Putting the Volatile 2022 Market Into Perspective

Based on the frequency we get asked about the current volatility of the stock market we know it is a hot topic on everyone’s mind. One of the primary roles we play in your life as financial advisors is to help understand your emotions and steer your decisions related to the market.

It’s hard to believe it’s been two years. If you’re like me and actually, I remember thinking this at the very beginning. It was probably May-ish of 2020, when we thought the pandemic was going to end within a month or so. I heard somebody telling me, the pandemic is never going to just snap out of it the way we snapped into it.

They said, “We’re going to have to have it for a long time. It’s going to be a slow exit.” Well, they were right. We had it for a long time. Does everyone feel it wasn’t a slow exit? Boom. We’re done. I have to admit, it actually feels really good to have all of you here, and see all of your faces, live and in-person.

Now, as we get going tonight, I always like to start with a little story. For those of you that got the email from us, this was the picture on the email. This was the video picture. There’s two people from our office not here tonight. One is Diane and the other is my uncle Bob. They are both doing taxes as we speak. Diane gets a little stressed out during tax season, understandably.

Every Monday, Wednesday, Friday at 8:45, we have an office Zoom meeting. We’ve done this since the beginning of the pandemic. We’ll probably continue it for quite some time. On this Zoom meeting, right after the email went out for this event, Diane speaks up. She says, “Did anybody review your video before you sent it out?”

I said, “Yeah. Dave looked at it and Sean looked at it.” She goes, “Did a female look at it?” I said, “What could possibly be wrong?” She goes, “Your hair is sticking up like crazy in this thing.” I went back, and I thought I was embarrassed by it. I went back and I went, “Oh, that’s a good hair day.” But that was Diane’s intro. I’ll try and make sure my hair is combed better in future videos for you all.

This is our disclosure screen. I’m going to put … I don’t usually share this. But what I’m going to talk about tonight is general information. In no way what I’m saying is specific to anyone in this room. Now, everyone in this room, we know a lot about you. We will gladly make specific recommendations to you. But tonight’s purpose is general knowledge and general information.

Just take that with a grain of salt here. Before we get going, I have a few announcements to make. First off, this is the very first time we are ever streaming this. There are people, we have clients that have moved, that have left the great state of Illinois. We have clients that never came to the great state of Illinois. They’ve said, “Hey, we love these events. But we can’t see them.”

We are attempting to stream it. If you’re out there, hi. If it doesn’t work, I apologize. You’ll never see this anyways. But just so you know if I’m sounding funny or looking funny, we’re trying something new out here. I always like to introduce the people in the room, our team members who you may or may not interact with on a regular basis.

First I did mention Diane and my uncle Bob who are not here. The other person who is relatively new that actually technically isn’t a family member. He’s got an orange headphones over there is one of my closest friends in high school, Dave. He has actually been helping us a ton with marketing over the last year really. He is an active part of the family.

Brian Szymczak is sitting next to him. Brian has been with us probably four years now is in our client service department. Aaron is sitting back there many of you have known and worked with Aaron. Aaron is one of our advisors. I’m going to skip over my father for a second. Steve Francis is over there. Steve started with us last summer. Those of you that have been to these events before have met Steve.

Luke is our newest employee. Luke has been with us all of three weeks. He has joined us from our client service department. Luke is a recent graduate of Miami University of Ohio. In fact, Luke, I hate to admit this, but the first couple of days you kept saying you were a Miami graduate and I kept going, “I wonder which one it is.” I’m glad to hear it was Ohio.

Michael, who helps us with our seminars. He’s been with us six months now, somewhere around there. We have some new younger faces, which is nice in our office. Catherine is one also in our client service team. Catherine is with us a couple years now. Then back there we have Shawn and Chuck. You’ve met both of them before, Shawn many, many times and Chuck as well. They’re both two of our advisors.

Then also, I always like to introduce my father who I apparently don’t let talk anymore because I didn’t even give him a microphone this time. But last summer, my father and mother bought a condo down south of Sarasota, Florida. They said that they were going to spend some time down there in the winter. It actually, it’s amazing.

If you would have asked me three years ago, if I would have thought my father could work remotely, I would have told you, Not a chance.” Now I will tell you it is absolutely viable. It’s amazing how technology has changed our lives. A couple things to talk about as well, our office remodel. If anyone hasn’t been to the office in a while, we have completely remodeled a bunch of it.

