If you know in January what would happen this year, how would you predict the market would move? Ultimately not a single person was able to project how the market would move this year, and even so, all speculations along the way have not panned out in most common projections. This conversation breaks down why market timing simply doesn’t work as we want it to. Paul and Cory also take time to encourage listeners to stick to their aims.
WHAT WAS COVERED
- 00:00 – Show starts.
- 00:35 – Paul Welcomes.
- 02:26 – What is Market Timing?
- 06:52 – S&P 500 in review through 2020.
- 13:08 – The speed of the market.
- 20:34 – What you can lose by market timing.
- 28:11 – How the media can lead you wrong.
- 42:50 – Your aims are your aims.
- 46:06 – Show ends, thank you for listening.
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Contains a sample of “King” by Zayde Wølf courtesy of Lyric House.
——————————————————————————————————————————- Paul 0:34 Cory 0:48 Paul 0:01 The entire world. Yeah. So I see why you’re nervous. Unknown Speaker 1:09 Paul 1:10 Cory 1:50 Paul 2:09 Cory 2:45 Paul 3:39 Cory 6:36 Paul 6:44 Cory 7:18 Paul 7:29 Cory 9:17 Paul 9:35 Cory 12:13 And surprisingly, depending, there’s some folks it’ll still there’s still some conversation around around that, although it’s going more and more in one direction. But even in that uncertainty, the market was going up. And that’s really my point. It’s been about elections and choosing presidents but that we really didn’t know and the market was still going, going up. And a lot of times people talk about the uncertainty of elections, pushing that down. Now I have no idea why that was happening. And anyone who tries to say they do really doesn’t either. But my point is you think and anything can happen. Paul 13:09 Cory 14:25 Paul 14:27 Cory 14:36 Unknown Speaker 15:04 Cory 15:05 Paul 15:25 Cory 17:18 Paul 17:19 Unknown Speaker 17:21 Paul 17:22 Cory 18:13 Paul 19:07 Cory 19:14 Paul 19:18 Cory 21:04 Paul 21:22 Cory 22:42 Paul 22:49 Cory 25:41 I said, Jeff, I said, Paul 25:46 Cory 28:00 Paul 28:06 Unknown Speaker 28:31 Paul 28:33 Cory 28:51 Paul 28:59 Cory 29:11 Paul 29:21 Cory 29:23 Paul 29:26 Cory 30:53 Paul 31:11 Cory 32:27 Paul 32:33 Cory 32:45 Paul 32:47 Cory 33:33 Paul 33:35 Cory 33:38 Paul 33:51 Unknown Speaker 35:49 Paul 35:51 Cory 36:17 Paul 36:22 Cory 36:24 Paul 36:27 Cory 36:55 Paul 37:00 Cory 37:17 Paul 37:40 Cory 39:27 Paul 39:30 Cory 41:10 Paul 41:49 Cory 41:55 Paul 41:56 Cory 42:09 Paul 42:10 Cory 42:13 Paul 42:23 Cory 42:30 Paul 42:31 Cory 42:34 Paul 42:37 Florida and prevent the ills of big box financial retail from impacting your future. Have a great week everybody This Material is Intended for General Public Use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. Sound Financial Inc. dba Sound Financial Group is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Insurance products and services are offered and sold through Sound Financial Inc. dba Sound Financial Group and individually licensed and appointed agents in all appropriate jurisdictions. This podcast is meant for general informational purposes and is not to be construed as tax, legal, or investment advice. You should consult a financial professional regarding your individual situation. Guest speakers are not affiliated with Sound Financial Inc. dba Sound Financial Group unless otherwise stated, and their opinions are their own. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Past performance is not a guarantee of future results. Each week, the Your Business Your Wealth podcast helps you Design and Build a Good Life™. No one has a Good Life by default, only by design. Visit us here for more details: yourbusinessyourwealth.com © 2020 Sound Financial Inc. yourbusinessyourwealth.com ———————————————————————————————————————————
Full Episode Transcription
Hello, and perhaps Welcome to your business, your wealth. I don’t know if we’re live or not Jordan, Jordan tells me we’re live. We’re a little bit delayed this morning. We had some cameras freezing, a little internet connectivity issue.
