Transcript:
Easan Arulanantham:
I feel a bit shaky with the market volatility and being in the stock market. What should I do?
Tom Vaughan:
Yeah, it’s kind of really the probably the highlight question right now. It’s just really, you know, what, what do I do? Right? I mean, we all got really used to for a really long period of time, fantastic returns. And to have a drop, you know, the pandemic was worse. I mean, it dropped 35%, or down 20%, here on the s&p. But the pandemic had, it was a different environment, you know, there was a, it was very obvious why things were happening, they were closing things down, there was plenty of fear, certainly, because you had both financial and physical fear at the same time. And, really, that’s how this whole channel got launched, was right in the middle of that the 23rd. Of sorry, the 22nd of March 2020, is when we did our first video on this channel, just to try to help people understand what was going on? Well, I think one of the things that I would recommend here in this particular environment, you know, ignoring all the things that we might be able to do getting defensive, and what’s happening in the economy and all those things, we’re already down a certain amount, everybody is down from some high point. And but what does that really mean to you, you know, it’s like, okay, a lot of times, we’ll look at something and say, I used to be here, and now I’m here, and I’ve lost X amount of dollars in that downturn. And that’s gonna happen all the time when you’re in the stock market.
And I think it’s really more of a situation of trying to at least make sure you’re looking long term, right. And so long term is different for everybody, depending on your age, and kind of your outlook and those types of things. But one of the things that we use, that seems to help a lot, is our retirement plan. And again, whether you’re 20, or 40, or 70, right, the retirement plan still is super important. And it gives you this MonteCarlo simulation. So actually, let me give you an example of what that looks like. Again, most of you have seen this before, but when I’m doing the strategy sessions, now with the clients, they’re concerned about the valuation drop, right. And we go through that we talk about what’s happened, how the accounts done versus the market, that aspect of it, what I see coming, right, and then we go to their retirement plan. And we take a look at what that means to their future. And, and so when you run the Monte Carlo simulation, like today, it is because our plans are live, and all the accounts are LinkedIn, the accounts are now worth less what happened to the MonteCarlo simulation, because that really shows you the rest of your life, you can tell okay, hey, in November, we were here, and now we’re here, right? Lower.
But what’s that mean for the rest of your life? And that’s where MonteCarlo simulation comes in. So at this lower dollar amount, we run this Monte Carlo simulation with the same asset allocation. And what happens and so again, it depends, we’ve got scenario here, we push the button. Okay, they’re still at 96%. Right? So this is how I think you need to really look at the market. If you’re back to 75%, or, you know, something much lower than that, we probably need to start making some adjustments someplace, either adjustments to lifestyle, cutting back on what you’re withdrawing from these accounts, if you are doing that, saving more if you’re you know, in a pre retirement situation where you can actually push more money into your accounts to kind of make up for some of the losses, or portfolio allocation changes to deal with that. Right?
I would use this long term perspective of MonteCarlo simulation, because this is the rest of my life, what’s going to happen to the rest of my life? So so far, I’m down X amount and a half 96%. Right. Okay, it’s not really affecting the rest of my life, looking at it from a MonteCarlo simulation standpoint, versus, you know, hey, I’m at 70%. Okay, I haven’t, I have to make some adjustments. And so to answer that question of, you know, what do I do with this market volatility? Take a look at how it’s impacting the rest of your life. And then see, you know, what you need to do from there. And I think that’s the, I don’t know, that’d be the gold standard, in my opinion on how to make adjustments to your lifestyle, your savings rate, your spending rate or your portfolio, right. I mean, those are the things, right.
Easan Arulanantham:
Another way is you can kind of frame it as idea if you’re still putting money into the market. This is a time that you could acquire stocks at a discount. Because when you think about it, one of the best periods in our history is when we come from that very initial bottom and when we come up and so if you’re just dollar costing into that amount, you’re gaining those gains over time.
Tom Vaughan:
Yeah, Just before the show we were talking about, you know that exactly, you know, because both of us kind of like Target, for example, and, you know, is that an opportunity or what have you. And I remember in 2008, you know, because it was a financial crisis, the banking system really took a hit, and Citibank was down, I think it was $1. But it might have been $5. But it was very, very low. We just looked it up, it’s, you know, it’s $48, right? So somebody made a tremendous amount of money buying Citibank, or Bank of America or any of these things, you know, because they didn’t go out of business, they may not still be the greatest institutions on earth. You know, obviously, there’s different opinions on that, but, but there’s opportunity to kind of do well in this environment. As far as that goes. It does depend on your age, your outlook, your risk tolerance, kind of where you’re at as to what you should be doing. But that is one of the things that drives me personally, in these downturns is just looking for opportunity and trying to find that point where I want to try to take advantage of that, again, with each client that’s different, cuz they all have different outlooks. But it is one of the things that helps me mentally here is that, hey, everything’s now on sale.
I like these companies, and now they’re cheaper. Their price to earnings ratios are now much more in line with kind of long term averages or something along those lines. Man, that might be a good time to buy the so. Maybe we’re not at the bottom yet. Yeah, that’s hard to tell. I you know, that’s one of the most difficult things to tell, I think, which is why it’s so difficult to tell when to get back in. But I do think also, that helps me tremendously is knowing, okay, I’ve suffered X amount of loss. I push that button on the MonteCarlo simulation. I’m still okay. Or I’m not now then I’m gonna get concerned. But if I’m still okay, okay, I’m okay. I’m alright. My strategies are still working. I’ve got enough money. My overall plan is okay. Right. And so this is the answer, not how much the market came down, how much more the market is going to come down, when it’s going to recover what the Federal Reserve is going to do. This is the answer. Yep. MonteCarlo simulation is the answer to that question. Figure out what it means to you for the rest of your life and then make adjustments based on that. Because that’s the way to do it.