Model assumptions

Lysa's "investment aid" is a decision support tool that calculates the expected return and the estimated probability of different outcomes presented in a graph. The purpose of the graph is to show the effect on expected returns of different portfolio compositions, risk levels and investment horizons. Thinking about the probability of different outcomes results in better investment decisions.

The actual outcome will vary depending on the market development, time of investment, investment amount, deposits and withdrawals, transaction costs and taxes. Expected returns are not a reliable indication of future realised returns.

The calculations are based on a multifactor simulation that assumes a logarithmic normal distribution with the following hyperparameters:

  • Annual expected returns for share exposures: 7%
  • Annual expected returns for fixed income exposures: 1.5%
  • Standard deviation for share exposures: 15%
  • Standard deviation for fixed income exposures: 2%
  • Correlation between share and fixed income exposures: 0.1

The parameters are based on historical data for each asset class and do not take into account specific subclasses within the asset class.