Monte Carlo simulation

A Monte Carlo simulation can be used to analyze the return that an investment portfolio is capable of producing. It generates thousands of probable investment performance outcomes, called scenarios, that might occur in the future.

The simulation incorporates economic data such as a range of potential interest rates, inflation rates, tax rates, and so on. The data is combined in random order to account for the uncertainty and performance variation that's always present in financial markets.

Financial analysts may employ Monte Carlo simulations to project the probability of your retirement account investments producing the return you need to meet your long-term goals.