Ep 8 - Long-Term Wealth Building: How to Stay Resilient in Uncertain Times

Voiceover: [: 00:00:00

Now, your host.[00:00:30]

osts of the podcast. How you [: 00:00:45

The last couple of weeks we've been talking about it, [00:01:00] uh, we've seen some ups and downs and I know this is something for all of us we've been through before. Right?

market volatility, a market [: 00:01:15

So this is nothing new to us. That's right. The cover shades conversations have shifted from talking about the weather to the markets.

ight? Because right. Markets [: 00:01:30

But, you know, we always say as, as financial advisors is that, you know, we have kind of two jobs, one of which is to be a financial advisor and one of 'em is to be a little [00:01:45] bit of a psychologist, right. Or a, or a psychiatrist. When, when markets are volatile and people, uh, are feeling fear and experiencing different emotions about their money, and I think this is one of those times, uh, that people are, are starting to do it.

is. The market really isn't [: 00:02:00

But, um, you know. So, so one of the things we thought would be great to have a podcast about is just about the [00:02:30] psychology of investing and things that people can do during down markets to kind of just keep themselves on track and keep their mind, uh, moving in the right direction. And so, um, you know, there, there's something that was put out called, uh, the, the Wall Street [00:02:45] Cheat Sheet.

hink about it, you know, the [: 00:03:00

They call that cycle the peak to trough cycle, okay? And so people have very different emotions in a trough than they do a peak. And so I think going through. [00:03:15] You know, what we think of some of the emotions in this chart that people feel during this peak trough, um, cycle is very, very important and, and kind of starting in the trough, you know, a lot of times, so the trough would be like, we've just been through a bear market and the market's been down [00:03:30] for a while.

People are pretty discouraged. And a lot of times, you know, when the market, so say you've been in a trough for the last year, you know, the market starts to go back up and people actually are experiencing at that point in time disbelief, right? They're like, you know, the market's going up. But the market doesn't go up.

cause in their mind they're, [: 00:03:45

And then they start to believe, [00:04:00] they go through belief, then they go through thrill. And at the very, very top, you know, they'll see, they'll feel euphoria, which what we actually experienced, and we were talking about this yesterday. Uh, we saw a lot of clients experience euphoria back in 2021, where we had people calling in saying, Hey, I wanna buy [00:04:15] this meme stock, or, I'm gonna take out $20,000 and I'm gonna invest it on my own because I know I can do better than what, you know, my more diversified portfolio is gonna do.

a, it was a really good ex, [: 00:04:30

Jeb Graham: sure.

eah. And then, and then what [: 00:04:45

You know, they, they can't believe that their money has gone down, uh, like it has, and then it's panic. And then finally it hits trough, and then people experience anger, right? So they're angry and, and it goes on for a little bit, and then they're kind of depressed and then that whole [00:05:15] cycle starts back over.

and you've got your fear and [: 00:05:30

Just to hit on those real quick, um. When you talk about fear and greed, it's exactly what we were talking about in 2021, right? Is, is people are, are, are [00:05:45] greedy because the market's gone up and they think it's never gonna go back down. So they're experiencing greed and they're a lot of times making irrational decisions at that point in time.

n be just right after that in: 2022

Um, and then [00:06:15] you've got your recency bias. The recency bias is where people really, um. You know, take recent events and they, they weight them higher than they should be. You know, I think my, my greatest example of that's gonna be 2008, 2009, [00:06:30] we had the big, uh, great. Fi financial crisis. And I think for three to four years after that, people thought in their mind that the market just went down 50% on a regular basis and that it crashed all the time.

was something that happened [: 00:06:45

A belief system, you know, that maybe the market does good when Republicans are in, or it does good when Democrats are in. And whatever their belief is, they, they tend to think that the market's gonna move, uh, based on what they believe it's gonna do. And a lot of times those beliefs aren't, aren't. Right.[00:07:15]

Um, so, you know, I think the, some of the things that we've been talking about, if, if we're gonna go through, uh, ways to avoid, uh, falling into some of these traps, I think the first thing we were talking about is just diversification.

