Show Notes for this Episode:
In this episode of the Midlife Money Gal Podcast, I share smart sane money moves for a bear market to help you understand what to do now and how to protect your nest egg in light of the coronavirus pandemic.
Many of us are living under “shelter in place” orders, including me and my family. Some areas are being hit harder than others. It is a challenging time as this event impacts not only our health, but also our financial, work, and social lives.
Also, lest we not forget those who are sick and suffering in the U.S. and across the world. I feel so bad for these folks. We should all continue to be grateful for what we have and count our blessings.
In this episode here are some of the insights I discuss:
- Learn what past bear markets and downturns have looked like and what you can expect 12 months ahead
- Learn how missing the best days in the markets can impact your return
- Learn how rebalancing and dollar cost averaging (adding money to your retirement accounts monthly) can help you “buy low”
- Learn why now is a good time to shore up your cash reserves and potentially delay big expenses
…and much more included in this episode!
I’ve also produced a video version of this week’s podcast and published to my brand new Midlife Money Gal YouTube Channel! You can subscribe to my channel here: Midlife Money Gal on YouTube
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(00:30): During this challenging time that we've been going through. We are currently in a shelter in place or under a shelter in place order here in Dallas, Texas where I live and it's a beautiful day outside. Everything else seems totally normal until you go somewhere and you realize that most people are at home and the streets are empty and the stores are empty. And it's really kind of a crazy time, but it's real and it's happening around us. I went out for a few minutes this morning to run an errand. We can actually go to grocery stores or the vets even. And that's where I had to go, had to take my dogs to the vet. No big deal. But just some routine stuff. But yeah, it's, it's a crazy time and this sell off in the markets that we have been experiencing. And actually I would call it more of wild markets because they've been down and they've been up and down trying to find some footing and potentially trying to put in a bottom here after this correction that we've been through.
(01:56): The title of this episode is smart, sane midlife money moves for bear markets. This is what we call a bear market when stocks are down 30% or more. And we have definitely hit that and it's not fun. This time is, as I was saying, particularly difficult because it's more personal. This experience is not only affecting our financial lives and our work lives, but it's also affecting our personal health and our personal connections. You know, how we socialize as people and how we come together as a community. We've had to really think outside of the box and adjust to that. I know some people have been furloughed from their jobs or have even been laid off or lost their jobs and currently we're sitting waiting for Congress to roll out a massive stimulus package, which will help tremendously. But I realized that some individuals will not get the benefit of that help or really feel that assistant assistance.
(03:22): So it's just going to depend on what industry you work in and what's happening with your personal career and your work life. So bottom line is, I know it's tough out there for everybody. It's stressful. And you really do want to try and just take care of yourself in the best way possible. Now we've been working from home, which has been interesting. Both of our sons are home, one is home from college, he's a sophomore up at UMass and their classes are now online for the rest of the semester. And the other is a junior in high school and he is home as well. And his school has most likely been canceled for the remainder of the semester. So, and then my wife Kay is home running her law firm from an office two doors down from mine. So we're both working in our home offices.
(04:27): My home office is here behind me. If you're watching on video and I've got all my music stuff in here, it kind of serves as a little makeshift music studio, podcasting studio. And also I have my computer, my laptop, my monitor, my television, just I have everything I need for work here also. So we're making the best of it. I guess the the high note is that the four of us have come together and had lunch together the last few days, which has kinda been fun. And we've been cooking at home and eating dinner together last night we were able to eat dinner outside, which was great. It was a beautiful night. There are definitely some positives to come from all of this for each of us and it's always a good idea to just be grateful and count your blessings for what you do have and for what is going right in your life.
(05:27): Okay. So what I wanted to do today was give you some smart money moves right now for bear markets. This podcast is mostly about navigating your money moves in midlife. But I also like to talk about navigating other things such as your health and wellness, your work, your career, productivity, mindset. All other kinds of coaching insights that I've learned over the years as a business owner that I can share with you. But today the focus is on money and markets and how to kind of survive these volatile wild markets that we are experiencing and how to protect your nest egg as a result of that. So number one tip I have is to gain perspective. If you look over the last 40 years, we've had eight major market corrections over that time, and those eight corrections have gone down an average of 36%.
(06:47): And I think the furthest we've point we've hit this time from top to bottom is about 34%. That's about average. Eight corrections over the last 40 years of this magnitude means that we have on average one in every five years. And any downturn that is more than 30% is classified as a bear market. So there's really nothing to be scared about the word bear market or the term bear market. It just means a 30% more, 30% or greater drop in the markets from the top. Now remember, you don't realize that drop in the markets, the drop in value in your nest egg, unless you sell everything and you go to cash or you sit on the sidelines. So this is all movement on paper, so to speak, or on the computer versus you actually losing and realizing those losses and those numbers change every day because markets move every day.
