I have a feeling the answer is going to be obvious, but I can't figure it out. I've searched the user manual, and see the phrase "Activate Historical Analysis" mentioned, but no explanation as to what it does. Same with the forum. I see a post from 2021 but I don't really understand how it applies to Pralana Online. I get what happens when I run the Historical Analysis, but all I can see happening when I check the "Activate Historical Sequence Analysis" is a change in the Deterministic box. And now I have just noticed that Absolute vs Effective Savings are the same, despite having an effective tax rate of 20% entered. I am definitely confused.
Activate Historical Sequence changes the deterministic analysis from using your guesstimates of inflation, stock and bond returns to use the historical sequence that started in the year you selected (default is 1965 as that is a real stinker). So go to Review and see how your returns and net worth spike up and down from year to year. It's a great way to see a year-by-year stress-test of your plan.
I particularly like to use it to test how risky extra Roth Conversions might by - I enable Roth Conversions and look at the final estate value starting in a bad year like 1965 and then disable Conversions and do it again. It lets me see that there is risk involved, it's possible to have poor market sequences where Conversions lose you money.
@ricke I am not sure I follow your comment "it's possible to have poor market sequences where Conversions lose you money." Do you mean if a poor market starts after you do a Roth conversion? I am not sure how that would be different then any other investment strategy. Doing a Roth conversion during a market downturn is the best time to do one, within reason. I must be missing something 🤔.
@ricke I think you left me a reply, but I don't see it . I did see the notification, twice in fact, that you replied about an hour ago. Stuart Matthews knows there is a problem with posts duplicating. Not sure if this is related.
Yes, you optimize your Roth Conversion plans around assumed rates of return. If you convert and then those returns don't materialize or turn into losses, then the conversion isn't as good as you thought and can actually be a negative.
