Volatile Market Simulator

Anybody can do financial forecasting if you assume a guaranteed rate of return -- but when you include some volatility, things get a lot more interesting. This simulator lets you experience the gut-wrenching uncertainty of the market, from the safety of your own living room.

To run the simulator:

  1. Choose an investment from the list (or define a custom investment of your own). The expected rate of return and standard deviation (the volatility, or "risk") will show up to the right, above the graph.
  2. Press the "Run" button, to run the simulator for one year.
  3. Repeat! You can change your investment as often as you want, and run the simulator for up to twenty years. You can also reset to year zero and start over -- you'll get different results every time you run.
Article Contents
MPT Introduction
Volatility and Time
Efficient Frontier
Sharpe Ratio
Build a Portfolio
Index Investing
CAPM, Beta
Alpha, R-Squared
Three Factor Model
Insurance Analogy
Books & Links

Article Contents
Index Funds Article
CAPM Calculator
Market Simulator


    % Ave Return
    % Std Dev







Here are some things you may want to try:

  • Try a "common sense" approach: start out with high return/high risk investments at the beginning, and then move toward more conservative investments as you get near the end.

  • Try some custom portfolios with the following values of return and risk:

    Portfolio Ave
      Stocks  Bonds  Cash
    1.    21%38%41%5.61%5%

    (Clicking sets the input fields for the "custom" portfolio, above.)

    These are the values suggested by the asset allocation page, for "risk efficient" portfolios that combine stocks, bonds, and cash.

And here are some things to notice:

  • Volatility doesn't just cause short-term fluctuations; it also causes significant swings in your final balance.

  • A volatile investment really may "pay off in the long run"; but if the volatility is high enough, the long run may be longer than you've got.

These are reasons why people try to find strategies to predict and control the effects of volatility.

Also see the main article for more information on volatility and asset allocation.


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