ClearFactr's New Probability Graph Feature Helps Visualize Risk

By Noah Smith

ClearFactr's built-in Monte Carlo simulator allows you to discover possible outcomes within your model with tremendous power and ease. Today we're announcing an enhancement that demonstrates those possibilities even more clearly: probability graphs.

This tool is ideal for answering questions like:

  • What's the probability of my company's cash falling below $50,000 over the next 12 months?
  • When am I likely to meet my retirement savings goal?
  • How do my business growth assumptions affect the probability of us meeting certain targets over the next “x” years?

This post will walk you through how the feature works.

Getting the most out of Monte Carlo

A Monte Carlo simulator is essentially an automated scenario generator, producing large numbers of model configurations based on the inputs and probabilities you choose. The results can then be presented and analyzed in various ways.

For example, let’s say you want to look at the likelihood of reaching a certain savings target over the next decade. ClearFactr’s Monte Carlo simulator lets you factor in the risk associated with different types of investments. Here’s a graph showing the range of possible accumulated savings (“Total assets”) for an individual 10 years into the future taking into account the likely volatility in their investments.

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While there’s a small chance this individual’s savings will reach $1m over the next decade, the greater likelihood is that it will stay below $400k.

You can also view a cross section of results for a point in time by switching from “Summary” to “Periodic” view.

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This chart shows the probability of this person’s savings falling within certain ranges in the year 2026.

This illustrates one of the most powerful benefits of Monte Carlo: It shows both what can happen and what's likely to happen. Monte Carlo can reveal possibilities that would be very hard to pick up on otherwise.

Now, here’s what the new probability graph feature does: it adds the ability to easily visualize the likelihood of meeting thresholds you choose across a range of values (e.g. dates). Here’s a chart showing the probability of this individual reaching $200k in savings over the coming decade.

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There is a small chance of accumulating $200k in savings by 2020, but a 90% chance of reaching that goal by 2028.

Getting up and running

To launch the Monte Carlo simulator in any ClearFactr plan, hit the “Run” button in the top bar (Step 1 in the screenshot below). This will pull up the simulator panel, where you can set parameters for the variables you want to manipulate (do this in the “Roots” section -- Step 2).

Now for the new bit: in the “Monitors” section (Step 3), once you select the output you want to focus on, you can enter threshold values in the “less than” and/or “greater than or equal to” columns. This tells the simulator to track results that fall above or below the parameters you set, generating a probability curve like the one you saw above.

Now click the “Run!” button within the panel (Step 4) and the simulator will produce as many scenario outputs as you tell it to and generate the charts like the ones above to help you understand the results.

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A quick walkthrough of the steps to run a Monte Carlo simulation in ClearFactr.

We think you’ll be pleasantly surprised by how easy it is to use this tool to get powerful insights into a wide range of modeling challenges. Happy simulating!

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