We might be talking into a video version of the creep thoughts blog right now. That’s right now. Yeah, Cory prefers it this way. Man was very nervous to have me live just broadcasting. Like that is the funny thing. Cory I’ve been thinking about is like, we’re literally broadcasting to the entire world.
Welcome to your business, your wealth, where your hosts, Paul Adams and Corey Shepherd teach founders and entrepreneurs how to build wealth beyond their business balance sheets.
everybody. We’re gonna talk we’ve got a unique topic today. I’m just gonna roll it out a little bit, Cornell chat, love a few other people to join us on live stream. But today, we’re going to talk about what the last couple of weeks taught us around market timing. And then we’re going to dig into a little bit for those of you that aren’t market timers have already set that discipline aside, you’re no longer tempted by speculation, market timing and gambling with your hard earned capital. Then just enjoy the first half of the episode, the second half of the episode, we’re gonna get into where the media can lead us astray, even with their well intentioned financial advice. So sorry.
Well, for those of us that think we’re not market timers understand that, that second half will, will show that the media has lots of ways that they’ll convince us we’re not market timing, but still falling prey to some of those emotional pitfalls of investing. So I think everyone could go into this with with an open mind and be well served.
Absolutely, man couldn’t agree more. I just realized here we’re going to talk about market timing Korean, I’m only now getting open the s&p 500 chart that our audience is going to so enjoy, it’s open. Now. These are some of the challenges of us doing live streaming. So let’s just talk a little bit about what is market timing. So Cory, just roll that out in the simplest form of what is market timing, as it relates to what people are listening to now or what they could be tempted into doing during turbulent times?
So it comes in a lot of different flavors, but the most basic form is, should I be in the market or not? Right now, like when’s the right time to get in and get out or I’m already in. And I think something’s going to go bad. So I think I should go out so that I’ll miss that downturn, and then be able to get back in and only participate in the, in the upturn. So that’s a great way to say it, attempting to be absent for as many downturns as possible and only be there for the the up terms. But it’s a tricky thing, because you have to be right about several things in short succession. You were you got in but then you have to be right about when to get out. And when to get back in again. And if but then it’s never ending if you’re playing that that game because you’re always trying to pick those right, those right times?
Well, and and as all of you’re listening today, here’s what I would have you consider or think about. And that is that we’re tempted to, as Corey said, avoid the downside, that all we want to be able to do is protect what we have. We know that psychologically speaking, the threat of loss is far worse to us, than the benefit of gain is all things remaining equal. psychological studies show this all the time. In here we stand in one of the most unprecedented years. I don’t, I don’t think we have to log all of it out. But everything from people thought we would end up in another war with Iran earlier this year. I know it seems like a million years ago, but it wasn’t that long ago that we killed one of their top terrorist leaders and we found out then another one in a joint us operation was killed in August, but we’re just finding out about it now. We have a worldwide pandemic. That’s taking countless lives. We have a change in presidential power in the most contentious presidential election ever. And on top of it, we have stock market prognosticators saying, here’s what we think is going to happen in the market. Now. So as you sit back and reflect flecked and just think about it. You think about that year, this last year, all the events that happened, how tumultuous it was countless amounts of layoff countless amounts of stimulus dollars, like across the board, and put yourself back in January. And say to yourself, what do I think if somebody could tell you with certainty? Absolutely. God Almighty himself lifted up the roof of the edge of your house and said, Here are the events that are going to happen in 2020. Now, what would a reasonable person say about what the stock market would do? Your reasonable person? And what would you think the stock market would do over that year, if somebody was able to say the pandemic is going to occur? These things are going to happen, we’ll have a change of, of leadership, we’re going to have three new Supreme Court nominee, all the things that could seem like either a big win or a big tragedy, depending on what side of the political aisle somebody is on, that have occurred this year. And they accurately gave you every detail. What should the stock market do over that year? I think most everybody who’s reasonable, would say, Well, I think the stock market’s gonna be absolutely hammered and punished. Just have one of the worst years ever. Yeah, indeed. And here on this podcast and others, that’s not what we were saying. But let’s just take a look at the s&p 500 this year, year to date, so my apologies away,
we weren’t predicting that the market was going to have its best year ever, either. No, exactly. Right. Yeah, what we were saying.
