Build your asset allocation, compute expected return, volatility and Sharpe, and compare market scenarios. Free, no signup needed.
Advanced simulator
Is my portfolio balanced, or does one asset dominate the risk?
See whether your mix is balanced or one asset dominates the risk, and find where to rebalance without breaking the expected return.
Asset allocation
Each row is an asset or asset class with its weight, expected return and annual volatility.
Σ 0.0%
Asset
Class
Weight
Exp. return
Volatility
Global parameters
Capital, contributions, horizon and risk-free rate.
Saved scenarios
Fill in your data to see the report
This simulator only generates a diagnosis, charts and recommendations when it has your real business values. Fill the editor above and the report will appear automatically.
Required data
Portfolio assets
Total capital available
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Load a realistic case to see how the report looks. You can edit any field afterwards.
Returns normally distributed, independent and with stable covariances.
Risk-free rate Rf constant over the horizon.
No transaction costs or rebalancing taxes.
Applicability limits
Markowitz underestimates tail drawdowns (events such as 2008, 2020).
Correlations rise toward 1 during crises — diversification benefit drops.
It is educational: it does not constitute financial advice or investment recommendation.
Sources
Markowitz, H. (1952) — Portfolio Selection. Journal of Finance.
Sharpe, W.F. (1966) — Mutual Fund Performance. Journal of Business.
Internal editorial estimate based on industry best practices.
How it works
1. Define your assets
Weights, expected return and annual volatility. Start with standard-class defaults and customize.
2. Tune global parameters
Initial capital, monthly contributions, horizon and risk-free rate to compute Sharpe.
3. Explore scenarios
Compare base, conservative and aggressive. Review the projection with ±1σ bands and interpret with AI.
Frequently asked questions
1What exactly does the Sharpe ratio mean?
Sharpe measures how much extra return you get per unit of risk taken, vs a risk-free asset (e.g. a treasury bond). A Sharpe of 0.5 is acceptable, 0.8+ is good, above 1 is hard to sustain long term.
2How is portfolio volatility calculated?
With the classic Markowitz formula: σ_portfolio = √(wᵀ Σ w), where Σ is the covariance matrix. Two assets with the same individual volatility can combine into a less volatile portfolio if correlation is low or negative — that's real diversification.
3Are the asset-class correlations fixed?
We use long-run reference values (e.g. government bonds ~ -0.1 vs equities). They're static and break down during acute crises (correlations tend to 1 in the short term). Keep that in mind when reading results.
4Why don't you recommend specific ETFs?
Because this is an educational scenario tool — not financial advice. We model at the asset-class level (equities, bonds, REITs, etc.). For specific vehicles (ticker, TER, tax domicile) talk to a registered advisor.
Related simulators
Connect your portfolio to cash-flow management or credit-risk analysis.
It is a numerical technique that generates thousands of random return trajectories using statistical distributions (typically log-normal with expected-return and volatility parameters) plus the asset correlation matrix. With 10,000 trajectories you obtain the empirical distribution of the terminal balance, letting you compute probability of ruin, P10/P50/P90 percentiles, and stress testing without relying on a single deterministic scenario.
2How do you calculate the expected return of a portfolio?
It is the weighted average of individual expected returns: E[Rp] = sum of (wi x E[Ri]). Expected returns are estimated using compound historical return over at least 20-30 years, adjusted for current valuation (Shiller CAPE), prevailing risk-free rate, and risk-premium assumptions. Vanguard, Schwab, and JP Morgan publish annual capital market assumptions that serve as benchmarks.
3What is the Sharpe ratio and how do you interpret it?
It is return per unit of total risk: Sharpe = (Return - Risk-free rate) / Standard deviation. Interpretation: <0.3 poor, 0.3-0.5 acceptable, 0.5-1.0 good, >1.0 exceptional (check for hidden leverage or sample bias). Comparisons are valid only within the same horizon and asset type.
4What is the Markowitz efficient frontier?
It is the set of portfolios that, for each risk level (target standard deviation), maximize expected return. It is built by optimizing wT.u subject to wT.S.w = target Sp^2 and sum of wi = 1, with wi >= 0 if short-selling is not allowed. The portfolio tangent to the ray from Rf to the efficient frontier is the CAPM market portfolio.
5How do you properly diversify an investment portfolio?
By asset class (equity, fixed income, real estate, commodities), geography (US, developed ex-US, emerging), factor (value, growth, momentum, quality), sector, and currency. Evidence from Vanguard, DFA, and AQR shows that keeping average pairwise correlation below 0.5 and holding at least 4-5 decorrelated asset classes captures ~80% of the theoretical diversification benefit.
6What is the ideal correlation between assets in a portfolio?
There is no single ideal; negative correlation reduces more variance but is rare and frequently unstable. The operational range is 0.0-0.5 for effective diversification. Long-duration government bonds and US equity have moved between -0.4 and +0.6 across regimes; assuming a permanent negative correlation is a structural error of the 60/40 portfolio that showed up in 2022.
7How do you simulate 10-year portfolio performance?
