Investing in a Crisis

Speaker 1 (00:01):

Welcome to the Retirement Power Hour podcast. This is episode three, investing in a Crisis. My name is Joe Allaria, and today, as you can see, I'm gonna be joined by Mark Allaria. Mark, welcome back to the show. Today we are gonna be talking about, obviously, we've seen in the world what has unfolded in Russia and Ukraine, and it has brought up a lot of questions, clients and just people in general about what should they be doing. Obviously, with more uncertainty, um, people get more uncomfortable, especially when it comes to their money. So, mark, I'm sure you've had conversations about this over the last few weeks, and that's why we're gonna dive into it a little bit today.

Speaker 2 (00:44):

Yeah. So go ahead. You know, people, people have reason, uh, I should say reason for concern because they're having so much news across their desk with their be, uh, searching the internet or coming across your face on Yahoo, or maybe it's just on news channels that they watch. So there's reason to, to be alert for this right now, but I think what you're gonna find is, we talked about a few weeks ago, there really no, no need to fear, and we're gonna tell you some proactive or some practical ways to, to maybe do that today.

Speaker 1 (01:15):

So, the last episode, we talked about why you shouldn't worry about retirement, and it was a good segue into what we're gonna talk about today, because really that that whole methodology, and we're not just gonna repeat the last episode, but the whole frame of mind that, that thinking of, have a plan, and if I have a plan, then, you know, then I don't have to worry. I can control what I can control and then go on and, and live my life, right? That was what we talked about last episode, but it was a good segue into what we're gonna talk about today in investing in a crisis. But today we're, we're not gonna go into tactical trading strategies and, you know, asset allocation and specific moves that you should be making. Today we're gonna focus more on the behavioral side of investing in a crisis and how you can make good decisions and avoid making bad decisions.

Speaker 1 (02:07):

So, with that, let's just jump in, mark, the first one, the first thing that I notice, and I'll let you speak on this, but the first thing that I notice when we're in a crisis is that investors have this notion that they need to be doing something that if, that if they don't do anything, that they're not being responsible or they're not, they're not taking care of their money, and it's natural, you know, the, the feeling like I need to do something. But that's what I notice is people, people have that notion I need to be doing something.

Speaker 2 (02:40):

Sure. And it's, it's rational, but let's, let's just break that down for what it is. Now, if you're, if you're somebody who works with us, we, we've done something a long time ago, and if you're a person who has done proactive planning, the action taken for time, like this has already been done, right? The planning put in place to make sure that during times like this, you don't have to do anything, because the reality of it is if you're invested in the markets and you feel the need to do something, the question would be, what would you do? Right? I, right. What do we do right now, you can either buy more stocks in a down market, which to be frank, most people can't. Right? Because if they're sitting on large chunks of cash right now, it's likely that they've been sitting on large chunks of cash for a long time, which is not something you want be as, as a long-term investor, because again, you'll miss some really good run-ups.

Speaker 2 (03:32):

Again, you've been sitting on cash for the last two years, you missed a really good run in 2021. So Right. People we work with aren't sitting on tons of cash. So there are other ways you can come into cash. At times like this, it might be a bonus from work. You might have sold a property, uh, you might have got an inheritance. In that case, you can do something, and that would be the best thing to do, is we all know buy when the market's low, but alternative would be to not buying it would be selling, right? Right. You can either buy or sell if you're gonna make a decision. And I think everybody knows that selling in a market like this is not the ideal thing to do. So the fear of, I gotta do something, I gotta do something, I, I guess is, is real. But if you just get down to the brass tacks of it is what are your options at this point? That's

Speaker 1 (04:15):

The, that's the thing is, um, and I don't say this lightly because I, we get that this is an emotional thing. Sure. Your money is emotional. So I'm not making light of this, but I've never heard anyone come in and, and say to me in our office, yeah, I think I can time the market. You talk about timing the market, and most people will sit in that, the chair across the table and say, no, I know, I know, I know you can't time the market. But <laugh>, I I still get the question of, well, what do you think the market's gonna do? Should we be doing anything different? And what they're saying is, should we be selling, should we get on the sidelines right now? Should we try to avoid the bad that's happening in case more bad happens? And again, what you're saying, if you, if you're, if you say, let's, yeah, let's sell, what you're saying is we are gonna try to time the market that we do have foresight in the short run of what the market's going to do.

Speaker 1 (05:13):

We know what the market could do, but to say we know exactly what it's going to do and when that's, that's timing the market. And too often people will get on the sidelines trying to avoid the downs, and they actually end up missing the ups or the rebound. Sure. But I mean, do you need to do, so let's go back to that. Do you need to do something right now? Well, if you're properly allocated and you have a plan, an investment plan, a retirement plan, what do you think, mark? Do you need to do anything at this point?

Speaker 2 (05:49):

Absolutely not.

Speaker 1 (05:51):

<laugh>, so I absolutely not, and I said, if you're properly allocated, well, what does that mean properly allocated? Well, you do a financial plan, you do a retirement plan. You figure out how much of my money should be in stocks, how much should be in bonds, how much of that should be in large cap, small cap, and, and you wanna be, in our opinion, be diversified. You know, that's a fundamental of investing to be diversified because you wanna spread your risk. And that's another thing. Everybody, everyone always knows or has, Al has heard the saying, don't put all of your eggs in one basket. And yet sometimes, mark, do you ever get people that ask or say, should we put more money in? Fill in the blank. This stock, that stock, I think we should put money here. It does come up from time to time. Well, why do we not concentrate into a single stock? Because we're just increasing risk. If we can spread the risk amongst a lot of stocks, then, then that's what we feel is the more fundamental way to go about doing that.

