00:06  

Stephanie McCullough: Welcome to Take Back Retirement, the show for women 50 and better, facing a financial future on their own. I’m Stephanie McCullough, and along with my fellow financial planner, Kevin Gaines, we’re going to tackle the myths and mysteries of “Retirement,” so you can make wise decisions toward a sustainable financial future. Through conversations and interviews, you’ll get the information and motivation you need, to move forward with confidence. And we’ll be sure to have some fun along the way. We’re so glad you’re here. Let’s dive in.

00:40

Stephanie:

I have this vivid memory—must have been around somewhere between Thanksgiving and Christmas of 2008. I feel like there should always be scary music after we say, “2008” ’ I got a phone call one day from a client. And she was obviously on the speakerphone in her car and she says, “Stephanie, it’s so and so. I know I’m not supposed to freak out. Tell me again, why I’m not supposed to freak out??!” 

Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia, this is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say hello, Kevin.

1:20

Kevin Gaines: Hello, Kevin. 

1:22

Stephanie: So as we record this, we are living through a period of stock market, turbulence, volatility, all nice ways of saying, ‘downs.’ There are negative numbers showing up on the nightly news and on people’s statements. And while we have conversations very often with our clients about how to conceive of downtimes in the stock market, we realized we hadn’t done it on the podcast.

1:47  

Kevin: Wait, wait, wait, wait, Stephanie, I gotta interrupt you. What? I’m confused. Stock markets don’t go up every day, all day?

1:57  

Stephanie: Stock markets actually sometimes go down, Kevin. Do I have to remind you of 2008? And 2001? And, and, and, and, and, and?

2:10  

Kevin: And 1987. October 19 I believe, Black Monday, the stock market goes down 508 points, as measured by the Dow Jones industrial average, insert additional disclaimers. Anyway, just a quick little aside, 508 points back then, that was a 25% drop, that was a massive move. 508 points today, one and a half percent, which is I think the market was up 400 some points yesterday, for example, a 1, 2% move.

2:48  

Stephanie: If you hear points, always step back and say ‘Wait, what’s the percentage?’ Don’t let them scare you with the points.

2:56  

Kevin: And it’s not just your local news that’ll say, points. CNBC, Bloomberg, sometimes they get a little sloppy or lazy with their language, and they do the same thing. They say ‘It’s down X number of points.’ 

3:11

Stephanie: And most people don’t really know what that means. 

3:14

Kevin: It just doesn’t mean what it used to mean.

3:16  

Stephanie: But the reality of being an investor, which in our world is buying stocks, bonds, mutual funds, the reality is that you’re going to have times when it’s up, you’re going to have times when it’s down. And in fact, even at this point, we have quite a bit of history. So we can kind of give you some ideas of what’s normal.

3:36  

Kevin: And there is normal. So keep in mind that on average, the stock market will go down 10, 15% every year, at some point. Now it may start off, here we are in 2022, the market pretty much started off and went down. But this 10, 15% down move could come from a much higher point, say the stocks have gone up 20, 25%, you still may see that 10, 15% correction and it just means we’re up less now. So yeah, when we’re saying the market goes down 10, 15% every year, on average, it doesn’t mean we’re going to be down 10%, it just means it gave back some of the gains, maybe.

4:27  

Stephanie: And it’s very important whenever you’re talking about market performance to think about the timeframe you’re talking about. So when Kevin says you see a down by 10 to 15% each year, we’re not talking the annual performance for 2021 was down 10 to 15%. We’re saying at some point during that year, there was, and I’m going to introduce this term, peak to trough. So if you picture kind of a chart of the stock market with you know kind of those ups and downs the peak to trough is pick any up to any down. Very often you’re going to see one of those, at least in each calendar year, is going to be somewhere in the neighborhood of 10 to 15%. That could happen in the midst of a year that’s up 20%.

