The Monte Carlo simluation seems to currently allow two main modes to select returns: normal distribution; and historic results.

Historic results are great, but we all know that history doesn’t entirely repeat itself; normal distribution selection is also great, however, the stock market returns probably aren’t independently selected. This suggestion aims to bridge the gap by using historic returns scaled to the returns entered into the “rates” setting. The idea is to capture how inflation and stock market returns move in relation to one another during times of bull and bear markets (e.g., regression to the mean).

The idea would be: (1) z-scale the historic data; (2) scale using the “rates” settings as the new mean values (3) new variance could be entered into the monte carlo dialog box, perhaps with historic variance as a default.

TPAW planner seems to do this by default, although details are a bit fuzzy. Namely, in their “open guide” on the monte carlo simulation tab, it says:

“Adjustment for Expected Returns:

Regardless of the simulation method you choose here, the historical returns are adjusted to match the expected returns that you entered in the “Expected Returns” section. The monthly return distribution is shifted up or down till the annual expected return matches the annual expected return that you entered there.”