Speaker 2 (06:56):

Well, I think, I think to your point, Joe, diversification is huge. But a lot of times when people think about diversification, they think about different stocks, own different stocks. I think it's even broader, much broader than that. We talk about divers diversification in a lot of ways, but when it comes to asset allocation, it's really between three things. How much do you need in cash? How much do you need in fixed income? And how much do you need inequities? Yeah. And knowing that each one of them serves a different purpose. And if I have a plan built out to a cash flow plan built out saying, this is how much money I'm gonna need in the next X amount of months, right? And here's how much money I'm gonna need in the X amount of years, and here much, much money I I don't need for a long time. That can help you build an asset allocation that gives you the confidence to go through times like we're going through right now, because you're not forced to sell anything, right. That you don't be wanna be selling.

Speaker 1 (07:45):

And if you try to sell during a time like this, let, let's just go back. Do I need to do anything? Well, if you could, if you have the cash, great. Well, maybe you could buy right now. The, the reason you have the cash might not be a good reason. If you've been sitting on cash for years and years and years waiting for this, probably not the best reason. Right? But let's throw that out because I think most people when they ask that, they're asking, should I be selling? Well, it's incredibly, uh, tough to sell during a time like this because you're probably gonna sell at a loss. You know? So it, it's probably not a good idea to change your strategy. So hopefully you had a plan going in and your plan was set up properly, you're properly allocated so you're not forced to sell anything.

Speaker 2 (08:36):

And that's what I would say. Not to interrupt you, Joe, that's what I would say to people that we work with. Or if you have a good financial advisor that fear of do I need to do something? My comment to them would be, you already did. Right? Right. You already did something for times like this when you put your plan in place. Sure. And that's what a good financial plan would do. So you're not sitting around not doing anything. Right. You already did the work. Right. Let the plan, take care of this time we're going through right now. And to get back to your real quick on your, your point of market timing, there's really two ways that you can describe market timing. The one way is if I'm currently invested, if I'm currently invested, I don't care if it's in stocks and bonds, I don't care if it's in real estate, I don't care what it is.

Speaker 2 (09:16):

I'm currently invested and I want to get out of the market. Well, yeah. I can tell you if a market's, at a high point, I know if I bought something for a hundred dollars a share and it's worth $500 a share that I'm, I made money, I could easily get out and say, that was a good decision. I took it out at the right time. Right. But then the thing is, you better assume you're not gonna invest in anything else. Because if you're gonna invest in anything else, there's another decision to make. When do I get back into something else? Right? Right. Now you have this in real estate. People are selling their house at a great time, but they don't think about they're gonna have to buy something too unless they plan on renting or not living anywhere. Right? So they made a good timing decision on when to sell. But to be honest, isn't it a poor timing decision on when to buy? 'cause you're buying it all time highs. So the other side of it is, if you have cash on your hand and you're gonna time the market and buy in a peak, yeah, that's easy. Well, I just got a hundred thousand dollars through an inheritance. The market's down the market, no

Speaker 1 (10:21):

Brainer. I'm

Speaker 2 (10:22):

A low point. I timed it perfectly. Right. I timed it perfectly well.

Speaker 1 (10:25):

The, the, if that's

Speaker 2 (10:26):

A one time decision Yeah. People that are in the market are in an investment and, and wanna stay in an investment, and they have to make two good decisions, right. When to get out and then when to get back in. And that's almost impossible to do.

Speaker 1 (10:37):

When to get out and when to get back in. And timing the bottom is hard, is, you know, it feels like, I can think back. I mean, we can all remember 2020. Yep. Um, timing the bottom of that was kind of hard because we, when we were down 30, 35% and it felt like you could, it felt like we could go down another 30, you know? And then a lot of times you never get down that far. If, you know, you get down 20%, then you start to rebound. Year to date. Right now, we're, you know, we're not even, we haven't even scratched the surface of being down 20, 30%. So could it happen? Sure, it could definitely happen. But the hardest thing in the world, no, not the hardest thing in the world, but one of the hardest things in investing, and we saw this after the Russia, Ukraine conflict was announced.

Speaker 1 (11:31):

The market had kind of gone down and down a little bit that week. Thursday was the first day that you could trade after confirming, after hearing the news. If you look at what happened Thursday and Friday, the market actually bounced up over 5%. So I just wanna walk you through this real quick. If, if you had a million dollars and you heard the news on Wednesday night overnight or Thursday morning, and then you went up Thursday morning as, you know, as soon as you could, or some point throughout the day and, and sold, and you're like, I'm getting out 'cause this is about to go down in a hurry. So you sold, well then the market is up over 5% after that. So if you have a million dollars, 5% on a million is 50, $50,000. Mm-Hmm, <affirmative>. So you, so you just lost $50,000. Did it come off of your statement?

Speaker 1 (12:25):

No, but an opportunity cost, you just lost that. And the hardest thing, one of the hardest things that you have to do if you're trying to time the market is the second question of when do I get back in? Right? Because you obviously, you know, and we don't know what the market's gonna do here. And throughout the, with, with this conflict, as things unfold, it could go back down, but it might not. And you just lost 50 grand. So what do you do? Do you wait and to, and hope the market comes back down? Or do you, you know, do you just get back in and do you say, you know what, that was a bad decision. I shouldn't have done that. I got emotional. I'm just gonna lock in. I know I lost 50,000. There's nothing I can do about it. Well, most likely, most people don't do that.

Speaker 1 (13:11):

They don't jump right back in and say, you know what? I made a mistake. They wait. And then what could happen is, like in 2020, from 2020 at the bottom to this point, what, you know, the, the Dow, or excuse me, the s and p was around 2300, I believe, at the time. And if you thought that it was gonna go down below 2000 and you got out, but then you saw the market start to climb back up and you're like, no, it's gonna come back, it's gonna go down. Well guess what? It's now over 4,000. You know? And as, as we're doing this today, right now, the close today was over 4,200. So it hasn't quite doubled, but it's gone up what, 70, 80% approximately since that time. It never came back down. So how are you ever gonna get back, get that back? The only way is if it, if it did go back down and it, it literally may never do that. So, but

Speaker 2 (14:13):

To, to the next point, Joe. Yeah. What's driving people to feel like they gotta make a decision right now?

