Stock Market is at an All-Time High! - Should You Be Worried?

stock market all-time high should you be worried it's brian preston the money guy brian if i had to quantify the one question that i get the most right now as a financial advisor i was at a i was at a a thing this saturday celebrating a birthday party uh and the folks oh what do you do for a living and i kind of say oh you know we do this little personal finance show and do this thing and they're like oh hey man stock market it's doing really well what do you think what what should i be nerd what's going on well it's always a challenge when markets are hitting all-time highs it's because you're excited because you're making money but there's a part of you is like should i be buckling it down should we be trying to go more conservative or if you come into some money you're like maybe i'll wait you know because i'm sure it's gonna fall any time now and i'll just jump in them when it's a much better deal sure these are all the things that from a a behavioral aspect the mind games can take you off track so easily so we want to kind of put together ways that you ought to navigate this time because i'm just going to break it to you there's going to be lots of all-time highs in your future if you're using the financial markets as a way to build wealth and by the way a lot of our clients build wealth by investing and that's why we want to help you navigate this well now you would think i'd be encouraged right like i'm at a social event and people are thinking about the markets and they're thinking about finances i should be very happy about that but i think what's actually going on is not that people are actually interested in it not that people are like out there seeking this information but we live in a world today where we are inundated with financial information and there's all kinds of stuff being thrown at us and so you almost can't look at anything without seeing market at an all-time high or getting a notification on your watch or on your phone or on your laptop that's suggesting to you hey this is what's going on so it sounds like the financial media really wants you to know what's going on the big i think this goes beyond is i want to keep everybody to know what is meaningful what you need to be paying attention to because this is one of those unique times where it feels like money is being created everywhere i mean you could go just throw i mean i see jokes where you could go put ten dollars on some meme um nft or you know cryptocurrency and that will buy your million dollar dream home if you just waited put water on it and waited two months just because it feels like money is everywhere that i think that that type of frothiness can have people get really distracted on the fundamentals and how do you really create wealth versus just speculate into the latest and greatest trends and and those boom and bust cycles they can have a huge emotional impact on you and i want you to avoid that and look i'm not telling you don't have fun don't go you know with a portion of your but i think you have to know what is money that's going to provide for you in retirement and what's money that's just kind of play money that you're having fun with but you're not risking the entire your whole future is not going to fall on on on this disaster that might be building in the background and so okay so let's talk a little bit about uh the voices that do impact us the things that we hear and the immediate thing that i kind of think about is like financial media right because now we have 24-hour channels and websites and all that sort of stuff out there that wants to tell us what we should do with our money and how we should handle it how we should invest are those sound resources are those things that we should be listening to well i i think one of the the worst things that happened for behavioral economics and just people how they handle their money is probably the 24-hour news cycle i mean it felt like a few years ago well i say a few years ago because i'm you know a few years but back before we had the internet getting making information flow instantaneous you had to actually seek out headlines you had to actually go read the newspaper you had to turn on the tv now we have you know watches we have our phones data is amongst us at all times and unfortunately i feel like the media has recognized the scareder you are the more you'll watch you'll pay attention and how does always ask yourself when you're looking for conflicts of interest how does the media get paid and what they have to do is they have to have your eyeballs they have to have your ears they have to have your attention and unfortunately us as animals we're much more driven by fear of what could go wrong than we are about feel good stories or or other things and truthfully that's that i feel like that's hurt us in a way is that we actually shoot you straight we try to cut through the noise it would be much better if i focused on either the boom cycles of people who've gotten rich off of 10 bucks yep or if i showed you the perils and went through all the disasters of people who've imploded financially and and we were the the recovery story it's just that is not the way the real world works and we want to cut through that noise and so it sounds like what you're saying is the financial media has kind of figured out how to play on our fear and greed they they recognize that and they use it and we thought it'd be valuable to kind of do a brief little history lesson of sometimes if you were to listen to the financial media and take their advice perhaps it would not have worked out so well for you so we pulled some magazine headlines here's one from newsweek this is a famous one brian from 1979. we've done these before and by the way we're going to add some new ones that's what you think wow they keep pulling those same slides guys it's because the media keeps making the same mistake but these these are such valuable lessons we even repeat what we've covered in the past in august of 1979 businessweek had a title a cover page that was the death of equities that probably has you thinking man if the death of equities is upon us i don't need anything to do the stock market anything equity related i need to just make sure i run 100 miles in the other direction but when we look at the rest of the story the s p 500 over the next 12 years following the publication of this newspaper annualized 17 per year if you would have followed their advice and the death of equals avoiding that you would have missed out on 12 years of double digit almost 20 returns so they're obviously horrible at