Monte Carlo simulation

Calculations performed to forecast potential outcomes for a market or asset return. Monte Carlo simulations are routinely done by professional advisers using expensive software applications, but individual investors may be able to find reasonably priced software to perform the simulations themselves. To run a Monte Carlo simulation, data about expected returns and how much those returns can vary are entered into the software. Then, the application runs repeated trials to forecast potential outcomes. The more variability there is away from an asset's mean return, the more the results can vary. Monte Carlo programs can also model variable inflation to help investors plan for savings and withdrawals.