How do we calculate our projections and recommendations?

Monte Carlo : the statistical projection tool

We estimate the future value of a portfolio by a statistical process called "Monte Carlo simulation". The principle is that we simulate millions of market scenarios by taking into account past performance of portfolio assets, historical volatilities, correlations, fees, applicable taxes, and inflation.

We then aggregate the simulations obtained and determine the median simulation, in other words, the projection above which 50% of the simulations produce better results and below which 50% produce lower results. This median simulation represents the average market scenario that has a 50% chance of materializing.

Using the same principle, we can determine what could happen in case of poor market performance by taking the 10th percentile of the simulations, that is to say the projection below which only 10% of the simulations are worse. This percentile means that there is a 90% chance that the actual result will be higher.

Finally, the 90th percentile of the simulations indicates a strong market in which there is only a 10% chance that the portfolio will actually perform better than this simulation, and therefore, 90% chance that the actual result will be lower.

General assumptions

The following general assumptions are used in the easyvest projections:

• Projections are based on past performance and volatility of portfolio assets, which assumes that the past is a good predictor of the future;
• Estimated returns are net of fees and taxes;
• In the case of deposits or withdrawals, these are estimated to be made at the end of the year;
• Default inflation is set to 0%. The user can adjust it in the assumptions section;
• The investment objective, all other numbers, the returns and the displayed graphs are expressed in "real" euros, ie adjusted for inflation as defined in the assumptions;
• Deposits and periodic annuities are set to grow at the same rate as inflation.

Recommendations and chances of success

All our recommendations are based on a certain probability of achieving the defined objective. This probability is configurable in the hypotheses. We define a default probability that varies depending on the type of plan:

• General investing: our recommendations assume a 50% probability of reaching the expected amount at the end of the investment horizon, which means we expect an average return.
• Retirement planning: our recommendations assume a 90% probability of being able to maintain your standard of living after retirement. We set the likelihood of this plan at a very high level to ensure that you are able to meet your financial needs throughout your entire pension, a period of your life during which you will no longer be able to supplement your income.
• Retirement income: as with pension planning, our recommendations assume that you would have a 90% chance of leaving the amount you want to your estate, while enjoying a periodic contribution to maintain your standard of living.
• Major purchase: our recommendations assume a 60% probability of getting the amount you need to make your purchase, in other words we consider a market scenario slightly below average.

Limitations

Although we strive to be as precise as possible in our simulations and recommendations, they have certain limitations that result mostly from the fact that we cannot predict the future with certainty. The elements likely to affect our simulations are the following ones:

• Past performance may not be repeated;
• High inflation can strongly impact real results;
• Recommendations may not be sufficient to achieve your financial goals.