The vast majority of it’s done. Somewhere, there’s some furniture that sitting on a boat somewhere that it will eventually get to us and will look really, really nice. When you come in, I hope you can enjoy that. Taxes, we are the middle of tax season. We do many of your tax returns in this room. This year, I want to point out a few things. The IRS is slow, very slow.

A couple recommendations we are having going forward. First off, we are going to recommend everyone do things a lot more electronically. We do it already. We file all tax returns electronically unless for some reason we can’t. But we are also going to recommend people pay their … If they owe money, they pay that money electronically. That stands for estimates as well as if you ever owe any money that’s due.

We have two separate couples in this room that paid what they were due. The IRS lost their check and now are getting massive notices and it’s a giant headache for them and the IRS doesn’t care. Anything we can do to be electronic, I think we need to be accurate. Anything we can do to not generate anything extra from the IRS makes everybody happy.

We have about half of the tax returns in our office that we normally do. If we do your tax return and we don’t have it yet, we can’t wait to see it. Please bring it in. A couple things coming up. Our next workshop I already have in the books. Our next workshop is going to be here. It is not going to be in this building. It was going to be The Morton Arboretum. It’s going to be on the first day of summer.

This is something I’m really excited about. I’ve talked to some of you in this room about this. We’re going to do something a little different. We are going to do our very first ever FSR book discussion. We’re going to do it on June 21st over the Thornhill Education Center, which is just the other side of the Arboretum. This is a book that came out early last year. It’s called The Psychology Of Money.

I have recommended this book more in the last six months than probably anything I’ve recommended the last 20 years. This book is an absolute must read for anyone who’s in the business, who has kids who deal with money, who has dealt with money of their life. It gives a great way. Think about the mindset of the way we work with money. I have a copy for every couple or any family that’s left or as you leave here. Please take one with you.

Share it with your family. Share it with your friends. But this is a great thing. I look forward to spending some time talking to you guys about it on June 21st. Now, the folder that you received when you came in has some stuff in it. I want to go through with that with you really quick. On one side is some background to what we’re going to talk about tonight. You have in the front where it says, “Understanding market corrections.”

That is more so when you leave here tonight. Two weeks from now, your emotions get the best of you. You can pull that out and go, “Oh, that’s what Josh talked about.” Behind that are some additional graphs of some things that we’re going to spend some time talking about tonight as well. I’ll reference those as we get through there. On the left side is two things one is just a wonderful piece about the value of planning, especially with what’s happening right now in the world.

But there’s also the cover sheet on the front. That is not there for everybody to turn in. But it’s there if you need us for anything right now. Now is a busy time that we know. But if you want to update us on anything, that is a great spot to put that information on there. What is on there? Name, address, phone number. Yes. Of course if you want to update any of that, that’s great for us.

But down at the bottom is two things I want to point out. First, if anything catches your ear tonight and you want to talk about anything, that is where I want you to put it. We’ll make sure that we address it with you as soon as we can. That’s where I want those notes to go. Lastly, we are back to doing workshops, many of you have joined us from coming to workshops in the past. We have a couple coming up now at a variety of restaurants.

If you have any friends that would love to, we’d love for you to invite them to upcoming workshops. We’re not a hard sell. This is as hard of a sell as I ever get. But if you want to leave us their names and phone numbers, we’ll be happy to send them invites, or we could even send you an invite, and you’d be happy to invite them as well. I wanted you to have that in there as well.

Now lastly, the last thing I want to talk about, before we get into market corrections is something else that’s fun. That’s inflation. We’re not going to spend much time talking about inflation tonight. By the way, I use the word fun a few times. I had someone in my office today that told me I had a sick idea of what fun is. I graduated from University of Illinois in 2003. We finally have a good basketball team again.

But I graduated University of Illinois in 2003. When I graduated, all the classes I took made it seem inflation was going to be a part of my life forever. It made it feel all I’m going to talk about is inflation, this inflation that. Well, for the last 18 years, we never talked about it. We barely talked about it. Guess what? We’re talking about it. It’s real. It’s here. It’s not going anywhere for a while. I think we’re going to have it part of our life.

What does that mean? My dad and I have a thing in our office. We don’t have a problem. If any of our team members has a problem, we want to know about it. But we don’t just want to know problems. We want to know solutions of what you think you should do. If I tell you a problem tonight, I better tell you a solution, too.

When we talk about inflation, there’s some things that we want to think about. I want you guys to think about this as well. There’s things that you want to do and things you don’t want to do. What is inflation? Inflation is the rising of prices. Best example, who’s filled up their gas tank? Who’s bought stuff for their house? I mean, we’ve seen it. It’s physical. You know it hurts.

