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New Version 0.7 of the FI Simulator released

The break until version 0.7 was a little longer this time. The reason for this was extensive technical modifications, which have also given me a few additional gray hairs. So what has changed?

  1. All the results of the FI Simulator were previously based on the simple procedure of simulating the future portfolio development by running it through all possible historical returns, where the “histories” differ only in a different starting month. In this version of the FI Simulator, alternative methods based on Monte Carlo simulations can now be used, using the so-called “block bootstrap” or so-called “IID returns”. Due to the complexity of these methods, a new documentation article was also required: FI Simulator 7 - Sampling Methods. Please read it carefully before using these new features.

  2. Important: When calculating withdrawal rates with Monte Carlo sampling in conjunction with the “Cap. Preservation” function, an interesting effect can occur: If, for example, you set the Capital Preservation to 100% in order to withdraw only enough so that you can still bequeath the original amount of assets, the following happens with the Monte Carlo method: In this case, a few very unfavorable returns series are generated that make it impossible to preserve the assets against inflation, even with a withdrawal of zero. Until now, this has resulted in negative withdrawal rates, i.e. in order to make the heirs happy, monthly payments into the portfolio would be necessary in these extreme cases. This is mathematically correct but relatively counterintuitive. I have therefore now changed the behavior so that the withdrawal rate is simply set to zero in these cases. Thanks again Elmar for drawing my attention to this effect!

  3. The inclusion of the new Monte Carlo methods also required a simple overview in which the new methods can be compared with the old sequential method. This overview can now be found as a separate sub-tab “Compare Sampling-Methods” below “Calculation of Exact Withdrawal Rates”. The original tab has remained there but is now called “Distribution of Withdrawal Rates”. The structure of the chart is also explained in the article linked above.

  4. Another innovation concerns the usability: all available assets can now be found in an asset catalog and can be selected for your own asset allocation and for possible optimization analyses. The aim here was simply to avoid having to “lug around” the large number of assets all the time, as many users probably only work with a small subset of the assets 99% of the time anyway. In addition, the current procedure is hopefully almost self-explanatory and not as counter-intuitive as before.

  5. Perhaps the most important usability change in this new version is already indicated by the absence of the “Save analysis” button. From now on, the current status of the analysis can be saved simply by saving a bookmark in the browser. When this bookmark is called up, the simulator opens again exactly on the tab where the analysis was saved and all input data including possible test asset allocations should appear exactly as they did when the analysis was saved. This now also makes it possible to pass on potentially interesting results of the simulator simply by linking to it. Important: Such a link contains all input data of the simulator, i.e. if you actually wanted to keep Aunt Sue’s large inheritance (entered as Additional Cashflows) a secret, you should still be careful when passing on such links. In doubt please open a fresh Link to the Simulator to ensure that all inputs are reset to the default values before you send what you are actually willing to send. By the way, some of you will probably have been cursing at me over the last few weeks anyway, because my old links to the simulator were suddenly changed in January and then stopped working. Sorry about that, but despite a few hours on Google and a lot of fiddling around, I couldn’t get a working redirect. However, the change was necessary because the simulator had been integrated so far as a so-called iFrame and there would have been no way to implement something like link storage before the change. Unfortunately, due to further technical hurdles, I had to change the link format for this version again. I hope that the link format will remain stable from now on and I will try to make incompatible changes only in case of emergency, I promise ;-)

  6. With the inclusion of the Monte Carlo methods, it also became necessary to handle the percentiles of the resulting distributions of portfolio development and withdrawal rates more cautiously. The Monte Carlo methods generate significantly more extreme cases than before, so that “safe” withdrawal rates are disappointingly low at first glance. In the asset allocation settings, the range of percentiles to be displayed in the charts can therefore now be set explicitly. This primarily affects the length of the error bars in the box plots. However, I also display the lower limit of the percentiles in the portfolio development over time and also use the lower limit for the X-axis of the “Efficient Frontier”. By default, however, this setting remains at “0%-100%”, i.e. all percentiles are taken into account and also displayed so that the previous results are reproducible. A side effect, however, is that outliers in the data are not displayed as separate points above or below the error bars of the boxplots as before, but the error bars actually extend up to these outliers. However, the standard display of the error bars in plotly is non-transparent and somewhat arbitrary anyway, so in my view the current procedure is more transparent and, above all, adjustable.

  7. As a final small usability change, the field “Expenses from FI” is now only shown in the tabs where it is relevant, i.e. when displaying the portfolio development. Conversely, the “Cap. Preservation” field is now only shown where withdrawal rates are calculated (because this setting is only relevant there).

Old analyses that were created with version 0.6 should still be able to be imported with the button until the next version. If not, please let me know and I will be happy to take a look. In any case, I would recommend that you save the analyses you are interested in as bookmarks as soon as possible, as I cannot guarantee the import of old analyses in json format indefinitely.

Last but not least, I would like to actively encourage everyone who would like to support my work to use links to the simulator to share interesting results. It would be great if this would further increase the use of the simulator.

I hope you will again like the new features and I look forward to hearing about interesting results you have found with the new data. If you want to be notified about new posts, please use your favorite RSS reader and subscribe to this blog using the RSS link in the main navigation bar or through this link.

Have fun with the new functions and all the best!