Proper planning may help peace of mind in a crisis

Couple meets with financial planner

What’s causing you the most stress amidst this health crisis? A recent poll indicated the top four concerns are emergency savings, job security, income fluctuations, and paying the rent or mortgage.

From my perspective, worries like those often reflect planning that hasn’t imagined all the possibilities. Sounds like planning that hasn’t relied on Monte Carlo Simulation.

A “Monte Carlo Simulation” allows people to account for risk through quantitative analysis and decision making.

Long ago, at a classified laboratory called Los Alamos, scientists were involved in top-secret research on nuclear fission. Two scientists believed that some of the research could be helped using computer experiments based on chance. The codename for the program was “Monte Carlo.”

Today, that computerized mathematical technique is still in use, and the name has stuck.

The technique is used by professionals in finance, project management, energy, manufacturing, engineering, research and development, insurance, oil and gas, transportation, and the environment.

A “Monte Carlo Simulation” uses repetitions to demonstrate possibilities— for example, the outcomes of “going for broke” and for the most conservative decision— as well as how a portfolio of investments might do amidst a market crisis or a “black swan” event.

No amount of planning could have spared most of us from anxiety and concern over the past few months. But a real financial plan – not just a list of things to buy – from a true fiduciary, one that considered thousands of possible scenarios, might have helped your peace of mind. And perhaps, even your bottom line.

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