When assessing probabilities in a Monte Carlo analysis, nuance is key

08/15/2013 | Nerd's Eye View blog

Financial planner Michael Kitces observes that as the Monte Carlo analysis has increased in popularity for measuring the success of financial plans, planners are overlooking its utility in forecasting a range of outcomes. Kitces writes that advisers should go beyond labels of success and failure in framing results and recast them as a "probability of adjustment" and "probability of excess" to help clients make the right decisions. That way, clients can better understand why a 10% probability of failure in a financial plan is actually a 10% probability of making mid-course adjustments.

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