Black Swans and Retirement: Are You Ready for the Unexpected?

Remember the supply chain mess of 2020 or the sudden market drop of 2022? Those so-called “black swan” events hit hard and fast — and they’re not as rare as you think. In this week’s Capitalist Investor, the team dives into how unpredictable market shocks can devastate unprepared portfolios, why retirees are especially vulnerable, and the strategies you can use to safeguard your wealth. Don’t miss this candid conversation on protecting your retirement from the unexpected.

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Transcript

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Remember the Remember the supply chain mess of 2020 or the sudden market drop of 2022? Those were black swans. Rare, unpredictable events that hit fast and hard. The truth? They're not really rare. They're inevitable. And is your portfolio ready? If not, they can be devastating. All right. We got a special guest host this week. Dave, about. How are you doing, buddy? I'm feeling great, Dave. I do. Well, it's great to have you back. You know, we're, talking a little Browns football before, before kicking this off, it's, looking like another long season. You know, we're started on that path again. We're used to it by now, but, we I think we're tough, and it makes us. It makes us tougher. Yeah. I don't think people nationally really understand. Like what? What Browns football is like. I, I had a go. We had, like, a little B problem, so I ran out of B spray. So I went out at half time to to get it. And like the town is dead. There is no one out doing anything. Literally everyone is home watching the game. And those idiots over there just can't get a team together. It's it's so frustrating for them, for the people of Cleveland. It would be mind blowing to picture what would happen if we actually had a winner. Yeah, we got a little taste of that with that playoff game against the Texans a couple of years back. Like, like you said, everyone is making plans. Where we watching the game and we just haven't had that you know consistent running at all. Yeah. And they have a great coach too. They're just wasting it. They really are. So but the the the the Cleveland Browns are most definitely not a black swan. Events is fairly predictable. Every single year that they're going to stink. But, yeah, you know, we were kicking around, some ideas for show topics. And, you know, kind of this idea of a black swan event, came up, you know, so, you know, kind of like we said in the open there. There there are they are bound to happen. We know they're going to happen. We just don't know. Usually kind of when or where. But that doesn't mean that that we can't, you know, be prepared for them. Based on not only how our portfolio is constructed, constructed, but I think also how how how we react. You know, I think, those two things can, can really help you through, some, some tough times in the market. Yeah, definitely. It's almost, you know, when the analogy that comes to me and I'm a big analogy guy is they're usually sports related. Yeah. Do you remember Mike Tyson? I do, yeah. The boxer Mike Tyson. So one of his quotes is, you know, everyone has a plan until they get punched. Yeah. Right. So I feel the way that this connects to this, you know the topic today is like you know everyone set sail with this portfolio and then a monkey wrench gets thrown in and then it's like well what do we do now. Right. Well I think the antidote is like expect to get punched in the mouth. When you. Go in there. Part of your plan should be what happens after I get punched in the mouth? You get punched in the mouth, your portfolio gets punch in the mouth. Your your dazed, you're confused. You're shocked. The world seems upside down. Have that pre-planned kind of in place to know where you go next. Yeah. For sure. And you know the reason why I thought this, topic was timely is because we are, you know, sitting at basically all time market highs, you know, across the board. You know, we're seeing, especially like the tech and the AI sectors, Nvidia specifically kind of propping up the market. Think again. Like, like we've seen over, over the last couple of years. So, you know, when those things come, come into fruition, it's you don't need to be kind of running away scared all the time, but you just have to be cognizant of the fact that, hey, you know, we are really doing pretty well. We're at all time market highs. The economy is not perfect. You know, there's lots of businesses out there that are not being run, perfectly on the S&P 500. And we just have to we just have to be careful. You know, we have to make sure that, not only through asset allocation, but that we kind of understand the landscape of what's going on out there. We kind of understand that the market's just not going to go straight up, you know, ten, 12, 14% every year. You know, that is not how it works. So we have to, we have to make sure we understand that and that, not only our, our, investment portfolio is, is, has taken that into consideration, but, you know, also our financial plan. Absolutely. And really do you're hitting on some important stuff like there's the behavioral finance piece to it so that, you know, expecting it's going to happen, not panicking, making sure you keep a level head when the, you know, the