What do we want to do about that? Well, the first thing you want to do is you want to own hard assets. You want to own those things that go up in price. Stocks do that. Real estate does that. Anything as a hard asset. You also want to borrow money. No. I’m not encouraging to borrow money. But if you have to borrow money, it’s a great time to do that.

Because what happens is as you repay that debt, you’re paying it back with cheaper and cheaper and cheaper dollars. Guess what? Our government loves inflation. All that giant debt is getting repaid with cheaper and cheaper and cheaper dollars. Now, what don’t you want to do? Well, you don’t want to be holding cash. This is my biggest thing for people.

Cash goes down in value. It gets less and less valuable as inflation occurs. When inflation was under 1%, under 2%, we don’t really care. But now we actively care. We tell everyone, if you’ve seen our workshop, we call our tax utopia. If you have more than 6 to 12 months of your expenses in cash, we need to talk. We need to talk because you think you have this nice safe asset and it’s actually just losing value for you.

The other thing you don’t want to do is you don’t want to be loaning people money. If any of you are a bank, or if you are a bond lender, now is a bad time to be you. But holding assets and not holding cash is something that you want to take into consideration as we talk about inflation. All right. Those are all my notes before we get into the, again, fun topic of market corrections.

This is my family on Christmas Eve. You can see here … See how technology works. You got my parents here. You have They’re holding the newest two babies. That is Molly on my dad’s on the left, and that is the newest, Sissy, on the right. My two boys are over here with my niece, Charlotte. Over here on the left is my daughter Maggie and Penelope.

Now, at Christmas, my parent’s house has amassed a giant toy store. When you have seven grandkids range from newborn up to seven and a half years old, you got a lot of different toys. We’re sitting in the family room with the babies and one of them is playing with a puzzle. This is not the actual puzzle. My wife told me it was mean to take a kid’s puzzle away from him.

My dad was talking to me. He says to me, “We talk a lot about what we do for clients.” He said, “A lot of it looks like this puzzle. It was when people are working, when they’re young, when they’re just trying to get through life and save money and trying to just put money in their 401(k), it’s like this puzzle.” Where as a baby, all you got to focus is can you get the horse back in the horse? Can you get the cow back in the cow, and the little kids are happy.

If you put money in your 401(k), you’re not spending more than your bank. You don’t have credit card debt. You’ve accomplished this puzzle. But as we tell people, as my dad pointed out, he says, “As we get older, as we start to retire, life becomes more complicated.” Guess what my kids got on Christmas? They got a 300 piece, Disney jigsaw puzzle, 300 PS Disney jigsaw puzzle.

This is what life becomes when you retire. It’s no longer put the horse back where the horse goes. It’s now how does my social security relate to my taxes? How does it relate to my IRA holdings? How does it relate to where my income is coming from, my Medicare premiums? How does it relate to my trust and what I want to leave to my kids, and what I want to give to charity?”

How does it relate to the vacation I want to take next year? How does it relate to the stock market, the mutual funds, and all that fun stuff? It’s a giant puzzle. You’re trying to put all of these pieces together. Now tonight, we’re going to talk about a couple those pieces. We’re going to talk about the investment portion of that. But all the other pieces matter.

I always tell people, there’s two things that we do really well in our office. The first is we help you put those pieces together. I tell people very honest, in working yours unless you’ve got a complex situation, most people can figure the puzzle out themselves. But in your retirement years, it helps to have someone who knows how all the pieces go together.

But the other thing is actually understanding what the picture looks like on the front. Because everyone in here has different dreams. You have different goals. You have different desires. You’re all playing a different game. That’s a good thing. You want to be. We have to help you design what that picture is going to look like. Sometimes it takes a lot of work. Sometimes that’s the hardest part.

When we talk about money, when we talk about your investments, in our office, we see your money as a tool. It’s a tool for you to do things in your life that you want to do. Now, there are people that come to us and we always say we are not a good fit for these people. There are people that come to our office, and they have this money, like it’s a piece of artwork, and they just want us to help make this artwork more beautiful.

We can do that. But there’s not much to do there. But when you think of it as a tool to live the dreams that you want to do, that’s how we think of it. As we talk about that perspective tonight, I want you to always think about that. This is my son Alex, and that is my niece, his cousin Molly. That was taken probably in January or sometime. I don’t know remember exactly when.

When Molly’s older sister was born, Penelope, who’s now two, Alex wanted nothing to do with newborns, wouldn’t touch him. He thought they were going to drool on him and now he can’t get enough of them. But Alex is seven and a half years old. Alex is a wonderful child. He is very intelligent. He loves to go to school. I’ve told this story before. If you’ve heard it before, I apologize. But it serves a lot of purpose today.

