1 00:00:00,239 --> 00:00:01,703 Speaker 1: Hi, I'm Stacey Hyden. 2 00:00:01,703 --> 00:00:05,230 I'm back with another episode of Better Financial Health in 15 3 00:00:05,230 --> 00:00:09,404 Minutes or Less, and what I'd like to talk about today is 4 00:00:10,487 --> 00:00:14,214 should you worry when the market dips or should you just chill? 5 00:00:14,214 --> 00:00:19,330 And the short answer is most of the time you should just chill. 6 00:00:19,330 --> 00:00:24,028 Like, for example, this year started out bad, it's recovered, 7 00:00:24,028 --> 00:00:25,490 now it's gone back again. 8 00:00:25,490 --> 00:00:29,725 You know we call it the tariff tantrum, but I think what's 9 00:00:29,804 --> 00:00:35,701 important to look at is, in most years there is a drawdown, and 10 00:00:35,920 --> 00:00:41,670 history says that the market corrects down about 10% every 11 00:00:41,871 --> 00:00:45,176 one and a half years, but that doesn't mean that the markets 12 00:00:45,235 --> 00:00:51,250 were actually down that much in any particular year, and so we 13 00:00:51,289 --> 00:00:53,975 call that 10% a correction. 14 00:00:53,975 --> 00:00:58,423 If markets are down 20%, we tend to call that a bear market, 15 00:00:58,423 --> 00:01:02,548 and so and they can be scary it feels terrible. 16 00:01:02,548 --> 00:01:09,262 I'm not even going to pretend, but, like I said, in most years, 17 00:01:09,262 --> 00:01:12,930 even though there is a correction, or in every other 18 00:01:12,971 --> 00:01:17,465 year, there's a correction, most of the time the markets don't 19 00:01:17,725 --> 00:01:18,868 wind up a year down. 20 00:01:18,868 --> 00:01:23,912 If you kind of look at history, it's about two in 10 years are 21 00:01:23,933 --> 00:01:26,462 going to be negative and the rest are going to be positive. 22 00:01:26,462 --> 00:01:30,540 I also think it's interesting to note that the market has 23 00:01:30,700 --> 00:01:33,468 averaged around 10%, and when I say the market, I'm talking 24 00:01:33,489 --> 00:01:40,370 about the S&P 500 has averaged about 10% all the way back 25 00:01:40,891 --> 00:01:44,736 through the Great Depression, but there's never been a year 26 00:01:45,518 --> 00:01:48,361 where the market has returned exactly 10%. 27 00:01:48,361 --> 00:01:53,951 So that's the average, but some years it's up 30%, some years 28 00:01:54,013 --> 00:01:54,813 it's down 20. 29 00:01:54,813 --> 00:01:55,941 Some years it's up three. 30 00:01:55,941 --> 00:01:57,001 It's all over the place. 31 00:01:57,001 --> 00:01:59,585 You just have to be patient. 32 00:01:59,585 --> 00:02:05,412 So what I would cause you to do is, when you're feeling stress 33 00:02:05,612 --> 00:02:12,610 around these market pullbacks, just take a second and check 34 00:02:12,651 --> 00:02:13,051 yourself. 35 00:02:13,051 --> 00:02:14,665 Is it your plan? 36 00:02:14,665 --> 00:02:18,806 Hopefully you have a plan, or is it just the headlines causing 37 00:02:18,806 --> 00:02:20,330 you to become nervous? 38 00:02:20,330 --> 00:02:25,409 Because if your time horizon hasn't changed, if your risk 39 00:02:25,469 --> 00:02:31,768 tolerance hasn't changed and you don't have a need for the money 40 00:02:31,768 --> 00:02:34,514 that you're investing in the next three to five years, 41 00:02:35,479 --> 00:02:39,968 nothing has changed to cause you to take action. 42 00:02:40,830 --> 00:02:44,606 Sometimes that's the hardest thing that we do as advisors is 43 00:02:44,668 --> 00:02:47,000 telling people the answer is to do nothing. 44 00:02:47,000 --> 00:02:49,508 I actually had that conversation with a client 45 00:02:49,527 --> 00:02:49,990 yesterday. 46 00:02:49,990 --> 00:02:52,829 We are not going to change anything. 47 00:02:52,829 --> 00:02:55,979 You are appropriately allocated for your risk tolerance. 48 00:02:55,979 --> 00:02:57,979 We have some stuff that does well in an up market. 49 00:02:57,979 --> 00:03:01,842 We have some stuff that does well in the down market and we 50 00:03:01,901 --> 00:03:06,170 have some other strategies that help kind of protect all along, 51 00:03:06,191 --> 00:03:10,599 but they are giving up upside for that protection because 52 00:03:11,061 --> 00:03:17,231 there's this behavioral trap we tend to project what has 53 00:03:17,292 --> 00:03:20,043 happened most recently into the future. 54 00:03:20,043 --> 00:03:24,972 So if markets are up and they've been up 20%, 30% we tend 55 00:03:24,972 --> 00:03:26,153 to project that forward. 