monte-carlo - Before Walt Huckabee, a retired engineer,...

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Before Walt Huckabee, a retired engineer, buys mu- tual fund shares, he likes to take a test drive using a  computer-based statistical technique known as Monte  Carlo simulation. He contends that crunching numbers online, using a  service available through his account at Vanguard,  gives him a better sense of the range of possible fin- ancial returns for his investments, in good and bad  markets.   ''It's   the  difference between  theory   and   prac- tice,''   said   Mr.  Huckabee,   60,   of  Placerville, Calif. The   bear   market  has   made   people  like   him   look   for  more precise meth- ods   of   assessing  whether their port- folios will provide  enough   retirement  income.   Compan- ies   seeking   inde- pendent   advice   to  help employees in- vest for retirement have made Monte Carlo simula- tion widely available. The developers of Monte Carlo simulation warn that  the technique is imperfect at best, but they say it  helps display the range of possible returns more ac- curately than do other methods. Traditional financial projections generally assume a  fixed annual compounded return, and fixed interest  and inflation rates. Monte Carlo simulations, which  use random numbers to imitate behavior, run invest- ments through thousands of situations to assess the  probability of reaching a financial goal. Calculations  assume variations in inflation, interest rates and mar- ket returns based in part on history's wide range of  returns, going back to the 1920's. The   largest   companies   that   generate   Monte   Carlo  simulations for in- vestors   include  Financial   Engines  of Palo Alto, Cal- if., Morningstar of  Chicago and Fidel- ity   Investments,  the biggest mutual  fund company. Financial   Engines  supplies   online  simulations   to   20  financial   institu- tions,   including  Vanguard,   which  generally make the  techniques   avail- able   free   to   their  investors. Financial Engines also provides number- crunching services to 800 companies, including Mc- Donald's and Occidental Petroleum, for their employ- ees.   Together,   these   investors   number   more   than 
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