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Cashcalc embeds Monte Carlo simulation into cashflow tool

7 December 2020

Software provider CashCalc has embedded its Monte Carlo Simulation tool into its cashflow modeller, enabling advisers to carry out stochastic and deterministic modelling within the same tool.

Advisers will have the option to conduct either or both depending on what they want to achieve for their clients at no extra cost, the firm said.

While deterministic modelling provides a projection based on set assumptions, the inclusion of stochastic modelling allows advisers to test their plans against the statistically most likely outcomes.

The Monte Carlo simulation tool, which has been incorporated into the stress testing section of CashCalc’s cashflow modeller, provides clients with 10,000 random returns, which advisers can use in addition to linear, variable returns, offering clients additional information and reassurances, the firm said.

Ray Adams, founder, CashCalc, said: “What I find really interesting is that I read in the press a lot about people’s opinions on cashflow tools. They say cashflow tools can be nonsense because markets don’t perform in a linear fashion. It always brings a smile to my face because if you look at the 10,000 random outputs from Monte Carlo, the middle line is pretty much a linear return and then you’ve got the optimistic and pessimistic lines either side to show the volatility around that median.

“I think the tool is fabulous and one of the things I think is going to be really beneficial for clients is that whilst we can forecast what we think the future may look like based on their attitude to risk and we can do some reasonable returns,  it’s great to overlay that graph with some 10,000 random returns so the client can see that out of 10,000 variables, the majority of them are either just above or just below what we are modelling anyway.

“It can also show clients the extreme examples and how likely they are and potentially some of the extreme examples may still show the client’s never going to run out of money which could be very, very reassuring for them.”

Users can input their own personalised asset allocation which uses historic Investment Association sector data from FE FundInfo to provide customised return parameters for the modelling to work within, or they can opt to use CashCalc’s pre-built asset allocation templates.

Professional Paraplanner