Transcript:
Easan Arulanantham:
“So, are you saying, as an investor, you should be more reactionary versus predictive?” And so, you know, I shouldn’t be trying to speculate, in a sense to predict the next great downturn, I should just be sitting where I am.
Tom Vaughan:
Yeah, actually, I think if you were to classify it, you should mostly be “buy and hold.” And so for our typical portfolio, 75% of our portfolios is just “broad market.” S&P 500, Total Stock Market index, those types of things is designed to just hold on to it. And the rest of our stock market exposure, the smaller part by far, is designed for some tactical movements. Buying some things, like we just bought some Clean Energy ETFs, right? Because again, they’re starting to move, electric vehicle ETFs those types of things. So that’s a tactical move, as far as that goes, just based on kind of what I’m seeing happen in the momentum. But for most part, you should be “buy and hold,” and then really wait for those extreme situations that you see coming to be more reactive. And sometimes, for example, in a downturn that we had last year, my first thought was trying to position the portfolio for the rebound. And so watch very closely for things that we’re doing better during the downturn. That’s when we bought Microsoft and Apple, for example, because it was doing better. And I felt like if something held up in that downturn, the market likes it, and maybe it’ll continue to come back up quicker. That actually worked out; doesn’t always work, right? I mean, there’s different situations. But, I was positioning for the rebound. I wanted to recover quicker. Because it’s very difficult to get out of the way of a market like that. That was the fastest 35% drop in history.
So, you’re not going to get out of that. You’re going to probably suffer through some of that, that’s why you got to make sure your stock/bond mixtures really sound, before you get there. But what do you do to take advantage of it? And that’s one thing that, for downturns, I’ve gotten, better at looking at that from an analytical standpoint, and taking advantage of what’s happening, during that timeframe, and getting positioned to try to recover as quick as possible. Because recovery is a big deal. I always just use it as an example, “would you rather have a portfolio that only drops 3%, but takes 3 years to get back, or one that drops 30%, but only takes 3 months to get back?” Right? So a lot of people focused tremendously just on how much it falls, you need to also focus on how fast you can come back. So recovery think is a big piece of that. Especially as you’re, as you’re in retirement. You know, you’re living off this money. Having it stay down for a really long period of time is tough. And, you know, that can happen still. There’s all kinds of different markets, you know, the Great Depression was down for a long time. And so, you know, trying to get defensive, in the right situations, I think it’s good; but mainly “buy and hold.” Yeah, I think that’s been the key: have the right stock/bond mixture, and hang in there.