What does the Movie Top Gun have to do with Your Retirement Investments?

May 20, 2022

So, the sequel to one of my favorite movies of all-time comes out in a few days. It’s been more than a 25 year wait for the sequel to the 1986 hit movie “Top Gun”. Its sequel Maverick will be released on May 24th. Here’s a link to the movie trailer in the description below.

The timing of the Top Gun, Maverick movie release couldn’t come at a more exciting time in the life of the Perras family. You see, I am super proud of my two sons, Kyle and Aidan, who have now both graduated from Georgia Tech with the highest honors. Just two weeks ago, my younger son Aidan graduated with a perfect 4.0 GPA with a major in Industrial Engineering. Georgia Tech has had the number one ranked school in the nation in Industrial engineering for decades. Yes, it’s ranked in front of the likes of Stanford, MIT, and other renowned engineering schools.

Yet instead of taking his 4.0 grade point average in Engineering into the private sector, he has instead been commissioned into the Navy as an Ensign. Here’s a picture of him being sworn in in Atlanta. The kicker? He has been accepted into the Navy’s flight training program, and he will be reporting to Pensacola shortly to begin Naval flight school. One day down the road, he hopes to protect me, you, and your rights from the skies above.

I am Chris Perras with Oak Harvest Financial in Houston, and welcome to our weekly stock talk podcast. Before we get into this week’s topic on financial planning and continued recent market volatility, please take a moment to click on the subscribe button and click on the notification bell so you will be alerted when our team uploads our latest content.

The first half of 2022 has not been fun for anyone, Including our investment and financial advising teams here at Oak Harvest. We had expected a 1st half market correction and high volatility. We laid out this scenario back in November of last year. Even so, our team did not anticipate this mid-second quarter bout of weakness which led the market to drop -19.9% from the absolute perfect top to dead-on low, before bouncing and now sitting down around -15%. While we did expect us to approach a bear market correction level in 2022, which is defined as -20% in the S&P500, our team had expected this part of the market’s drawdown to come in the historically slow and economically weak 3rd quarter.

I am sure you are asking yourself, what do action movies like Top Gun have to do with the markets, long-term investment management, and financial retirement planning? Well, here’s where I’m going. In the first Top Gun movie, there is a scene where Maverick, played by Tom Cruise, gets impatient flying behind Iceman, his wingman played by Val Kilmer. The link, for those who don’t remember that action scene, is in the description below.

If you Recall, the personality of “Iceman” throughout the movie was measured, calculating, calm, and slow to act in extreme ways. His method was to plan for a mission up-front thoroughly, knowing that there was always danger on the horizon, but that his expertise, training, planning, and past experience would see him through safely and positively to the other side. Maverick, on the other hand, of course, was the complete opposite. Hence their rivalry. He was skilled, but brash, emotional, prone to quick and seat of the pants decisions. While it worked out for him many times, it did not during a time it mattered most.

In the prior scene, Maverick, played by Tom Cruise, gets impatient with Iceman, played by Val Kilmer, and calls him off his path, wanting the “kill for himself .”Maverick flies through Iceman’s jet wash, causing a flameout in Maverick’s own F-14 s engine. Maverick’s jet enters a flat spin, from which he can’t pull out. He and Goose are forced to eject from the plane. The exchange between Goose and Mav is this:

Goose: This is not good, this is not good

Mav: I’m pinned forward, Goose. I can’t reach the ejection handle.

Mav: Goose, you’re gonna have to punch us out. I can’t reach the ejection handle. Eject. Goose: I’m trying! I’m trying!

Mav: – Eject! Eject! Eject! – Watch the canopy!

Goose’s head hits the canopy, and he dies on impact. We spend the next half hour of the movie wondering if Maverick will ever recover and get back into and engage in battles. As we know, his skills as a pilot are near unmatched.

Well back to today’s current stock and bond markets. So essentially, for The first half of 2022, we have sort of entered a “flat spin” in the stock and bond markets. A situation that does happen in many years even during secular bull markets. And no, it isn’t fun or exciting like the upward volatility we experienced for 18 months from the 2nd half of 2020 through year-end 2021. And no, we, nor anyone else, knows exactly when and where it will end.

But my question to you is this, do you have a financial plan? Or just an investment account? Have you sat down with a financial planner or advisor who put your financial situation through stress tests? And scenarios analysis? That’s what our financial planning team does. We use planning software scenarios that model good times and bad to determine what your long-term asset allocation to stocks, bonds, real estate, and insurance products should be to meet your retirement needs first and your greed’s second.

As an investment guy, I have 20, 30, 40 graphs and charts to show you that periods of extreme volatility like the period we are in now, are usually the exact wrong time to make major shifts in your long-term equity allocation down…But does that calm your nerves and emotions enough not to make emotionally driven decisions that over your investment and retirement time horizon won’t hurt your overall outcome?

Here’s one graph that says historically, over the last 20 years, this current environment is statistically the near exact right time to be adding to both stock and bond positions, not selling either.

This is a chart from Lipper analytics that shows over the last 6 weeks, over $44 billion has been withdrawn from equity funds, and almost $40 billion has been taken out of bond funds. That double withdrawal whammy has only happened three times over the last 30 years. Those times were mid Jan 2016, Mid December 2018, mid-March 2020 and now. Those three times were 10 trading days or about 2 weeks from the bottoms that were put in before the markets went on to make new all-time highs over the next 6 to 15 months.

Bond market volatility which led this downturn starting late last year looks to be peaking now along with real-time inflation breakeven interest rates. These series have been good at forecasting lower volatility, not higher volatility, coming over the upcoming months and quarters. Not days and weeks.

Our investment and planning teams at Oak Harvest want to stress, that periods of high market volatility are not the times to make emotionally driven decisions and to “punch-out” or “eject” from what is suppose to be a long term financial or retirement plan using long term financial tools such as equities.

Our investment team runs diversified equity portfolios for our clients. We believe that at times higher growth stocks without dividends will be the markets favorites and at other times more value oriented, “boring”, lower growth companies might be in vogue.

We try to blend these two styles knowing that in market corrections like the one we are in on the S&P500 or bear markets as the Nasdaq has endured, there are few if any real places to “hide.” “Hiding” is not something one should try to do in the equity markets. That’s not how they are structured. You should either subscribe to the value of the ability of the equity markets, our economy, and good businesses to compound your investments over years and decades or look to find lower risk and lower return alternatives,

The number one rule being, long term compounded returns are about time in the market, not market timing.

At Oak Harvest, we think our clients are best served by us helping them plan for their future needs and risks, instead of focusing on the past. The future is always uncertain and that is why our advisors and retirement planning teams plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals and needs. Call us at (877) 896-0040, we are here to help you on your financial journey into and through your retirement years.