5:14  

Kevin: In fact, I’ll go out on a limb and say, very few years is the low point of the market, January 2nd, 3rd, whatever the first day of the year is for the market. And very rarely is the high point December 31st, 30th, whatever. It’s somewhere during that year, there’s the high somewhere during that year, there’s the low. You know, and it is because we’re humans and regulatory reporting, that we get fixated on what was the annual return for 2022 or 2019? Whatever. The reality is, very few people, again, invest all their money, January 1, and take it all out December 31. Your real rate of return is when you put money in, and then when you take it out. Everything else is just noise, or just random spots that you’re just checking, ‘This is where I am now.’ Unless you sell everything, the return is going to be higher or lower. Even just 24 hours later.   [so yellow can be a quote, and the whole thing (including yellow) can be an audiogram. Thanks!]

6:27  

Stephanie: Yep, for sure. So again, to kind of give you an idea of what’s normal. And when we say this, on average, it happens every year, it doesn’t mean it happens every single year, right, we might have some years with more downs, some years without the downs. But we do have, like we said, on average, a decline of somewhere between 10 to 15%, once a year, and then every five years or so we see a decline of about 30%, that is not abnormal. So even though the news wants you to think so, remember, they’re all about ratings, and getting eyeballs on the screens, and paying their advertisers, even though people are gonna freak out, that’s normal. And even with that, markets are up about three out of every four years. So more often than not, when we’re looking at an annual timeframe, you’re seeing a positive number, than a negative number. But there’s no guarantees, we can’t predict. And that’s kind of the nature of the beast.

7:24  

Kevin: Well, I mean, let’s stick with averages and let me try to bore people with numbers even more. Everybody likes to talk about the stock market, averaging an 8% return per year, going back to God knows whenever. And this average does fluctuate from time to time as well, just anyway, what they really don’t talk about is, well, what’s the average up and what’s the average down, the average down year, memory serves, is close to 15%. The average up is, I think, 10 to 12%. And because there’s more up years than down years, even though the average up year is smaller than the down, you have more of them. So you get the average annual return of this 8%. I couldn’t tell you the last time I saw somebody actually earn 8% in one.

8:20  

Stephanie: And that’s another, the trick of numbers and the human brain not being so good at numbers. If we say you can expect an average annual return of something in the neighborhood of 8% for stocks and probably lower for bonds, right? That doesn’t mean you should be looking for 8% each year. You’re going to be up, like Kevin said, 12, you’re going to be down 15, you’re going to be up 20, you’re going to be up 2, you’re going to be down 5, it’s going to be all over the place. But remember, whenever someone’s trying to freak you out about a short time period and what the markets have done in a short time period, you always want to zoom out, kind of adjust your focus, look at a bigger slice of time. And then that puts things in perspective.

9:08  

Kevin: So yeah, these downs really suck. I’m not gonna lie, Nobody enjoys losing money. Just like weight lifters like to say no pain, no gain, you can’t have ups without downs. So you need this volatility, which is what we’re talking about here. It’s just moving up, down, all around. Because that exists that allows for the possibility of going up 20, 30% in a year. Because if there was no volatility, if this was very normal, just goes up a little bit each day, you’re not going to get the big returns.

9:50  

Stephanie: I’ve even heard it said that the volatility is the price you pay for those higher returns. When you look at the long term. Yes, the whole reason we invest in stocks, and in a diversified portfolio is because we want to get returns higher than we can get in a savings account. Okay, great. But there’s no reward without a little bit of risk. In order to get those possibilities of higher returns over the long term, you have to ride the roller coaster. You’ve got to buckle yourself into that seat, grit your teeth, close your eyes if you need to, white knuckle, but you’ve got to ride it. Otherwise, you’re not going to get those ups.

10:30  

Kevin: And it’s not just the stock market where we see these ups and downs, a little pull back the curtain here real fast for our listeners. And Stephanie literally just said this, you know, some podcasts seem to go smoother, when we’re recording them, go smoother than others. This, you know, we’ve actually had to stop a few times and retake and re say, because we’re tripping over ourselves. We just recorded a podcast yesterday and it was smooth as silk. Conversation flowed. It was fantastic. You know, so it’s not just the stock market. But we’re taking a long term view on our podcast. No, sometimes not every episode is going to go smooth as silk. Again, tying it back to investing. That’s why a lot of conversations we have and other advisors have I mean, it’s a standard conversation is long term versus short term money. That’s why we say if you’re planning on using this money in six months, you probably don’t want to be investing in stocks. Definitely not the most aggressive types out there, for example. That’s when you want to look at cash. That’s why we did the podcast episode about it. Because it’s important to understand the short term stuff, you don’t want risk, you don’t have, quote unquote, “time to recover.” That’s really what defines, at least in my way of thinking, what’s long term versus short term investing. If it goes down, do you have time to recover your losses before you have to use it?