Speaker 1 (14:19):

Well, it's you and I know it's, it's the financial media that's always, that's always the, uh, you, you see like the TV shows, the old cartoons where you have the angel on your shoulder and the devil on your shoulder, <laugh>. Well, the devil is the financial media that's trying to tell you to do the wrong thing. They don't care if you do the right thing. They're not, that's not what makes them money. They're not your advisor. They have one job and that's to drive ratings. And the, the tool that they continually go to to do that is to drive fear.

Speaker 2 (14:55):

It's the, it is the TV media, but it's also the internet, right? So yeah,

Speaker 1 (14:59):

Every financial media articles, headlines, anything

Speaker 2 (15:03):

Radio, but it, but it's, it's, their job is to keep you watching the channel or to get you to to click on an article. Click on a headline. Exactly. So naturally those headlines are always negative, right? We're attracted, it seems like, as a human race to, to, to watch cars crash, right? <laugh>

Speaker 1 (15:19):

Fear is a motivator. Yeah.

Speaker 2 (15:20):

Fear is a motivator. And that's what they want. Do they want you to click on it? The the what you'll always find, though, I don't, and we, we're, we're in tune. We're not, we're in tune. We know what's going on out there. Yeah. If you watch a show or you click on an article, there's very, very seldom a solution. They usually will always present the problem. Very, very few times there's a solution. And if there was a solution, to be honest with you, these people have no idea of your financial situation. They have no, they're not fiduciaries, which means they're not held to a standard to do and make, uh, recommendations that are best for you. Right? So, you know, you hate to, you hate to say it, but you need to cut these people out, right? If you're feeling anxiety, you need to cut 'em outta your life because they're, they're providing no positive, uh, resource for you.

Speaker 1 (16:11):

They don't care if you retire on time. You know, they don't care if the people listening lose money. They don't care if people reading run outta money. They literally don't care about that. That's not their job. Their job is to drive ratings, to increase clicks and all that stuff. And yeah, if I, and the other day after, after we heard the first weekend, after we heard Russia had invaded Ukraine, I saw an article, it was on the weekend. The market's not open on the weekend, but you'll see sort of where the futures are, which means that one, when the market opens on Monday, where's it, where's it gonna be? And the headline said, Dow futures plunge on news of Russia plunge. And I'm, so what do I do? I mean, I'm like, okay, of course we're in a different position, you know, you and I mark, because we are, this is what we do.

Speaker 1 (17:10):

It's what we do for a living. We kind of, we're trained to filter this stuff out. You know, I say this, I'm pointing to my cell phone, um, because that's where we read a lot of the articles. But we're trained to filter this out and we do kind of need to know what's going on. We need to know what's out there because we may field questions about it. So anyway, I click on the article because I'm like, well, how, how down are the futures 400 points, the Dow Jones future? So, you know, 400 on about 33,300, it's about 1.2%. That's it. And I asked a client, I told the story to the client. So

Speaker 2 (17:52):

Let, let, let's just real quick, Joe. Yeah. So if you have a million dollar account and your account that day, the value goes down 1%, your account value goes down to 990,000. Right? Now, I don't get, don't get me wrong, it probably doesn't feel good to have $10,000 value go down, but sure, that's far. Cry from plunge <laugh>, right?

Speaker 1 (18:11):

Far cry. Yeah. I asked, I asked a client this, 'cause I talked to a client the next week and we were talking about this very topic. And I said, so I'm gonna, I wanna ask you a question. I read this headline. It said, the Dow futurist plunged, when I say plunge, what percentage do you think that means, <laugh>? And uh, he said, I don't know, 10%, maybe 15. I'm like, 1% <laugh>, 1%. This was the article. It was down 1%. So yeah, they're, they, they're exaggerated headlines, no doubt. And we just need to focus on the things we can control as much as we possibly can. And we'll talk more about that. But you know what they'll never say Mark, is, Hey, yeah, this is a bad situation. There are some risks we're looking at, you know, maybe some short term volatility here. But don't worry, you'll, if you're doing all the things you need to be doing, you'll be fine.

Speaker 2 (19:08):

Well, I know the reason why is because at that point, once I heard that, I'd turn the TV off and you turn it off and click off right turn. You turn it off, I would click on the article.

Speaker 1 (19:15):

Um, now that's why we need to increase our, you know, followers because I feel like we're the, we're the polar opposite. Oh yeah. You know, um, I don't want people out there, our clients, especially listening. I don't want you out there worrying about things that, again, you've already addressed. You know, we've already addressed inflationary risk. We've already addressed market risk or equity risk, interest rate risk. We've already addressed all that stuff. So we're gonna tell you the truth, the, the truth and what, what you need to know. They'll never tell you what you need to know or what you need to hear. They're always gonna, there's always a crisis. Always. Now, is this a crisis? Yes, this is. I mean, obviously what's going on in the world is a, is a terrible thing. And it, and it has affected, uh, other people outside of Russia and Ukraine for sure.

Speaker 1 (20:10):

But will we get through this? Call me an a crazy optimist. But yeah, I think we're gonna get through this just like we've gotten through everything in the last, you know, forever. I mean forever as a society and as a people, we've gotten through everything, the market going back hundreds of years. You can see what the market's done and how it's handled, all this stuff. So do what you do, what you can do to prevent and control these risks or, you know, protect against them. And then just move on. And I would want Mark, yeah, I would want you to listen and say, okay, don't need to do anything. Turn it off. Go live your life. Go enjoy your life. Let us worry about this stuff as your advisor. Um, and you go enjoy your retirement or enjoy your life, enjoy your family.

