Future Rates of Return for Monte Carlo Assets
I've received the bulk e-mail from Larry that came concurrently with 2.14.5, and noted the new feature allowing changing the future rate of return of assets for non-Monte Carlo modeling.
This of course begs the question about rates of return of the canned assets in Monte Carlo. Are the rates of return and their variability periodically tweaked to reflect recent experience, or are they static based on really long term experience? If the latter, what period do they reflect?
RSS
They are updated yearly in the May release to reflect the new data from the previous year (it takes about a quarter for all the data to trickle in and we don't want to delay the tax update waiting for the financial data). Of course, this assumes that year to year changes are small relative to the historical data.
Clearly that wasn't the case in 2008 and we made an exception that year and updated the large cap stock returns (and one other, probably the inflation estimate for 2008 but I really don't remember off the top of my head) in the November release due to the gigantic devaluation of the market but that sort of thing isn't a normal event.
The periods for each of the data are the longest series we can find (Ibbotson, Morgan-Stanley or whatever they are called now, Dow Jones, etc.). So the inflation, long bonds, large cap stocks, etc. go back to the 20s, other series (such as Pacific Rim, emerging markets and REITs) are much shorter.
If this sort of geeky information is of general interest we can certainly post the data we use for general viewing. None of it is proprietary.
Best,
Dick Munroe
Thanks, Dick. And now a follow-up: I assume the revised canned assets come packaged with the download updates. If a user has created portfolios using canned assets prior to the update, are they automatically updated with new rates of return and variability?
I think your explanation (as well as an answer to my follow-up) would be a good thing to add to the Monte Carlo section of the help manual.
Thanks,
Paul
Unfortunately, rates in the default assets are NOT updated in implemented portfolio's. If you navigate to the Monte Carlo page and click RESTORE, the new values will replace the implemented ones.
Yes, the new asset information comes with the updates, so you'll always get the latest no matter when you download. No, extant portfolios aren't automatically updated with the new return information as Lowell points out, so you have to update your portfolios manually.
I'll toss your suggestion into our pile of work.
Best,
Dick Munroe