12:14  

Stephanie: We talked about, you kind of get paid as a stock market investor, because you’re riding through the volatility. Also, you have to have a time period long enough for you to get paid because nobody can predict. And the only return that matters is your personal return between the day you buy and the day you sell. It’s very possible that over a six month, a one year, even a three year, even a five year period, you could buy high and sell low. And that’s not what we want. So whenever we talk to somebody about how should you be invested? How should I invest this money? Our first question back is, should it be invested at all? Because if it is shorter term money, we think it should be in a savings vehicle, not in an investing vehicle. And that’s why back to our Episode 29 on cash, people complain, ‘Oh, I have this money here earning nothing.’ Yeah, when you’re earning very low interest, that means you’re taking very low to no risk, which means it can’t go down in value. So when you need to write that check to the contractor for your renovation, or to your kids school for your tuition, or to the IRS or to whatever, it‘s going to be there. And it’s not going to have plummeted in value.

13:31  

Kevin: And if you’re sitting here saying, ‘I’m nervous, I was getting these great returns. But this money that I’m going to use in six months, I’m now down 10%. Should I leave the money in the market?’ No, it’s never too late to fix the mistake. And I’m not going to soft pedal it. If your vacation fund is in the stock market, and you’re going to the House of Mouse in July, for example, sell it now, take your lumps. But yes, maybe it does come back. But what if it doesn’t? Why take the risk, you don’t need to take the risk.

14:14  

Stephanie: It can always go down further from here. We never know when we’re at the top or we’re at the bottom of some of these peaks and troughs. Which gets us to our next point, Kevin, we do have people that really are tempted and again, I want to say this is human nature, right? This stuff is emotional, it can be super scary. And we do have a tendency to believe we can predict, number one because there’s all these pundits and people talking about us telling us they know what’s going to happen. They don’t. And we feel like we should be able to predict this stuff. However, if you do want to try to do what we call ‘time the market,’ decide when you should pull out and when you should get back in again because you’re convinced you’re going to avoid the bad times and get the uptimes, there’s a big problem with this. And a lot of people don’t realize.

15:07  

Kevin: Really? Because I thought, all I have to do is just say, okay, the markets at the top. Well, let’s sell, let’s go to cash. I’ll never have a problem again. Wait, wait, I gotta buy back in, don’t I? Oh, so I don’t only have to be right once. Good luck with that. But then you have to be right a second time when you go back in. Or vice versa. You know, you may sit here and say, I think the market is going to keep going lower from where we are here today, I’m going to sell and it does keep going lower. Again, bully for you. You got it right. What are we gonna do? When are you going to go back in? And we have many client conversations where they called a top or enough for their satisfaction. They say, ‘Oh, yeah, I made the right call.’ And three years later, they’re still sitting here going, ‘Yeah, but I can’t get back in. I’m scared to get back in.’

16:05  

Stephanie: Right. Kevin, do you remember years ago, we met a gentleman, he never did become a client. But he pulled out sometime in 2008. You know, he felt pretty smart. He felt proud of himself that he missed a lot of that big downside. But he never did get back in. I think we talked to him, like eight years after the fact. And he was not an older gentleman. He was, you know, mid-career, he still had all his retirement money in cash. So he had missed the big run up after March of 2009. So again, you’ve got to play the game. What’s the phrase, you gotta play to win? You’ve got to be there strapped into your seat in the roller coaster to be able to get the rewards. And I also heard years ago, I heard at a conference, a professional money manager. This is someone who was paid very high fees by giant institutions to invest their money, and he was explaining his performance for the previous year. And part of his approach was some element of market timing. And he was talking about how he believed I can’t remember if it was some stock or some sector that was going to have a rough time. So they sold and he said they were right. But they were right, about nine months early. And his quote that I’ll never forget is, ‘Being right early, feels a lot like being wrong.’ Because yes, he had sold, let’s say it was the banking sector. But for the next nine months, the banking sector had done nothing but go up. And then it went down. So even though he missed the down, he missed the up before it. So back to our point before, you know, talking peak to trough doesn’t give you the bigger picture.

