Monday, July 25, 2016

Custom Rates of Return

11:14 AM


Question:

Why can't the custom rates of return be set to negative values to match some current YTD performances?

Answer:

You can see the effect of negative returns that will occur in some years with the Monte Carlo simulation.

We don't allow negative rates since making such an assumption over the long-term does not make sense. If it was a possibility, we might as well keep our assets in a 0% interest bank account.

You could put 0% for some or all asset classes and with investment management fees it would essentially be negative returns. For example, with a 0% return assumption for say Canadian equities and 2% fees, your return would be -2%.

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