How to investigate differences between scenarios
If you have run one or more scenarios, the following table lists ways to pinpoint the difference in the results, particularly if the difference is unexpected. You can also Contact Optimo Financial if you have questions.
|Thing to check
|How to check it
|Make sure both scenario results are up to date
If the case is a little old, it's best to re-solve both scenarios so that you can be sure they are using the 'Current situation' data and that your results include the latest Pathfinder model.
For more, see v1 How to solve a scenario to get results and How to check when your results were created
Go to the Compare step (top menu), and select the two scenarios you are comparing:
- Check you have run each scenario for the same number of years.
- Check each chart to see if anything obvious stands out, as this may help pinpoint where to investigate. e.g. less tax is being paid, the assets outside super are higher for one scenario, etc.
For more, see Compare step.
Check the assumptions
If the scenarios use investments with different returns, then the investments with higher returns can give will give a higher projected outcome.
- Review the assumptions for each scenario (for more see How to see and edit the assumptions)
- Some examples of different returns are:
- In one scenario, you kept their existing 'Balanced' super, and in the other you rolled the super over to 'Growth'
- You are comparing a property to shares/managed funds - check that the total returns are comparable. For property, the net returns can include the rental income, property growth, running expenses.
|Check the specified Cash reserve is consistent across scenarios
Unless you're comparing the impact of difference cash reserves (or need to specifically change it for a particular scenario), it's best to keep the cash reserve consistent across all scenarios. You can check this in:
- The input data: At the Cash flows & Goals step, click Cash reserve (Make sure you open the series builder to check later years)
- The results: In the detailed reports, check the Consolidated > Available cash balances report. The Required cash reserve line lists the cash reserve you entered.
For more, see Cash reserve goal.
|Check the income and expenses
You can check the income and expenses in two places:
- To check if a completely new income or expense has been included: At the Cash flows & Goals > Cash flows step, check what income and expenses you have entered.
- To check if the values for an income or expense are different, check the detailed reports, Cash flows report (if there is a difference, you can check the Cash flows (detailed) report for more details)
Check if insurance premiums are different
Insurance premium payments can differ for two reasons:
- One scenario includes more insurance than then other
- The instructions for the insurance are different, for example:
- You may choose to keep the insurance in one scenario and cancel it in the other.
- If you choose to cancel insurance at retirement, and the scenarios have different retirement dates, the total premiums paid will differ.
- If the insurance is held in a super fund or SMSF that is closed in one scenario, the premiums will stop being paid.
To check insurance premiums check:
- In the results, at the Detailed reports step, check the Consolidated > Insurance premiums summary report
- Check the insurance premiums. at the Current situation > Insurance and Cash flows & Goals > Review insurance steps
For more, see Insurance.
Check the timing of the investments
If one scenario keeps funds in an investment with lower returns for more years than another scenario, it will give a lower projected outcome.
In the detailed reports, compare the Consolidated > Assets & Loans reports.
For example, in one scenario, excess funds may be kept in a cash account and in the other they are invested in shares. Or in one scenario, the super fund balance will be higher.
Put the difference in perspective as an annual amount or percentage
Sometimes, it can be useful to look at the difference between scenarios as the average annual difference or percentage of the total. To calculate the annual difference, you first need to find the projected total net wealth at the end of the analysis in present values. So, for each scenario:
- Go to the Results > Strategy Summary step
- Scroll down to the Wealth summary section (at the top)
- Make a note of the Total net wealth in present values (present values are a more realistic indicator when looking at long-term projections)
Then, work out the difference between the total net wealth of the two scenarios.
To work out the difference per year:
- Divide the difference in total net wealth by the number of years for analysis. This gives you an indication of the 'difference per year'.
- For example:
- 'Scenario 1' has a total net wealth at the end of the analysis of $2,400,000 in present values and 'Scenario 2' has $2,500,000
- So, 'Scenario 2' is projected to be better by $100,000 (i.e. $2,500,000 - $2,400,000)
- The analysis was run for 20 years, so the difference per year is $5,000 (i.e. $100,000 / 20)
- So, you can condsider whether the actions in Scenario 2 are worthwhile for a projected $5,000 a year increase in net wealth?e.g. it might not be any trouble at all, or it might require investments with higher risk or more paperwork or a strategy that isn't their personal preference.
To work out the difference as a percentage:
- Take the difference and divide it by the lower scenario's projected net wealth att the end of the analysis in present values
- For example:
- Scenario 1 is projected to have a projected net wealth of $2.4m (actual values), and the higher scenario is $100,000
- Work out the difference as a percentage: $100,000/2,400,000 = 4.2%
- So, you can consider whether the actions in Scenario 2 are worthwhile for a projected 4.2% increase in projected net wealth