When Alex was in preschool, he went to five-day-a-week preschool and he loved school. He couldn’t wait to go to school. He couldn’t wait to come home. He would talk about … all we hear was school this, school that, school this. When he went to kindergarten, something changed. Within two weeks of kindergarten, the teachers were yanking Alex off of my wife as she went to school. He was sobbing. He would say in the morning, “I don’t want to go to school.”

He started acting up at home. It was just … We were wondering what happened to our child. My wife and I were totally at a loss. I was at … For those of you that … Elmhurst, in downtown Elmhurst there’s this bakery called Courageous Bakery. I love Courageous Bakery. I was there one morning before work and I ran into Alex’s preschool teacher who we love. We adore. Miss Julie is another family member in our house.

Miss Julie asked how Alex was doing and I said to her … I told her about what I just told you. She looked at me she goes, “Kindergarten is really hard for kids because it is so intense compared to the rest of their lives.” She says, “What Alex needs is love. He needs to be cuddled. He needs extra time with mom and dad. He just needs to be told that he can have fun and it’s okay.”

I went back and told my wife this and we both looked at her like, “What are we going to do?” We started waking Alex up a half an hour before his brother and sister every morning before school, and one of us would play a game with him. We’d sit. We’d read books. We play a game, whatever it was for half an hour. Within two weeks, our kid was back. It was like magic.

Now, I never believe that a five-year-old who lives a pretty blessed life, really not much to worry about would suffer from anxiety of school. I’ve talked to other people about this. They said, “The fear is real fear is an amazing thing of what it does to our body.” I myself suffered from anxiety a few years ago, and I knew that fear, the physical manifestation of fear is difficult.

Now we, as human beings, make a lot of decisions. That when we think about it in hindsight, we might not be proud of, not because they weren’t unethical or bad, but they were emotional decisions. I remember people telling me, “Josh, the very smart part of the human brain, the thing that we think to reason with is not what’s in control. It’s our very primitive back of our brain that has these emotions that makes our decisions for us. It’s that front of the brain, the logical part, the intelligent part, that just finds data to back up our decisions that our emotional part made.”

The two strongest emotions that we have, the two most powerful emotions in the human body are fear and greed. We make a lot of decisions based on fear and greed. We make a lot of financial decisions based on fear, and greed. Now, I’m a CPA. I love Excel and spreadsheets. I love to show you Excel and spreadsheets. I know you don’t care about Excel and spreadsheets.

But tonight, what I’m going to do is I’m going to try and show you some data. I’m going to try and show you some things to make you understand where the fear comes from, and how you should frame it, and also to see where some of the greed has come from. Then I’m going to show you what we should be doing about it. At the end, I will gladly take any questions that you have.

First off, what is a market correction? In our office, it’s really funny, we get hung up, and we’ll have massive arguments. We’ll realize we all agree on the same thing. We don’t agree with the definition of something is. We wanted to understand what a definition of a market correction is. Anyone in here who has money in the market, you’ve watched your account balances go up and go down, go up and go down.

Now, the down part is the correction part. On a technicality … Have you talked about a pullback, just a simple pullback? That’s a 5% to 9% loss. Now, there are times when we’ve seen those in weeks, up and down and up and down. A true correction is when our market loses 10% of its value, all the way up to 20%. Then for some reason, they chose the 20% number to consider what they call a bear market.

Now I had somebody asked me earlier, why do they come up with bear and bull markets? How did bear and bull come up with? Joe answered his wife’s questions she didn’t believe him. I’m going to … If you ever wonder where bear and bull comes from, it’s the bear is always digging downwards. Or as Joe said, “He’s throwing things to the ground.” A bull always has its hair or its horns towards the air and throwing people in the air throwing people up. That’s the bear and bull thing that comes to play.

But as the definitions come in, that’s what we’re talking about here. The funny thing is they happen all the time. This chart is in your folder, if you want to see it. But to blow it up a little bit, if you look here, this is from 1980 all the way through until today, or until the end of the year. You’re going to see the orange numbers are what we call insure year declines, drops that we’ve had in the year.

The blue numbers are how the year finished. We see drops all the time. It’s a normal process of what comes in. Now, what triggers a market correction? What brings them on? Well, first of all, it could be profit selling. There are lots of computers now that actually do all the buying and trading for people. There’s numbers that come in. They say, “We’re going to take profit here and market falls and things like that.”

