A Monte Carlo analysis randomizes the rate of return each year similar to what would happen in the real world. The Monte Carlo function in this worksheet is designed so that the average CAGR across a large number of iterations, like 500+, will be close to the rate of returns entered by the user in the Scenario.
Release v3.1c adds the “Probability of Success” percentage to the Monte Carlo worksheet. This makes it easy for people to see, at a glance, the percentage of iterations that have a positive net worth in the final year.
As an example, in the chart below, 45% of the iterations resulted in a negative net worth (the red bars) and 55% had a positive net worth (the blue bars). This “Probability of Success” is therefore 55%.
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