Define asset weights, expected returns, the covariance matrix, and run 10,000 Monte Carlo trajectories using correlated Geometric Brownian Motion (Cholesky). Analyze terminal-balance percentiles, maximum drawdown per trajectory, probability of reaching specific goals, and realized volatility. A historical backtest of the same portfolio over 30-40 real years is also recommended to validate robustness.
8What is maximum drawdown?
It is the percentage decline from historical peak to the subsequent trough, calculated as (Trough - Peak) / Peak. It measures the worst-case loss experienced. For retirement planning it is more relevant than volatility because it captures the investor's real experience: no one suffers the standard deviation, everyone suffers the drawdown.
9How does volatility affect compound return?
Volatility reduces geometric return through volatility drag: Compound return ~ Arithmetic return - Sp^2/2. An asset with 10% arithmetic return and 20% vol has ~8% compound return. That is why a diversified portfolio with lower volatility but the same arithmetic return ends up with more capital: the drag is smaller.
10What does a 60/40 allocation mean?
It is the classic allocation of 60% equity (typically S&P 500 or global equivalent) + 40% fixed income (typically Bloomberg US Aggregate or government bonds). It was the convention for decades because bond-equity correlation was negative or low. In 2022 both classes fell simultaneously and its relevance was questioned. Modern variants include commodities, TIPS, and gold to restore real diversification.
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What you'll see, what it prevents, and where you shouldn't trust it
Every simulator on Simúlalo ships with the same editorial structure: two hypothetical worked examples with numbers, the errors it helps you avoid, the model's declared limitations, and a visible financial disclaimer. The review is signed and dated.
Hypothetical case·Case A
An investor who finds out the 'classic' 60/40 portfolio has a 0.42 Sharpe
A person with $850,000 MXN allocates 60% to a domestic equity fund (9% expected return, 18% vol) and 40% to government bonds (3.8%, 4% vol), with 0.15 correlation. The simulator computes portfolio expected return at 6.92%, volatility at 11.3%, and Sharpe at 0.42. By adding 15% in global equity ex-domestic and 10% in REITs, expected return rises to 7.6%, volatility falls to 10.8%, and Sharpe rises to 0.51. The decision: rebalance gradually at the annual review, not all at once.
Illustrative figures. Does not represent a real company or an investment recommendation.
Hypothetical case·Case B
A committee that rejects a 12% expected-return asset because of 0.92 correlation
A family office considers adding a private equity fund with 12% expected return and 22% volatility to a $50M USD portfolio. The estimated correlation with the equity sleeve (75% of the portfolio) is 0.92. The simulator shows that adding 10% in that fund raises aggregate volatility from 12.4% to 13.7% and only lifts expected return from 7.8% to 8.2%. Sharpe falls from 0.55 to 0.53. The decision: reject and seek a fund with correlation below 0.5 before increasing alternatives exposure.
Illustrative figures. Does not represent a real company or an investment recommendation.
Common mistakes it helps you avoid
Things a team or decision-maker might assume that this simulator forces you to verify before committing.
Comparing returns without adjusting for risk: two portfolios with 8% return can have very different paths if one has 15% volatility and the other 25%.
Assuming correlations stay constant: in crisis correlations approach 1, and the diversification that looked solid in backtests evaporates.
Ignoring cost: a portfolio with a 1.8% TER loses several basis points of Sharpe per year compared to a passive 0.15% mix.
Reallocating on intuition without measuring the impact on aggregate volatility: the simulator lets you test combinations before moving real capital.
Model limitations
What the simulator does not do, and where you need a professional or a specialized tool.
Expected returns are assumptions, not guarantees. The simulator does not project future outcomes — it only compares scenarios under the assumptions you supply.
Correlations used are long-term reference values. In stress episodes (2008, 2020) correlations approach 1 between risk assets.
The model works at the asset-class level, not at specific instrument level. To select vehicles (ETF, fund, specific bond) consult a registered advisor.
Does not include real frictions: capital gains taxes, brokerage commissions, bid-ask spreads, or illiquidity effects in private assets.
When NOT to use this simulator
Do not use this simulator as an investment recommendation or as a substitute for a registered financial advisor. Decisions about your wealth depend on horizon, risk tolerance, tax situation, and personal goals — variables a simulator does not know. Use it as an educational tool to understand the Markowitz and Sharpe concepts and to walk into the advisor conversation better prepared.
Financial notice
Results are illustrative estimates and do not constitute financial, tax, accounting, or legal advice. Use the results as a reference point and validate important decisions with a certified professional.
Editorial review
Reviewed by the Simúlalo editorial team
This simulator was reviewed by the people listed below before being published. The review covers the declared formula, the model's assumptions, the explicit limitations, and the absence of unsupported financial claims.
They are part of the Simúlalo editorial team, focused on building financial tools that are clear, educational, and easy to interpret.
Last updated: ·We update this page when the methodology, sources used, or simulator structure change.
This tool uses standard financial formulas and user-supplied data. To explain concepts like rates, credit, risk, or cash flow we consult public and official sources (Banxico, SAT, CONDUSEF, CNBV, Banco de España, IFRS, BIS, among others). Simúlalo is not affiliated with, sponsored by, or endorsed by these institutions.