predicting when markets might have an opportunity meaning they pile on when bad news is bad news that instead of telling you hey this might be the chance of a lifetime for you to go invest they actually do the opposite they try to scare the heck out of you so if you can't use them to find the best time to in the market how about when to get out of markets or what to know what is going on in a negative sense with investment yeah so if we look at the cover of money magazine from march of 2000 uh you are going to learn if you read this how to invest in the hottest market ever and i'm sure that you know they had uh you know the top stocks and the best picks and the things just like you said you take ten dollars and it's gonna buy your mansion all you have to do is just read their article and you're going to understand that well if we fast forward and look at the rest of the story over the next two and a half years if you just look in the scp-500 the market lost a little over 14 and a half percent per year over that two and a half year span so if you would have gotten really really aggressive when money magazine told you it was the hottest market ever you wouldn't have been so happy over the next 24 to 30 months what i think this is a perfect example we said two and a half years we know probably two and a half years in the future it started going back up but how many people bought that money magazine went out there and invested and then two years in the future go you know what this this thing this is who this is for idiots anybody who's investing and they got off right as they should have been loading up on the train and that that is the problem with all of these headlines so okay so let's fast forward again to something a little more recent although it's not in in quite as recent memory in october of 2008 in the middle of the great descent great recession uh time magazine had this cover that says the new hard times and i'm not positive brian i think this is uh depression era soup kitchen line i think i think that's what that is yeah if you really want to scare people go ahead and make the analogy you know what times are so bad this reminds us as a great depression nobody's working they're actually out there waiting to get their bread and soup this is the prediction that the financial media was putting forth these are going to be the new hard times we better adjust accordingly if you would have followed this advice in october of 2008 over the next 11 years over a decade the s p 500 annualized 14 and a half percent following the publication this magazine if you would have allowed yourself to get scared and sit on the sidelines and not participate in there you would have missed out on tons of growth in your portfolio so everything you just focused on was what was going on with the equity markets the s p 500 so if they obviously don't do a good job with picking the bottoms or the tops with the equity markets let's shift to another asset class how about bonds and interest rates how is the media good at that because they keep telling us how low interest rates are and you know there's nowhere to go but up but what has happened in the past yeah surely they have a good beat on this well if you look at this uh this is an interesting illustration from january of 2019 through the end of the year of what they predicted what analysts and economists predicted interest rates would do over the next year and what you can see is that all of the red dots and red lines and if you're out there listening on itunes it's showing you know it looks like it's going to be this trend where they're going to slightly rise a little bit over the course of the year you know anywhere from there in the year anywhere the 10-year treasury from like two and a half percent to somewhere around four percent is what their prediction is so if you're listening to this they have all the predictions range from interest rates on the 10-year treasury which is what mortgage rates and a lot of your long-term financing are based off of was either going to stay flat to go up i mean there is there's a i mean there's got to be at least 50 predictions there and they're all over the place but the we have a dark bold face line which is what the interest rate marketplace actually did and guess what it actually went down it went in the exact opposite direction of what every i'm sure these guys are getting paid six and seven figures annually to be right about their predictions and not a single one of them had it going in the direction that interest rates actually went into so obviously i think what we've learned is that is that maybe experts don't know exactly what the markets or financial markets are going to do the media certainly doesn't do that so if we are going into a period where maybe we don't know what's going to happen we don't know what the next outlook on the market is going to be we should talk about like how do you prepare what are the things you do to be ready for the next crash or the next downturn whenever it may come well and i'm gonna go ahead and just tell you a dirty little secret of the financial world none of us know actually what's going to happen next month next year so what we have to do is come up with plans now we know look over the long term i believe in this whole expansion of humans i believe in humankind and the fact that we're always trying to grow we're always trying to innovate we're always trying to better ourselves so all this creates a lot of positive force that things in the long term are going to be great but we just don't know if that's next year we don't know if that's three years i just know we're on this walk towards progress but the timing gets a lit in the short term especially it gets a little fuzzy so you better just plan on base assumptions meaning you have a good macro understanding what you believe but then create a plan that's going to be good whether the market's going up next year whether it's going down next year or you just go have a plan that works through everything and let's kind of get into this and bo you came up i always like to give you credit you came up with the three s's yeah if you want to prepare for the next downturn if you want to make sure that no matter what the market does over the next 6 12 24 36 48 60 120 240 however many months you're talking about we think that there are three s's you can sort of hone in on and if you can master these three s's you're going to set yourself up for long-term success and the first one might be surprising to hear from folks talking about a market at an all-time high but it's safety the first s is safety well i think all of us we go