Are the simulated market years independent random returns?

No. MRA’s market generator is based on an actuarial model with adaptations for the application. It models rates through time, including interest and inflation processes, equity regimes and correlations. It is not just one unrelated random return drawn for each year and account.

It considers:

The performance of large-cap and small-cap stocks with regime switching between low-volatility and high-volatility periods of equity returns to capture the fat tails of the equity return distribution that have been observed historically.

Stock dividend yields.

The unemployment rate, inflation, short-term and long-term interest rates, and the shape of the yield curve.

The correlations between all of these variables.

In addition, we've added a model for the USD/CAD exchange rate which will affect any USD investments, but also any incomes, expenses, savings, and loans entered in U.S. dollars.

This comprehensive model thus allows us to set simulated rates for your investments in cash, fixed income, and equities. It will set rates for variable and fixed-rate loans (at loan renewals). It will set the inflation rate that will affect all things that are set to be indexed with inflation in your scenario (incomes, expenses, and real estate for example), and tax brackets.

A newly launched analysis generates new paths, so repeating the analysis need not produce identical results. Within a guardrail comparison, the paths are reused to compare spending rules on the same markets.