Speaker 2 (20:54):

Well, it doesn't, it doesn't make a whole lot of sense to be as proactive as we are with clients and as our clients are with us, and then worry about something that we have already prepared for. Right? Like, I, I, I can tell you that with pretty good certainty that, you know, I think the s and p 500 at this point, this year's down 12%, right? And I think the average s and p draw down for every year back to the 1920s was like 13%, right? So I can, with pretty good certainty tell you that this is going to happen every single year. Yeah.

Speaker 1 (21:30):

Well, on average, yeah,

Speaker 2 (21:31):

On average. If I know that, then I need to be planning for it, which we do with every client. So while it came as a surprise that Russia invaded Ukraine and while the coronavirus came as a surprise, the market reaction to it, what happened in the market did not, we're accounting for these things. And every plan we build for every client. So I'm not caught off guard by a 12% correction right now. I'm not caught off guard by, uh, a time of a, of a bear market. We're gonna have those

Speaker 1 (22:04):

Didn't know what would,

Speaker 2 (22:05):

Its not to plan for 'em. So knowing that we know they're going to happen, not when they're gonna happen, but knowing that they will happen, you plan for 'em and then you don't worry about it when you go through it.

Speaker 1 (22:16):

And we don't know what is gonna, cause we have no idea

Speaker 2 (22:19):

What's gonna cause it.

Speaker 1 (22:21):

But yeah, you're right, the result of it. Not a surprise, not a surprise. Not a surprise at all. So we get some of these questions too sometimes, and investors wanna know, well what, uh, how of, how often should I check my account? How often should I be looking at it? I want to do the right thing. I want to be prudent, you know, be wise about this. Okay? I'm, you're saying, don't worry, okay, I'm not gonna worry, but, but how often should I be check? Should I be checking my account more frequently during a time like this? Or what's a good frequency to check my account? What do you think on that mark?

Speaker 2 (22:57):

Well, I think it's again of what do I need to be doing? What do I need to be doing? What do I need to be doing? And I would go back to saying at this time, you don't need to be doing anything. And if you work with an advisor, um, I don't tell my clients not to check their accounts 'cause we're trying to hide something. I think they all know, they're all very aware of that. Um, but there's, there's no reason to add that, uh, that layer of stress to be honest with you. If your account ran up by 30%, what really good does it do to see that other than provoke a really good feeling?

Speaker 1 (23:28):

Probably not good. 'cause then it's, it, it it's probably it gonna come down. It's gonna come down probably. Exactly.

Speaker 2 (23:32):

And, and at some point, there's no need for that money at this point. If you're not a client that's taking out money at this point, or even if you are a client taking out this money, we're, we're typically not too worried about the up down. You know, I had a client a couple weeks ago say, I bet your job is hard right now, now, and meaning the markets are volatile. I bet your job's hard. And I said, no, it's, my job's not hard right now. Right? Just like my job's not really easy when the market's doing good. My job is not a managing of money based on what the market's doing. My job is a managed cash flow for people's long-term plan. And again, whether the market's doing good or whether market's not doing good, really has no relevance in how we handle our clients on a day-to-day basis. Now there is some more counseling and some, some guidance during times like this, but doesn't make it hard. That's what we're here for, to help you ease some concerns and create more peace when it comes to these types of things and knowing one that it's taken care of. But as far as checking your accounts, check 'em as much as you'd like. But the things you need to be checking 'em for are probably not the values of the account. I would check your

Speaker 1 (24:31):

Accounts. I, I think just to jump out Yeah, go ahead. I think, uh, speaking to our clients, yes, I think everything you just said, I would say yes. Now, if you don't have an advisor, if you're listening and you don't have an advisor or you have a different advisor, it would be hard for us to say, you know, Hey, just don't check your accounts 'cause we don't know what you've done to this point. Right? So it's not that we're saying, like we said last on the last show when we said, don't worry. Well, I can't say that to everybody. I mean, if, if you haven't done a plan <laugh> and you don't have a good investment strategy, you might wanna worry. I mean, because you might be on the wrong track. I mean, the longer you stay on that track, the harder it's gonna be to get back on the right track.

Speaker 1 (25:13):

So assuming everything is in line, then how often should you check your accounts during a crisis then you probably not at all. And how often should you check them at any point? There's been, you know, we've looked at rebalancing studies. How often should you go in and, you know, just update, rebalance, buy, buy some of the, uh, sell some of your holdings that have gone up more by some of the ones that haven't. And once a year, I mean, a lot of 'em come back and show once a year is plenty to do that. Your, a lot of 401k platforms offer this automatically once a year, quarterly, you know, so you could kind of set it up to where you don't even have to go in and look at it. Now there's, there's other reasons that you might wanna be checking for if you're driving your own ship, which, uh, this is, I probably, I would imagine very few people are doing this, but tax loss, harvesting, doing Roth conversions, we're gonna talk about that on the next show, is the plan.

Speaker 1 (26:14):

Those are tactical strategies that you can do during a down market. But just from a standpoint of monitoring your investments and rebalancing once a year, if you have no advisor, if you have an advisor, then your advisor's probably meeting with you once or twice a year anyway, so it's a good time to discuss it then. But, um, yeah, definitely not every day when I hear someone that says, yeah, I check my accounts every day, I, I get a little concerned and a re a little bit of a red flag goes up. Not, you know, only because I think the more you check it, like you said, mark, the more it gives you the impression like, I need to be doing something because it, you're gonna see you, you ride, you, you ride the whole rollercoaster ride, all of the ups and downs. And that's fun when you're at the theme park. But it's not fun when you're investing <laugh>.

