When the stock market goes down, we can immediately think--I don't like this. Someone must be to blame! We proceed, finding a blame-worth party.
Bridget Sullivan Mermel and John Scherer take contrarian positions in this episode. First, is the stock market really bad? We talk through how we tell clients to judge the stock market.
Second, who is to blame? Surely, the politicians, either Democrats or Republicans, are at fault here. One party must be better than the other when it comes to the stock market.
We peek behind the hype and talk about common misconceptions about the stock market. What we've learned in our years as fee-only financial planners might help you understand and improve your own investments!
#ACPMember Wisdom
00:00 Welcome!
01:33 Talking to clients about the terrible market
06:26 A telling sign
08:14 Net worth
09:21 Politicians and your portfolio
John's firm website: https://www.trinfin.com
For advisors around the US: https://www.acplanners.org/home
Thanks for watching and please subscribe!
TRANSCRIPT:
John: The stock market has been doing terribly. That's one of those comments that I know we hear a lot. What's going on and how should you address it? We're going to talk today about some of the facts behind what's actually going on in the market and give you some information as a viewer that you can take and apply in your life to help you make decisions about your future investments. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Murmel, and I've got a fee-only financial planning practice in Chicago, Illinois. And before we go any further, we just want to ask you to subscribe. That helps us out a lot, and we really appreciate it. John, this is going to be great.
John: Yeah, talking about the terrible stock market😊
Bridget: How should we think this through? I think a lot of times when there's something that we don't like, we say, “Okay, where can I point my finger and blame someone?” And so, I think with the stock market down, a lot of the thought process—at least that I see in the media—is let's blame the President. Okay. Let's unpack this.
John: Yeah, it's interesting. Go ahead.
Bridget: There's a bunch of things to unpack. There’s the assumption that the stock market is down and then there is the responsibility of the President.
John: Yeah, it’s interesting when you say the assumption the stock market is down. You might have been thinking, “What do you mean the assumption? I see the numbers. It’s red when I look at my statements and things.” And this reminds me of back in 2007 or 2008 when a client had called in, sort of in a panic, and said, “Jeez, I’ve lost X number of dollars. What are we going to do about this?” And I knew her really well, and I said, “Jeez, we did, Donna? I had no idea.” She said, “Aren’t you watching things?” And I said, “Well, tell me, since when are you talking?”
And she said, “Well, since the beginning of the year.” And I said, “Oh, I was looking at the five-year numbers.” And I said, “Your portfolio is up, isn’t it?” And she said, “No, it’s not up.” And so, part of it is frame of reference. What are we talking about here with these things? The assumption the markets down. Of course, since the beginning of this year, that’s not an assumption. There’re facts on that. But what is our timeframe for these things?
Bridget: Yes, if we want to blame the President.
John: And even if we step back from that. I want to dig into that; that’s a little bit of red herring, too. But just the idea of if you interview 100 people on the street—100 people that are informed anyway—and say, “Hey, how’s the stock market doing?” What are we going to hear? What’s your answer? Oh, jeez, things are bad? Things are down. And we've been in a bear market. We entered bear market territory earlier this year. Things aren't going great in that short period of time.
What about this recession talk? Well, it’s these two quarters, this short period of time. And people who have viewed some of our other episodes know that we often say, “Listen, let’s use a sort of farmer analogy.” Let's have food in our pantry to eat when we've got floods or droughts, and then let’s have our stocks be like crops in the field—that’s our long-term growth. And so, when we’re talking about our investments, as we look at stocks and the stock-based investments in mutual funds and things, we say, “Listen, we’re talking about five-year time horizons and ten-year time horizons”
And so, I encourage viewers take do the same. Don’t look at your year-to-date number. What’s the last five-year number? What’s the last ten-year number? That’s the focus we have. When you step back to that more 10,000 foot, 30,000 foot view, suddenly those numbers are pretty good. And a person might argue, “Well, yeah, but things are different now.” We’ll talk about that in a minute here, but it’s this long-term view on things and that allow you to go, “Oh, yeah, that’s right.” When we have that perspective on things, most people's money is actually up over the last five years.
Bridget: Right.
John: And if think about what has happened in the last five years: we had the whole COVID thing. Can you imagine thinking that about that proactively, saying, “This is what’s going to happen in the next five years”?
