Monte Carlo analysis is named after the famous casinos in Monaco. It involves using a computer to run large numbers of simulations in order to identify the probabilities of various outcomes. Based on historical results, we calculate an expected annual return and standard deviation for your Current Allocation and your Target Allocation. These numbers can be found in the Efficient Frontier section. The Monte Carlo analysis uses these inputs to project results based on 5000 independent runs.
The median scenario represents the midpoint of the simulations and can be considered an expected value based on historical results. Meanwhile, the 10% worst outcome represents the level at which only 10% of simulations fared worse. In other words, the analysis shows a 90% confidence level of having at least this much money at the end of the period. This figure provides an important stress test and serves to highlight the potential impact of poor diversification in a bad market scenario.