Monte Carlo Analysis, Stock Investing, Retirement Raises, Saving Tips and Macro Outlook

On this episode of Upticks, Jake and I dive into a range of financial planning topics, from investment strategies and retirement planning to broader economic outlooks.

The discussion offers insights on how individuals can make more informed financial decisions and avoid common pitfalls, with a strong focus on personalized planning over generic approaches.

Thank you for joining us this week! If you have a topic that you would like us to discuss or debate live on Upticks, please email it directly to Luke at?[email protected]?and he’ll be sure to ask us to bring it up on the show!

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Read a summary of the conversation below:

Monte Carlo Analysis

Jake opens the conversation by addressing Monte Carlo analysis, a popular tool in investment management used to model the probability of various investment outcomes. However, Jake and Cory both express their skepticism about its usefulness. Jake explains that the analysis simulates thousands of potential market returns, aiming to predict whether a retiree’s financial plan can withstand a downturn. While acknowledging that the tool addresses a valid concern—sequence of return risk—they argue that it offers little real-world value to their clients.

Instead of relying on Monte Carlo, Jake emphasizes the importance of consistent, annual reviews of a financial plan to ensure it’s on track. Cory agrees, noting that the assumptions built into Monte Carlo often imply retirees will have to sell stocks when the market is down—something their diversified strategy aims to avoid. Their approach includes diversifying across stocks, bonds, cash, and other assets, reducing the need to sell at a loss. Jake concludes that too many financial advisors hide behind Monte Carlo to seem sophisticated, but it can be dangerous to rely on it too heavily.

How to Invest in Stocks

Next, the duo discusses a recent article on stock investing. Jake breaks down the key points: setting a time frame, determining risk tolerance, and understanding tax implications before jumping into the market. He stresses that investors should only allocate money to stocks if they won’t need to access it in the next five years. Stocks are volatile, and without a long-term horizon, investors risk being forced to sell during a downturn.

The article also discusses the importance of choosing an investment style, whether that’s picking individual stocks or using mutual funds and ETFs. Jake adds that deciding between managing investments on your own or working with an advisor is another key decision. He criticizes how many new investors jump right into opening accounts without thinking through their strategy. Jake and Cory agree that careful planning before account setup is important.

Retirees, It’s Time to Give Yourself a Raise: How to Keep the Cash Flowing for Decades

Cory then brings up a recent study suggesting that retirees could safely withdraw 5% of their portfolio annually, up from the traditional 4% rule. While this new research might seem optimistic, Cory notes that more than half of retirees in a survey admitted to “winging it,” withdrawing money as needed without a structured plan. Both hosts express concern over this lack of planning, highlighting that a consistent withdrawal strategy is important.

Jake emphasizes that, for their clients, the percentage they withdraw often fluctuates based on market performance and personal needs, rather than sticking to a rigid rule like 4% or 5%. The key, they argue, is having a comprehensive financial plan that’s regularly reviewed. Without this structure, retirees risk running out of money or drawing down their assets too quickly.

A Couple Wants to Save More—for Retirement, College, Car, and a House. But How?

The next topic centers on a case study about a young couple trying to balance multiple financial goals, including saving for retirement, their children’s college funds, and a new home. A financial advisor offers some broad guidance in the article, recommending that the couple increase their savings rate and buy more life insurance. However, Jake and Cory find this guidance lacking in depth.

Jake points out that without asking specific questions—like the couple’s desired retirement age, lifestyle goals, or legacy plans—the guidance feels incomplete. He warns listeners not to take financial advice from articles or forums without consulting a trusted advisor who understands their individual situation. Education is important, but general recommendations found online can be dangerous if taken as personalized advice. Cory adds that just as people don’t rely solely on the internet for serious health issues, they shouldn’t make financial decisions based on online advice without professional input.

Strategas Macro Policy Outlook

Cory brings up a chart from Strategas, focusing on the potential tax policies under discussion in Washington, particularly the possibility of taxing unrealized capital gains. Both hosts express strong opposition to this idea. Jake argues that taxing gains before they are realized—that is, before an asset is sold—would stifle entrepreneurship and the American spirit of capitalism. He worries that such a policy could discourage individuals from striving for financial success, as it would penalize them for holding onto appreciating assets.

However, Cory reassures listeners that such drastic tax reforms are unlikely to pass, especially with a divided Congress. He emphasizes that while these policy discussions are important to be aware of, there’s no need for panic. Investors should continue focusing on their financial plans, and any changes to tax laws can be adjusted for when, and if, they actually happen.

What Should You Do with Your 401(k) When You Retire?

The final topic touches on the options retirees have for their 401(k) accounts. Jake explains the common choice of rolling over a 401(k) into an IRA, which often offers more investment options and flexible payouts. However, he warns that not all situations are the same. Some retirees may benefit from keeping their 401(k) in place, particularly if it offers lower fees or if they want to maintain a connection to their former employer’s plan.

Cory shares an example of a client who, due to their specific retirement plan rules, would lose significant tax benefits if they rolled their 401(k) into an IRA. This underscores the need for individualized financial planning rather than defaulting to a rollover just because it’s a common recommendation. Both hosts agree that each retiree’s situation is different, and these decisions should be made in consultation with a financial advisor who understands the full picture.

Thank you for tuning in, we hope you have a great week!

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