In a Monte Carlo Analysis that I am working with the "Very high Trajectory" is sometimes lower than the "Very low" or "Low" trajectory.
Why would this happen?
Steve Schwartz
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The trajectories are showing you the results from a particular path of return draws over your lifetime. We're displaying five trajectories -- one reflecting very low draws, on average, over your lifetime, one reflecting low draws, on average, one reflecting medium draws, on average, one reflecting high draws, on average, and one reflecting very high draws on average.
But even if you earn very high draws on average, there will be some years when you get very low draws and in those years your living standard can drop below what your living standard would be were you to get low draws on average (but very high draws occasionally).
If this isn't clear, call me at 617 834-2148.
best, Larry
Or to put it differently: just because the average depth across the stream is 2 feet, there are places in the stream where you can drown.
I always remind myself to read the trajectory reports across--from left to right, noticing the variation in a lifetime as you go in any one thread. I read the distribution charts from top to bottom noticing the variation in any one year.
You may find the discussion of this in the HELP file (click the HELP button in the program) useful. I think it's toward the end of the document--or see the table of contents.
Shouldn't the trajectory reports be read top to bottom and the distribution charts from left to right?
Well, the key to how to their meaning or proper interpretation is in their titles: "distribution" and "trajectory." The distribution is meaningful across a given year. So, to make up an example, in 2017, my living standard was below what I find acceptable in 25% of the 500 monte carlo simulations. I suppose there is a sense in which you can read the chart across from left to right. You can notice the rate at which this distribution spreads and how quickly it does so.
The trajectory report is illustrating a, well, trajectory: a weighted lifetime living standard thread. Each of the 500 lives lived has a percentile ranking from 1-100 based on its overall weighted value relative to the other 499. What's interesting about these charts is how they play out from left to right. So, for example, you ask--if I was a bit unlucky and lived the 25th percentile rank (75% of my cohort in this statistical model did better than me), what would that ride look like from left to right over my life? In any given year it might be quite high or quite low relative to the other 499 possibilities. So I guess reading in a given year does tell you something important. But, taken as a whole, it's the shape of that thread over the whole life that is most interesting I think.
Perhaps it's just a way of talking or explaining things. That's the way it makes sense to me anyway.