through life and you first need to have a strong foundation to your financial life so that any type of financial emergency that comes your way doesn't put you in the ditch because when you're in a bad pickle of a situation you don't always think rationally that's right and you can turn a little thousand dollar two thousand dollar mistake can turn into something that haunts you for the rest of your life and then you never recover from that one hiccup so that's why we first focus on safety by looking at risk management and when we talk about risk management we're primarily talking about do you have enough cash reserves to make it through what may come your way now look i'm sitting here with my you know laminated nine steps to the financial order of operations if you want to go check this out just go to moneyguy.com resources and you too can download this for free but step number one is deductibles cover this is because your biggest risk are those things that you typically buy insurance we're talking about health insurance we're talking about your auto insurance we're talking about your homeowner's insurance go figure out what your highest deductible is between all of your different insurance providers whatever that number is save it up and that's going to be your first stop and making sure you have enough cash to keep your financial life out of the ditch that's exactly right and then as you continue to progress along in the financial voter operations you're eventually going to get to emergency reserves you're going to get to step four and that what you have to do there is you have to make sure that the emergency cash you have on hand matches where you are in your financial life cycle are you someone who needs three months of emergency reserves are you someone who needs six months of emergency reserves are you someone who's approaching financial independence and your emergency reserve should actually be somewhere between 12 to 36 months of the living expenses if you want to be prepared for the next downturn and not have to make very difficult decisions when the market is at a point where you don't want to make difficult decisions cash is going to be that buffer that allows you to weather that pending storm yeah i mean i here's another little truth of financial planning who gets more nervous the three hundred thousand dollar client or the three million dollar client and now you're like well of course the three hundred thousand because the the the fat daddy over here with three million doesn't have to worry about but the reality is is a lot of times it's not the size it's the there's enough margin to get through it's the cash and because that person who has three hundred thousand a market goes down ten percent they're probably getting it they're cutting to the bone whereas the three million so that's why we are trying to make sure when we're talking about safety yes you don't have the three million yet but you auto lease go ahead and give respect to the margin of cash reserves so that you don't have to panic don't have to make a bad mistake that hurts you financially like a small investor would because that's what that's where you get in trouble and we want you to reach that critical mass faster by already accounting for it because i think a lot of people think hey i'll go get every dollar working for me because i'm going to get to 3 million faster by having 99.5 of my money working for me versus 96 or 95 working that's a mistake guys so don't fall into that trap another thing you want to make sure you do when it comes to safety is you want to make sure that you have the appropriate coverages in place because what happens when the market turns down what happens when the market freaks out is it takes an emotional toil on us no matter who we are even financial mutants when it gets really really bad it becomes uncomfortable and what happens is all the rest all the other parts of your financial life start to weigh on the decisions you make financially brian we've talked about this before we have a dear client back in 2008 who she made a decision that we tried to convince her not to but said hey guys look i understand the financial part of it but i have all these other stresses i have a health stress and i have a family stress and i have a medical stress and all these other things i have to make this decision because of that well if you can inoculate yourself from as much risk as possible by having the appropriate estate documents in place and insurance policies in place whether it be health insurance or disability insurance you can make sure that when the burden and stress of financial uncertainty comes just like forrest gump says those things are just one less thing one less thing one less thing and we deal with this i think um one of the the things i feel like the financial world gets wrong is that we focus on risk tolerance which is how much how much of a cowboy or cowgirl you are and the fact that if things get scare you know how much risk do you want to take to make your money that's only half the equation you know your risk tolerance on how much volatility you can handle before you cry uncle is just a little bit of the risk profile the other part is risk capacity that's exactly right and we and this is this is what you're kind of alluding to bo is that that we also have to take into account not how much we can handle on the volatility but also where we are in our goal seeking where we are in our age because there will come a point where you've won the game where you don't need to be taking more risks there's a reason guys when you say brian why don't you want me paying down my mortgage until i'm over 45 that's because guys you're approaching that stage where risk definitely of taking too much you know chances and too many things that could you know jeopardize your financial empire that comes into play when you're under 45 it's much more powerful to let your army of dollar bills grow that's risk capacity that we're talking about when i'm taking into account where you are in your walk towards financial independence and we even let me let me put this we actually put some graphics with this i'm thinking about a 70 year old who's still working in great health and they like look i've built wealth because i've always been comfortable with taking risk we deal with this all the time with small business owners real estate investors they think they can handle anything that comes away and we're always trying to explain to them hey you know you're in your 60s you're in your 70s it's no longer time to risk it and i'd even go this could work on people in their 50s so you need to be minimizing