inevitable turmoil hits, you know, you know how to how to approach that. But from a practical point of view, what I would say is, you know, it all comes down to like, how does this impact my life at that moment? Right? It's like, think about like, hey, we get this curveball, right? How am I if I'm in retirement? How am I going to make my ends meet or I cover my shortfall for that period of time while the market is not cooperating? Right. Assets are not in favor. What kind of emergency fund or what kind of safe haven assets do I have to fall back on to get me through those lean times? Yep. For sure. You know, a lot of, my clients that I work with, we built out, you know, an income strategy of some sort. Some of those income strategies involve borrowing investments, right? Whether they're annuities or, you know, dividend paying stocks. Right. They're they're they're they're not the, the investments that you're going to wake up in the morning and say, oh my gosh, this, you know, this, this one up to this investment just went up 20%, right? You know, some, I know you have experienced this today when, you know, someone brings in a, a statement on their annuity and it only went up, you know, 4% over the past year. You know, it's like, hey, what's going on here? You know, a lot of those are have a future income payouts that that are the, the main mechanism for that investment. And while boring and not going to be a home run every time, they really are kind of the the basis of people's retirements and having, you know, a guaranteed income stream, is a really important thing because we know that that these events are going to happen and we need some protection when they do. And it it's funny that you bring that up because, you know, depending on which part of the market cycle, we're in there, either your least favorite part of the portfolio or your favorite, because in those periods where the turmoil hits, you know, the market is pulling back, even in the beginning of this year in April. Right? Yeah. Market kind of corrected 15, 20% now, like the light bulb kind of went on a little bit and like, oh, I'm glad I have kind of this bedrock built into my strategy that isn't reliant completely, you know, on the market. And it's more of an income based strategy and it's going to help me kind of sleep better at night. Yep. And, you know, that was the the example I was going to bring up in 2022. I'm sorry, not 2022. What just happened in April? With, the tariffs. Right. And, you know, I can, there's, lots of interesting Trump moments over the years, but Trump with the, the tariff, poster board, was definitely up there. You know, we're all watching here as the market's tumbling away. And Trump's just having a great time up there slapping tariffs on on everybody. And obviously everyone was freaked out about it. Right. No one wants to see their portfolio go down. No one wants to see it go down in big chunks in a short amount of time. But, you know, we, we had we had a plan, you know, and, and, you know, that's what a large part of our jobs are, is, you know, kind of reiterating that plan to to our clients and, that was a black swan event, even though we were expecting tariffs. Right. No one was expecting that that kind of market pullback. And you know, the long story short of that strategy was, you know, we were a little bit on the sidelines heading into that event. And over time there were some buying opportunities. Absolutely. And going back to like the whole idea of like pre-planning our clients, you know, they're going through a planning process. And one of the things that we do as part of that process is we plan for what we call, you know, shocks or bear markets or what happens if, you know, the you lose 20% of your assets overnight. How does your financial plan respond to that? So I think going through that process, understanding where the weaknesses are in the plan can help you shore up those potential pitfalls in advance. Yeah, absolutely. When, when when I'm sitting down with with my clients and or, you know, potential, you know, new clients who who aren't, aren't working with anyone yet. That is that always seems to be what is kind of at the top of their mind. You know, hey, can can I make it is kind of the first question and then, you know, can I make it even if times aren't perfect? Yep. Right. And that's really what that planning process does, is it helps, ease the mind of people to be able to show them with a, you know, a complicated software program that, hey, you know, if if these things do happen and the market does drop by 20% and it doesn't, you know, corrects immediately like we've been seeing in the past, you know, what does that do to your portfolio? What does that do to your retirement? Can you still live the lifestyle that you want to if that happens? And if you can't, you know, I would I would recommend that that you don't go forward with that, with that, plan to retire. Because those things are going to happen. This is exactly what we're talking about. That's that's right. Like, that is the name of the game with with the planning is understanding the whole point of like Monte Carlo testing in this probability testing is you want to give yourself the most coverage under the most scenarios because that's, you know, that's literally the theme, this black swan stuff. It's the randomness that's going to unfold going in the future that we can't even define it right now, but we know it's going to impact the markets to some degree. How can we withstand that, that trouble spot? Right. That's what we're looking to protect against. And, you know, an interesting an interesting study just came across my desk. I read it the other day and it's back to that human psychology part. It's like the study indicated, you know, in 2025, the survey results compared to two years ago, there was a dramatic upswing in investors like individual investors who felt better about their retirement readiness and how their portfolio was performing. And it just so happens to coincide with a, you know, two full year periods where the market did well. So back to that, that human psychology piece. It's like for whatever reason, we're kind of like wired to expect the current conditions to extrapolate. Right. And that's the exact opposite of how markets actually work. Yeah for sure. You know, and we I've talked about this all the time. You know, everything is priced in right now. You know there there is there is with the way information travels these days, there's really nothing that isn't instantly priced in to the market or a specific company, specific stock. So, you know, they're, they're the opportunities to kind of sneak one past, the market are becoming fewer and further between, so understanding the market cycles, understanding that things are not going to be, you know, perfect forever is really, is really an important aspect to the just the mentality, of, of going into retirement or being in retirement. It's a really important thing to, Mentally tough. I don't know if that's the right way to describe it, but, mentally prepare it maybe is a better way to say it that these things are going to happen. They're going to happen in the future. You know, we know these things. Are you set up to handle it? That's really the most important part. That's very well said. And just, you know, to reiterate, build off that a little bit. That's why you're going through this process in advance. We're we're testing these these trouble spots in advance. We're making sure you're set up or constructing a portfolio that's going to get you through the lean times. It might not be the sexiest investment strategy at all times, because we're not going to load up on all these growth stocks, like at any particular moment, because we know what happens in the future and how these cycles play out. Yeah, for sure. And, you know, I was, going through our notes here. You know, I don't think we really need to get into specific investments. Because I don't think that is the right advice to give out because there is no one size fits all solution. A lot of it has to. A lot of it depends on the current market conditions, you know, like, we have long duration tips written down here as a strategic asset class. You know, I don't think that is too strategic. Quite, quite honestly, it may work out. Well, that's inflation protected. Bonds, essentially. If you don't know what, tips are, that might have worked well in 2020, probably, you know, to 2024. Probably not the best thing right now. What I will say again, I think as we kind of close this down, especially for retirees, you have to have that income strategy that that is the number one, way to combat Black Swan events that you don't see coming is understanding what you need and understanding where it's coming from. And then the more guaranteed fashion that you can do, to get that income, the better off your overall plan is going to be. Yeah. And and having that in place is going to give you confidence. It's going to help you sleep better at night for when this inevitable stuff happens. You're going to feel well prepared. Yeah for sure. And you know, I don't, I don't want this to come off as, you know, just like a giant advertisement, even though it kind of is. But having done this for a while now, and having seen people go through the planning process, there is no better way to, to feel secure in your retirement than than putting together a real financial plan. You know, it's, it's going to be, a cash flow based system that that tells you where your income's coming from over the years. Like Dave mentioned already, stress test with with Monte Carlo scores. It is, it is infinitely more important than just picking investment A versus investment B. So, you know, if you don't have one, and you're interested in learning more about it, you know, hit us up at info@connect.com. We're happy to, to take a look at your situation. If you're a client out there and you know, someone that might, you know, be looking for advice like this, you know, put a month on to the podcast because, you know, it is it is so important and it is so personalized, that, you know, it's really a, really a solution to a lot of the problems out there. Well, so. Hey, thanks, Dave. I appreciate it. So and Dave, thanks for, sitting in for Tony this week. We always appreciate you on here. And out there to you guys. Thanks for listening. Again, if you have any questions, comments, concerns about these black swan events, hit us up at info@connect.com, and we'll talk to you next week. The opinions expressed in the podcast. Are for general informational purposes only, and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.