Stock Market Up! Should I Sell?

Certified Financial Planners TM Bridget Sullivan Mermel and John Scherer discuss how to think through the emotions of a high stock market. Sometimes the stock market rising does mean it's a good time to adjust your investments. At other times, it makes most sense to stick with what you've been doing. Bridget and John help you understand which approach makes the most sense for you today.

TRANSCRIPT

Stock Market Up! Should I Sell?

Bridget: The stock market’s high, but election’s uncertain. Should I sell? Welcome to Friends Talk Financial Planning. I am Bridget Sullivan Mermel. And I have a fee-only financial planning practice in Chicago, Illinois,

John: And I'm John Scherer. I run a fee-only financial planning firm in Middleton, Wisconsin. And that is the question of the day, right Bridget? We've got a new President elect, and the market has been hitting all-time highs here recently. Market’s soaring.

Bridget: Right.

John: And I actually had a friend of mine send me a note this morning and say, “The market's been up so much in the last week. I'm going to take my 401K and go all to the cash feature until things shake out.” And it's interesting for me to think about what that means. And he didn't ask specifically, but sort of like confirmation of, “I'm doing the right thing? Here's what I'm doing.” Kind of like, “What do you think?”

And it's interesting. And my mind starts going about what I’d tell clients and how I deal with that. And I thought that might be a really interesting thing for us to talk about today. The last time -- I don't watch the market on a daily basis -- But the last time I looked, just after I got that email this morning. The S&P 500 is at something like 3600

Bridget: Wow. Great.

John: And it's been up, I don't know 6-7-8%, a lot in the last week. And here I thought we're supposed to not like uncertainty and those things in the market. And Jeez, if I were a betting man, what I would have been on last week is not how things would have shook out. Right?

Bridget: Right? Absolutely.

John: So one of the things… I'm going to share my reaction, and then I want to hear what you would say and how you handle it.

But one of the things for me is that you just don't know what's going to happen. Last week if you're telling me what was going to go on in the election, I'd say, well, Gee, should we have all our money in stocks? Probably not. And look, that would have been the best place to have our money. US large cap stocks, right?

Bridget: Right.

John: So #1, we don't know what the future holds. And then #2, if we did, I'd make the wrong choice half the time, I’d guess wrong on these things. And so the idea of well, listen, let's get out and go to cash and wait and see what happens. I've been doing this almost 20 years, and it’s just time and time again where I think I know what's going to happen, and then I don't.

And then the other thing about this. And I'm going to ask my friend about this is, “Okay. You’re making this decision. Fine.” But then you also have to have a metric for changing that in the future. Like, okay,

Bridget: Right. That’s why it doesn’t work.

John: Well when are you going to do it? After the fact of the market? After it keeps on going up for the next -- and I'm not predicting that, right? -- But the market goes up another 25%, then you're going to get back in and feel good? Or the market takes the tumble and then you're going to feel good, when the market’s down? Coronavirus, unemployment, I mean, something happens to make the market… and then you're going to feel good about investing your money?

Bridget: Right.

John: If you're going to do this, you have to guess right twice, right? You’ve got to guess near the high and you’ve got to guess near the bottom. And then you’ve got to have some system for doing it. And man, that is just so hard.

Bridget: And you have to stick to it.

John: And you’ve got to stick to it. What happens when things change in the future, right?

Bridget: Or you’re busy. You’re not paying attention.

John: So those are two of the things that come to mind as I think about jumping in and out or trying to make a decision based on these external factors, whether now it's the election and the market, and then it's going to be interest rates, and then it was tax cuts or no tax cuts, or unemployment. There's always some, I call it the “apocalypse du jour.” What's new today? Now it's…

Bridget: What’s the latest disaster?

John: You know, 5 or 7 years ago it was Greece. And now you don't hear about that. And 10 or 12 years ago it was…

Bridget: Now Greece is supposed to be doing well. Yeah.

John: Well the price of oil was back in the mid 2000’s. “Oil is at $100+ a barrel. This is going to be a catastrophe.” But don't look at that man behind the screen, right? Now it’s the… It's understandable where people don't know how to interpret that. And it's frustrating that the media so often -- what's exciting is, “Here's what to do next.” The reality is: boring is the right way to do it.

So anyway, that's a lot of the feelings that I've had. I guess it's more even feelings than… there's the facts, right? I can show you the facts. But then how you react to that stuff? And helping... If I can help my friend to make a better decision about this, we'll see on that.

What if you had a client that called in and said, “Hey, Bridget, I want to go to cash. The market’s up, and I'm uncertain about things.” How do you address that if that comes up? Or maybe it has come up, I don't even know.

Bridget: Well first of all, I understand where they're coming from. Because certainly the news is disquieting. And it's going up and down so much. And you'd really rather just stay out and stay on the side lands and just watch it, right?

John: Yeah.

Bridget: So I can understand where they're coming from an emotional standpoint. But the reason people hire me, and some people have specifically hired me because they know that that's what they do, and they want me to tell them not to do that. They know that the best way to make money off of the long haul is to get out of, I call it “reptile brain.” I didn't come up with that term. Get out of your reptile brain and get into some higher thinking and look at the long-term thinking.

So there's a lot of things that I feel like doing today that I don't. I'm thinking about the long-term. I might feel like having a big dessert. Oh, my gosh. I might feel like drinking first thing in the morning, but I don't.

John: I was just thinking about a lot of Halloween candy that’s sitting out in my kitchen.

Bridget: Yeah, exactly. I don’t because I've got to think long-term. And so that's where we do it. So what I want to do, what I do with clients is go back to: “Let's look at your plan.” So why do you feel this way? And is there anything that's changed in your situation that makes us want to change how your assets are allocated? And so I take it from that perspective.

