Monte Carlo Simulation Calculator
Simulate thousands of investment outcomes to understand risk and potential returns.
Why Monte Carlo Simulation Matters
Traditional financial projections use fixed returns, but real markets are volatile. The Monte Carlo Simulation runs thousands of scenarios with random returns to show a range of possible outcomes — helping you understand risk, not just average returns.
How to Use This Calculator
Enter your initial investment, expected average annual return, volatility (standard deviation), and investment horizon. The tool simulates thousands of random return paths and shows the distribution of final portfolio values.
The Simulation Concept
Final Value = Initial × ∏(1 + Random Returni) for i = 1 to YearsEach trial uses random annual returns drawn from a normal distribution with your specified mean and volatility. After thousands of trials, we calculate percentiles to show likely outcomes.
Key Insights
- Average Outcome: Expected final value across all scenarios
- P10 (10th percentile): 90% chance of doing better
- P90 (90th percentile): Only 10% chance of doing better
- Min/Max: Extreme outcomes (rare, but possible)
Example Use Cases
- Retirement Planning: Estimate the safety of your nest egg
- Investment Decisions: Compare portfolios with different risk levels
- Financial Advice: Show clients realistic outcome ranges
Interpreting Results
| Percentile | Interpretation |
|---|---|
| 10% | Only 10% of outcomes were lower — conservative estimate |
| 50% (Median) | Half of outcomes were higher, half lower |
| 90% | Top 10% performance — optimistic scenario |
Tips for Better Accuracy
- Use long-term historical averages for return and volatility
- Increase simulation count (1,000–10,000) for smoother results
- Adjust volatility based on asset class (stocks: 15–20%, bonds: 5–8%)
- Consider inflation-adjusted returns for real purchasing power
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