because they think about in terms of i don't want to miss out on that 40 rate of return that's right but here's the thing if you lose 40 in the markets you have to make 67 to get your money back that's just that's just cool math clean math this is the fun because think about here's what's crazy to me if you lose 50 percent you have to make a hundred percent to get it back if you lose 10 percent you only need to make 11 to get you back to where you started this is a cool thing about mathematics but we went a step further we said okay let's assume a basic like 60 40 type asset allocation that can make nine percent a year how long would it take to get that money back you can see if you lost 10 percent it's only going to take you 1.2 years to get right back to where you are where you're making money you're in the green again you lose 40 and believe me we saw 60 and 70 year olds in 2008 who for some reason still were doing all tech yep oh you know they weren't even just doing the s p 500 they were doing all the technology and information type mutual funds and so forth because their 401k that was the best performing asset class of the last decade they'd lose 40 percent they'd have to make back 67 it would take them 7.4 years imagine if you're trying to retire you're 62 years old you know you're retiring in three years and you know it's going to take 7.4 years just to get back to break even not even take into account the opportunity costs that you those are years that you're not going to be growing your assets it gets really scary while you may have the tolerance for that kind of loss you do not have the capacity for that kind of loss you will all of us will reach a point in our financial journey well it's no longer about how much money do i make how big are my returns it's about how much do i get to keep over the long term okay so the first s that we think you should master is safety we want to prepare for the next downturn you want to master safety the second s that you have to master if you want to be prepared for the next pending downturn whenever it comes is self-control yeah this is the behavioral stuff because we are our own worst enemy i think that a lot of us we see the s p 500 rate of return and we go man wealth creation ought to be extremely simple super easy i mean just go buy you know an index fund it'll be great and we talk about that all the time like well but why does the behavior of the typical investor never reflect what you see in the rates of returns historically of the s p 500 and most index funds the reason is is this the self-control and the cycle of market emotions that's right whenever it comes to investing uh it's no surprise if we know that fear and greed are two emotions that all of us are impacted by why would the epitome of fear and the epitome of greed not come out when it comes to how we feel emotionally about the ups and downs of the overall stock market well look i mean because i i like to point out a few points here because we are at an all-time high with the financial markets right now and that is we put a few quotes in there wow i'm smart that's the person who just you know they came through 2020 and they're at the cocktail party and you know what they got them a little bit at the gamestop and they got some of that bitcoin and they've done really really well and they're thinking boy i've got this wealth building thing figured out and that's why we have the word euphoria written in green is because you're thinking you know what i'm going to i'm going to keep rocking and rolling this is the maximum point of financial risk is because look things can get ugly and then we see when we come down the cycle of market emotions meaning that this will go through a cycle we know twice every decade historically um you know you start seeing anxiety fear depression panic you know and then the one i see in red there is capitulation this is when people like they just go to the stock market i'm just out of this thing and this is like i said this is the journey that turns that beautiful stat that the financial markets make about 10 a year through history into a much harder objective because people give up they go through that capitulation they go you know what i know it's never happened before but i'm getting the heck out of this thing i'm just tired of losing i've already lost 25 there's no way i'm gonna let this thing go down 50 i'm getting the heck out right now what's so sad and this is why you have to be a contrarian if you're going to be a long-term investor that's actually the maximum point of opportunity typically when everybody's headed for the exits that's actually when you should be looking for the opportunities because guess what the process repeats itself and goes all over now what i think is interesting because we you know when when daniel designed this it actually looks like when the cycle repeats itself it's a little bit lower than where it started it even looks when i look at this looks even charles would correct me on this but i think this is like if you were to graph a logarithmic scale i think this is what it does but looks like a bell curve right side up and then upside down bell curve and the right side bell curve it just looks very symmetric right but i don't think that's the way that the market actually works no so we took a we took a snapshot of the last few years and here's what's interesting if you look at the s p 500 from 2018 to 2020 because there's a lot to unpack there i mean we've got a pandemic built into it you can see look in 2018 going into 2019 there was a drop in the marketplace yep you see the kids falling off the cliff they go you know got their hands raised they're all ready to go through the cycle like they're on a roller coaster but notice it went it hit the v-shape recovery went up and then we hit right around march of 2020 we see we fell off a cliff the kids once again have their hands up they're ready to go on the roller coaster ride down you look at this you know so much volatility in such a short period of time why would i want to put myself into that emotionally if i didn't have to well we wanted to go pan this out a little further because here's what we always talk to you guys about and i feel like we ought to have the yodeling music in the background is because this is when you invest in the long term you're actually walking up a mountain that's right with a yo-yo meaning that you are throwing that yo-yo up and down so in the short term it is going up and down but you are walking ever further into higher and higher elevation so that when you look at the chart instead of looking at for two years let's look at it