So what do you think about, from your friend's point of view, how do you look at it? When you look at their actual situation, has anything changed?

John: That's a great point. With this client focus, we have a plan. We're trying to accomplish certain things. And part of the plan is, listen, when things go haywire, we've got to build that in. It's not. Well, if things go great, we do this, and things go haywire, then our plan is broken. You’ve got to plan for both sides of it. And that's maybe, when people don't have a plan and they're just reactionary to things, where there's a problem with it.

And that idea of what's changed. And I said something about these external factors. I would look at it for clients internally. Listen, there's things -- the election. Well, listen, if I have a client who's in the political world and their party is not, their person they're working for…

Bridget: that lost re-election…

John: …they've got a life change. Right. I don't have a job now. That changes what we were maybe planning on.

Bridget: Right! That's a change that you might want to adjust for.

John: Right. Now we've got to take a look at, and we've already planned for a contingency of if I lose my job. We have to have that in the plan. Well now, that means that our forward-looking things change. It's not because of the political nature. It’s because of the personal nature.

Bridget: Right.

John: I was going to say it's even the same thing about, like, Coronavirus and all the things that have gone on. Not because of that we don't change our approach. But Jeez, if I've lost my job, right, or if I've had a personal situation that has been affected… There's some folks where their jobs have been better, right? The demand for operational equipment or things like that that's different.

Bridget: Right. There’s more work.

John: Whereas other people are saying, listen, restaurants and places where… service industry, losing your job. That changes our future-looking approach, but not just because of what we think might possibly happen. That's not a recipe for success.

Bridget: Right. So I have people that because of COVID they can't travel, so they're delaying retirement. And then they're happy because the stock market is up, because they'll make a little bit more. It's a great time to not retire. They feel like, “What would I do anyway?” Then on the flip side you get people that are like, “Work is so hard now. I just want to quit!” So that same external situation, two different responses for people.

And so I want to look at: why are you feeling this way? So why are you feeling like I want to move it all to cash? And has anything in your situation changed? Has anything in: when are you going to retire -- and we have a whole list of the things that you want to consider when you're deciding how much to put in stocks versus to put in the bonds -- have any of those factors changed? And we try to let the stock market just do its thing.

John: That's such a great… just reframing the question, right? And it's interesting. I appreciate you saying that, because I think so much that -- I can't remember, left or right brain, like the facts – here are the facts, right? That’s all wonderful, but when I see the news and I don't have the filters, it's scary! It's real. It's not like people are making these things up. And that's a really important thing to remember. Maybe when I talk to my friend I'll say, “We don't know.” And there's that natural reaction of fear.

Bridget: Right. It's totally normal!

John: Yeah.

Bridget: Flight! Fight! Flight! Yeah.

John: Yeah, and the other thing that strikes me too is that in our world -- and I think you do something similar -- it's our stocks are our crops in the field, and the farming analogy. That's where we money, but it's also where we have floods and droughts.

Bridget: Right.

John: And then when we have good years in the fields ,we don't sell… we take some, we put some vegetables in the pantry. We can our pickles and our apple sauce. And those are the bonds and the and the fixed income, the cash and CDs and that sort of stuff. And sometimes when we look at this as a person, we think, “Oh geez, the market's going to do this.” Maybe it is. I don't know. Maybe it is going to do this.

But then I forget like, “Oh yeah, I've got 5 years… I could live out of my pantry for the next 5 years without worrying about it.

Bridget: Right.

John: That sort of thing. And some of it's looking at the balance. You don't have to go, “Oh, if you were a farmer and the farmer's almanac said, ‘Hey, we're going to have a flood next year. It's going to be a drought.’ Do you not plant your crops?” Well, no! But you also have to have that pantry thing.

And that global view… maybe it's easy to just look at one part of it and not the whole picture. And that's part of where some of that higher-brain thinking that you're talking about comes in, right? No, not just the fearful fight or flight sort of thing, but the idea of this whole picture and how we've designed things.

It's interesting as we talk through things. That's one of the things that I know is really comforting for our clients: having a pantry where no matter what happens you don't have to worry about how you're putting food on your table for the next 5 or 10 years. Then yeah, the markets are scary and they're up at all-time highs, but no big deal. We're not going to use them.

That's sort of, again, focusing back on your goals and your plan and what's the process.

Bridget: Right.

John: So that's really helpful. And we'll see what happens in the markets, right? They have to set all-time highs periodically, right? Otherwise we’d all be down, sort of a thing, right?

Bridget: Right.

John: So that's interesting also as we talk about this, and maybe a good way to wrap up. It's that it's those internal things, it's how we as individuals, how our clients, how people, what that situation is, the external things, now it's the election and the market and those things, those are mostly white noise in the long run, right?

Bridget: Right. And we're trying to look at the long run and have money 10, 15, 20 years from now and make sure we optimize that. And there's a balance to be struck.

John: Yeah. Well thanks for talking through this. This is a little different than our normal Friends Talk Financial Planning. But some really interesting things are going on right now. And I appreciate having the chance to talk through this with you and share with all our viewers.

Bridget: Yeah. Great, John. And if you're interested in the way we think about things and are interested in looking for an advisor in your area, both John and I are members of the Alliance of Comprehensive Planners. The website is acplanners.org. And there's planners all over the country. This is a not-for-profit group that we're really just promoting it because we love the philosophy, not because we get anything out of it, except for more people that believe in the philosophy of comprehensive financial planning, that it helps include taxes but includes all of your life. So thanks, John!

John: All right. Yeah. Thanks, Bridget!

Bridget: Seems like a great way to wrap it.

John: Wonderful. Bye-bye.

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.