Speaker 2 (27:09):

I, I would, I think it's with anything in life, fix your eyes on good things, right? And the good thing is the plan that for our clients, the good thing is the plan that you put together, right? The plan that we've, we've instilled in the plan we're following. Um, watching your account do this is is not good for you. And again, get your eyes in front of something too often. You're probably gonna make, like Joe said, you're probably gonna make a bad decision or react to fear. Yeah.

Speaker 1 (27:33):

So, yeah, I'm just checking since, you know, again, since the announcement of, of Russia and Ukraine, you know, this is, it's kind of crazy to think about, and I'm pulling this up on my iPhone here. So these are approximate numbers, but from February 24th through today, which is March 10th today, it looks like the s and p is actually up 1.8%. February 24th was the first trading day. And, and we had, we had, uh, overnight, you know, the market had gone down and obviously the market had, had been down year to date. So the s and p 500 is still down 10, 12% year to date. But, but imagine, but we've had a lot of volatility.

Speaker 2 (28:16):

Joe, what did you just say? The date was on that,

Speaker 1 (28:19):

The 24th of February? Is

Speaker 2 (28:21):

That, what was that the date that

Speaker 1 (28:22):

Yeah, that was the day.

Speaker 2 (28:23):

So I, I got a headline right in front of me. C-N-B-C-S and P 500 falls as stocks resume, their downward move from Russian Ukraine war.

Speaker 1 (28:31):

Yeah. So you just said,

Speaker 2 (28:33):

I said, said it was up 1% since there, and this is saying that resumed their downward move from the war.

Speaker 1 (28:37):

Now again, some of the, the market was down and maybe, maybe it was in anticipation of, of that conflict. But my point is there's been a lot of volatility since then in the last couple weeks. But if you had just not looked at it and went two weeks or however long it's been a couple weeks and, and then hold up your account balance, you would see, like relatively speaking, we're, we're kind of close to where we were. And you would've think of how many headlines and how much stuff we've all seen. It's just been just constantly coming at us. Think about all that stuff. If you just looked at nothing, you were in the mountains, you were, you had no cell service, and uh, and then you came back from that and you saw everything that had happened, you're like, oh, well the s and p's not really done a whole lot. How

Speaker 2 (29:26):

Much hap and avoided this the whole time? Right?

Speaker 1 (29:27):

How much happier would you be? Yeah. You know, and again, that's, that's the thing, you know, we do it because that's what we do for a living. We have to know day by day what the market's doing. We're monitoring all this stuff, but we are trained, you know, it's, use whatever analogy you want to use. But I tell, I tell people a lot of times tell clients, it's like if you had to go in and run a marathon, you know, you could either choose to do it yourself or you could hire a substitute, uh, someone who's a professional marathon runner, but one way or another, someone had to run that marathon for you. Are you gonna try to do that on your own? Well, you're probably not trained to do that. It's gonna be very, very difficult. Your muscles are gonna tighten up. They're gonna cramp, you're gonna be crawling <laugh>, you know, it's not gonna be fun.

Speaker 1 (30:15):

Just use the substitute, hire someone. And that's what we can do with, with your stress and the anxiety over this financial stuff, over your accounts, over monitoring all this, how it's gonna affect your money. You've already, if you hired us, you already outsourced that. Just outsource all of it. All of the stress anxiety. Now that leads to the next question though. If you do check your accounts, you wanna check your accounts, what should you actually be looking for? Because we're, we're not saying every advisor out there is, is, you know, necessarily worthy of trust. I'm sure many listening, if you have an advisor, you probably, chances are you, you trust your advisor, hopefully. But, but you can check your accounts just to make sure you know, things are going according to the plan that you've set in place. So what are some other things that if you do wanna look at your accounts, we're not looking at the balance. We're not seeing what the balance do the last day or two days. But what are some things that maybe would be good to look at if you wanted to review your accounts? Mark, what do you,

Speaker 2 (31:15):

I, again, I think if this goes back to if you don't have an advisor, you should be looking at your allocation from time to time to say, Hey, am I currently allocate, do I have the right allocation towards stocks and bonds? How much cash am I gonna need in the next six to 12 months? Is that in a place that's, say from a downturn in the market, right? Right. You would potentially look at rebalancing. If we're in a position where, hey, the market is really shot up, maybe that's a time to rebalance and sell some winners, buy some losers, right? Market's gone down. Maybe it's a time to rebalance to again buy some losers and, and, and sell some winners. So those are the things you should be looking at if you have an advisor. If you have an advisor, yeah. That advisor's doing those things for you. I mean, I'm if, if, if you're a client of ours, I, I promise you and I, I can promise that you all can shake your head that we've asked you those questions. Hey, anything, right? That we need cash for the next six to 12 months. We know you're gonna need cash for this in the next 12 months. We're looking at your allocation. Oh yeah, we are doing rebalancing for you.

Speaker 1 (32:13):

You have a, I got a great one. Uh, think from what you just said, the one thing that I would do as a client, especially if I'm retired, and we put a plan, we did everything you said, put a plan together. And part of our planning is any money that might be needed in the short term, you know, the next 12 months or so is, is invested in ultra short term investments like cash, money markets, savings, et cetera. So one thing I might do, just to put my mind at ease is I log in just to look at my cash accounts, right. Just to make sure it's still there. We know nothing happened to it. You know, uh, we know it didn't go up and down with the market, right? But if you wanna make yourself feel better, you know, I'm taking out, let's just say five grand a month.

Speaker 1 (33:00):

Okay? So I've got roughly 60,000 that I wanna see in cash money market accounts. So I might open up my app and just say like, okay, I'm pretty sure 'cause we set that whole plan up and it sounded great and I was totally on board with it, and it made me feel really good to know that I was gonna have $60,000 in cash. 'cause that's gonna gimme a year of mm-Hmm. <affirmative> living without having to sell anything. Lemme just make sure that, that, that I actually do have that. Yep. Okay. I do see 60,000 or in somewhere in the ballpark. Okay. I feel good. Now log out and, uh, go back to what you were doing, but not, I mean, that's the cache. I I'm looking at the cache that would be, that would, that would be my thinking after you put a plan together, not looking at the stocks, right?

