Braden Warwick

If the goals of the client are purely focused on sustainable spending, then

then they're probably not going to receive really any different advice for the most part.

They're still essentially on track to the same plan that they were using the Gaussian approach.

I think that's a bit reassuring too to the general community that if you're just using Gaussian distributions, it's probably okay.

Like it's not something that you necessarily need to lose sleep over.

But the next section is a lot more interesting when we talk about the distribution of wealth outcomes.

So for someone with goals that are

aligned to their final after-tax net worth or their estate value or their multi-generational wealth, it is a meaningful difference.

And I think it's a pretty cool findings that I found.

So the first thing here that was a bit tricky to wrap your head around at first when looking at the distribution of wealth outcomes, but the median net worth of the new model increased, but the mean of the new model decreased compared to the Gaussian model.

So it's a bit tricky to think about, but let me try to explain this.

The median, which is if we're running a thousand simulations, that means the point that there's 500 that performed better and 500 that performed worse, that increased.

And that makes sense because we have mean reversion.

So we should expect that distribution of outcomes to narrow.

We would expect that the median would increase from that.

But the mean is not calculated in the same way.

And because the lower bound of wealth outcomes is zero, and at the upper bound, the Gaussian distribution or sampling from the Gaussian distribution can lead to these sort of runaway events.

where just imagine you have a sequence of returns that is a right tail after right tail after right tail that can really compound wealth.

So imagine a 30% return and a 40% return and a 50% return all stacked together.

It's really going to compound wealth to this crazy high level that we wouldn't really necessarily expect to see in real life because there's no mechanism to pull those returns back down after a right tail return has been realized.