How Does Chance of Success Handle Custom Growth or Dividend Settings on Accounts?
Here’s how growth or dividend overrides for specific Accounts work with Chance of Success (CoS) and what impact they might have on your Plan’s CoS results.
Why Use These?
Custom growth and dividend settings give you the flexibility to adapt your plan to your specific goals or circumstances. Whether you aim to model conservative growth assumptions for specific accounts or test the potential of higher-risk assets, these features allow you to explore various scenarios and adapt to different circumstances.
Growth and Dividend Overrides
ProjectionLab allows you to override growth rates or dividend yields for individual Accounts:
Plan Defaults: Global Plan settings set the initial default growth rates and dividend yields that apply to the entire plan and all accounts.
Overrides: You can assign custom growth and dividend rates to specific Accounts, which will be incorporated into CoS simulations based on your configured settings for their treatment in CoS. (See below.)
How Overrides Work in CoS
When applying an override, you can choose between two options for CoS treatment: Fixed or Auto.
Fixed: ProjectionLab uses your custom Fixed or Advanced rate as the return for CoS simulations. This rate stays constant throughout the simulation, reflecting the Account-level performance settings you’ve defined.
Auto: If you select Auto (using historical data for CoS simulations), the override adjusts the Fixed Rate in the selected Account by sampling from historical market performance based on your current settings in CoS → Data Sources → Investment Growth Rate. If you choose a normal distribution in CoS, returns are modeled using a normal distribution with a relative standard deviation.
Example Use Case: Suppose you want to test how a higher dividend yield for one account might affect your plan:
- Apply an override to set the desired dividend yield.
- Under the Auto setting, CoS simulations incorporate the new rate, applying it based on the CoS treatment options outlined above.
Important Note on Account-Level Custom Rates and Bonds:
When setting custom rates (fixed or advanced) at the Account level, it’s essential to understand how they interact with your Plan-level bond settings:
- Stock Portion: Fixed rates at the account level apply only to the stock portion of the account.
- Bond Portion: Bonds, by default, will grow according to the Bond Dividend Rate and Bond Growth Rate defined in your Plan-level settings (Plan Settings > Bonds).
To Ensure Custom Rates Apply to the Entire Account:
If you want the custom fixed rates to apply to the entire account (including bonds), you must:
- Override your Bond Allocation: Set the account’s Bond Allocation to 0%.
- This step prevents the bond portion from being governed by the Plan-level bond settings.
Skipping this step means the bond portion will still grow according to Plan-level defaults, which could conflict with your intent to customize growth and dividends for the Account.
