know how to use them to your advantage. One initiative under development is the extraordinary ability to measure traders’ emotions during their workdays.

The goal is to measure the amount of emotional swings a trader experiences, knowing the possibility that high levels of emotions may be correlated to unsuccessful trading results (meaning money loss). If you can control your emotions, perhaps you’ll be a better trader, the theory goes.

One of my golfing partners had been introduced to a new technology to analyze his portfolio’s likelihood of success. Monte Carlo, I thought I heard him say, as he was recalling the name and details.

No, not that Monte Carlo in Monaco, of Grace Kelly, and Casino Royale of James Bond fame. Monte Carlo Analysis.

According to eMoney.com: “Monte Carlo reports are intended to be used as a forecasting tool to help determine the effectiveness of your financial plan across a range of market conditions. The Monte Carlo simulation looks at many possible investment return scenarios to imitate the random return behavior of real life. The calculations illustrate the range of potential results: the best case, worst case, and hundreds of scenarios in between. The outcomes are tabulated, and after a large number of trials, the forecast is shown not as a single value but as a range of values.

“The Summary Report also includes an overall probability of success of meeting your lifetime cash flow needs. The focus should be on the overall probability of success, as well as median case, which represents moderate market performance.”

Now, if you are visiting the French Riviera, definitely make the trip to the Principality of Monaco and Monte Carlo. Perhaps play some table games at Casino de Monte Carlo. It is a beautiful coastal resort and is worth seeing the sights.

Back to Monte Carlo Analysis. The Asset Confidence report shows the likelihood of meeting your goals. And, yes, your investments should be integrated with your life’s goals. It’s the best way to accomplish what it is you want to accomplish and sleep well at night.

This is one in an occasional series of columns by Robert Hapanowicz and his daughter, Christina Hapanowicz. They work for Hapanowicz & Associates Financial Services Inc., an investment and wealth management firm based in Pittsburgh.

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