Adding New Use-Defined Assets in Monte Carlo
I'm just starting to play around with user-defined assets.
Why is there no “relative risk” for new funds that I’ve added? Does this matter? Will this affect the way Monte Carlo results are calculated?
Why are the historical returns for some assets shown in real dollars (e.g., cash, large cap stocks, and intermediate government bonds) while others are shown in nominal dollars (e.g., DFA funds)?
Since economics-based planning only allows for one future ROR change, is it OK to use Monte Carlo planning mode to model multiple specific future ROR changes? For example: Let’s say I want to see what would happen if I earned 7% over each of the next five years (2015-2019), then 5% over the next three years (2020-2022), then a 20% bear market correction in 2023, followed by a 6% return thereafter. Could I just set up new assets with “fake” historical returns of 7%, 5%, -20%, and 6%, assign these assets to a portfolio, and then apply the portfolios to each year? Would something like this work on the basic and detailed reports? Or am I missing something in the way the math works in Monte Carlo? I would ignore the Monte Carlo trajectory, distribution, and range reports if I was using this approach.