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The FinancialMD Show – Ep 022 – War in Europe and Your Finances


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Summary:

  1. Russia Invading Ukraine – Implications [0:01:31]

  2. The Market Is Doing What It Always Does – Volatility [0:03:31]

  3. What’s Inside An Average Client Portfolio (It’s Not All S&P Index Fund) [0:04:05]

  4. Crisis In Europe Affects Gas Prices Which Affects The Stock Market [0:06:34]

  5. The Longer You Wait To Curb Inflation, The Worse It Gets [0:08:30]

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board certified ophthalmologist with a full time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

Jon: Hey everyone! Welcome to the eighth episode of the Financial MD Show. Hope you’ve been having a good time listening through all the episodes and learning stuff. Today, we’ve got a fan favorite. This is a highly requested topic both through emails and correspondence, and after getting requests on podcast topics as well as just getting straight up questions in the webinars and lectures and things that we do. Disability insurance is what we’re talking about today, which is great, because I’m knowledgeable on it, Trevor is knowledgeable on it, and we’ve had some good and bad experiences, but there’s a lot of mixed information out there and we hoped to straighten some of that out today. We’ll give you some tips on how to buy it, how to shop for, what to look for, what not to do, and ultimately how do you feel you’ve done well and just protect your finances. Without further ado, here’s today’s show.

Jon: Welcome everybody to the Financial MD Show. We are here, your hosts, once again, Jon Solitro and Dr. Trevor Smith. How are you, doc?

Trevor: I’m good, I’m good. How are you?

Jon: I’m great. I’m, as you know, sunglass shopping. We’re trying this out. We’ll see. I’ve gotten some other good recommendations. Thank you, sir.

Trevor: Your welcome, your welcome. American Optical.

Jon: American Optics. Sponsoring today’s episode is American Optics. They don’t pay us at all but, we’re going to pick them certainly.

Trevor: Yeah, I think is it American? It might even be American Optical. Either way, it’s the Top Gun. It’s the famous Top Gun aviator but they make some other less enormous frames.

Jon: Well, I got to tell you coming from an ophthalmologist, that has to mean something.

Trevor: Yeah, they’re great. Super quality.

Jon: All right. Cool. Well, we want to just bring in a short episode today. We’re going to try to get this out as soon as possible and talk about it’s now February 28th, the last official day of 2 of 22. Hope you all did wonderful things on 2/22/2022 – that was pretty exciting. But lots happened this year. This has probably been one of the worst Januarys on record for a long time and from the stock market standpoint. Here at Financial MD, we had investors who were down, you know, 15 percent within a span of a month or two because we had some aggressive stock portfolios and the stock market just took a hit and there’s a lot of reasons for that.

Russia Invading Ukraine – Implications [0:01:31]

We’re going to talk about a few of them today just briefly but we’ve also got an uncertain future, frankly, and we’re not going to beat around the bush with Russia invading Ukraine. That’s a big deal and could be potentially the start of a World War III or could be, you know, this is as far as it gets and things start to back down or anything in between. So…I don’t know. Trevor, your thoughts?

Trevor: Oh man, yeah. I didn’t think that was going to happen, honestly, like I felt let’s say when I’m wrong and I thought it was kind of going to be an overblown thing. Maybe it’s just my bias from watching the news over the past couple of years now. I feel like everything has been a bit more extreme, stock value and all that, but man, I was wrong. I mean my bias I think was pretty clear that direction and I also just kind of thought, man, there’s a lot more to gain from not invading another country and Russia has a lot to offer in the energy department but apparently they want something that from their perspective is rationale, right, and not from my perspective is not.

Jon: Yeah.

Trevor: There you go. When that does not match up, you end up being wrong. I also think that markets were overheated anyways in terms of the market’s…

Jon: Well, yeah.

Trevor: So I think we, you know, that the psychology of markets there’s that nice like fear and exuberance and euphoria and all that stuff where we just have certain emotions when price is at certain kind of like patterns of if it’s at the top, we want to buy and we’re like we’re biased to buy high and sell low. When stuff starts to happen, we look for reasons, you know. It didn’t necessarily go down because of the Fed. It didn’t necessarily go down because of Russia although with war, I mean it usually does.

Jon: Yup.