Corporate earnings, this is the one I worry about. If I start seeing corporate earnings suffer, this is where we were in a really rough time. What happens is the market is based … market trades and future corporate earnings. If a company comes out and says, “We didn’t meet our earnings expectations,” that’s when you start to see markets fall.

If that happens over and over and over again that’s where the concern will come into play. There’s some technical analysis that comes in. People will do some in-depth technical analysis. Fear is a big one. We love to talk about fear. Then there’s black swan events. There’s those one off events. Now, black swan events, people don’t like. They hate them.

9/11 was one of them. The pandemic was one of them. There are events that you can’t quite predict. But when we have good market fundamentals, we can usually get through them okay. In fact, for those of you that we talked to March and April of 2020, if you remember, back two months before that, we were here in this room and we told you that the market was extremely strong. There was a ton of tailwinds.

The market fundamentals were really, really good. When we talked to you in March and April of 2020, we had a black swan event. We had 80% unemployment overnight. But the market was still strong. That’s why I think it was part of the reason you saw this bounce back as fast as you did.

Thought process again, this comes from Morgan Housel in the Psychology of Money. If you Google Morgan Housel quotes, or if you follow him on Twitter, some of the best quotes I’ve ever read when it comes towards financial stuff. I’m going to give you two of them here and I’m going to interpret them. The first one says, “Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.”

We live here in the Chicagoland area. We think everyone’s cold right now. We think everyone’s quite friendly. We don’t have an accent. We see the world in a very specific way. The world’s vast. These things are happening all the time and how we pull that data in is extremely important. The other thing he writes and this is one of my favorite is “Things that have never happened before happen all the time.”

It’s unprecedented. I hate that. It’s unprecedented. It happens. Life changes. Things happen. Things move on. Things go on. My wife and I every night, we watch the news as we fall asleep. It’s a terrible habit. It’s horrible. I think it attributed to a lot of my anxiety. If I wasn’t doing what I’m doing, I probably somewhere in broadcast communications. I loved it in high school. I just am fascinated by the news.

What does the news love to do to us? Scare the snot out of us. The news sells fear. Do you know that right now? This is hard to say this the war going on. It’s one of the safest times in human history. Right now, there are less kidnappings per capita than we’ve ever had in history. There is less murders. There is less death. We have higher financial wealth on a worldwide basis than we’ve ever had before.

We have some wonderful things going on. If you turn the news on, how does it make you feel? Horrible. Let’s look at some of these events that we have up here. This is in your folder as well. If we look at this, maybe you can just read all of them. We have Brexit. We have quantitative easing. We have debt downgrades. We have the ISIS offensive in Iraq. We have the Chinese stock market crash. We have the first COVID case. We’ve got the droughts. We’ve got all sorts of terrible news.

This is our market performance from 2006 through today. The market doesn’t care what the news is. Your fear cares. My fear cares about it. But the market doesn’t care about that. Now let’s look at some recent bear and bull markets. This also is in your handouts. This goes back to right before the Great Depression. There’s a few things I want to point out on here.

First off, the blue lines, obviously, are the bear markets, the yellow lines are obviously the bear markets. They happen regularly. They’d happened a lot. The bear markets are always much shorter than the bull markets. That’s a good thing. If we just got beat up our entire lives, and we never made up for the difference, we would never play the game.

But they happen a lot. Now, I want to zoom in here. I’m going to zoom in to about 2008 through now. Recently in my workshops, when I give these to potential new clients, I have used the term that right now it was probably last year, I think last year may have been the time is the single greatest time in history to retire. There’s never been a better scenario to be someone going into as a retiree.

What makes me say that? First off, tax rates are an all time low. We all know the impact taxes are going to have on our retirement. You also wouldn’t be here probably. But also the savings mentality of an adult, it’s hard to save when you first start working. It’s hard to save when you have kids, because you’re worried about retirement. You’re worried about getting a bigger house. You’re worried about all these things.

Then all of a sudden, you feel you’ve gotten a massive raise, because some of your expenses go away. They grow up. They graduate. The number of people that I’ve seen that have started maxing out their 401(k) is in their 50s is amazing. If that’s you in this room, you started maxing out your savings at a bottom of a market and you’ve watched it do nothing but go up drastically, 600% over that.

The S&P 500 has gone up since March of 2009 through the end of 2021. It’s a great time to retire. The number of people in this room that we’ve sat across the table from who have used these exact words, “I don’t know how this ever happened to us. We never thought we’d have this much money.” You know who you are in this room.

