One well-known exit strategy for index investing is the 4% rule, which states that if you withdraw 4% each year from the assets you are managing, you can reduce the likelihood of losing your assets.
This is based on the historical growth rate of 7% when investing in index funds in U.S. stocks, minus the inflation rate.
Here is a Monte Carlo simulation using a geometric Brownian motion model to simulate the increase or decrease in assets when a fixed-rate withdrawal is taken and when a fixed-amount withdrawal is taken.
Please note that this will not always be as predicted and should be used only as a reference.
Simulation of Fixed Rate Withdrawal
Usage
Please check the Average Annual Return and Risk assumed when investing the asset and enter them in the text box.
If you would like to check if leverage is applied, enter the multiplier in the Leverage text box.
Enter the initial amount at the start of the withdrawal and specify the withdrawal percentage and interval.
Enter the percentage to be withdrawn at each specified withdrawal interval, not the annual percentage rate.
Once entered, the upper graph shows the result of a Monte Carlo simulation of the change in the asset balance, with the horizontal axis representing the number of years elapsed.
The lower graph displays the probability that the withdrawal amount will decrease from the initial withdrawal amount and the percentage change in the withdrawal amount relative to the initial withdrawal amount.
For reference, below are the average annual returns and risks of the major indices.
| Return (%) | Risk (%) | Leverage (times) | |
|---|---|---|---|
| MSCI ACWI (All Country World Index) | 8.99 (Last 10 years) | 14.74 (Last 10 years) | 1.0 |
| S&P500 | 9.79 (Last 10 years) | 15.13 (Last 10 years) | 1.0 |
| NASDAQ100 | 17.91 (Last 10 years) | 18.8% (Last 10 years) | 1.0 |
| NASDAQ100 2times | 17.91 (Last 10 years) | 18.8% (Last 10 years) | 2.0 |
Simulation of Fixed Amount Withdrawal
Usage
Please check the Average Annual Return and Risk assumed when investing the asset and enter them in the text box.
If you would like to check if leverage is applied, enter the multiplier in the Leverage text box.
Enter the amount at the start of the withdrawal as the Initial Amount and specify the amount of withdrawal and the withdrawal interval.
Enter the amount to be withdrawn at each specified withdrawal interval, not the annual percentage rate.
After entering the amount, the upper graph shows the result of a Monte Carlo simulation of the change in the asset balance, with the horizontal axis representing the number of years elapsed.
The lower graph displays the probability that the asset will run out.