17:46  

Kevin: Right? I mean, and to echo that point, Stephanie, you may remember this, I had as my screensaver for the longest time, John Maynard Keynes, ‘The market can stay irrational longer than you can stay solvent’. So you may be convinced and you could be right that the market is absolutely at a bottom or absolutely at a top. And this is the right time to buy, doesn’t mean that the market is going to agree with you on that thought, even though you again, fundamentally or mathematically, you might be right. Market can continue to do whatever it’s doing for as long as you want. That also is why very few people, and I can honestly say none of our clients are invested 100% in the US stock market. This is also where diversification comes in. Not so much because it’s going to get you great returns or do all these weird, wonderful things. At the end of the day, here’s what diversification does. It lets you sleep a little easier at night. Yeah, fine, you’re not going to get the huge ups, the idea that you don’t get the huge downs as well. As a result, you can stay a little bit calmer.

19:01  

Stephanie: That’s why prudent investing is often boring. It’s not sexy. We’re not trying to pick the next Microsoft, we’re not betting the farm on one sector or one type of company. We’re doing broad diversification, we’re buying low-cost index funds. I’ll put up an image from our friend Carl Richards in the show notes. Smart Investing is like watching paint dry, right or grass grow. It’s kind of boring and unsexy. That’s the prudent way to do it. And if you want to play a little bit, and you know, try to pick some exciting stocks, do that with a little tiny bit of your money. We call that your sandbox, right? If you have a little bit, maybe 5% of your whole investment dollars that you want to play with, and try to pick a couple of companies, but the majority of your money should be pretty darn boring.

19:59  

Kevin: If you’re bragging about your accounts, all of your accounts, all of your money at a cocktail party, you’re probably setting yourself up for failure to the point you’re going to skip the next cocktail party. You don’t have to deal with everybody reminding you. Why was that great pick you had there a few months ago there, Slappy? I’m trying to remember that it’s that old. I can’t remember if it actually is a Chinese proverb, or if everybody calls it a Chinese proverb. It’s actually somebody just made it up. But, may you live in interesting times. Meaning that’s actually referred to as Chinese curse. Because, yeah, exciting and interesting can be good. But, you know, let’s face COVID was exciting and interesting, right?

20:51  

Stephanie: I guess.

20:51  

Kevin: I mean, nobody’s sitting there saying, ‘Oh, gee, I want to go through that, again.’

20:56  

Stephanie: Terrifying and disruptive.

20:58  

Kevin: Absolutely. It was not boring.

21:01  

Stephanie: I don’t know. I was locked in my house for how many months that we got. It got boring. But there was not a lack of emotion. Let’s put it that way.

21:07  

Kevin: Yes, there you go. It gets back to understanding what your goals are and understanding, not all of your money has to achieve all of your purposes. Breaking it out. That’s why we have short term money, long term money.

21:22  

Stephanie: Well, and to tie it back to the name of our podcast, right, Take Back Retirement, our listeners are kind of, you know, looking towards retirement or they’ve stepped into retirement, whatever that means to them. The big issue when you’re getting closer to retirement, let’s say you’ve had this nest egg, you’ve worked very hard to build up. And that was your long-term money. But the closer you get to using some of it, that means some of that money is no longer long term, which is why we are strong advocates of having a more sophisticated, more granular investment approach as you’re on the cusp of retirement. Because having all your money in a target date fund isn’t going to do it. When you need to start pulling a little bit of money out each year, it really becomes a more complicated equation where some of the money is short term, some of its mediums, some of its long term.

22:16  

Kevin: Stephanie, and it sounds like that could be a pretty interesting podcast episode. I wonder.

22:23  

Stephanie: Good idea, Kevin. Here’s a little foreshadowing for you. And some more foreshadowing. As Kevin and I were talking about prepping for this episode. You know, there are some planning opportunities, some opportunities to take advantage of a big up market, or even a down market. There are some strategies that we employ that we discuss with clients that we can make another episode about.

