Vanguard has released an investment outcomes model that it says will benefit financial advisers in discussing long-term investment possibilities with their clients.
Speaking at the launch in Sydney yesterday, Vanguard head of investment strategy group for the Asia Pacific Jeffrey Johnson said the Vanguard Capital Markets Model (VCMM) can be used to indicate to advisers “realistic expectations” for clients' investments.
“This model is used to talk about long-term outcomes, long-term probabilities and it will be used in the framework,” Mr Johnson said.
“We are not using it to talk to [people] about what is going to happen tomorrow, over the next week, the next month or the next quarter,” he said.
Vanguard investment analyst Frank Polanco explained the model generates “its own” possible future scenarios for investment outcomes as opposed to reflecting on the past events as an indicator.
“There is only one history, but looking forward there is an infinite number of futures that could eventuate," Dr Polanco said. "What we do in our modelling is we look at 10,000 of those potential futures to determine what might be the outcome for the market."
Vanguard explained the VCMM also combines economic and financial variables to “weigh many risk factors” which can influence future investment outcomes.
“In this setting investors can assess the impact of expected changes in interest rates, inflation shocks, or economic growth in their portfolios,” a statement from Vanguard said.
“[Also] by focusing on a [range] of outcomes rather than on point forecasts, the VCMM can better incorporate statistical uncertainty into its forecasts,” Vanguard said.
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