56 00:03:26,153 --> 00:03:29,691 If the markets are down, we tend to project that forward. 57 00:03:29,691 --> 00:03:32,145 So it's real easy to do that. 58 00:03:32,145 --> 00:03:34,231 But neither of those is correct . 59 00:03:34,231 --> 00:03:36,908 The markets are going to go up and go down. 60 00:03:37,900 --> 00:03:39,608 So what should you do instead? 61 00:03:39,608 --> 00:03:43,046 Stick to your plan or tweak it. 62 00:03:43,046 --> 00:03:46,877 You know we have been sending out risk questionnaires to 63 00:03:46,919 --> 00:03:51,610 clients and I would be willing to bet a lot of money that right 64 00:03:51,610 --> 00:03:55,308 now clients are much more realistic about what their risk 65 00:03:55,349 --> 00:04:00,949 tolerance is, because they know what they felt like with this 66 00:04:01,050 --> 00:04:02,693 anxiety with markets turning back. 67 00:04:02,693 --> 00:04:06,092 So we have had some clients that said you know, if it's not 68 00:04:06,112 --> 00:04:09,524 going to hurt me, I'd rather take a little less risk, and 69 00:04:09,563 --> 00:04:11,407 that's a valid answer. 70 00:04:11,407 --> 00:04:14,823 But then there's some where, like you really can't afford to. 71 00:04:14,823 --> 00:04:17,992 You need to take that risk and you can get through it. 72 00:04:17,992 --> 00:04:20,322 They were actually surprised their account was up for the 73 00:04:20,362 --> 00:04:24,687 year and you should not check your accounts every day. 74 00:04:24,687 --> 00:04:30,661 Even if they're up, you tend to peg your account to the highest 75 00:04:30,661 --> 00:04:34,999 value you've ever seen, and so the pain of those losses is 76 00:04:35,100 --> 00:04:35,721 magnified. 77 00:04:37,232 --> 00:04:41,862 So I want to give you some information about 2020. 78 00:04:41,862 --> 00:04:46,886 So from January 1st 2020 to February 19th, the market was up 79 00:04:46,886 --> 00:04:49,334 4.81% Great start to the year. 80 00:04:49,334 --> 00:04:51,339 Month and a half up almost 5%. 81 00:04:51,339 --> 00:04:55,920 But from February 19th to March 23rd, when the market bottomed 82 00:04:55,939 --> 00:05:00,634 during the COVID pandemic, markets dropped 34%. 83 00:05:00,634 --> 00:05:06,805 It was awful, but if you look at the S&P 500 from January 1 to 84 00:05:06,805 --> 00:05:09,776 the end of the year, it's actually up 18%. 85 00:05:10,158 --> 00:05:15,737 I remember having a conversation with a client during that time 86 00:05:15,997 --> 00:05:17,401 wanted to sell out of everything . 87 00:05:17,401 --> 00:05:18,930 They're like, stacy, we're going to lose it all. 88 00:05:18,930 --> 00:05:22,639 I'm like I promise you you're not, you're good, we've got the 89 00:05:22,680 --> 00:05:25,752 money that we need to send you for your lifestyle this year. 90 00:05:25,752 --> 00:05:28,076 Let's just sit tight. 91 00:05:28,076 --> 00:05:32,904 And since you can't travel, can we reduce what you're sending? 92 00:05:32,904 --> 00:05:35,593 They said, sure, so guess what? 93 00:05:35,593 --> 00:05:38,860 We didn't do anything. 94 00:05:38,860 --> 00:05:41,771 Their account recovered, they made money. 95 00:05:41,771 --> 00:05:43,033 They were kind of shocked. 96 00:05:43,675 --> 00:05:46,622 So when it came time the next year, we're like okay, as soon 97 00:05:46,742 --> 00:05:49,274 as you can travel again, where do you want to go? 98 00:05:49,274 --> 00:05:53,362 Because we have all this extra money that you didn't expect to 99 00:05:53,423 --> 00:05:53,684 have. 100 00:05:53,684 --> 00:05:59,536 So that's why some of the best advice we can give is to not do 101 00:05:59,937 --> 00:06:04,663 anything or to get into some of the crazy investments that 102 00:06:04,702 --> 00:06:07,045 people have been asking us about lately. 103 00:06:07,045 --> 00:06:14,403 So one of my favorite things to say is the market is not a mood 104 00:06:14,403 --> 00:06:14,684 ring. 105 00:06:14,684 --> 00:06:16,915 You have to stay focused. 106 00:06:16,915 --> 00:06:19,240 It doesn't change day to day. 107 00:06:19,240 --> 00:06:25,572 You have to just be patient and invest for the long term and 108 00:06:25,773 --> 00:06:29,439 make sure you've got enough safe stuff to get you through the 109 00:06:29,500 --> 00:06:30,641 inevitable down times. 110 00:06:30,641 --> 00:06:32,165 Thanks for tuning in. 111 00:06:32,165 --> 00:06:35,497 This has been another episode of Better Financial Health in 15 112 00:06:35,497 --> 00:06:36,139 Minutes or Less.