22:50  

Kevin: I think we could have a thought or two on those things. And interestingly, we’re not talking about hot investments to protect you on the downside are hot investments to capture all the upside. We’re talking about solid planning strategies regarding timing of things that you’re probably going to want to be doing anyway. Just sometimes there’s better times to do it than others.

23:14  

Stephanie: And again, you don’t have to do these things at the absolute peak or the absolute trough. But I do think it is human nature to sometimes want to feel like you’re doing something. So we would advise, you know, if you’re feeling anxious about things, if the headlines have got you nervous, reach out, if you have an advisor, talk to them, talk it through. It’s never a bad time to say, ‘Hey, is this investment strategy still the right one for me?’ And that’s going to be much more dependent on your life circumstances and whether something in your life has changed than the markets. But Kevin said, it’s never a bad time to fix a mistake. Never a bad time to check in and make sure that the strategy you picked, however many years ago, is still appropriate for you. Maybe you’ve gotten to the point where some of your money is short-term money. Or you know, maybe you want to buy a beach house in a couple of years, right? Whatever it is, that might have changed. That’s a good strategy to do. And otherwise, close your computer, don’t open those statements. Take a deep breath, go for a walk, call a friend, binge something fun on Netflix. Try not to obsess about this stuff. Because believe it or not, we can’t control the markets. We can’t predict the markets. We gotta go along for the ride.

24:29  

Kevin: Here’s investment advice for you. Turn off that damn television. They’re built on emotion, we said at the beginning. You know what’s the old adage in newspapers, if it bleeds, it leads. Your account values bleeding is a very strong leading topic especially, CNBC, Bloomberg, Fox Business, etc. As we euphemistically refer to it as, the financial porn channels. They thrive on the excitement and the emotion of the markets, both up and down. But emotions are going to be what gets all of us, present company included, in trouble from time to time.

25:13  

Stephanie: Oh, yeah, we don’t want to make these big decisions based on our emotions. Now, we fully embrace that money is emotional. And we’ve got to talk about those things as we’re putting plans into place. But you don’t want to make a knee-jerk emotional reaction that could shoot yourself in the foot long term.

25:33  

Kevin: So nothing else. Take a deep breath. Sleep on it overnight before you make any choice. Better.

25:40  

Stephanie: Get a little perspective, zoom out. Look at the big picture.

25:44  

Kevin: Talk with people you trust. And not so subtle hint, if you’re listening to this podcast, you probably trust us. Wink wink, nudge nudge.

25:55  

Stephanie: Fingers crossed. So back to my initial story, my client called in the holiday season of 2008, saying, ‘Remind me why I’m not supposed to freak out.’ These are the things we talked about, right? Markets go down. And this is your long-term money. Remember, you have your emergency fund in the bank that’s not invested, that’s not gone down. And the only reason you can expect outsized returns from stocks, certainly higher than your savings account over the long term, is because you’ve got to ride through the downs. These are the common themes to the point where our longtime clients who get our client letters are bored with hearing these messages after hearing them a couple times per year for how many years. But it’s still the same message. And we don’t fault anyone for getting anxious and wanting to hear it again. Talk it through again, remind me why I’m not supposed to freak out.

26:57 

Kevin: As I once had a client explain to me, I think I’ve said this before, in one of these episodes, or multiple. Your job as my advisor is threefold: Help me figure out my goals, help me stay on my goals, and especially at times like this, stand between me and stupid, his lines, not mine. 

27:21

Stephanie: Now, I don’t like to call my clients stupid. But, you know, it speaks to that kind of emotional reaction and falling prey to the scary headlines and emotions as opposed to sticking with a long-term strategy. 

27:35 

Kevin: That’s a much nicer way to say that, but it’s not nearly as much fun or nearly as funny. So we stick with that.

27:43  

Stephanie: Thanks so much for being with us. We’ll talk to you next time. It’s goodbye from me.

27:46  

Kevin: And it’s goodbye from her.

27:51  

Stephanie: Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only, Raymond Loewy through New Math in New York. See you next time.

28:06

Disclaimer: Investment advice offered through private advisor group, LLC, a registered investment advisor. Private advisor group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material, are for general information only and are not intended to provide specific advice, or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor, prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.