for 20 years let's blow this thing out tenfold and you can see those blips that we had in 2018 and 2020 look so tiny and you can see even we have 2008 on there notice we are in higher higher elevation if you just give it enough time so that you don't let your emotions derail you from this long-term prosperity that us as humans are creating you know it we taught this show on purpose you know what to do in the markets at an all-time high because if you think about this chart when you're standing at the peak it's scary if you're looking over the edge it's scary if you're thinking oh man there's a long way down i could fall but when you zoom out and look at the mountain range of wealth that you have been scaling even those low points even those freak out fourth quarter 2018 2020 pandemic downstairs even those low points are higher than where you were five years ago 10 years ago 15 years ago so much so that if you think the market is high right now wait till we see it 5 10 15 20 years from now if you can have that perspective you will be ready to weather whatever the market throws at you in the near to intermediate term and we'll we're going to have even more on that a little bit later so stay tuned because we're going to show you even if you're the worst investor in history there's a lot of opportunity out there but i want to kind of shift to that third s it's like oh hold on you forgot oh you forgot the oracle you forgot that how do i forget what the oracle from omaha warren buffett guys i know y'all probably get tired of us sharing this quote because it's a powerful one i'll just read it to you be fearful when others are greedy be greedy when others are fearful remember how i was earlier telling you that when everybody's headed towards the exits you ought to be looking to see if that's the maximum financial opportunity point that's exactly what warren is talking about here's what's so interesting every few years whenever we go through a market downturn warren changes this saying up like he'll say hey when it's raining opportunity don't be out there with a thimble be out there with a washer tub i mean he changes this around constantly or if you have a crazy you own a farm you have a crazy neighbor who's yelling out prices every day sell on the days that that they're way overpaying you know buy buy their farm from them when they're under you know when they they don't know what they have and what it's worth this is all on the same tree of opportunity that that you know uncle warren is talking about just pay attention to this it's pretty timeless doesn't matter what cycle we're in the the the market this is thomas advice that will serve you well now what we don't want you to do is misinterpret this advice be greedy when other be fearful those are greedy and be greedy when those are fearful meaning that you should have tectonic shifts in what you're doing because that is a perfect segue into the third s if you want to master preparing your portfolio for the next downturn not only do you have safety under control and not only do you have to master self-control you have to also understand your strategy your third s is strategy and this is what's going to get you through the the turbulence of you know on your long-term navigation to financial independence and wealth you have to have some some tools there to get you through this because if you just let yourself go with the raw emotions i think you're going to come up short so that's what we try to create what are things that we can help you understand or things the tools that you can equip yourself with to make it through this and the first one is diversification that's right essentially when we don't know what an outcome is going to be we don't know which way the markets are going to be we don't know what the top performing asset classes the bottom performing asset classes are going to be so that we are never 100 wrong we diversify so that we can be a majority right instead of a majority wrong and we try to do it that way well why do we even have diversification inside of our portfolio there are two main reasons one of those reasons is for return enhancement we buy more aggressive things because we think that it'll have a higher rate of return it'll boost the rate of return of the whole portfolio or the second reason is risk mitigation volatility reduction if the market does go down if we do see that downturn we want some stuff in our portfolio this can have a stable base so i either want it to enhance my return or i want it to minimize the volatility and we think that one of the best illustrations out there to be able to see how this plays out in true form is the calend periodic table they release this every year and we just pulled a snippet of one from 2001 until 2020 and what you can see is if you pick any color on this chart maybe you pick the blue large cap because that's what people say all the time i'm just going to put everything in the s p 500 and i think the reason a lot of people say that is over the past decade it would have worked out pretty well for you if you look it was the top performing asset class or at least the top two or three over the last decade but if you rewind a little bit further back brian back to the early 2000s leading up to the great recession large cap still did really really well but it was not the top performing asset well i pick on you we were talking about this in the content meeting is that i i brag about the fact that from really 2000 all the way through probably after the great you know recession of 2008 the s p i mean that was good don't get me wrong it's a good return but my diversified portfolios were smoking 500. and you know and i pick on you about that a little bit and the fact but and the reason i also bring it up is it reminds me of 1998 where the s p 500 back then was making people look stupid meaning that diversification made you feel like you were standing still even if you were making 12 or 13 or 14 annually with your diversified portfolio and years at the s p 500 was making 28 percent if you were a prudent financial advisor your clients are looking at you like why are we not in the s p 500 and you know completely instead of just having it be 40 50 of the portfolio the same thing potentially could be going on right now through because the last 10 years there has been nothing that does as good if you look at just the visual here and i'll just tell you for for people who listen to this on the podcast side pretty much from 2011 all the way through 2020 the s p 500 is in the top three of these like eight holdings that we've got displayed here so it is bopping around between the best to