Speaker 2 (33:47):

Yep. Absolutely.

Speaker 1 (33:49):

Um, another thing you could look at. I mean, I don't know going on that, you know, along those lines, if you, if you wanted to be a 60 40 investor or you know, you wanted to have 60% stocks, 40% bonds, you could log in and, and just kind of make sure that you're somewhat, you know, that's somewhat in the ballpark of where you're at, right? That

Speaker 2 (34:09):

Making sure, yeah. Making sure your fees are in line with what you thought they would be. Again, you know, if you're a client of ours, those are something that we by law are checking constantly before we run billing. But making sure fees are in there, make sure there's no suspicious transactions. Uh, just making sure that you're sticking to the original plan that you agreed with on your advisor. Those are things that you should be looking at. Not the account balance on a daily basis.

Speaker 1 (34:33):

Yeah. Yeah. Not, not the balance, but some of those key components of the plan. Um, you know, another one is just these are, and these are good things to do in a crisis, good things to remember in a crisis. But they're, they're really good to remember anytime. You know, because going back in a crisis, people think I gotta do something. I need to be checking my accounts. People, people can fall into the trap of checking your accounts every day where, you know, in a normal environment, you're never checking your accounts. And so now you're checking 'em all the time. Mm-Hmm. <affirmative>. And you're looking at the wrong things when you go, you know, you're looking at the balance, uh, you're looking at the year to date returns. And so that leads to the next thing. How and when should you evaluate the effectiveness of your accounts and more specifically the the underlying holdings.

Speaker 2 (35:24):

Do you, I got, I got two good, two good stories here that I think will, will play into this is is people have that, what you call Joe recency bias. They're just looking at what's happened recently and um, yeah.

Speaker 1 (35:35):

Had a client and clearly discount what happened in the long term. They just look at what happened

Speaker 2 (35:41):

Recently. Correct. I had, I had a client in a couple weeks ago, and I, you know, really nice guy, good guy, and he, I said, how you doing? He said, I wish we would be doing better if the market was good. Which he's saying because of what he's seen in the news, we haven't had a review meeting in a few months, but he's what he's seen and he knows, he's aware that the market's down right now. Yeah. And I quickly said, Hey, if I told you a year ago your account would be up 10% from a year ago today to where it's today, would that make you feel good? He's like, oh yeah, that'd be great. I said, well, it is right <laugh>, but what, but what, what he forgot about, he's thinking, well, how could that be? We're down like six or 7% from the start of this year.

Speaker 2 (36:16):

Well, he forgot about the 18% that he was up the nine months prior to that. Right. And then I had a, a call with, uh, another client of mine who's, who's a basketball coach, and I'll leave his name out, but just kind of having the same conversation and he's obviously very aware of what's going on the last three months, how the market's down. I said, let me, let me give you this analogy. I said, if your team was winning 70 to 30 with five minutes to go in the game, you were up 40 points with five minutes to go. And the last five minutes of the game, the, the team you were playing against went on a 20 to zero run. Right. And you were walking around with your head down thinking, we just gave up 20 points, didn't score anything, and that's all you're focused on.

Speaker 2 (36:56):

You're forgetting the fact that one, you just won the game 70 to 50. Right? Right, right. Which you were getting the 70 points you scored prior to the last five minutes of the game. That's, that's what looking at that short term last few months does, you gotta look at the whole picture. And, and I would even say this, that even a looking a year back is not, not realistic. You really need to give again, an equity portfolio much, much, much longer than that. Right. But that's what we're going through right now most recently is the last three months. Yeah. They've been down. But 2021 was an incredible year that anybody that owned equities benefited from that.

Speaker 1 (37:30):

So, I'll, I'll just, I'll just give a quick disclaimer too. And you know, that was, I'm sure you're, you're referencing a specific client situation. In no way do we promise, you know, you're getting 10% every year. But yeah, that, just looking at the big picture, the body of work Sure. Not, not measuring from the top down as most people do during these times, they, they, they measure from the top down instead of from the bottom up.

Speaker 2 (38:00):

That's right.

Speaker 1 (38:01):

And measure from the top down. It's always gonna look bad, right. If you measure from the absolute peak over and then go down to the trough in the short run. You know, we talked earlier about the average, the average downturn in the s and p 500 every year. Um, it's normal for the markets to do this. It's not even right now. Now again, we're trained in this and I don't get, I, I'm maybe not as emotional because it's what I do every day, but I don't feel like much has happened in the financial world, world on the equity front at this point. Knock on wood, it could get a lot worse. I'm not saying it wouldn't, but, but this is normal. This is like regular normal expectations for every single year in the market. We, we expect a 10 to 15% draw down, you know, in the market.

Speaker 1 (38:52):

But, um, so that, you know, you kind of said it, you were kind of talking about you gotta give stocks a long, long period of time. I I think every investment has an investment life cycle, you know, or, uh, you know, you gotta give it a certain amount of time. Every investment's really created for a certain amount of time. And yes, I think around here we talk about a stock investment cycle being at least 10 years. And if you look at the s and p 500, which is not a representation of every stock out there, but if you look at the s and p 500 as, you know, in the, as a performance recently versus long term, you know, like we said, year to date it's down 10%, 10 to 12%. Does that mean it's a bad investment? Well, if you look back the same s and p 500 as of earlier this week, it was averaging over 14% per year going back 10 years.

