Podcast Episode 8- Why Your Monte Carlo Analysis Is Crap

In this episode, I share how a recently widowed friend of mine was told by a large investment firm that her money would last until she was 93 years old. She's 61 now. How did they figure that? Well, they ran a Monte Carlo analysis of course! And if the Monte Carlos says you are good to go, well, who's going to argue with that? I do! The three things that must be looked at when it comes to the Monte Carlo are: 1. Rates of returns the software is using 2. Investment fees 3. Taxes I go into detail of all three in the podcast. But, if the software from which the Monte Carlo is based is saying cash will return you 3% and a conservative portfolio (20% stocks / 80% bonds) 6.2%; That is way overly optimistic of real world returns that we see today when the 10 yr Treasury bond is paying 2.80%. Investment fees? Mutual fund fees? Those need to be considered as well as taxes on investments too! If you are not looking at the NET, you could be in big trouble.