Broker Check


February 24, 2022


By Peter T. Waldron

Managing Partner of Waldron Partners

“Opinion has caused more trouble on this little earth than plagues or earthquakes.” -Voltaire

            In my last article I wrote about fear and how it influences our decisions, and in that article we discussed the worst periods in S&P 500 history. Two months later, we find ourselves living through one. Funny how timing has a way of working out. In the midst of this pandemic, it has been interesting to watch people spout their opinions on everything from viruses to containment strategies, statistics, the stock market, and so much more, even toilet paper. Opinions are great, but the one thing that I have had as a guiding light is planning. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation.  It is a market value weighted index with each stock's weight in the index proportionate to its market value.

I know you can’t plan for everything, but you can try hard to get close. And yes, Mike Tyson said, “Everyone has a plan 'till they get punched in the mouth,” and, believe me, this last thirty days has been a punch in the mouth. My resolve hasn’t been shaken. I am still in the fight and you should be too. There are always going to be hard times as there are always going to be good times. The key is to have a financial plan and your plan should account for these types of events so that you are already prepared for them.

Now you will ask, how do I plan for these kinds of economic events? First, you should utilize Monte Carlo analysis in your planning, which was discussed briefly last month. Monte Carlo analysis tests potential outcomes with each test being random. This gives you a sense of whether you will meet your goals given the current assumptions. If you are not on target to meet your goal then you can adjust it, your risk, or the level of resources you commit to achieving the goal. This is what a plan helps you do: have choices before you don’t have choices.

The second way you can mitigate these types of events is to understand risk in your assets. More specifically, what is the risk that the volatility of your asset will impact your ability to reach your goal? If you have flexibility in when you want to achieve a specific goal, then there is no reason to worry. If you want to retire at 65, then you may need to adjust your strategy to meet your goal. Again, when you are close to reaching a goal you should reduce the risk of the resources allocated to it.

Lastly, you should understand why you are allocating assets. Asset allocation is important and most people know they should do it but don’t really know why. It is simple and complex at the same time. First the simple: you allocate assets so you don’t have all your money in one basket. Right now is a great example. Bonds are down a bit or flat, and stocks are down over thirty percent. If you have rental property, you are still getting paid rents even though everything is down.

The more complex way of looking at it pertains to your goals and how they interact with the time horizon, cash flow, and risk of each asset you are going to allocate. For instance, you need to know how your planning will be impacted by the time horizon of an investment, in that if you need money for a down payment on your home in two months, you don't want to lock your money up in an investment that has a ten-year time horizon. Also, if you are about to retire and need income from your investments, you shouldn't buy a 100% non-income producing asset; instead, you should diversify. And lastly, if you have college savings accounts and your child is in school, you don't want to have that money all in stocks but would want to diversify away risk by adding bonds or cash.

As you can see, there are many ways to plan your money. I know this might not seem like the best time to consider this topic, but I can tell you that there is never a “best” time to start planning - you just have to start. The hard part is sticking to the plan, especially in these challenging and unpredictable times. If you have a plan that has already taken these events under consideration, then there is no reason to deviate. I know this is going to go down as one of the toughest times of our lives, replete with misinformation, chaos, uncertainty, and fear; and I will be able to sleep knowing that I have a plan, my clients have a plan, and my company has a plan. I hope you take the time to put together a plan.

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” -Pablo Picasso


Peter T. Waldron: California Insurance License #0E47827

Peter T. Waldron is a registered representative of Lincoln Financial Advisors, a broker/dealer, member SIPC, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, Waldron Partners, 3201 Danville Blvd., Suite 190 PO Box 528 Alamo, Ca 94507.  Waldron Partners is not an affiliate of Lincoln Financial Advisors. Insurance is offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients.  CRN3000985-031820