Monte Carlo Portfolio and rates of return
In the Build Portfolios tab of Monte Carlo there are a list of assets in the "select an asset" box. Does ESPlanner provide a list of default asset classes or have all the asset classes listed been entered by someone in my office. We have been using ESPlanner for a few years now and we have forgotten.
Also, if you add a new asset class, it asks you to specify a nominal rate of return. After adding the asset class, if you double click on it, it lists an average rate of return that is the same as the nominal rate just inputted. This appears to be an error.
RSS
Yes, there are default assets loaded by us. Default assets have no BETA value listed and can't be deleted.
I checked the program and didn't see the problem you describe. See if you can re-enter the asset and still get the same results
The "default" assets are provided by ESP, Inc. They are the historical averages for these types of assets. The data sources are varied, but primarily Ibbotson, Barclay, MSCI Barra and Dow Jones are used.
I've passed the question about the displayed data in the UI to the appropriate person. I can't remember what that's supposed to display either.
Best,
Dick Munroe
John R. Goddard
If I click on a default asset class, Large Cap Stocks, it shows an average real rate of return of 9.07%. This is false. This would be the nominal rate of return. Therefore, I think the problem is simply a titling issue.
The UI display of average real rates of return is, indeed, displaying non-updated values. We are fixing this immediately. This is just user interface a display issue. The results are using the correct data. best, Larry (on Dan's computer)
If John is correct, the incorrect 9.07% real return for large cap stocks still is there 9 months later. What up?
I'm going to make a pitch internally for NOT displaying this data in the UI unless you folks object strongly. We derive and I think, display the portfolio returns in the PDF reports which is all I believe is necessary. Updating this stuff doesn't seem to happen appropriately so my feeling is better to not display it at all rather than have to hear complaints about it being wrong and nothing happening (and still having to hear complaints).
So it's an up or down vote now...
Best,
Dick Munroe
I hope you continue to display the data for default assets in the UI. It helps me to to compare the default assets to other data sets I might be looking at. Comparing the LCS default asset to DJIA or S&P500 or Russell 1000 or even a specific mutual fund let’s me decide to use LCS or create a new asset.
When creating a new asset, the interface asks for the nominal rate of return. Is there’s a good reason for the UI to then display the real rate of return, instead of the nominal? I think that’s confusing. And since the real rate changes with the inflation value it’s hard to later see you entered the correct value without setting inflation to 0%
I’d suggest changing the labeling to nominal and display the nominal rate of return. That would fix the problem with default assets since it’s the nominal value being displayed by the UI but it’s labeled as real. And it would lower the confusion on user added assets because the displayed nominal rate wouldn’t change with the value for inflation like the real rate does.
I think guys do a great job of keeping up with this forum!
Almost a year later, it still appears that the system shows the nominal rate of return for the default assets (which is different from how the returns are shown for new assets). My concern is that this is not just a UI issue (as discussed above), but instead may be an inconsistency in how the default assets and new assets are handled.
It seems that the more I dig into the Monte Carlo function, the less confidence I have in the projections ... 1) the data used for the default assets (return, standard deviation, beta) is not kept updated with the current market conditions, 2) there are not enough default assets to represent all the typical funds (for example, no default assets for corporate bonds), 3) there's confusion about whether nominal or real return is used for the default assets, and 4) with the limit on entering new assets, you can't enter enough new assets to represent your entire portfolio if you don't want to use the defaults.
I'm not trying to be negative .. just trying to get these issues resolved so I can believe the projections I'm getting.
(1) The data IS updated with the current market conditions every year, usually for the 01-Feb release. The displayed information in the UI is decoupled from the information maintained by the CE which is correct. The information presented by the UI is, from the perspective of the CE, irrelevant and, unfortunately if it doesn't get updated, confusing, but harmless.
(2) Granted, but who defines the set and which data gets used. Feel free to make a suggestion via the support forum and we'll take it under advisement, but particularly wrt the corporate bond suggestion, you'll never get that one right unless you use a market index fund and then, which index.
(3) No, there is no confusion. The average rates of return displayed are always in real terms. User defined assets are always DEFINED using nominal interest rates since we assume that you don't have access to historical inflation data and you WILL have access to nominal interest information but DISPLAYED in real terms, e.g., define a UDA "frob" with a nominal rate of return of 10%, add it to a portfolio and you should see something on the order of 7%+- as the average rate of return.
(4) You'll have to model some of your assets as a fund of some kind. The vast majority of folks get "good enough" planning information with what we give them (25 total assets, 12 user definable assets, per portfolio). Again, if you can make a strong enough case for us to up the number, we'll probably do it, but the place to carry on that conversation is the support forum.
Best,
Dick Munroe
1) I guess I'll have to accept your product as is, but I'm really beginning to question the accuracy of the projections it gives. At present, your default assets are missing most of the market activity that has occurred during 2010 .. as you say, it's only updated once a year.
2) I did find a default asset for "long term corporate bonds", but there's still an issue with your set of default assets being too limited.
3) The return for "Large Cap Stock" still appears to be displayed as nominal return (basically the same issue that someone brought to your attention over a year ago). I question if this is just a UI issue ... I can see that the screen is displaying the values exactly as stored in the MS Access tables.
4) I will start communicating via the support forum ... I guess what's "good enough" for others will not work for me. I'm retired and I really need a planning tool that I can believe.
One more comment ... the following statement you made is not correct ... "(25 total assets, 12 user definable assets, per portfolio)" ... the limit is not on a per portfolio basis ... for all the portfolios you want to set-up, you're limited to the same set of 25 total assets (of which 12 can be user defined assets)
It IS on a per portfolio basis, at least that's the way the CE works. The design is [supposed to be] such that you can define any number of user defined assets but only 12 may be used per portfolio. It it's not working that way, open a support ticket, it's a UI bug.
Best,
Dick Munroe
Interesting that I have to explain to you how your own product works. Here's my finding ... once I reach the maximum of 25 assets, the application does not let me add any more assets for any of the 10 portfolios. When I tried to work with different portfolios, I got the same "maximum reached message". Again, for all 10 portfolios, there's only one set of 25 assets that can be used. Yes, I will submit the support ticket, and I will reference your comment on how the product was supposed to be designed.