(08:00): The catalyst for these kinds of stock market corrections, it's been different every time. I've been doing this for almost 25 years now and I've seen at least four if not five major market downturns. I've been through them. They're never fun. They're very, very tough. But they're also different. There's a different catalyst every time and it always comes out of nowhere. No one predicts it, no one sees it coming. Some of us felt that the last bear market, I mean the last bull market, I'm sorry, was overdue for a correction because it was the longest bull market in history. Stocks were overvalued, but we didn't know when it would happen and we didn't know to what extent and we didn't know what would cause it. So for those reasons, it really is a predictable. Now I've seen lots of money managers come on TV over the last two weeks and talk as if they had this all figured out and they had all their assets sitting on the sideline just waiting and, and I'm just calling BS on that, for lack of a better word.
(09:28): I, they didn't know. None of us knew. And that's just the truth. So what do we do if we can't predict these things yet? It's very painful to go through them. Well, the first thing is gain perspective. Understand this is normal. It's natural. It's going to happen on average every one in five years and every single time a bear market has been followed by another bull market, we will get through it. We already are starting to see this thing resolve itself. However, I don't think it's completely resolved at all until this virus peaks and we get our arms around this fires and understand how to manage it, how to treat it, and how to mitigate the risks associated with that. So the price of investing is that we have to go through these painful, mostly short-lived periods of time where we experience these downturns and that's the price that we pay for the gains.
(10:43): Over time. The gains by far outweigh what other investments offer the gains and stocks and growth, growth oriented companies around the globe, and they outweigh what you can earn in bonds, in CDs, in cash and inflation. And it's inflation. That's really the the bad guy here. Inflation is what eats away at the value of our dollars over time. It's an easy example to give you is a look at the, the price of a home today versus the price of a home 50 years ago, even 20 years ago, the price of a car or the price of groceries prices go up over time. And we have to, that's inflation. They grow at the rate of inflation. Investing in growth allows you to stay ahead of inflation. I've got a chart here in front of me called the big picture. It's put out by a research firm and they've gone back to the year 1925 all the way through.
(12:05): This goes through 2019 the growth of the growth of $1,000 investment in 1929 1925 sorry, would be worth over $6 million in 2019 just by staying invested. So over that same period of time, stocks returned 9.8% bonds returned 5.1% so stocks almost double the return of bonds over the long term inflation 2.9% so inflation has averaged over the longterm about 3% you got to stay ahead of that or you won't be able to afford your lifestyle through retirement and the rest of your life. That's the goal of investing. The price we pay for that is we've got to go through these tough downturns. When I look at this chart also, it has all the different things we've been through as a country. We went through the great recession in 2008, 2009 we've gone through Wars. We went through black Monday in October of 1987, which was a huge single down day savings and loan crisis. The cold war the Eurozone crisis, the.com collapse. That was one that I went through. Iraq was invaded. I went through that as well. There are tons and tons of things that we've been through as a country and our companies and our economy has always survived. These things come out on top. We are a resilient, innovative society. So that's the good news and that's what perspective is all about.
(14:14): Stocks are the only asset class that have the potential to provide your nest egg that is sufficient enough to support you throughout retirement and throughout your lifetime. So you have to think longer term here. And I don't mean I've said this before on this show, by longer term, I don't mean 40, 50 years. I mean, you've got to think beyond today and give it some time. Give it three years, give it five years. And I'll tell you why in just a second. Number two, smart, sane money, move for bear markets. Stay invested. Why stay invested? What is the case for that? Why can't we just sell out when things get bad and get back in later when it's safe? Well, I'm going to tell you something. All the people who sold out in 2008 and 2009 when we went through the last difficult bear market and recession,
(15:30): They never got back in. Because what happens psychologically is you're, once you get out, you, you become paralyzed and fearful about getting back in and it's a real challenge because you feel like all it's, it's too high. Oh, I'm gonna. You know, if I, if I get back in now, I'm, what if it drops again? I've missed the best part. I've missed the run and you do nothing. You just freeze. That's the problem with it. You never know when to get back in. I'm going to go even further here. If you don't stay invested, you end up missing the best days in the markets and typically those best days are clumped together with the worst days. Right now we're seeing that we're going through these wild markets and we've had big drops to the downside and we've had big run ups to the upside, so you gotta stay invested in it in these really volatile times to be able to recoup on those big up days.
(16:49): In fact, over the last 20 years, 24 of the 25 worst trading days were within one month of the 25 best trading days. I'm looking at a study that was put out by BlackRock, which is one of the great investment firms that I follow and I follow their research and I have for years, they look at a hypothetical, a hundred thousand dollar investment in stocks over a 20 year period from January 1st of 2000 to December 31st of 2019 if you would have stayed invested through all the ups and downs, that 100,000 would be worth 324,000 at the end of 2019 if you just missed 25 of the best days during that 20 year time period, 25 days, it's not a lot. Your investment would have been worth $82,256 so you actually would have lost money. Your hundred thousand would have been worth $82,256 if you missed the best 10 days over that 20 year period, you would have had $161,706 staying invested.