Speaker 1 (39:51):

Mm-Hmm. <affirmative>. And that's, if you look at the spider ETF, spider, uh, s and p 500 ETF, so, but it, but it's down over, it's down over 10% this year. Well, like we said, a stock life cycle is not two months or three months. It's 10 years in our view. Now the bad part is you can invest in stocks in the short run, and they can, it can end up working out well for you, but it's not reliable to do that. And the more time you give stocks, the more reliable your returns are gonna be. You know, a stock in one year. We could see very famously in 2008, the s and p 500, according to dimensional fund advisors, was down 35.9% in 2008, 35.9 negative. But that same s and p 500, again, according to dimensional funds, was up an average of 9.4% per year. If you just keep measur kept measuring from 2008, including, you know, you included that terrible year, and you just me, you measured nine more years after that. So from 2008 plus nine years, so that's 2008 through 2017, it averaged 9.4%. Now, is that a guarantee every 10 years? No, but what you're doing is you're increasing the probability of a good return by giving stocks more time in the short run. They could be up 30, down 40, who knows, you know, what could happen in a one year timeframe?

Speaker 2 (41:25):

And I think it, Joe, it comes back to education expectation, right. When you're, when you're evaluating an asset, you know, we talk about the bucketing philosophy and Right. My expectation of cash is that it will be there when we need it. Right. My expectation of cash to grow eight to 10% over the next 10 years is not realistic. My expectations of stocks and equities are to grow at historical rates over a 10 year period or more. Yeah. But if my expectation of stocks is to grow 3, 4, 5, 10, 15, 20% in the next six to eight months, that's an unrealistic expectation. Right. And a bad investment for that time period. Yes. So again, we believe in education and having the expectation of, if I need this money to do something, if I need it to grow, then I need to put it in a bucket and allow it to do what it's meant to do and give it the time allowed for that.

Speaker 2 (42:25):

Correct. Correct. If I need this money for safety, I have to act the expectation that if it's sitting there for my safety, it's not gonna grow for me. Right. And it could get run down a little bit by inflation. Yeah. But that's why you can't have, again, all your eggs in one basket. Right. You said it last week, and I'll say it again. There isn't one silver bullet that takes care of all this stuff. Every investment you choose when it comes to stock a bond or, or, or, or, uh, or cash has positives to it and negatives to it.

Speaker 1 (42:56):

Yeah. Everybody wants, everybody wants three of the same things with their investments. They want growth, safety, safety and liquidity. That's

Speaker 2 (43:07):

Right.

Speaker 1 (43:07):

And you can never get all three things. There's no one investment that delivers all three of those things. If it did, there was something out there like that, trust me, we would all be using it. And that's the only thing we would recommend. But most you can get is two out of those three.

Speaker 2 (43:23):

Well, I, I think it's, and I may have hit on this last week, and if I did, again, I'm apologize, but, you know, the inflation, it's, it's been in the news for, what, seven or eight months? And the reality is w okay, it's here, it's rare in its head. What do you do? What do you want to do about it? Right? You, you can't go to cash all cash. Right? You have to have some cash in place, but you can't go to all the cash. 'cause then you're really gonna get hit by inflation. Right. And the best way to hedge inflation is to be in equities. Right. That's been proven for hundreds of years. That's the way to outpace inflation. So if you go to equities, but then the fear of inflation drives people to sell their stocks, which makes zero sense.

Speaker 1 (44:00):

Yeah. And you know, and, and there's other things too. Like we said, we put a plan together. There's, there's other sectors inside of the equity bucket, fixed income bucket Yeah. That you can hedge inflation, you know, real estate is, is, uh, a sector that does pretty well at, at hedging against inflation. Yeah. Historically. So, you know, we kind of throw that in the equity bucket, but, you know, it, it could be an equity, it could be sort of an alternative, but, but that, that does pretty well. And that's included in what we have. That's right. You, we talk about cash, we talk about stocks, bonds kind of bridge the gap a little bit. You know, if you just look up the definition of an intermediate bond, you know, what is the average maturity? Every bond has a maturity. So every individual bond is a, it's like a loan to whoever's borrowing from you, they're gonna pay you interest.

Speaker 1 (44:50):

There's a, there's a maturity date on that, and the average maturity of an intermediate bond is guess what, two to 10 years. So the, the bond bucket sort of bridges the gap. And we, we probably do a whole show, we'll probably do a whole show on bucketing at some point, is, but we're, we tend to talk about it, you know, because it's, it's such an important part of your retirement plan and your investment plan. But I guess, um, you know, just kind of rounding out some behavioral tips, you know, just to close out, uh, mark your thoughts on, again, we're investing in a crisis. We haven't talked tactical. We're, we're talking emotional, we're talking behavior. But what are some practical, simple tips people can use right now?

Speaker 2 (45:36):

Well, again, I, I, I've said it, and I'll say it again, I'll continue to say it to clients. The best way to have a great investment or good investment experience, right, is to manage your behavior and stick to your plan. Okay? So my tips are gonna come around, mostly manage your behavior.

Speaker 1 (45:53):

So how do you do that?

Speaker 2 (45:54):

How do you manage your behavior? You keep the negative news from coming in, so turn off the tv, right? How many times do you have to listen to over and over again? That inflation's rare in its ugly head. How many times do you have to listen to over and over again that we could be entering World War iii? Right? If, if it's, if, if it's not helping you with your behavior, get rid of it. Stop reading the headlines. I know it's hard because every time you click on Yahoo, MSN, something's popping up in front of you. But just try to keep that outta your system. Look at it once, don't keep turning back to it five times throughout the day. It's not doing any good. Yeah. And then if you don't have a trusted advisor, this where comes to the, to really both parts. A trusted advisor will help you create a plan and will also help you stick to your behavior again. Right? Um, but if you have an advisor, again, like we talked about, you don't need to log into your account four times a day, <laugh>, there's just really no need for it. We're part,

Speaker 1 (46:50):

We're part of the problem because we give,

Speaker 2 (46:52):

We give access to it. <laugh>,

Speaker 1 (46:53):

We give access because we're trying to be transparent. You, again, like, like you said, mark, um, in the, in the early meetings, I'm always saying, here's how you can get to your account. Here's how. Yep. Because I don't want people, I want people to, you know, yeah. See that we're being transparent. We're not, we're not hiding anything. You can look at it all, all you want. As we get to know people more, I get more and more comfortable to say, look, you need to stop. I can, I just remove access for you. <laugh>. Uh, one client came in and, um, she's more conservative. She's, uh, she's in her eighties and, and she said, you know, my, my client website that you guys set up for me, my username and password is I, I've been locked out. I can't, I can't log in. I said, okay, well, we can reset that for you.

