inStream is based on Inflows and Outflows. With Income used to model any inflows into the accounts and Goals used to model any outflows from the accounts.
Examples of Inflows (Income) are: payroll, social security, pensions, and the sale of assets.
Examples of Outflows (Goals) are: expenses, expenditures, and retirement spending needs.
Everything else in the client's Profile such as Insurance, Properties, and Liabilities are used for the Net Worth statement and have no impact on the plan's probability of success (ie. is not used in the Monte Carlo analysis).
Monte Carlo Analysis
The Monte Carlo analysis determines the plan's probability of success. The ingredients needed for the Monte Carlo analysis are: Income, Accounts, Goals, Fees, Allocations, and Taxes. The Monte Carlo runs 1,000 simulations based on these variables.
The objective of the simulation is to satisfy all of your clients Goals (outflows). If a simulation satisfies all of your client's Goals then it's a success. If a simulation cannot satisfy Goals in any given year, then the simulation is a failure. To generate the plan’s probability of success, we simply look at how many of the 1,000 simulations were successful at satisfying your client's Goals. The simulated returns are determined by the Allocation models (or investment model) used in the plan, ie the Gross Average Return and Standard Deviation.
To understand the probability of success better and why a plan was successful or not it is best to look at the Cash Flow report. Below is an article that breaks down the Cash Flow report:
https://support.instreamwealth.com/hc/en-us/articles/360000025860-How-to-Read-the-Cash-Flow-Report
Click the link below to access our InStream Academy which is a step-by-step video and article guide:
https://instream.zendesk.com/hc/en-us/categories/200150915
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