the top three it's on the podium every year that's something just to be mindful of when you think about reversion to the mean i mean there's always potential that that might not be the case 10 years from now so we love diversification so what we think is when it comes to portfolio design and implementing a strategy that makes a lot of sense for your specific situation you want to make sure that you have the right diversification in place you want to make sure that you have the right mix of assets so that whether over the next year the market goes up 20 or goes down 20 you're going to feel comfortable in that portfolio we see it far too often that folks get really really excited at that point of euphoria and we get these phone calls the market's done really really well we'll get clients that call us say hey hey hey uh why don't we kick the risk up a notch why don't why don't we're like no no because if you remember two years ago three years ago ten years ago that last time we saw that downturn you were the first phone call i got saying guys guys guys what's going on you're a scaredy cat you're a scaredy cat you have to be true to yourself to know what portfolio makes the most sense because ultimately remember if you're going to walk up that mountain with a yo-yo you have to keep walking if you sit down if you freak out and take your yoyo off your finger and sit down and stop moving up that mountain you're not going to get anywhere you have to be able to stay in the market to actually be able to participate in that long-term growth before we close out the the third uh strategy i think it's also important to say another tool to help take away the emotion is dollar cost averaging this can work in multiple ways first of all if you're a person that's just uh working and you have your employer retirement plan which is by the way one of the easiest ways to build a seven-figure portfolio is to actually participate in your work retirement plan it's kind of nice and it shelters you you might even have a financial mutant moment when you know the months coming to a close your your monthly investment into your retirement plans going in you kind of find yourself cheering for the market to go down on those days that it buys that's a financial mutant moment by the way but i also think it helps you if you're a person that maybe you had a windfall you had some cash come your way you sold some real estate you sold a business or just a decent chunk of money came in you but you're in a marketplace like we are today where the market's at an all-time high and you're like i'm just going to sit on the sidelines and wait for this to get much cheaper you might find as we've seen in a lot of those charts that we've covered in the past what happens if you're sitting there two years later going man why did the market not fall as much as i did yeah it went down three percent in this week or six percent but it never went down that 25 i was kind of waiting to get my 25 off coupon we find that dollar cost averaging can also be a great tool for getting the markets because remember you know and i tried to talk to the content team because i felt like there should have been some illustration there are some strange bedfellows when it comes to investing because volatility surprisingly is an incredible opportunity that you know you don't want to it's almost like you should be cheering for it if you have 20 years to go before you retire you actually should be somewhat a contrarian and excited because that means you're buying in more shares at lower prices and then when it we have the recovery which we will always have the recovery your shares that you bought on the cheap get so much more valuable that's why i love just kind of driving through all market situations now if if we were all rational investors or if we were all just rational human beings in general we'd all be incredibly wealthy and super healthy right like if we made rational decisions those two things would happen so oftentimes when it comes to finances we acting on our own accord don't always make rational decisions so sometimes one part of your strategy one part of mastering that third s to be prepared for the next downturn might be to get a co-pilot it might be to get someone to help you navigate that market i can't tell you how many folks who've reached out said hey you know what i've done really well but i got to start working with somebody because you know in that last downturn i went to cash well i just freaked out and i got scared i feel like i thought i had someone there someone in my corner someone to help maybe i would not have made the decision that i met you you just said it someone in your corner because the next quote we have is everyone has a plan until they get punched in the mouth i mean and that's kind of the whole mike tyson quote i mean look at that picture i mean that man was a beast i mean i would just i think he could still take both of us but it is one of those things where you know iron mike was you know he he's hitting on something pretty powerful there is that everybody has a plan a lot of you do-it-yourselfers have a plan but i'm going to tell you when you are getting closer to retirement when you've created that seven-figure portfolio you are going to start going when this next downturn happens it's going to feel a little different especially if you're approaching retirement in the next five to seven years you're going to want that good corner person to kind of help you navigate what's coming so you can avoid the blind spots you just don't know what you don't know that's when a co-pilot is going to help and that plan is going to it's going to help you with the well-designed plan too because that's the part that kind of closes out the 3s's have a plan to drive through no matter what comes your way you know you've done the hard work you've done the preparation now you just need to see it through to reach financial success now i think brian one of the things i think that would be valuable for us to hit on is there is a lot of misinformation out there about downturns and about how bad market crashes are because i think we've all heard the story of someone who said oh man i lost everything yeah and and the dot-com bubble burst i lost everything in the great recession or i lost everything and in reality what happened is they did not lose that money because the market they lost the money because of their behavior right they made a decision that caused them to be in that place over the long term um i won't go on too long but i feel like every time i took a certification exam in my life it's almost like there was a plant sitting that