This is what it is. This is what it is. That’s a good thing. Be grateful for it. But this is also where the greed comes in. This is a great quote from Bill Gates, “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”

They’re still fundamentals. The same time we tell people. We can’t be fearful of the downside. We can’t be fearful of what the market is going to do. We have to tell people you got to be smart. We can’t get too aggressive. My father has a saying and all of us in the office will use this. The saying is “When you’ve won the game, why do you keep playing?”

What does that mean? When he says that “What does that mean? What’s the game?” The game is not the market. The game is not the stock market. The game is your life. The game of all those things that you want to do in your life. First and foremost it’s security. You want to take care of yourself then you might want to do some fun things that’s out there, then you might want to take care of loved ones or things like that.

After that, what more are you going to do? You have a choice. Your money is not going with you. When you leave this earth, it’s not going with you. What are you going to do with it? Do you want to make an art out of it then? Great. But if you’ve already won the game, why do we keep playing? Now what does that mean? That means take the greed out of thought processes.

What if we do have a correction? Emotions, like I said before, will lead us to some interesting decisions. How should you think if we have a correction? It’s normal. Let’s keep calm. Let’s not panic about it. Let’s think that long-term mindset and realize that this too shall pass. The bear eventually retreats. When it does, it comes back fast.

This is always very interesting to me. When you think about this recent corrections, recent downturns look at the next 12 months. There’s lots of data out there as to how fast markets correct. Just where we tell people we don’t know where the top of the market is, anyone of our advisor office have had a conversation that goes something like this.

I think the market is overvalued. I want to wait to put money into it. We’ve been having those conversations since 2012. Do I think it’s overvalued? I do. Have I been wrong for 10 years? Yeah. But we know that we can’t let the emotions like that takeover. There’s the fundamentals that come into play. Okay. Great. But you still want out? The fear gets the best of you. Can I just buy in when the markets go up?

I’m going to show you this graphically and then with numbers. Here’s the thought process of an investor. This is fun. My neighbors doing better than me, make me better. All of a sudden we get over here. I don’t like this. It doesn’t feel good. This happens fast, really fast. I don’t like it. I don’t like it. I don’t like it. I’m out. Get me out.

All right. We’ve been going back up for a while now. It’s time to get back in. Remember the same way we don’t know where the top is. We have no idea where the bottom is. When we go to a correction, we have no idea. I don’t know if you guys remember back in January, February, March of 2009, the news media was talking as if that great recession was going to go on forever.

In fact, who remembers the TARP bailout? The TARP bailout of early 2009 is when the first thing is that the Obama administration got through, it was $300 billion, $300 billion. They argued for months, for months back and forth to get this thing past. Didn’t look like it was going to happen as a very end. It did. It went through. It actually worked. It worked really well.

You know how much they bailed us out in March of 2020? Add a zero to that. Do you know how long Congress debated? A week and a half. Things are different. Things are a little bit different. But this next slide is what means everything to me. Being out of the market can feel good. Can feel you took action. You did something and everyone wants to take action. No one wants to sit still and watch pain happen.

But because we don’t know where the bottom is, and we don’t know how things are going to go back up. We used to run the risk of missing big updates. This comes from Putnam Investments. Putnam did a great research on this. There’s some other areas out there that do similar things. But Putnam Investments looked at the yearend of 2006 through the year end of 2021. That’s over 5,000 days, over 5,000 days. it’s like 5,300 and some odd days.

If you were invested every single day in the S&P 500, if you just left your money in there, you had 10,000 bucks in, at the end of 2021, you’ve had 45,000 bucks. If you had 100,000, it would have been 450,000 bucks. It’s pretty good. Lots of ups and downs. Pretty good. Now, what if you missed the 10 best days, 10 of 5,000 days? Your return is cut by more than half because you missed on those down cycles that fear kicked in.

Let’s say you miss the best 20 days, 20 out of 5,000. Now you would have been better off having all your money in cash. Let’s say you missed the best 30 or 40 days. Now you’ve lost. What is possibly the greatest bull market of history, you lost. That’s the difference is that comes in here. We don’t want to miss those days. There’s a guy who works with AE Wealth. If you’ve watched Morning News or Oprah or anything like that, you’ve seen him interviewed a bunch. His name is David Bach.

David Bach is really a very good advisor. He has this quote, he says, “There’s not time in the market,” or sorry. “It’s time in the market, not timing the market that works, being in the market.” I like to say timing the market does not work. We physically can’t do it. Probably the number one reason we turn away clients is because they believe that they can time the market, that we should be timing the market for them.