Bridget: There were a few people that did, and they seemed like they were on the fringe.
John: Yeah, there were a few people that we’re talking about a pandemic. But think about it. If you knew today that in six months the entire world was going to shut down again, then we're going to have a contentious election, and then we’re going to have inflation and all these things, how would you feel? Probably something like, “Holy smokes! That’s scary!” But then what actually happened with most people's money? Oh, it turned out kind of okay.
Bridget: Yeah.
John: Those facts on things are really important. And so, I think just looking at that time frame is really important. The market's not doing well recently—there’s this recency bias—but take a look at that bigger picture. And so much of what we work with clients on is the feeling side. There’re the facts, and we need to dig into the facts so we can identify the problem, but so many people really uptight about the recession, the economy, the stock market.
Bridget: Yeah. And sometimes people are feeling really uneasy about it, and for me, that is a trigger to say, “Okay, maybe you’re invested too aggressively.” And so, I'll say, “Okay, let’s go and look back at your overall portfolio and see if it really is on track or not.” Because sometimes people’s risk tolerance—how much risk people are willing to take—can change, especially as we age.
And so, I've had people who are older that don't want to be in the stock market at all, which I don't actually recommend, but still, I respect that. If they have enough money, that’s fine. So that’s one end of the spectrum. And then you get people sometimes they’re younger and they think, “Oh, I’m going to make a move,” and they just really want to roll the dice. But as you get older, you want to take less risk in general. And so, if you feel really uneasy, and think, “This is just a roller coaster. My stomach is horrible. I can’t sleep at night.” That is a telling sign.
If something is keeping you up at night because you can't stop thinking about it, that would be a sign that maybe you need to make a change. Not just saying, “When I’m watching the news, I don’t like it.” But if it’s keeping you up at night, it’s definitely something to take a look at how much you’re risking. Now, I'm not saying sell all your stocks. I'm just saying you might want to tweak it; you might want to tweak your balance.
John: Right. When you talked about that sleep-at-night-factor, one of the things that reminded me of is back in March of 2020 when COVID hit, and the market went down so bad. And we often think about these things. Again, we talk about if you ask people about how is the market doing what does that mean? For most people, it’s the S&P 500 or the Dow Jones or those things that you see in the newspaper or on your feed.
And something we talk about proactively with people is, “Hey, if you’ve got half your money in bonds and half your money in stocks, only half your money is on that stock side of things.” And it’s easy to forget that. We just had somebody, and he said, “Jeez, what do you think about this? The market’s doing badly.” And my response to the client whom I know pretty well was, “Oh, you’re talking about the bond market, right? How bad that’s doing?”
And, of course, he said, “No, no, no, I’m going to talk about the stock market, S&P 500. And I said, “Remember the market and how stocks are doing doesn’t reflect our portfolios as individuals.” And so, sometimes just looking back and saying, “Oh, golly, yes, stocks haven’t been so hot, and the bonds haven’t been so hot either, but they’re much less down than the stocks are. Oh, there’s this balance on things.” I often forget that in my own portfolio, and I do this for a living.
Bridget: When we are reviewing portfolios with our clients, we look at your net worth, so we're thinking about how much your real estate is worth as well.
John: Right. And what’s in your bank account.
Bridget: And guess what, one of the reasons we look at that is because, first of all, that’s actually what’s really important to people, and second that’s what has continued to increase. Real estate; that’s awesome. So for a lot of people, their net worth is around the same.
John: Right.
Bridget and John: “The stock market’s terrible.”
John: That’s such a great holistic view. That’s what’s really important. And just as a reminder, if you start feeling anxious about this, take a look at the bond side, take a look at your real estate. Go on Zillow or other places, and you’ll like think, “Oh, yeah, that’s right. There is this balance.” But we forget this because that’s not the message we hear. What we actually hear sounds something like, “Here’s what happened on Wall Street today!” And, yeah, that’s mildly interesting, of course, but it’s not the driving factor in success. And just being aware of that, I think, is really important.
Bridget: Okay, so now let’s get back into the politicians.
John: Yeah. That’s great!
Bridget: Yes, this is why we're just talking about two different elements. Go ahead.