. Yeah. Yeah. In, in, in our [: 00:07:30

Um, the, the main one that we talk about is buy low and sell high, which we'll talk about here in a little bit. But the biggest one that everyone teaches and preaches is [00:07:45] diversification. And what does that mean and, and how does it work? Diversifying your portfolio, you're spreading your, your risk across different asset classes.

mid cap indexes, small cap, [: 00:08:00

So what we typically say is, you know, if, if we're gonna [00:08:15] have, if we're gonna own a well diversified basket, we do want to have multiple asset classes in there. We just don't want to own the market or the s and p or, or whatever you, you say, we want to have exposure so that when the s and p is [00:08:30] in a spiral or a decline, maybe international stocks and those bonds are appreciating while some stuff is going down.

Apple and Apple gets cut in [: 00:08:45

So diversification, it's uh, it's an easy tool to kind of abide by. And, and that's something that we build our [00:09:00] portfolios around is diversifying our asset classes.

rty or some other event, you [: 00:09:15

And you know, usually a good question and we can return to them is, well, give me a timeframe. 'cause if you're talking six months, I don't know. It could go up, it could go down, it could be the exact same. If you give me a [00:09:30] longer timeframe, say five years, six years, 10 years, then I'm definitely gonna feel optimistic that the market's gonna, you know, gonna be higher than where it's at today.

down, and we have periods of [: 00:09:45

And a correction is a 10% decline that's gonna happen. Um, and then you're gonna have about every, you know, call it three to four years, you're gonna have a, a 20% decline, or that might put you into a bear market. [00:10:15] Um, we're seeing that, or we've seen that with the individual stocks. Certain individual stocks have already had a 20%, uh, of pull down or draw down.

r. It happens every average, [: 00:10:30

Those happen, you know, [00:10:45] more towards every 10 to 15 years or so is when you have a great reset. So just keep that long-term mentality. You're going to usually have a much, much better gener, much, much better returns. That's kind of the difference between investing and [00:11:00] trading. You know, if you're gonna be investing, you're gonna be in it for an investor for the long term for trading, then you can figure out, worry about the next six months.

But we're investors and so we're in it for the long term.

it in a number of, you know, [: 00:11:15

And they have a, they have a little big in kinda what you were talking about there, Eric. They have a chart that's called the, the entry year declines [00:11:30] versus calendar year returns. And in essence, what that is, is it's showing. You know, in each given year. And I think, Ethan, you mentioned it yesterday that uh, maybe it was 2020 that I think at one point in time during that year, that was the covid year, the market [00:11:45] was down 35% off of its most recent high or as close to that, something like that.

in time the market was down [: 00:12:00

You know, the markets go down because many, many times it goes down and it could even go down significantly during the year. And then it's still [00:12:15] positive, uh, by the time the year's over because it recovers and then goes on to even go higher.

Eric Wymore: Well, well, and you definitely wanna stay invested too during those times, during those draw down times.

e. We got a ton of them. But [: 00:12:30

It's that easy. Yeah. So that's why you stay invested even during the down times. [00:12:45]

ide gar guide rails and what [: 00:13:00

And to give a little bit of a, a background on this is when I first got into the business. I worked for a big insurance company that underwritten a ton of annuities that actually had what they called guaranteed income benefits at the time. [00:13:15] Okay? Now, and there's still some of those out there, guaranteed withdrawal benefits and stuff like that.

e a certain amount of income [: 00:13:30

Those products where the value of those things was. It was not necessarily the rider 'cause the, 'cause the irony of it is very rarely did you have to use the [00:13:45] rider, you know, for people, because the market historically has gone up about 75% of the time. Meaning usually the market outperforms the guarantee, uh, in many cases.

ients feel a sense of safety [: 00:14:00

Meaning there's things that we can place in [00:14:15] people's advisory accounts. When I say advisory, just their investment accounts with us, uh, that we can, if, if they're willing to commit to a certain time period. So say we're gonna, we're gonna buy a three year product, well, we might be able to invest in something like the s and [00:14:30] p 500 or the nasdaq.