You physically can’t do it. It’s impossible. What does work? I’ve told you problems so far, what solutions do I have for you? Fundamentals work. Dollar cost averaging works for putting money into the market, keep putting money into the market ups and downs, just keep putting money in. Rebalancing works. As markets go up, and markets go down, you should be rebalancing your portfolio. We do that automatically for you.

Understanding your comfort zone, trying to get back to fundamentals and away from that fear and that greed, which I’m going to talk to here in a second, that works. Understanding that you’re going to be taken care of no matter what happens. That’s good. It should feel good. For those of you that have worked with us for a while, you’ve definitely gone through this.

This is something that we call a risk score. Every advisor under the sun, in fact, the SEC requires that we are supposed to determine if an investor is conservative, moderately aggressive, or if we really want to get fancy, we can be moderately conservative, moderately aggressive. Five buckets. We have to place every one of you in this room into five buckets.

Well, guess what? We all have different definitions what those mean. I consider it to be completely subjective. I’m 41 years old with three kids, not sleeping well at night. Sean’s 32, newly married, lives in the city. We have different ideas of conservative. You have different ideas of conservative. We’ve been using for years this risk scoring model.

The risk scoring model is built on a Nobel Prize winning theorem in economics that talks about the risk return of a market. What it says is you can score anybody and the scores range from 1 to 99. Now someone who’s a one never wants to lose a single penny. They don’t care if they earn anything. They just don’t want to lose. Trust me, there are ones in this room. Someone who’s in 99, has lived in Las Vegas most of their life and put all every last dollar in Bitcoin and then leveraged it.

We’ve never had a 99 in our office. But you can be anywhere in that spectrum. If you’re 55, you’re the same as every other 55. If you’re a 20, the same as every other 20. If you’re 60, you’re the same as every other 60. It’s a very objective measure that’s out there. The reason we find this is very important is because this gives us a true comfort level. This gives us an idea of what you’re truly comfortable with.

As we build portfolios, we try and build portfolios in a variety of reasons. One is we’re looking at your income. We’re looking to make sure that you have enough income to last the rest of your lives. We’re looking that you can withstand markets ups and downs so that you can take advantage of it. Remember, it’s time in the market. I would rather you stay invested in a very conservative portfolio over a long, long, long time than try and be more aggressive than you emotionally can handle.

You will earn substantially more money that way. We also look at time as time goes on. Every asset has a purpose. Every asset is a tool. Every dollar you have is a tool. We don’t need to take the same amount of risks with every dollar. That’s okay. Understand the purpose of what is out there with money. Now, I’m going to guess most of this room have a risk score. I don’t know if you know what it is. We do try and show it to you fairly often.

If you’d like to see it, let us know. We’ll gladly show you where you fall inside of here. We are constantly monitoring this as well. Now your risk score can change as well. Your risk score can for a couple of reasons. One is sometimes as you get older your risk score naturally changes. You have less appetite for risk. In fact, when someone new walks into our office, we have somebody used called the rule of 100.

We take your age. We subtract it from 100. If a 60-year-old walks into our office, it gives us a 40. It’s a good ballpark to start from. It doesn’t mean all 60-year-olds are all 40. Some are going to be way more conservative, and some are more aggressive. It’s a good starting point to get to. Life events change.

What I don’t want to change it though is when you’re at the bottom of a market correction. All of a sudden, that’s when you think your risk score has changed. We’d like to know that now. One of the things on that sheet, if you really want to look at your risk score, let us know. Write it down. We’ll gladly go through that with you. But please, this is something you want to be very proactive with.

What do we see this year? It’s got the crystal ball. Let’s look at 2022. There’s an old saying. It says, “So goes January. So goes the rest of the year.” Have you ever heard that? That means you’ve been listening to too much talk radio. But this is for Morningstar. That saying is a complete fallacy. The yellow box out of the 58 years since 1926, since the Great Depression, that we’ve had a positive January, 12 and a negative.

Of the 37 years, the negative January 14 of them have been positive, included many of the last few years. January was miserable for the market this year. It wasn’t fun, wasn’t a fun time. Now, we will read a lot of analysis in our office. We love to see people’s crystal ball. We have people’s crystal ball who tell us that this is going to be a terrible year.

People tell us the volatility is going to be really hard. It’s going to be a tough time to be an investor this year. Then we’ve other analyst that tells us we expect 10% to 15% rates of return. Who’s right? I have no idea. Anyone who tells you they do, maybe they have got some fundamental basis to it. But I will tell you what’s more important is you shouldn’t care.

