DYADT: Does Your Advisor Use Monte Carlo Simulations?

Does your advisor use Monte Carlo simulations? If so, are the options you’re given limited to the products you’re being sold?

Long ago, at a classified laboratory called Los Alamos, scientists were involved in top-secret research on nuclear fission. Two scientists believed that some of the research could be helped using computer experiments based on chance. The codename for the program was “Monte Carlo.”

Today, that computerized mathematical technique is still in use, and the name has stuck. A “monte carlo simulation” allows people to account for risk in quantitative analysis and decision making.

The technique is used by professionals in such widely disparate fields as finance, project management, energy, manufacturing, engineering, research and development, insurance, oil & gas, transportation, and the environment.

The “monte carlo simulation” uses repetitions to demonstrate possibilities—the outcomes of going for broke and for the most conservative decision—along with consequences for middle-of-the-road decisions.

At Annex Wealth Management, our planning team uses Monte Carlo simulation as it works through the many different possible outcomes of planning decisions. It’s a way we work to build confidence into our plans.