WealthSimulator®: compares the tested financial strategy to historical investment returns that have been put in a random order.

What is WealthSimulator®?

This method simulates possible outcomes for a financial strategy by randomly applying historical data from 1926 to the present for all asset classes chosen. This method provides the user an idea of how the tested financial strategy might perform if the market returns that have occurred over time recurred in a different order. One thousand trials are used in each simulation. WealthSimulator® methodology is based on the concept that markets produce returns similar to history, but in different patterns. In evaluating a strategy with this method, the underlying assumption is that, since 1926, the market has presented the extent and scope of variations in performance likely to be seen during any market period.

How do we apply WealthSimulator® in the context of Wealthcare planning?

The Wealthcare process is designed to help clients achieve their most important financial goals without needlessly sacrificing their lifestyle and while avoiding unnecessary investment risk. Wealthcare planning is designed to help each client live his or her life in financial security.

The priority assigned to each of a client's goals, along with the investment risk the client is willing to accept, combine to set the stage for the WealthSimulator® analysis. In this analysis, we determine the likelihood the client may successfully achieve his or her objectives by simulating historical market performance in random order over the client's lifetime and assessing the impact of these markets on the client's most important financial goals.

This analysis, while complex, is easily understood by the summary numeric results described below:

• The Summary states the number of simulations that achieved an ending value greater than the target value. This number is also stated as the percentage of simulations in which the client's valued goals were achieved or exceeded.
• In addition, the Summary states the number and percentage of simulations that ended below the targeted ending value but did not run out of money during the client's lifetime.
• The Summary also states the number and percentage of simulations in which the plan ran out of money prior to the end of the planning period.

The results of the WealthSimulator® analysis may also be expressed in terms of the Comfort Assessment, indicating whether the client may have confidence that the tested strategies will be comfortably achieved or whether the goals fall into Uncertainty or Sacrifice.

In addition, WealthSimulator® may incorporate mortality risk. Random mortality uses life expectancy tables and randomly introduces varying lifetimes into the simulation. Each one of the 1,000 trials has a randomly generated lifespan that determines both plan duration and the timing of certain cash flows. Using the random mortality method, one may gain an understanding of the likelihood of meeting a specific goal package with out regard to life expectancy. This calculation method supports either fixed or random lifespans in determining results.

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