Trevor: Yeah, I mean, it’s like the thing that I try to remind myself is that we know the market is going to go down at some point and so…

Jon: Yeah, we know that, but for some reason every time our investors or clients are just…

Trevor: Yeah, you get calls, right?

The Market Is Doing What It Always Does – Volatility [0:03:31]

Jon: Still get calls, yeah, hey man, what’s going on? I don’t know. The market’s doing what it always does.

Trevor: Yeah, so volatility, you know, of…like when Bitcoin goes down 30 percent in a week or 20 percent in a day and it has volatility of 100, you shouldn’t think what happened. You should think, oh…

Jon: Oh, that took a while, yeah.

Trevor: Yeah, oh, well, it’s being also…

Jon: About time?

Trevor: It’s being volatile the way volatile assets are volatile and the S&P has a degree of volatility. It’s just a lot less because average over a bunch of things.

What’s Inside An Average Client Portfolio (It’s Not All S&P Index Fund) [0:04:05]

Jon: Well, it’s a lot compared to, honestly, like if we look at from a consumer’s standpoint of average client portfolio, it’s not a hundred percent stock. It’s not an S&P 500 Index fund. It’s stocks mixed with some international, mixed with some bonds, probably mixed some, you know, just different stuff that’s meant to diversify it and reduce the beta or the volatility or the standard deviation – all those terms are fancy advisor terms for volatility or the ability, frequency or intensity that something might go up and down – and all of these things are compared against the S&P 500 typically, probably the most common benchmark in the world and every time we put together a portfolio, we say, here’s how it compares in volatility to the S&P. And if the S&P is 1 – if you guys remember statistics – 1 will be a perfect correlation; 0.6 or 0.5 would be, you know, it’s got about half the volatility of the S&P 500 and 0 would mean it’s got no volatility. And if we get a 0.5 or a 0.6 beta or volatility type of correlation coefficient, we feel like we’re doing really well. And so in those terms, the S&P is very volatile. It’s like the volatile thing that we compare against but when it’s really not like obviously you’re looking at cryptos or Bitcoin, obviously, but we got to keep in mind that in 2008, the S&P dropped 40 percent give or take depending on what number do you look at and I feel like how quickly people forget, that’s not to downplay at all what’s going on current event-wise but we’re talking about stock market investing today, and financially, something was going to make the stock market go down. It was just like a house of cards that something just had to flick that little card, right, and – not that the house of cards is crumbling – but you know what I mean.

Trevor: Yeah, I was trying to find there’s microstrategy, you know, since I’m into the Bitcoin stuff. They have a cool website where it compares the volatility of every major asset so then you can just look at them like head to head.

Jon: Yeah.

Trevor: I’m here right now. I’ll try to find it so we can put it in the show notes.

Jon: Yeah, that’ll be cool.

Trevor: It’s cool because you end up realizing like, oh, you can just look at this, look at every asset. You can look at every index. You can look at gold, all the classic inflation hedges and stuff and look at the… they’re like risk-adjusted volatility and you end up looking at those and then realizing, oh, some of these things I thought were riskier are not as risky and some of these things that I thought were safer a lot closer to risky than I thought they were. You know, whatever that risky is in your head.

Crisis In Europe Affects Gas Prices Which Affects The Stock Market [0:06:34]

Jon: Yup. The crisis in Europe is affecting gas prices that affects everybody. For one, I think that’s the most important focal point right now that you’re going to hear about is the gas prices. The stock market just in general is going to be reflected in that. So what’s happening before this even happened, we had about a 7 percent inflation year over year which is extremely high historically but it happens, again, not uncommon. We’ve had low inflation, low interest rates, blah-blah-blah for the last 10 years. So us with any kind of no knowledge in the financial industry know that that’s going to happen, you’re going to have inflation and you’re going to have prices go up – things like that. So the Fed then says, well, we’re going to raise interest rates a quarter point then they come back and say, well, now we’re going to raise them half percent which is double by March or April they said. And I don’t think this is going to prevent that or stop that at all. If anything, it’s going to make inflation worse which is going to make them want to raise interest rates even more, I think.

Trevor: Yeah, well have to see. I mean, the popular consensus is that now that there’s a war, they won’t do the half percentage rate increase.

