Misc Assumptions - RightCapital Help Center

Update Miscellaneous Assumptions in RightCapital

Aligning assumptions with your desired outcomes is essential in ensuring tailored advice for each financial plan. The °°° More Menu > Assumptions > Misc tab of the Advisor Portal allows you to review and update your Miscellaneous Assumptions and Return Model Assumptions. Your selections here will be used as the global miscellaneous assumptions across all of your client plans:

Miscellaneous Assumptions

There are three Miscellaneous Assumptions that are able to be adjusted at a global level. These include the costs of purchasing and selling real estate, as well as the expense adjustment upon the death of a client:

Assumption	Description
Cost of purchasing a real estate property	Represents costs associated with purchasing a property. This assumption will impact property purchases and primary home relocations.
Cost of selling a real estate property	Represents typical real estate agent fees associated with selling a property. This assumption will impact property sales and primary home relocations.
Expense adjustment upon the death of a co-client	Represents the reduction in living expenses associated with the death of a client or co-client. This expense adjustment will impact pre-retirement and retirement living expenses for the surviving client, and will only occur within joint plans.

RightCapital uses the following default values for each of the miscellaneous assumptions:

Client-Specific Miscellaneous Assumptions

Global assumptions in RightCapital are used as a starting point whenever you create a new household. However, within the Gear Icon > Settings > Other Assumptions tab of each client plan, you can choose to change the miscellaneous assumptions for just that individual plan. Making changes to misc assumptions here will not impact your global assumptions or any of your other financial plans:

Return Model Assumptions

The Return Model Assumptions at the bottom of the page allow you to adjust the Monte Carlo calculations in RightCapital. The Model Type and Calculation Type assumptions provide an additional layer of flexibility for advisors who want to tailor the way the Monte Carlo projections simulate market volatility and calculate future asset returns. These are exclusively global settings, and cannot be adjusted on a client-by-client basis:

The Model Type determines how the Monte Carlo projections will simulate market volatility in RightCapital. The available options are Legacy and Standard:

Legacy - Our Legacy Monte Carlo simulation uses a stochastic volatility model to capture the complex dynamics of equity and bond modeling. This model considers the correlation between asset classes, as well as the correlation between asset return and volatility.
Standard - Our Standard Monte Carlo simulation uses a log-normal distribution model. This model is commonly used in the finance industry to model returns, and provides more flexibility when setting asset class returns and volatility assumptions.

This setting will be set to 'Standard' by default for all new advisors after February 3rd, 2023. For advisors that started using RightCapital prior to 2/3/23, this setting will be set to 'Legacy' by default. The Model Type can be changed at any time, and the impact will instantly be reflected across all client plans.

Please note that Return Assumption presets (within the Advisor Portal > Assumptions > Asset Return tab) are only available when using Standard as your Model Type.

The Calculation Type determines how the Monte Carlo projections will calculate future asset returns. The available options are Geometric and Arithmetic:

Geometric - The Geometric calculation will cause the Monte Carlo simulation to use the geometric mean to calculate the cumulative return over a period of time. The geometric mean is generally the standard when measuring portfolio performance, and factors in the compounding effect of year-over-year returns.
Arithmetic - The Arithmetic calculation type will cause the Monte Carlo simulation to use the arithmetic mean to calculate future asset returns. This method takes the sum of the annual return numbers and divides that sum by the count of numbers used. In the Arithmetic calculation, we will adjust the returns by ½ of the investment’s variance to account for volatility drag.

The Arithmetic calculation type typically results in higher returns, and therefore a higher probability of success, than the Geometric calculation type. This setting will only impact the Monte Carlo projections, as the Baseline projection in RightCapital will always use the Geometric mean.

This assumption will be set to 'Geometric' by default for all advisors. The Calculation Type can be changed at any time, and the impact will instantly be reflected across all client plans.

Do I Need To Change My Return Model Assumptions?

In recent years, various schools of thought have emerged as it relates to Monte Carlo model types and methodology (particularly the calculation type). That being said, adjusting the Return Model Assumptions is by no means necessary, and the default selections (Standard and Geometric) are generally considered the industry standard for Monte Carlo simulations.