Calculation methodology & assumptions.

1. Compounding Fee Drag Model

Investment management expense ratios (MERs) and advisory fees reduce long-term compounding exponentially rather than linearly. Our fee impact analyzer models the terminal wealth differential using continuous and annual compounding:

Terminal Value = Principal × (1 + r - fee)^t + Contribution × [((1 + r - fee)^t - 1) / (r - fee)]

Where r represents the nominal gross expected return, fee is the combined annual expense ratio (MER + advisory wrap fee), and t is the investment horizon in years. The cumulative fee drag is calculated as the difference between the baseline low-cost index portfolio (e.g. 0.20% MER) and the high-fee alternative (e.g. 2.10% mutual fund).

2. Portfolio Drift & Rebalancing Logic

The Portfolio Rebalancer uses a threshold-band model (tolerance bands) rather than calendar-only triggers:

• Target Allocations: Defined by user asset allocation percentages across domestic equities, foreign equities, emerging markets, and fixed income.
• Tolerance Bands: Set by default at ±5% relative drift or ±20% proportional drift from target weights.
• Contribution Allocation: When new cash is introduced, the algorithm directs 100% of the new deposit into the most underweight asset classes first, minimizing taxable disposition events.

3. Inflation & Purchasing Power Assumptions

Unless adjusted by user input in advanced scenario sliders, our standard real return models incorporate:

• Baseline Inflation: 2.1% to 2.5% annualized, aligning with the Bank of Canada and Federal Reserve target bands.
• Conservative Equity Return: 6.0% nominal (approx. 3.8% real after inflation).
• Fixed Income Return: 3.5% nominal (approx. 1.3% real after inflation).

4. Tax Shield Sequencing (Canadian & U.S.)

Our account sequencing models prioritize contributions by net marginal tax advantage:

• Canada: First-Home Savings Account (FHSA) for eligible buyers → Registered Retirement Savings Plan (RRSP) for earners above the first federal tax bracket → Tax-Free Savings Account (TFSA) → Non-registered taxable accounts.
• United States: 401(k) to maximum employer match → Health Savings Account (HSA) → Roth IRA / Traditional IRA → Remaining 401(k) elective deferral → Taxable brokerage.

5. Monte Carlo & Historical Stress Testing

Historical scenario simulations utilize empirical drawdown and recovery datasets from three major market stress periods: the 2000–2002 Dot-Com crash, the 2008–2009 Global Financial Crisis, and the 2020 COVID shock. Monte Carlo runs simulate 1,000 randomized return paths sampled from normal and fat-tailed lognormal distributions to model sequence-of-returns risk.