(18:23): Again, you would have had $324,000 big, big difference there. So pays to stay invested. Another reason you want to stay invested is because after one year downturns, one year corrections like we are experiencing, this is in fact the sharpest downturn we've ever experienced. And in this amount of time, historically stocks have typically been higher. One, three and five years later after that. So BlackRock did a study on this as well, and I'm looking at some dates of the S and P biggest declines. Black Monday, which was a 1987 stocks were down 33 and a half percent and that's one of the worst days ever. Within the next 12 months, they were backups over 21% Gulf war down 19.9% and the next 12 months up 29.1% and these are actually dates of the S and P's biggest declines, not necessarily single day decline. So just just want to mention that the Asia monetary crisis down 19.3% that happened in 1998 next 12 months we were up 37.9% the tech bubble, the.com bubble happened in 2000 to 2002 we were down 49% over the next 12 months.
(20:10): When that ended up 33.7 the financial crisis of 2007 to 2009 we were down 56.8% this is if you had your money in 100% stocks, which I don't ever recommend. The next 12 months you're up 68.6% and it goes on and on. So the point is we stay invested so that we can recoup the losses that we experience on the downside. And we don't touch anything. We don't pull our money out. We stay invested so that we can experience the gains over the next one, three and five years. And this has been proven time and time again over the course of our history. There are some things that should be done during times like these. A good financial advisor is going to know what the right allocation is for your nest egg, for your portfolio. They are going to understand what percentage of your portfolio should be in stocks and bonds and in cash.
(21:32): And if they do their job, they have thoroughly assessed your risk level and they have looked at all of your personal details in terms of your career, your, the value of your human capital. That is basically your, your work, what you're able to produce as you work and for how many years, how many more years you will be working. A good financial advisor looks at all those details, your income, your assets, your savings rate, your family, your goals, your dreams, your values, your beliefs, your fears. And part of it is science. And part of it is psychology or art. And as financial advisors, we look at all of that. We put it all together and we determine what can this person tolerate in terms of market gyrations, ups and downs, but also what do they need to achieve their goals, their short term and longterm goals.
(22:39): So we look at all of that together and figure out what the right allocation is, what your pain threshold is and how you need to be invested. So that's an important point because when we go through times like this, one of the actions that we can take as financial advisors is to rebalance your portfolio back to where it's supposed to be. It is probably out of whack now because of what we've been through and when we rebalance, we're able to buy stocks, lower prices, and we're able to sell bonds at higher prices. So we take advantage of that by rebalancing and resetting the portfolio. Another thing that can come as a byproduct of rebalancing is called tax loss harvesting. If you have embedded losses in taxable accounts, we can book those losses, take those loss losses that can be used against future gains, current gains in your portfolio, and replace that investment with something very similar. In the process, but actually realize and book the loss so that it can be used for tax purposes, which can put more money in your pocket. At the end of the day.
(24:10): The whole rebalancing concept actually does enhance the return of your portfolio over time. So it's a very important thing to do. Now there are some advisors who will do this once a year. There are some advisors that will also do it during times like this. And I am one of those advisors. I like to take advantage of downturns to really rebalance and get my clients better positioned, upgrade the portfolio if necessary and reposition as needed. So number two tip is to stay invested. Number three, another smart money move during bear markets is be aware of short term scams and plans. I was watching on the news some talking heads, recommending these baskets of stocks that are now set to go up because of this new world we're going to be living in, where we will never go outside again. We're always going to work from home and we're going to run out of toilet paper, you know, and these baskets of stocks, well don't fall for things like that because the chances are the runup in those stocks has already happened and they have and it won't last and things will return to normal.
(25:42): So sure we, this might change us in some ways that we weren't prepared for. And some of those things will be good. Some of those may not be good, but it's really tough to predict that right now really depends on many factors. So watch out for people touting things like that for the new world that we're going to be living in. They're mostly tried to take advantage of you. The second thing is we've seen a rise in cyber fraud during this time and you need to be careful about people calling, saying they're from the social security administration and they need your private information, your credit card information, banking information, social security number, these sorts of things. Probably most likely a scam. Never ever give out that kind of information to anyone that you don't know. Or if you can't prove that they are legitimate, do not give out the information.
(26:47): In fact, this happened to my own mother not long ago, so it's real. They are very, very convincing and it's very difficult to tell who it really is. On the other end of the phone, we're also seeing it in text messages with links. You click on a link, then you infect your computer system. Email messages with malicious links. And believe it or not, there are some online scams where these people are creating outbreak maps to show the Corona virus outbreak in order to get you to click through and click on points on the map where they can also infiltrate your computer. So it's crazy and dangerous and just be very, very careful that you don't fall for any of the scams out there. They're short term and they've really ramped up during this time to take advantage of people, which is just a shame.