they put at the desk next to me because i remember when i sat for the cpa exam the guy to the right of me i was like hey it's my first cpa exam you know and he's like oh i've been here four times you're like oh my gosh you've been here and i remember when i took my cfp exam you know it was not just one it was a person on my left and a person like oh man we're on our second third fourth time i mean they always there's a cautionary tale of how many times and i'm like did they put this person here to just tell me how scary this journey was going to be i feel like that is what the financial media does i feel like that's what happens when we have poor relatives that are telling us how the world is just against you there's all these people that are whispering in you you can't do this and i want to tell you guys that you can make it through market crashes you can make it through economic downturns you can make it through volatility and we're going gonna show you you can make it even if you're the absolute worst investor in history so let's talk about the truth about market crashes and how to prepare for those by looking at exactly what you said brian the world's worst investor all right so let's assume that you started investing in 1980 and the average income in 1980 was 12 513 that was the average income in the united states and let's say because you know that you're a financial mutant and you're a huge fan of the money guy show you're going to save 25 of your gross income so you're going to save 260 dollars and 70 cents per month starting in 1980 but let's say that you're not the best market timer a matter of fact let's go a step further say you are the worst market timer out there and so what you're going to do is you're going to save your cash right you're one of those people say you know what i'm going to wait for an opportunity and i'm going to save every month i'm going to save my 260 i'm going to have it go to cash and i'm going to pick a day that i think is the best day to start investing and i'm going to do it i'm going to all that cash i can invest on that day and so i'm going to invest on august 25th 1987. well i look at the narrative is you always hear buy low sell high sure this is your typical you know what i'm going to go with the season of how the news media is telling me things are right now so you're getting so hyped up with all the free money that this horrible investor is actually going to wait until the market's got them all frothy and hyped up like yeah yeah get in there get in there free money free money so you take all your cash that you diligently save and put it in and then the very next day after you put that money in it goes bad really quick and it freaks out this person so much that one's gonna go you know uh fool me once i'm gonna start saving my cash again and then they repeat the same mistake again meaning they wait for it to get frothy and then they go and invest at the world's worst time again so you think that this person can't get out of their own way there's no way this person could potentially or even possibly be successful in the long term guys wait until you see how this turns out so they invest on black monday and in 1990 right around the kuwait war and at the top of the dot-com bubble bursting and immediately preceding the housing crash and the great recession and then they even invest in january pre-covet january 17th of 2020. well what you can see is that as we're walking through this illustration uh if you're out there on itunes or iheart radio you can see that this little orange area builds up and they invest and then it builds up and that vest again it builds up and they invest but what we have overlaid behind them is just the s p 500 just a nice easy representation of the broad stock market and what you can see is that after what is that brian a 40-year timeline a 40-year working career of just making awful decisions but staying consistent and continuing to invest even being the worst market timer possible they would have invested 127 thousand dollars over their career and their portfolio would be worth one million eighty thousand seven hundred and eighty six dollars i think that's so powerful because there's a lot of podcast listeners out there too you don't get to see the visual but what this shows is there is once again it's that walk up the mountain with yoyo that yes there are some peaks and valleys in the short term where this the the market's going up this poor person daniel chose the name ursula because we all know ursula is the villain villain yeah in the disney little mermaid but ursula was falling victim here but our anti-hero villain actually turned out to be a success story because even if you're the worst market timer in history that you wait until it gets frothy and you you buy so i'm telling you even if you're one of these people and a month after we've published this video the market goes into another downturn or recession if you will just stay the course guys it's going to work out just like it did for ursula you too can be the worst market timer and still turn out to be a success story in the long term you've heard us say this over and over and over and over again and ursula here is a prime example that when it comes to investing when it comes to building wealth when it comes to compound interest when it comes to your army of dollar bills growing it is more about time in the market than time mean the market you have to be there because here's what ursula didn't do she didn't say oh man you know i blew that one i'm not going to invest anymore oh man i'm just going to go to cash i'm going to start doing cds oh man this this investing thing is for everyone else just her act of being consistent turned her into a millionaire over her working career so we've told you how you can be bad at this and still be successful i'm gonna i'm gonna go ahead and amp this up and say you can also be a financial mutant and you should get excited about market volatility and let me tell you why you should actually be happy about market crashes and i know that's somewhat of a contrarian mindset but this is why you're a financial mutant this is why we know our show is not for the 80 that struggle with just basics like even just paying off your credit card we know that this show is made for the 20 that has the basics under control and you're looking for maximization techniques on how to grow your army of dollar bills i want you to have the superpower that whenever there's volatility whenever the market's going down instead of calling all of your friends and trying to poison the well on why you should be a long-term investor you're actually