Nope. But here we go, uh, Jordan, get a little comfort by screen sharing like it’s supposed to. Yep, got a thumbs up from Jordan. So here, we started at the beginning of the year. And here is our big drop off of the s&p 500, which at its depth was down 30%. From January one, it’s down more than that from the Hi, that occurred in February, but down 30% as of March 23. And you hear it’s huge.
Isn’t for those watching. That’s the scale of this graph seems deceiving a little bit, because I don’t, it didn’t really go nearly to 00.
Yeah, yeah. Though. The zero on this is whatever, to about 20 to 50. In s&p 500. I can see it here. Yep, in wit, and that’s a great point, just the little ways. If, for instance, if I just quickly said, well, let’s just look at five years, you can see that what happened. And what we were telling clients. Right about here is, the stock market’s been absolutely on fire for the last, you know, three or four years. But you could buy in at 2017 levels, buying the stock market and discount like you’re buying in 2017. And for the people who did that, not based upon they thought this rally would occur beyond the recovery. But just saying, hey, those are discounted levels, or as we told our clients, when you see a sale at your favorite department store, say it’s nordstroms. And you see that a suit that you already own that you paid $1,000 for? is now $500 is your first proclivity to run home panic and sell all your other suits who may have also gone down in value? Of course not. If you loved jaguars, that’s just your car, and you hear jaguars resale value is dropping tremendously. We know that when those prices drop our natural proclivity with every other kind of item is to do what? Take advantage and acquire the thing. Not if you don’t need it. But if you’re like, well, I got a couple suits that are threadbare. I guess I can go ahead and spend $500 to get a new suit. Now totally fine. Paul,
what would you say to the person who’s listening? Who says that’s all well and good, Paul. But I may have just bought the suit that I’m likely to be buried in. Like, I’m not I’m not buying a lot more stock right now. I’m living off of that money. Yeah, absolutely.
And which is a great reason to say if you’ve got the suit that you’re going to be buried in in your closet, you’re happy. You don’t go home and sell that one for sure. But yeah, because you’re almost guaranteed to have to require it at whatever the new market prices are. Now we get that as it relates to a car or as it relates to clothing. But many, many people made bad decisions. We had clients that wanted to make some really bad decisions at that downturn, were able to save all but one of them. And now they’ve watched the market recover. Now what was it, your friends at your business, your wealth and sound Financial Group, were saying, at the depths of this, you’re buying at a discount, the market will recover. And we thought it would recover by year end. So we were wrong. We, I thought it would go down bump, we talked, solo cut, we were dead wrong. By the way, we’re dead wrong, like everybody is when they do this. Now, we were dead wrong on the optimistic side that the market would come back by your end that we would bump along the bottom and between therapeutics and vaccine news, we would recover before your end. And sure enough, that’s what’s happened. Now we’ve got some concerns about whether or not there’s stimulus additional, such as second wave, etc. But let’s just take a look at the presidential election. So I’m going to show you here, let me go to this date range. And what we’re going to do is pick October 20 28, sorry, October 2020. On the 28th. That was one of the lower opens right before the presidential election. And so sure enough, people said, Yeah, I’ve got to get I better get right out of here, look at dropped, how much it dropped right at the open. And yet, where do we stand now. As of this morning, the market is up 6.13% in a matter of like three weeks. Now, here’s what I would have all of us take away. Now, of course, if you have an academically allocated globally diversified portfolio, it’s not the Standard and Poor’s 500. But the standard Poor’s 500 is an indicator, and an easy one to look at about how impossible timing the market is. Because let’s do something here. Korea. We didn’t talk about this before. So the danger is we go back to that live stream for Isn’t this the second just because
let’s remind everyone, we didn’t have any sense of who our next president might be. Until the ninth, six.
