This simulator does not attempt to predict markets. Instead, it is a structural model designed to explore how long-term growth, market cycles, and valuation levels interact with savings and withdrawals.
Many financial tools assume smooth average returns. Real markets rarely behave that way.
Over long horizons, equity markets have produced strong returns, but those returns arrive in waves, not straight lines.
The simulator models this repeating structure rather than assuming constant yearly growth.
This model combines two separate mechanisms that influence long-term returns:
Markets move in cycles with periods of growth followed by downturns. These cycles cause returns to fluctuate around a long-term trend.
This is what creates sequence of return risk. Even if average returns are strong, the order in which they occur matters.
In addition to cycles, the model also accounts for starting valuation. Markets do not always begin at a “normal” level.
If the starting valuation is above the typical range implied by market cycles, future returns are adjusted downward over time as valuation moves back toward its long-term level.
If valuation starts below this range, returns are adjusted upward for the same reason.
This adjustment happens gradually over a user-defined period, separate from the shorter-term market cycles.
Most models assume that market cycles alone explain variation in returns. This model separates cyclical fluctuations from valuation-driven adjustments, allowing you to explore what happens when markets start outside their normal range.
To understand how valuation interacts with market cycles, the model introduces the concept of implied cyclical valuation.
In this model, valuation is not treated as a fixed reference point. Market cycles themselves influence what a “normal” valuation looks like at any given time.
During extended growth periods, valuations tend to rise above long-term averages. During downturns, they fall below.
The model therefore calculates an implied cyclical valuation, which represents the valuation level consistent with the current position in the market cycle, relative to the user-defined long-term valuation.
This means that the “normal” valuation is not constant, but moves slightly depending on whether the market is in a growth phase or a downturn.
The difference between current valuation and this implied cyclical valuation determines how much future returns are adjusted as the model moves back toward long-term equilibrium.
In simple terms: what counts as “normal” valuation depends on where we are in the market cycle.
This means that the same starting valuation can lead to different outcomes, depending on whether the market is in an expansion or a downturn.
Two investors start with the same valuation. One enters during a market peak, the other during a downturn. Even with identical long-term returns, their outcomes can differ significantly because valuation and cycles interact differently over time.
This model is calculated using full-year steps. Withdrawals are recorded in the model at the end of a full year.
“Age when first withdrawal is completed” represents your age after your first full year of withdrawals. If you retire during the year you turn 65, the first completed withdrawal year will typically be age 66.
This model assumes that valuations tend to revert toward a long-term level. However, there is no guarantee that such mean reversion will occur in reality.
The simulator is designed to explore how different assumptions affect outcomes, not to predict actual market behavior.