- Advizr’s market data assumptions are based on JP Morgan Asset Management’s Long-term Capital Market Return Assumptions report. Specifically, we use the report’s expected compound returns, standard deviations and correlation matrix on each underlying asset class as input to our Monte Carlo simulation engine.
- Monte Carlo reports are based on the proposed plan only, as indicated in the What Ifs section for each goal. They reflect the likelihood of the success of the retirement goal only, but the retirement goal is directly impacted by the use of resources in meeting every other goal proposal in the plan, so it can be viewed as a proxy for the overall plan success.
- You can model portfolio returns in a client's plan using two different methodologies:
- Weighted Average - Uses the JP Morgan capital market assumptions mentioned above on each asset class (as listed in the table below) to come up with a weighted average expected return for the overall portfolio. When this method is selected, all reports and graphs including the Monte Carlo graph are run based on this weighted average return.
- Hypothetical Straight Line - Expected returns on portfolios are based on simple straight line returns as indicated by the user in the Asset Allocation popup menu for each investment portfolio. When this method is selected, these customized returns are used for every report in the financial plan EXCEPT for the Monte Carlo graph, which will revert back to using the Weighted Average returns along with standard deviation and correlation on each asset class, in order to generate the various scenarios.
- Capital Market Assumptions Summary:
Asset Class Average Return Volatility
US Large Cap 5.50% 14.00%
US Large Cap Value 5.75% 14.75%
US Large Cap Growth 5.25% 14.25%
US Mid Cap 5.75% 16.00%
US Small Cap 5.75% 18.75%
Intl Equities 6.00% 15.50%
EAFE Equities 6.25% 13.75%
Emerging Mrkt Equities 8.00% 21.50%
Alternative / REIT 6.25% 16.00%
Commodities 3.75% 16.75%
Long Bias Hedge 4.75% 10.50%
Global Infrastructure 6.25% 11.75%
US Fixed Income 3.25% 3.75%
Government Bonds 3.00% 3.75%
Short Duration Bonds 3.50% 2.00%
US Corporate Bonds 3.50% 6.00%
High Yield Bonds 5.25% 8.50%
US TIPS 2.75% 5.50%
Intl Fixed Income 2.25% 3.00%
US Muni 1-15 Yr Blend 2.50% 3.25%
Cash 2.00% 0.50%
Unknown 2.00% 0.50%