Anything can happen. And the key is, it’s anything that happened and it happens fast. It’s fast, yes, unpredictable. And it happens. Like we’re going to talk about a minute with news and you will see like news. So the definition of news is something new new news. That’s why it’s called news. And that news was information that was unknown or unknowable, prior, and the unknown and unknowable, is what moves the market when it’s now known. And I will never forget when I was at a conference, Cory, this is like 16 years ago, and one of the business coaches that I’ve followed over my career, we were at a conference for him. And he said, talking about active investing. And he said, what we’re going to do is we’re going to simulate what happens to the stock market. Keep in mind is 15 years ago, he says a new piece of information got released right now. And then he looked at his watch for six seconds and looked up and he said the price of that security has adjusted already. That was six seconds 15 years ago.
And today, yeah,
yeah. I don’t know how much faster it is. But I know six seconds was too short. For any individual investors do anything about it 15 years ago? Well, there’s
a great book called flash boys by Michael Lewis, who wrote most notably liars, poker and The Big Short Moneyball. Yeah, some major movies have been made from his books. Flash boys is about a lot of different people in the Wall Street and finance but a big theme of that book is a company that’s putting a fire optic cable between New York and Chicago for
the Lord dollars for lost
billions of dollars of cost to make it feet shorter to make it microseconds shorter transfer speed of data between those two financial centers. So it’s probably not even getting through half of that sentence that that guy was saying now before it a Johnson
Yeah, like that. Oh, yeah. Right. And, and, and now, it’s not only that, but if we think for a second, that the best in smartest minds and asset management know what General Electric Tesla, Ford, Microsoft any of these companies are going to do in the next two weeks, then why do those same companies spend billions and billions and billions of dollars on shortening your transaction this much in speed so they can profit fractions of a penny over and over again, if they could tell us where a stock price is going to be 20% differential in the next six months? Now, here’s the thing. I’m not saying that that’s impossible, or that no one could do it. But here’s the reflection I would have all of us make. I want you to imagine for a moment that you could do it that you knew. And you were 100%, right, every single time where a stock was going to move, maybe some weird superpower, like something out of a Marvel series, where somebody, all they have to do is open up like the old New York Times with all the ticker symbols, and all of a sudden that data transfers for them and stock symbols pop out. And it’s like a blend of the Da Vinci Code and something about the paranormal. And instead, he’s able to you’re you’ve got this amazing ability, you picture this of you flipping through the pages or looking online and they light up to you, and you buy them, and they always go up. Would you allow strangers to invest with you? Or would you move off to an island by yourself with your close loved ones and family members and continue to crank those returns year over year over year? Well, of course you would choose the second option. So I’m not saying nobody can do it.
Just they’re not
sharing notice telling you.
Yeah, I’m not
telling you. They’re not telling me. They’re not telling anybody. You know, even I was looking at the famed hedge fund. I don’t think I have this article pulled up. But the famed hedge fund of Bridgewater associates, they’re, they’re not, I forget, it’s called alpha cap or something, the real big flagship one. Well, it’s long term rate of return is like 11, and some change with an extraordinary amount of risk. And the all weather portfolio that’s often touted by folks like Tony Robbins, etc, has a long term history of 7.3%. Not bad. Not bad. But we’re not that this is one of the wealthiest men in the world who’s viewed as a stock market prognosticator. And he barely outperformed index investing over the last 20 years. Well, like by fractions of a percent, not even a full percent.
Remember that this? It’s an incredibly complex market, but it is finite in size. So even strategies that start working only have a certain limit to the amount of money that can be at play and that strategy before it stops working. Because, you know, there’s, there’s only so many shares of Microsoft out there. There’s a lot, but if you’re someone who has that magic mutant gene, about nuts, there’s other people that want to buy it for other reasons. There’s only so much you can, can get at that. It’s not like you could do this with billions to hundreds of billions to trillions of dollars, like there is a limit as well. And then if if one person had that mutant gene to do it, people if they started to notice and started to copy them, right after that starts to decrease the efficiency of that strategy for everybody. At the same time.
If I Well said, so here’s the thing. I was starting to go down the path of before
I was that all the way back when I was like, Oh, wait, can we go?
