Monte Carlo portfolio illustration
What it shows
A Monte Carlo simulation: thousands of random portfolio value paths based on its historical mean (drift) and volatility. The fan shows a RANGE of possible outcomes, not one predicted scenario.
How to read it
How we compute it: we take the average return (drift) and volatility from the portfolio's history, then "replay" its future thousands of times, each step adding a random return drawn from that distribution. Value CAN fall because a streak of randomly negative steps drags a given path down, despite a positive average return. From the whole bundle of paths we compute the distribution of outcomes and show percentiles. Read the fan as a measure of uncertainty relative to today's value, not as a promise: wide means a large spread, narrow means paths close together. The distance of p10 and p90 from the median shows how far the outcome may deviate down and up. It is a probabilistic illustration of possible ranges based on past volatility. It is not a forecast, not a guarantee and not advice; past volatility does not foretell future volatility.
Parameters
- Median (p50)
- The central path: half the simulations ended higher, half lower. Relate it to today's starting value.
- p10–p90 fan
- The shaded area covers 80% of simulated outcomes (from pessimistic p10 to optimistic p90).
- Positive reading: A narrow fan: historical volatility was lower, paths close together.
- Negative reading: A very wide fan: high volatility, a huge spread of possible values.
- Neutral reading: Moderate width: an average level of uncertainty.
- Assumptions (drift, volatility)
- Drift (average return) and volatility computed from the portfolio's history; each run is a random walk from today's value, step by step. Some paths rise, some fall, which means there is a spread.
Example
Example: a portfolio worth $10,000 today, 1,000 simulated paths over 90 days. The median (p50) lands at ~$10,300, the pessimistic p10 at ~$6,500, the optimistic p90 at ~$16,000. A wide fan says: given the portfolio's historical volatility, the outcome could have ended up in very different places, which is an illustration of the range, not a prediction of a specific amount.