Or, or, uh, the Russell: 2000

So. So there's certainly ways, and even if that, that protection doesn't come into play for that client, it, it provides safety and it makes people just more [00:15:00] comfortable, uh, I think investing and, and not making bad the wrong decisions at the, at the wrong time. So,

omething like that, and they [: 00:15:15

I mean, what a great opportunity to stock some money into there. You know that it's gonna be, gonna have some of those protections around it gonna be available for you. It's gonna grow if [00:15:30] the market goes up. It's gonna protect if the market goes down. Um, and it'll be there for your, you know, for your distribution when you need it.

ng. Um, again, back to those [: 00:15:45

Jeb Graham: according to, according to Andy, he said, you can just buy high and sell higher. That's, that works too.

You

that one. Um, but you know, [: 00:16:00

But you just don't know when that's gonna happen. So, Eric, talk to us a little bit about opportunistic, rebalancing some of the mistakes that people make along the way and, and kind of what rebalancing does to those portfolios.

ic Wymore: If you, again, if [: 00:16:30

Uh, a great example [00:16:45] of that is a lot of fixed income during COVID five years ago, you know, where, where we're sitting right now, which is five years ago you had a lot of fixed income that was. Possibly not even down, but possibly even up, has increased in [00:17:00] value, uh, during the covid, um, during that big covid drop.

own as much or possibly even [: 00:17:15

The idea is eventually, as we just already talked about, the market does recover. It's got a [00:17:30] hundred percent recovery rate, you know, but from every bear market is recovered a hundred percent to all time highs. This is the opportunity to sell some of those that have not down as much or possibly even up and to more of the aggressive portfolio portion of your portfolio to ride the [00:17:45] recovery a lot faster on the way up.

ot like we just kind of on a [: 00:18:00

Quarterly, rebalances, monthly rebalances. You can also rebalance probably too much, um, to some extent as well. So there's a, there's a method to the madness. Um, and just know that [00:18:15] rebalancing is a tool that we use in times of volatility to just help help. Climb out of that hole. On the other side of things,

t a hundred dollars a share, [: 00:18:30

And you absolutely hate it. It's only place on earth. Everywhere else you're like, I'm pretty excited. I just bought a, a car for 30% less or a house for 30% less. But, but the market is place that everybody hates that. [00:18:45] Doing that strategic rebalance, having your plan, doing your, your, your monthly or s or or ev biweekly paycheck contribution to your retirement plans.

ity and helps you, gives you [: 00:19:00

Jeb Graham: I would say too, you know what, what you're saying there, everyone wants the stock when it's a hundred bucks, but they don't want it when it's 70 bucks. That kind of comes back to the beginning of the podcast where we're talking about fear and greed.

ou know when you're at, when [: 00:19:15

Obviously we can never guarantee what's gonna happen in the future. Uh, however, uh, markets do have a 100% recovery rate. We were joking earlier, we say, you know, they always say the grim reaper's undefeated, right? Everybody dies someday. Well, historically, the market's undefeated as well. [00:20:00] It's always come back.

you gotta have a diversified [: 00:20:15

And it also, uh, just over time helps you be invested in a lot of different things. So, um, this has been a great time guys. Thank you for, [00:20:30] uh, all of us joining today. And, uh, this is Metcalf money moment. Sign it off.

ope today's episode provided [: 00:20:45

Disclaimer: Jeb Graham, Ethan Hutchinson and Eric Wymore are registered representatives with and securities offered through LPL Financial Member FINRA SI PC Investment advice offered through W CG Wealth Advisors, a registered investment advisor, W CG Wealth Advisors and Metcalf Partners Wealth Management [00:21:15] is AR separate entity entities from LPL Financial.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making the decision.

nd is no guarantee of future [: 00:21:30