Financial Goal Calculator
Description: Wouldn’t it be great to determine an investor’s probability distribution of wealth resulting from compounding their investment in an equity or fixed income portfolio-and do it without Monte Carlo simulations-AND DO IT WITH A SIMPLE EXCEL CALCULATOR. The “Probability of Achieving Your Financial Goal” calculator does just that while allowing the investor to conduct what if scenarios based on expected returns, return variance, time horizons, allocation decisions, nest egg size, and annual contributions or withdrawals. The underlying approach can be found at
Instructions: The user begins by inserting their beliefs regarding the expected annual arithmetic rates of return of their equity and fixed income holdings along with the expected standard deviations. The sheet contains recommended values based on historical performance. The user can select the correlation coefficient between equities and fixed income. 1 implies total correlation, 0 implies no correlation, and -1 implies perfect anticorrelation.
The user then inputs the investor’s financial details: their current nest egg, their annual contributions or withdrawals, their allocation percentages between equities and fixed income, their financial goal, and the time horizon of interest. The output of the analysis is captured in a graph displaying the cumulative probability distribution of wealth after the end of the time horizon. The output also contains the probability that the investor’s goal will not be reached along with the expected wealth at the 25%, 50%, and 75% probability levels.
A video describing the use of the calculator can be found at
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