Apply it to your data 13
How much should you expect from your $100 investment after 20 years?
James Hannigan
2024-12-4
# Load packages
# Core
library(tidyverse)
library(tidyquant)
# Source function
source("../00_scripts/simulate_accumulation.R")1 Import stock prices
Revise the code below.
- Replace symbols with your stocks.
- Replace the from and the to arguments to date from 2012-12-31 to present.
symbols <- c("GOOGL", "PG", "WMT", "ABT", "VZ")
prices <- tq_get(x = symbols,
get = "stock.prices",
from = "2012-12-31",)2 Convert prices to returns
asset_returns_tbl <- prices %>%
group_by(symbol) %>%
tq_transmute(select = adjusted,
mutate_fun = periodReturn,
period = "monthly",
type = "log") %>%
slice(-1) %>%
ungroup() %>%
set_names(c("asset", "date", "returns"))3 Assign a weight to each asset
Revise the code for weights.
- The vector weights should have a length equal to the number of assets in the portfolio.
- The values in the vector weights should sum to 1.
# symbols
symbols <- asset_returns_tbl %>% distinct(asset) %>% pull()
symbols## [1] "ABT" "GOOGL" "PG" "VZ" "WMT"# weights
weights <- c(0.2, 0.25, 0.25, 0.15, 0.15)
weights## [1] 0.20 0.25 0.25 0.15 0.15w_tbl <- tibble(symbols, weights)
w_tbl## # A tibble: 5 × 2
## symbols weights
## <chr> <dbl>
## 1 ABT 0.2
## 2 GOOGL 0.25
## 3 PG 0.25
## 4 VZ 0.15
## 5 WMT 0.154 Build a portfolio
portfolio_returns_tbl <- asset_returns_tbl %>%
tq_portfolio(assets_col = asset,
returns_col = returns,
weights = w_tbl,
rebalance_on = "months",
col_rename = "returns")
portfolio_returns_tbl## # A tibble: 144 × 2
## date returns
## <date> <dbl>
## 1 2013-01-31 0.0665
## 2 2013-02-28 0.0289
## 3 2013-03-28 0.0271
## 4 2013-04-30 0.0410
## 5 2013-05-31 -0.00832
## 6 2013-06-28 -0.00171
## 7 2013-07-31 0.0308
## 8 2013-08-30 -0.0537
## 9 2013-09-30 -0.000179
## 10 2013-10-31 0.0983
## # ℹ 134 more rows5 Simulating growth of a dollar
# Get mean portfolio return
mean_port_return <- mean(portfolio_returns_tbl$returns)
mean_port_return## [1] 0.0106815# Get standard deviation of portfolio returns
stddev_port_return <- sd(portfolio_returns_tbl$returns)
stddev_port_return## [1] 0.036363246 Simulation function
No need
7 Running multiple simulations
# Create a vector of 1s as a starting point
sims <- 51
starts <- rep(1, sims) %>%
set_names(paste0("sim", 1:sims))
starts## sim1 sim2 sim3 sim4 sim5 sim6 sim7 sim8 sim9 sim10 sim11 sim12 sim13
## 1 1 1 1 1 1 1 1 1 1 1 1 1
## sim14 sim15 sim16 sim17 sim18 sim19 sim20 sim21 sim22 sim23 sim24 sim25 sim26
## 1 1 1 1 1 1 1 1 1 1 1 1 1
## sim27 sim28 sim29 sim30 sim31 sim32 sim33 sim34 sim35 sim36 sim37 sim38 sim39
## 1 1 1 1 1 1 1 1 1 1 1 1 1
## sim40 sim41 sim42 sim43 sim44 sim45 sim46 sim47 sim48 sim49 sim50 sim51
## 1 1 1 1 1 1 1 1 1 1 1 1#Simulate
#For Reproducible Research
set.seed(1234)
monte_carlo_sim_51 <- starts %>%
# Simulate
map_dfc(.x = .,
.f = ~simulate_accumulation(initial_value = .x,
N = 120,
mean_return = mean_port_return,
sd_return = stddev_port_return)) %>%
# Add column month
mutate(month = 1:nrow(.)) %>%
select(month, everything()) %>%
#Rearrange column names
set_names(c("month", names(starts))) %>%
# Transform to long form
pivot_longer(cols = -month, names_to = "sim", values_to = "growth")
monte_carlo_sim_51## # A tibble: 6,171 × 3
## month sim growth
## <int> <chr> <dbl>
## 1 1 sim1 1
## 2 1 sim2 1
## 3 1 sim3 1
## 4 1 sim4 1
## 5 1 sim5 1
## 6 1 sim6 1
## 7 1 sim7 1
## 8 1 sim8 1
## 9 1 sim9 1
## 10 1 sim10 1
## # ℹ 6,161 more rows# Find quantiles
monte_carlo_sim_51 %>%
group_by(sim) %>%
summarise(growth = last(growth)) %>%
ungroup() %>%
pull(growth) %>%
quantile(probs = c(0, 0.25, 0.5, 0.75, 1)) %>%
round(2)## 0% 25% 50% 75% 100%
## 1.49 2.40 3.38 4.51 9.528 Visualizing simulations with ggplot
monte_carlo_sim_51 %>%
ggplot(aes(x = month, y = growth, color = sim)) +
geom_line() +
theme(legend.position = "none") +
theme(plot.title = element_text(hjust = 0.5)) +
labs(title = "simulating growht of $100 over 240 months")
Line Plot of Simulations with Max, Median, and Min
# Step 1 summarize data into max, median, and min of last value
sim_summary <- monte_carlo_sim_51 %>%
group_by(sim) %>%
summarise(growth = last(growth)) %>%
ungroup() %>%
summarise(max = max(growth),median = median(growth), min = min(growth))
sim_summary## # A tibble: 1 × 3
## max median min
## <dbl> <dbl> <dbl>
## 1 9.52 3.38 1.49#Step 2 plot
monte_carlo_sim_51 %>%
# Filter for max,median, and min sim
group_by(sim) %>%
filter(last(growth) == sim_summary$max |
last(growth) == sim_summary$median |
last(growth) == sim_summary$min) %>%
ungroup() %>%
# Plot
ggplot(aes(x = month, y = growth, color = sim)) +
geom_line() +
theme(legend.position = "none") +
theme(plot.title = element_text(hjust = 0.5)) +
theme(plot.subtitle = element_text(hjust = 0.5)) +
labs(title = "simulating growth of $100 over 240 months",
subtitle = "Maximum, Median, and Minimum Simulation")
Based on the Monte Carlo simulation results, how much should you expect from your $100 investment after 20 years? What is the best-case scenario? What is the worst-case scenario? What are limitations of this simulation analysis?
Based on the Monte Carlo simulation results, I should expect roughly 952 dollars is the best possible outcome, 338 dollars based on the median number, and a minimum expectation of 149 dollars. The limitations of the simulation is that it assumes normal distribution rather than negative. These outcomes will be different every time its knitted.