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Sportsfreak 
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Wise Old Perv and CTO of AH Joined: Mar/09/2010 Status: Offline Points: 25709 |
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 Posted: Sep/12/2014 at 8:24am |
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Like I said, I'm a financial advisor, not a scientist
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If you eat an entire cake without cutting it, then technically, you only had one piece
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Posted: Sep/12/2014 at 9:11am |
It's important information SF. If you get a client that is at a 90% success rate on MGP and you tell them that, you are not telling them a good story. 10k sims are not enough. If you actually look at the detail, you'll see that large downward movements don't happen nearly often enough. Even on an intuitive level, you should not count on it. A good financial advisor should know how the tools they are using can be terribly wrong. |
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Sportsfreak
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Wise Old Perv and CTO of AH Joined: Mar/09/2010 Status: Offline Points: 25709 |
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Posted: Sep/12/2014 at 6:13pm |
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So what do you suggest that is better. Seems to me that there is no way to account for every possible sequence of returns over a 30 year retirement.
In addition, aside from the Monte Carlo analysis every single output in any financial plan is very dependent on inputs that are variable to the nth degree, and nothing more than assumptions. Example: predictions (i call them guesses) on rates of return of various asset classes, on future inflation, on length of retirement. I think a good financial advisor is going to explain this to every client they sit down with to do a plan, so they understand this is not a plan, but an analysis (words i use) based on assumptions that may or may not come trUe. In all honesty, i often think about the fact that because of this, financial planning in general has a big bullshit quotient built into it. Most of the time, i can intuitively tell a client if he has enough money to retire without doing a plan. But you can't do that, its not a "process" and doesn't cover our ass in arbitration, so we can't "sell" it But again, whats the alternative. At least it provides some sort of glidepath, or guidance. |
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If you eat an entire cake without cutting it, then technically, you only had one piece
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Posted: Sep/12/2014 at 7:36pm |
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You can simulate the right distribution - but you won't like the results. It will be harder and harder to tell clients they will meet their goals.
Although, this could be the opportunity to ask for more money (DCAs, etc.). The guy on here who does RetireUp, that software does something similar - they account for large market drops and what impact it has on income in retirement. |
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Rhys
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Joined: Sep/18/2014 Location: Silicon Valley Status: Offline Points: 30 |
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Posted: Sep/18/2014 at 7:39pm |
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Excel has been the best financial planning software for me. I have eMoney pro, but find it overwhelming for not only myself, but also clients. I use eMoney as a glorified balance sheet, that's about all its' good for.
Most clients don't want 100 pages of numbers and random scenarios.
Edited by Rhys - Sep/18/2014 at 7:40pm |
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Sportsfreak wrote: