The cycle of emotion that most individual investors succumb to is buy high & sell low.
In other words, panic and sell when stocks are going down and buy back into the market when it is rebounding. This is the opposite of what one should do.
Institutional investors do not try to time the market. Nor do most clients that work with legitimate, fiduciary wealth advisors. Nobody should.
Warren Buffett has purchased $12 Billion worth of common stock since election day!
If an investor has a well thought-out Investment Policy Statement (a blueprint) outlining the goals and parameters of their investment & financial plan, market conditions should have already been considered.
With Monte Carlo modeling an advisor is able to show their client a variety of possible outcomes that should be considered in the planning stage.
Monte Carlo knows what the market has done for 40 years – all the ups and downs – and it generates 3,000 random possible outcomes that are stratified to reflect the investor’s odds of outliving their money, having at least $500,000, or whatever threshold they set.
Monte Carlo is vital to creating and monitoring one’s financial plan.
It tells the client and the advisor the optimal allocation between stocks and bonds to achieve the desired result. It can also highlight the changes one must make to avoid running out of money or to reach the minimum amount they want at the end of the line.
Here is an article & video that talks about Warren Buffett’s activity since the election. It’s good stuff and simple logic investors of all shapes and sizes should follow.