Speaker 1 (47:40):

I said, how long has it been like this? And she said, well, probably since the last time we met, or just after that. I said, oh, okay. That was like a year or so, six months or a year. So I said, um, well, let me ask you something. How have you felt emotionally during that time? Have you been stressed, been anxious about this stuff? She said, no, no, I've been good <laugh>. I said, well, do you want me to give you access to it again so that you, you know, and she's like, uh, you know what, I guess no, I guess I'm good. I, I guess I don't need to. So again, we we're part of the problem, but it's in good, you know, it's all in good faith. We're trying to be transparent. Hey,

Speaker 2 (48:23):

If you can, if it's not affecting your daily life and it's not creating stress, and you like waking up and having your coffee and looking at your account balance, and it doesn't cause a problem, keep doing it, keep doing it. But if you're one that looking at it, it's causing you anxiety and causing stress. Right. We're telling you, Hey, don't, don't, don't need to look at it. Yeah. No need to look at it.

Speaker 1 (48:42):

Right? Yeah. The headlines, the tv um, TV shows. Scott said something. We sent out a special video, uh, Scott Carson here, uh, said on that video to clients, he said, turn your TV down all the way to the point. You can't hear it <laugh>. So, um, watch a, watch a sitcom, something like that, that's not gonna, not gonna give you that same level of stress. Yep. Um, behavior is so important. Control what you can control. Ideally, you'd have a plan before you enter a crisis, but if you don't have a plan, it's, it's never too late to get one. Right. Don't, don't just have a knee jerk reaction. I, I, you know, I've said this before too, if your plan, whether you are running your own plan or whether your plan is a lack of a plan, or you have an advisor that, that, that put a financial plan together for you.

Speaker 1 (49:33):

If, if that plan is hinging upon you, scouring the media, the headlines, watching CNBC and trying to ascertain how the complex issues of inflation and Russia and the Fed and all of this, and Covid, and how they all merge together, and, and your plan is, is relying on you to put the pieces together and come up with a solution. It's probably not a good plan. You know, that's, that's a reactive plan. Whether it's you or your advisors just reacting to what's going on. Um, and just using the, the headlines and what's happened today to make your decisions, it's probably not a good plan because the truth is we don't know what's, we don't know what can happen in the near term, you know, or what's going to happen. We know what, what could happen. We don't know what's going to happen. So a good plan addresses, you know, like mark inflation, inflation's always been a risk. No one has just talked about it for the last 10 years because we've had a period of, of low inflation. Right. It's always been a risk. So we've always had to address it for a time such as this geopolitical tensions there. They've always been a risk and a good plan will proactively address that from day one. But if you don't have one, I mean, don't you think Mark, I mean, it's never too late to get one.

Speaker 2 (50:56):

Absolutely not. A lot of times I think that we've, we've brought on clients in the past that their immediate reaction when they come in is it's, it's too late. You know, I haven't done enough Right. Things. Yeah. And, and there's times that, uh, more, more times than not, you can say no. Well, it's not. We can, we can do a few things here and we can make some tweaks here and we can get you back on track to where you wanna be. So it, it's never hurts to, to just take a look and, and see if you can't get back on track. If you feel like, and a lot of times people kind of have a negative mindset. They think they're in bad shape and they come in. I'm like, geez, you're in great shape. You know, <laugh>. So if you feel it's too late, get a look at it. And, and the last thing I wanna say is to our clients, you have planned, we have put the time in on the, on the upfront to prepare for these things. Let that give you confidence. In times like this. Let that have, let you have peace in times like this. 'cause this will pass, this will pass. So you've done the right things, right. Let it work for you.

Speaker 1 (51:53):

Yep. Absolutely. Perspective this too shall pass. So, well, good conversation, good practical discussion points. You know, like we said, the things we want you to remember, those that are listening is to control what you can control, you know? And if you can, if you can stick to the plan and turn the TV off, you're just gonna be happier too. You will have a much more enjoyable and a much higher quality of life, more enjoyable retirement if you're retired. Shoot, if you're not retired, you just have a, a better day to day. There's enough to worry about out there. Uh, control what you can control. And again, we hope to come back next show and talk about tactical strategies. Some things that you, you can look at doing during a down market that actually could make a lot of sense. The things that might, you know, they might make sense in, in any given year, uh, like a Roth conversion, but if you couple 'em and use it in a down market, now, it, now it looks even more attractive potentially.

Speaker 1 (52:54):

Mm-Hmm. <affirmative>. So we'll talk about some of those things. But, uh, until then, as always, if you have any questions or if there's any area that we can help with, feel free to reach out to us. You can see all of our resources on our website@www.carnelarea.com. Our pass shows are on the site as well. You can go back and listen and listen to our predictions for the year. You can listen why we think you shouldn't worry for retirement. And, uh, we're gonna keep going. We've got more, we've got blog posts that are up there as well. And that's also where you can schedule a time to come in and meet with us if you'd like to do that. Well, thanks for listening. If you're still with us until next time, we hope all of you can, uh, manage your emotions and, um, until then, we will see you on the next show. With that, take care and talk to you soon.