Quantifying future projections
The future is profoundly uncertain, so it is impossible to be precise about the returns you will get. However, how various investments have performed in the past provides some guide to the range of returns you might expect over different time horizons. Note that these figures are only for illustrative purposes and you might be provided other visualisations from your adviser.
Quantifying possible outcomes
To obtain the very good/average/very poor projections, we use the simulated paths as described in the “What is investment risk“ section. The very good outcome refers to the 95th percentile, the average outcome refers to the 50th percentile (median) and the very poor outcome refers to the 5th percentile of the ending values of the simulated paths.
Quantifying the downside
Two distinct metrics of future loss are provided within our projections’ metrics.
We define probability of loss as the chance of ending up with less than the initial investment amount, i.e. the number of the ending paths whose ending value is less than the amount invested, divided by the total number of simulated paths.
Possible drawdown reflects the maximum amount the portfolio’s value may fall from peak to trough over a bad 1 year time horizon, measured as the worst 5% of maximum drawdowns of each simulated path in the first rolling year of the projections.