As part of a client’s engagement of The Colony Group (“Colony”) for advisory services, Colony may utilize eMoney Advisor, or other software, in order to assist in the evaluation of a client’s current and future financial state.
Colony works to understand a client’s current financial circumstances and then, in consultation with the client, makes a series of assumptions in order to assess goals that are customized for the client. These assumptions may include future cash flows, asset values, withdrawal rates, etc. We obtain information from client questionnaires, financial worksheets, tax returns, Social Security statements, conversations with the client, and other sources, and then evaluate how the client’s financial situation may be affected in the future by variables such as spending patterns, investment returns, rate of inflation, taxes, and other factors. It is the client’s responsibility to provide complete and accurate information.
This eMoney report provides projections based on certain forward-looking assumptions and variable inputs and is therefore hypothetical in nature. Clients should use this report with the understanding that it is a projection, as no future assumption or investment return can be guaranteed. It is the client’s responsibility to keep Colony aware of changes in the client’s financial circumstances. All reports or plans should be reviewed periodically, as assumptions, client circumstances, or market conditions change over time.
Client and Colony may utilize eMoney in a dynamic fashion as part of a meeting or teleconference, which may involve varying the inputs that were used to produce this report. Using the software in a dynamic fashion generally serves the purpose of demonstrating to a Client the effect that varying inputs and assumptions will have on projections. The exercise of varying inputs and assumptions often involves a “what if” approach, which may or may not be realistic based on the client’s current and future financial state. A client may request a written report for each scenario reviewed, keeping in mind that in no case does a projection constitute a recommendation of any particular technique.
This report provides broad and general guidelines on the advantages of certain financial planning concepts. The term "plan," "planning," or “projection” when used within this report, does not imply that a recommendation has been made to implement one or more financial plans or projections or make a particular investment. Nor does any plan or report provide legal, accounting, tax or other advice. Income tax, gift tax, and estate tax laws may vary with your country or state of residence and can be subject to change over time. The tax assumptions contained in this report, if any, are general and should not be relied on as tax advice. Clients should always discuss specific recommendations with their financial counselor or other professional advisor.
This report may not reflect all of your investment holdings. Prices that may be indicated in this report are obtained from sources that we consider reliable but are not guaranteed. Past performance is no guarantee of future performance and it is important to realize that actual results may differ from the projections contained in this report.
Tools such as the Monte Carlo simulation will yield different results depending on the variables inputted and the assumptions underlying the calculation. For those reports that perform a Monte Carlo analysis, the term 'Monte Carlo' will be included in the report title. The assumptions with respect to the simulation include the assumed rates of return and standard deviations of the portfolio model associated with each asset. Assumed rates of return are based on future expected rates of returns and standard deviations for certain periods of time for the benchmark indexes comprising the asset classes in the model portfolio. Since the market data used to generate these rates of return change over time, your results will vary with each use over time.
Future expected rates of return and standard deviations are provided by Mercer Investment Consulting, Inc. (“Mercer”). It should be noted that Mercer’s expected rates of return generally are lower than the benchmarks’ historical rates of return. The default expected rates of return within eMoney are based on historical rates. Colony overrides these with Mercer’s lower (more conservative) expected rates of return. Likewise, Colony increases Mercer’s expected inflation rate by 0.50%, thus also making for more conservative simulations. Colony does not, however, input an advisory fee when running the simulations. The inclusion of advisory fees would necessarily impact the simulations by lowering hypothetical returns and decreasing ending total assets values. Due to the varying nature of investment portfolios, strategies, asset classes, and assets that Colony advises on, it would be impractical to account for advisory fees. However, we believe that the use of (a) Mercer’s more conservative rates of return and (b) a higher inflation rate, reasonably offsets the application of an advisory fee.
Monte Carlo Analysis is a mathematical process used to implement complex statistical methods that chart the probability of certain financial outcomes at certain times in the future. This charting is accomplished by generating hundreds of possible economic scenarios that could affect the performance of your investments. It is necessarily forward-looking and hypothetical.
The Monte Carlo simulation uses 1,000 scenarios to determine the probability of outcomes resulting from the asset allocation choices and underlying assumptions regarding rates of return and volatility of certain asset classes. Some of these scenarios will assume very favorable financial market returns, consistent with some of the best periods in investing history for investors. Some scenarios will conform to the worst periods in investing history. Most scenarios will fall somewhere in between.
The outcomes presented using the Monte Carlo simulation represent only a few of the many possible outcomes. Since past performance and market conditions may not be repeated in the future, your investment goals may not be fulfilled by following advice that is based on the projections.