John: I often hear depending on the cycle that, “Oh, the president’s doing this, and now the president’s doing that.” And now I’ve been hearing a lot of, “Oh, geez, since Biden’s been in office, look at how things are getting all screwed up.” And just to be clear, I am agnostic about this. We’ll talk about this in a little bit. It does not make any difference. Put the one party in charge, put the other party, change the president. Listen, from a financial planning standpoint and from an investment standpoint, factually, it just doesn’t make any difference. But talking about what’s going on today, just to give some frame of reference.
The stock markets been down the last six months, things aren’t going well, we’ve had all these things, we have inflation, all this stuff going on. What’s actually happened? Well, look at the facts. Go back to January of 2021 when the current president took office and take a look at what the S&P 500 has done for the first 18 months of his presidency and think about what's happened: we had inflation that we haven’t seen in 40 years; we’ve got a sustained bear market now for some period of time. And what’s happened in the stock market, as measured by the S&P 500?
It’s up 8.5% annualized. Think about that. That’s not how it feels when I open the Wall Street Journal or go on and see these things. That’s not the messaging that I get. And again, we do this, and we go, “Oh, wait a minute.” When you dig in and look at the facts, you go, “Oh, interesting. Even with all these things going on in the market S&P 500 is up 8.5%” Golly, if things are bad and we’re 8.5% that’s pretty darn good.
And so, knowing some of the facts is really important because otherwise, these feelings take over. Actually, the reason I know this is because I had a friend who was telling me, “Oh, things are so bad,” and I thought, “Really?” I just don't pay attention to it, so I had to go look it up and go, “No, that’s not right.” But that’s not necessarily the feeling that you have. And again, tying back in the facts with this stuff and saying, “Here’s what has actually happened which is much different than what many people feel.
Bridget: Yeah. And I just want to mention that, because we were going to do this episode, I started looking up another counterintuitive idea, and that is that tax increases hurt the stock market.
John: Right. People are worried about tax increases, but what are the actual effects?
Bridget: In fact, they might help it. Again, I don't think anybody wants to draw the conclusion that it helps it, but since 1950, there have been 13 tax increases and between the year before and the year after every time the stock market has gone up. And it’s actually not as consistent with tax cuts, but I don’t think any of the researchers think there's enough data to actually draw conclusions, or there’s so many factors.
John: But what’s the feeling? Half for the folks have the feeling that tax increases are going to hurt the stock market, and tax cuts help the stock market. That’s the feeling. And we go, “Not exactly.” Basically, it has no correlation.
Bridget: They can’t make any conclusions, which support that this causes that. The other thing is that both sides of the political spectrum have good ideas and bad ideas for the economy and free finances. So there’s some good and some bad, and we really want to focus on the good. And actually, I think that Republicans have a rap of being better for the economy, which I don't think is proven by statistics. However, the Democrats don’t want to really take credit for being better if they are, because—like we were saying—you can’t make that claim. Nobody can make the claim.
John: This returns to an idea both Bridget and I espouse in our businesses, that is we make decisions based on internal factors: What’s my tax bracket? How much money do I save? What are my goals? And not based on external factors like: What is inflation? Who’s in power in the government? What’s going to happen in the future?
All those external things don’t matter nearly as much as those internal things. And this is just sort of the cherry on top of that for me. Focus on the things that are important and look at the facts. When you have some of these places where there’s a discrepancy between what people are saying and what’s going on. Make sure you’re looking at the facts to help inform your feelings on things.
Bridget: And I think that both political parties try to play on your emotions, by getting your emotions involved and getting you to draw conclusions from your emotions, which takes you maybe a little more out of your intellect.
John: They're not looking up for our best interest? Come on, Bridget, you need to be less cynical😊
Bridget: Well, I think that’s a great place to wrap it up. I’m Bridget Sullivan Mermel, and I’ve got a fee-only financial planning practice in Chicago, Illinois.
John: And I’m John Scherer, and I’ve got a fee-only financial planning practice in Middleton, Wisconsin. And let us know. We’re always interested to hear what you, as viewers, are thinking. Drop a note down in the comments. We’d love to hear what your thoughts are on this topic. Hit that subscribe button to help other people find our show. And Bridget and I are both members of the Alliance of Comprehensive Planners (ACP).
Bridget: Yes, exactly. Go to acplanners.org, and you’ll find planners that think similar to us. If you’re looking for a financial planner in your area.
John: And with that, until next time.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.