Calculated as the percentage of simulation paths where the final value is below the starting value. Lower probability of loss indicates a more conservative risk profile.
Formula
P(Loss) = Count(Final Value < Starting Value) / Total SimulationsMethodology
Probability of loss provides an intuitive risk measure - the chance that your portfolio will be worth less at the end of the projection period than at the start.
Key insights: - Longer time horizons generally reduce probability of loss (growth overcomes volatility) - Higher expected return reduces probability of loss - Higher volatility increases probability of loss
For a well-diversified portfolio with 8% expected return and 15% volatility: - 5-year horizon: ~15-20% probability of loss - 10-year horizon: ~10-15% probability of loss - 20-year horizon: ~5-8% probability of loss
This metric helps investors understand whether their time horizon is sufficient to ride out potential downturns.
How to Interpret
| Range | Label | Meaning |
|---|---|---|
| < 10 | Low Risk | Low probability of ending below starting value |
| 10 to 25 | Moderate Risk | Meaningful chance of loss over this time horizon |
| ≥ 25 | Elevated Risk | Significant probability of loss - consider longer horizon or lower risk |
Data Source
Derived from the full set of 1,000 Monte Carlo simulation endpoints.
Reference
Derived from Monte Carlo Analysis (2023). Standard Monte Carlo Risk Metric
Related Metrics
Project Your Portfolio
Run Monte Carlo simulations to see potential future outcomes.
For Educational Purposes Only
This analysis is not investment advice. Results are based on simplified models using historical data. Past performance does not guarantee future results. All investments carry risk of loss. Consult a qualified financial advisor before making investment decisions.