getting excited the frothiness is not in the market the frothiness is in you getting excited about what you can do with the investments we have the perfect example the great depression brian i'm so excited that we've put this example in here because again if you're listening to this live we actually have a chat going and we can see what you're saying we can see this what's so funny is if we're going to the show i've had people just pepper in the chat with yeah but this wasn't during the great depression oh i see that that 2018 yeah but the last 10 years that's not that's too good of a time period you ought to look at something like you know the 1920s and 1930s this part of the show is for you yeah because i mean look at this we have a chart here and here's something that i think is interesting we all know the great depression happened in the late 20s here's something that i don't think people understand is that there was a period of time i always talk about this v-shape recovery with financial markets look we just came through a pandemic we're still working our way through it but march of 2000 market got just obliterated went down over 35 but then it v-shaped recovery very quickly we made our money back and we were onward what if that didn't happen yeah what if the v-shape recovery just wasn't as fast as it traditionally is back in the great depression there was actually a 25-year period i mean if you look at from 1929 all the way to 1954 where the dow only increased i kid you not this is not a typo two dollars two dollars over a 25 year period that that sounds disastrous i mean if i'm if i'm a person that's an investor you're like wait a minute the world's market timer i bought this i would i would be in so much trouble if over 25 years that's almost an entire working career what would you do if you just came out or you had been investing for 10 years and you were stuck with a market that didn't go up for 25 years you'd get scared you'd probably be very nervous that would be a horrible situation remember your financial mutants guys what might look like a horrible situation is actually an incredible opportunity and we have the numbers we have the proof to show you that even though things are scary if you will just like cole trickle did in days of thunder push the gas drive through the smoke and the flames you will come out better on the other side just show them the data so here's what we said okay let's take a hypothetical 10 000 that's invested each year beginning on september 1st 1929 all the way until november 1st of 1954 so actually 26 inflows of capital of 10 000 so over that period if you were investing in that exact same market you will have invested 260 000 i'm gonna say it a little differently you will have invested two hundred and sixty thousand dollars over a period through which the market made two dollars the indices made two dollars over that 25 year period uh we're going to assume that dividends get reinvested each year well what you might be amazed to find is that at the end of this 25 year period that 260 thousand dollar investment compounded to one and a half million dollars and eleven point seven percent per year total return i'm gonna say that again during the great depression if you were dollar cost averaging in that exact same market over a 25-year time period you could have actually made during the great depression and almost 12 per year rate of return talking about turning that frown upside down i mean this is guys don't let the noise of that we might be at all-time highs keep you from and investing in your future because i just want you to create a plan i want you to create how much you know know when you need the money and know how much you can put towards it we're recommending about 25 of your gross income not net gross income if you can put that in over time you will be rewarded whether the market goes up whether the market in the short term goes down be a contrarian be a financial mutant you will find financial success we don't know which way the markets are going to go we never know which way they're going to go but what we do know is if we can master these three s's we'll be prepared for it right you know a lot of people are dropping the comments and yeah well i love that illustration but what if i'm retired or what if i'm not actually able to dollar cost average into it that's where you got to get the first two s's right you got to make sure you have the right safety net in place your merchant reserves you got to make sure you have self-control and one way you do that is by having a diversified portfolio that doesn't do what the market is doing we're going to keep loading you up with this kind of stuff we want you to be prepared whether the market is hitting all-time highs or all-time lows we're going to keep putting great content out there for you to be able to use if you've not gone to the website you can go check out moneyguy.com resources if you're someone who's interested in the financial order of operations course doing a deep dive into your into how to use the next dollar or where your next dollar should go the financial order of operations course just got better and it is out there available for you to go take advantage yeah we just doubled all the content added 27 more videos guys and we even you know there's some special pricing right now go check it out um free download first at moneyguy.com resources but also if you go to visit.learn.moneyguy.com you can download the course go check it out because we've tried to load it up and this is just all part of the abundance cycle we're not only real financial advisors and people like how can these guys just give it away well they give tons of free advice it's because we call this the abundance cycle we want you to come learn apply grow when you reach that graduation point where your your life is just too complicated because success creates complications we're going to be your co-pilots you're going to take the relationship to the next level but we've also created this financial order of operations to accelerate that abundance cycle process so but you know learn apply grow become the best version of your financial self we're gonna continue to give away tons of free information we just appreciate you guys thank you thank you thank you i can't believe how this journey is going you guys are a big part of it money guy team out

Channel: The Money Guy Show

Views: 37,779

Rating: 4.9260063 out of 5

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, Stock Market is at an All-Time High! - Should You Be Worried?

Id: 3quTTdt7TYc

Length: 51min 42sec (3102 seconds)

Published: Fri Apr 23 2021