If you are set up properly, if you are set up with a good solid plan and an understanding how that plan operates, it shouldn’t matter. We set a lot of pride with how we set you up in regards to the fact that the market volatility shouldn’t matter to you. We’re looking at your income. We’re looking at your asset allocation. We’re looking what you’re trying to do and where market volatility shouldn’t matter.

Now, people will tell me, “I want to earn the most. I don’t want to leave anything on the table.” That’s okay. What are you going to do with it? What’s the purpose behind it? Is it security? Is it really, “Hey, I want to make sure you’re secure?” Okay. There’s ways we can make sure you’re secure. Is it something … is a big project? Is it a charitable endeavor? Is it your children? Do you have a special needs family member?

Okay. Let’s talk. Let’s make the purpose behind that money. Money is a tool. Now, I mentioned inflation earlier. I actually think inflation is going to have an impact to the market. High inflationary times, generally, the stock market does quite well. Does quite well. There’s many people that say that the high inflation alone will lead to a positive stock market.

Now, the downside to that is the biggest tool that the government uses to fix inflation is interest rates. As the government raises interest rates, corporate debt goes up, which means corporate expenses go up. That is a drag. How does that play out? We’ll see. We’ll see. Now, what should you do? What should you do? First thing we tell everyone is be prepared.

I hope, I hope everyone in this room feels prepared. If you don’t feel prepared, we need to talk right away. If you feel for some reason you are not set up in the right way. If it’s our fault, if it’s your fault, if it’s somebody else’s fault, it doesn’t matter. Let’s talk as soon as humanly possible.

Second is be patient. Life’s a long time. We tell everyone the plans that we make, we’re not trying to plan for how you’re going to buy a car next year. We’re trying to plan for how you live the rest of your life, how you’re going to take care of all of those dreams that you want to. Don’t overthink it. Fight your instincts. Remember we will say trust your instincts. That’s true when you’re picking a mate. It’s not true when you’re making financial decisions.

Stay diversified. Follow fundamentals. Fundamentals are fundamental for a reason. Crystal balls, chasing shiny objects, they don’t always work. Lastly, take advantage of the situation. We will all go through a market correction. We will all go through a bear market. We will all go through a recession again. If we follow those things to the top, it’s not going to hurt us. But you can take advantage of it.

What do I mean by that? There’s a few different ways. One is if you still have money to put in. For God’s sakes, put it in. Dollar cost averaging and is a good thing. Buying low is always a good thing. Rebalance. Like I said before, rebalance, get that money back into the market. Know where your money is going to come from. We have an income plan. For everyone in this room, we know where your money is going to come from.

We have contingencies market goes up, it comes from here. Market goes down, it comes from here. We know where your money is going to come from. Finally, take advantage of a tax perspective. We’ve reached out to a lot of you for Roth conversions. In a down market Roth conversions can be a good thing. Because when the market comes back, it’s all coming back tax free. Taking advantage of it is an extremely important tool.

Now, I was telling our team early before everyone got here what I was hoping to get out of this talk. It was number one that I hope you feel comfortable with where you are, that we understand what the role, the emotions play, but also how you should be able to take advantage of any situations that come up here. I hope we’ve accomplished that.

I did want to leave some time for questions. Any questions you have here, Brian and Shawn, or my father, and Shawn have microphones. Those are for the benefit of quiet talkers, and if we still have streamers watching us, so that they can listen to. I’m be happy to answer anything anybody has.

All right. If you do have questions, we aren’t going anywhere. The bar is open. You’re welcome to stick there. Now before you leave, I had a few things I was supposed to mention to you. On that white card, if you like to turn it in, there’s a few … Welcome with any questions. If you do want to talk about cash alternatives, we’d be happy to talk to you about cash alternatives.

If you have updates to your situations, or if you have anyone you want to recommend to upcoming workshops, that would be great. We have two things to give you on your way out. Again, I’m not kicking you out. You’re welcome to stay, have a drink. We’re going to stay. Welcome to answer any questions one-on-one you have. But on your way out, we have the book, The Psychology of Money. Please do take a copy.

Also, we have cookies. For those of you that come to our office, you know our love of cookies. This actually comes from Brian. Brian’s wife, Anna, is a … What’s the technical term now Brian? What’s her …

Family consumer science.

Family consumer science teacher at Leyden High School. She has a true restaurant catering kitchen. He goes, “Look at these cookies she made last week.” She made the first time ever branded FSR cookies for us today. Please help yourself to one on the way out as well as the book of The Psychology of Money. Thank you guys very much for coming.