Jon: Yeah. Well, it’s going to… I don’t think they’re related or should be related at all. I mean it’s going to be…

Trevor: I think people are like basically when they increase rates, they expect risk on assets to go down a little bit and they are going to do it slowly over time and that’s why they’ve forecasted ahead of the time so kind of ready for it.

Jon: Yup.

Trevor: But when like war happens, they go down anyways. Well, they don’t want to do anything that makes them go down in the short term so they’re going to just basically be like, oh, yeah, we’re going to do a half percent and that’s really important but it’s fine. It’s fine to delay it another three to six months. They’re going to probably. I mean that’s not a full-on prediction; that’s my understanding of how they discuss these things which still a bit…

Jon: I think you’re probably right. They like to play it safe.

The Longer You Wait To Curb Inflation, The Worse It Gets [0:08:30]

Trevor: I think that makes no sense. If you need to curb inflation…you need to curb inflation and the longer you wait, the worse it gets, as far as I understand it so and Ray Dalio has been saying that for like pretty much forever since like the 80s.

Jon: Yup, I’m inclined to agree with you.

Trevor: That’s a lot of time for a buildup for a bubble. It is definitely kind of freaky, but it’s sort of like a game of musical chairs, right, and if you don’t play the game, you don’t get to retire basically.

Jon: Yeah, really. I mean, yeah, what’s your alternative.

Trevor: Alternative, so you play the game with everybody else. You both succeed with everybody while you’re succeeding and then you get screwed along with everybody but it’s better that…I don’t know. It’s pick your poison on this.

Jon: Yeah, totally.

Trevor: We got poor taking a profit. That’s another thing people like to say so selling here and there is not all bad.

Jon: Nope. I don’t think so either or, you know, as you get closer to the end of the year taking some of you high income earners looking at your losses and trying to harvest some losses.

Trevor: Yup. That’s a nice thing.

Jon: Something to think through as well. But that’s all we really want to do today was touch base on current events. You know, the market is where it is. We’re not going to be able to predict where it’s going to be other than everything might take a hit frankly, and hopefully, the only thing you take away from today is that understanding that this is a part of history, a part of the predictive cycles when we look at the potential growth of a particular retirement plan. This is what gets factored into something like a Monte Carlo simulation. It’s stimulating a thousand different possible scenarios in the world and the economy and how they could affect your personal goals and that’s what you got to keep in mind that it doesn’t necessarily change things just because you see things are changing. These should be factored into your retirement goals and plans. So keep up with the plan with perseverance. If you need to change something or you think you might or you just want to talk to your financial planner, do so. If you don’t have one or you want to talk to us, you know how to get a hold of us. Check us out at financialmd.com. Find us on TikTok and Instagram at Financial MD. We’ll be putting out our weekly videos, and another plug to check out the Financial MD app. We’re tweaking it and updating it, making it better all the time. And that’s all I got. Trevor, anything else?

Trevor: That’s it. And you’re available at jsolitro…

Jon: jsolitro@financialmd.com and you are tsmith@financialmd.com.

Trevor: That’s right. Hit us up an email.

Jon: Yeah, we’re both here for questions so we’re not big a deal it seems like on the podcast so you can email us and we’ll get back to you.

Trevor: Yeah, absolutely. We love that.

Jon: All right man, you guys have a great week. We’ll see you soon.

Trevor: Later!

Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.

The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.

Resources and Links:

  1. American Optical – https://aoeyewear.com/

  2. S&P 500 and how it works – https://www.thebalance.com/what-is-the-sandp-500-3305888

  3. What is an Inflation Hedge – https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/inflation-hedge/

  4. Principles by Ray Dalio – https://www.principles.com/

  5. What is a Monte Carlo stimulation? –

https://www.investopedia.com/terms/m/montecarlosimulation.asp

  1. Financial MD Website – https://www.financialmd.co/

  2. Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA

  3. Financial MD Facebook community – https://www.facebook.com/FinancialMD/

  4. Financial MD TikTok – https://www.tiktok.com/@financialmd

  5. Financial MD Instagram – https://www.instagram.com/financial.md/

  6. Financial MD Twitter – https://twitter.com/financialmd2

  7. Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true

  8. Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039

  9. Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586

  1. Jon Solitro’s email address – jsolitro@financialmd.com

  2. Trevor Smith’s email address – tsmith@financialmd.com

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