(27:55): Number four, during a recession, even though most of us believe this will be a short lived recession, probably will also be a very deep recession. And I'm seeing this come from most of the the chief economists that I follow, a deep short recession. Now that's a prediction. I don't know, but that is most likely what we're looking at if this fires gets under control pretty quickly. So number four, what I like to recommend here is shore up your spending. It's a good time to build up your cash reserves if you are planning on a big purchase in the next 12 months, I would say consider delaying that stay liquid. Keep your powder dry. It's just a good idea during times like this. I have some friends who have been laid off and they are professionals, you know, and working in really good jobs.
(29:03): So it can happen and it may be short lived and they may, they may just furlough you and then bring you back, but shore up your spending. Cancel the variable expenses that you're able to right now. You can always turn them back on later and build yourself a cash reserve. In fact, as a financial advisor, I always recommend my clients have six to 12 months in a cash reserve for fixed expenses. It's just a good prudent strategy. And I say that a lot, so you've probably heard that before. Number five, boost your investment and or retirement savings if you can.
(29:50): Very good.
(29:51): So that's assuming you've got a cash reserve in place and you're fine from that perspective, but if you can boost your investment retirement savings now and do so in a systematic way where you, you're doing this monthly, you're adding money to your nest egg on a monthly basis,
(30:13): You're going to most likely be buying in at a lower cost on average and you're able to buy more shares over time by doing this strategy. So, and this is another chart I'm looking at from black rock showing this dollar cost averaging strategy where you buy in over time over the next 12 months. Just a good idea. When we see the details of the stimulus package that's coming, there may be some changes in there that allow you to put more money into a retirement plan. I don't know. We'll know soon enough. But during market downturns as as tough as it is, this is the only time when things are on sale and normally if clothes are or products that you love are on sale, you're running out to buy those, but people are scared to buy when stocks are low. I'm telling you, don't be scared. This is the time to do it. And to add to your nest egg if you can.
(31:19): Number six, try to reduce your stress during this time. In the last episode I talked about some best practices for taking care of yourself, like eating healthy, getting out and exercising. Kay and I have gone for some long walks together. My allergies are absolutely killing me. I also have asthma during this time so I can't really do that. But yesterday I worked out with my trainer through FaceTime and it was awesome. We did so for about 45 minutes. It was perfect. Workout, exercise, eat healthy, minimize the booze, the wine if you can. I love wine. I like to have a glass of wine almost every evening. It's kind of like my coffee for the day. If you will to transition into my evening, but you know, keep it at a minimum if he can. It's really not a good idea to to start pounding the wine during this time.
(32:25): Even though it's stressful, try to get good sleep, meditate if that's something that you're into. I find it to be very helpful to just be still and quiet for a few minutes. Even if you can spend time on your hobbies and interests. I mean, I'm going to get my guitar out, I'm going to work on some song writing. I might even do some video of playing some of my songs to share with others and looking at that. Declutter. What can you clean out? You know, this is a great time to just kind of take stock of your life and the stuff around you. Do you need all this stuff? Are there some things that she can unload and get rid of and give away to people who need more right now? Also as a part of this, something that can make you feel good is to give to others where you can.
(33:27): As you are able right now, I'm able to still pay my trainer. I'm able to pay my, my hairstylist. I mean I've got to keep these, these grays colored, although I can't see her this month, I'm still going to pay her having food delivered to people. Figure out what small thing doesn't have to be monetary, but what small thing can you do to help somebody else in need right now or who may be sick with this terrible, terrible virus also in staying healthy again, you've heard it a million times, but keep washing your hand, wipe things down, be clean, be safe. Practice your, your safe distance from others. Keeping that, that six foot distance until this thing has run its course and it's under control. All right, so those are my six tips. My smart sane money moves in midlife for a bear market. Stay tuned for upcoming episodes. I'm going to be talking about the stimulus package that comes out from Congress. What's in it, how it's going to impact you. I'll be talking about other changes that we've heard about such as the tax filing deadline has now been moved from April 15th to July 15th. What do you do about that? What does that mean? If you've lost your job through this or you're afraid that you might lose your job or be furloughed, I'm going to do an episode on that.
(35:17): Do if that happens to you. Thank you so much for listening. If you found this to be valuable, please share it with your friends. I would love a rating and review on iTunes if you listen through iTunes. That would be awesome. And thanks so much for sticking with me and I wish you the best during this challenging time. We're all in this together and I'm here for you. Thanks so much. You've been listening to the midlife money gal podcast. To learn more and to join our community, visit midlife money gal.com this show is for informational and educational purposes only. Please do not consider any of the content as personalized financial investment, tax, or legal advice.