Yeah, that’s right. Yeah. Like before Cory said something valuable and reasonable. But what he was interrupting was my rabbit trail. Nice. So here’s my rabbit trail. Let’s go look at the year to date performance of the market. Now to put this in perspective. I’m clicking back to the other screen for a moment. Remember that the s&p 500 is up I’m sorry, I think I hovered over it. It said six earlier. I guess the markets on a tear I wasn’t quite all there, right. 8% change since October 28. Okay. Now since January one, the market in total is up 11.4 3% so do some quick math in my head. But basically, it’s like, of the returns you would have had two thirds of them occurred in the last three weeks, on the entire ever love in a year. So I want to say that again, in the entire This is why I do enjoy being able to do these live streams as we can talk about things are happening right now. Yeah. And what’s happening right now is that if you were out of the market the last few weeks since pre election, and you did it for all the right reasons, you forfeited an 8% rate of return. Now, let’s go the other way. Let’s say the market had gone down 8%. After the election instead of up 8%, what would our strategy be to recover? rebalance, if there’s a significant downturn, add money if we have some on the sidelines
and hold strategy. That’s the strategy for recovering losses, which means you’re selling disproportionately less of what stayed strong, and buying disproportionately more of what has gone on sale. That’s the beauty of rebalancing.
And now, as of effect, let’s just do this, I’m just going to shorten this down to January one to October 28. So we’ll just look at the year prior to this just so nobody thinks I’m doing any fancy internet magic on a live stream. So from the beginning of this year through October 28, when our market timer hypothetically sold, it was 1.25%. So I was wrong. Cory, you missed out on like 650% of your total rate of return for the year if you were out of the market in the last three weeks. Now, here, here’s the thing, now, people will see that. And they may even do it with their own investing. And what they will do is chalk it up to the stock market not working. This is the equivalent of somebody putting their underwear on the outside of their pants, their socks on their hands, and wearing no shirt. And then going out in public and being like, man, just clothing doesn’t work like people just look at me weird. If you do it wrong, it won’t work.
Well, it’s not that the stock market doesn’t work for us. It’s that the human brain usually doesn’t work well for the stock market. And it’s
served us so dang Well, the human brain for so many years, when we needed to predict patterns of like, Oh, you know, the sun’s getting longer in the sky. It’s the peak of summer, we need to think about harvesting and another, you know, X amount of sleeps as the kids would say, how many sleeps until we harvest. And then you would look at weather patterns. And that pattern recognition served us incredibly well. That pattern recognition doesn’t serve us when it comes to the stock market. Now we’ve we’ve talked about this a lot, especially since March with the concerns around the pandemic and stimulus and stock market volatility. The bottom line is it is this volatility that scares people away. And it is this volatility that triggers the biggest wealth transfer ever. And it happens nearly every year where people get scared about something sell out their positions and who profits. Those of us that stay disciplined. Now, I’m not a big fan of the government doing anything that produces any kind of wealth transfer. But free market wealth transfer is okay because you opt into it. Like that person. That client that we couldn’t save that I wish we could have right here. March 23 was the day they lost their stuff had a tremendous hit to a seven figure portfolio. And due to people being in their ear and saying that strategy isn’t working, you got to get out it’s going to zero you’re going to lose everything. On the fear of losing everything. They lost a third of everything they built. Meanwhile, if they would have only held strategy. In fact, if they had a held strategy and added money, they’d be up by a good margin now. And that’s it. So I want you to know, as you’re listening this you’re thinking about your portfolio management strategies. This is what we do. I was able to take a chunk of money out of business this year. And what I did is it And it took some effort, like I had to wire money and get it in in time. And I had the money to invest. And like we talked with all of you to do is like when it’s prepared, I put it in. And it dollar cost averaging over the year, I didn’t do any of those things. I just took an extra $200,000 and put it in on Monday, right before the election. And I didn’t know what was gonna happen. But you know, what I did know is that I need millions of dollars of capital work, for me to be able to have the choice to be done by age 46. That’s my wife and mines plan. Not that we’re going to walk away from the business, anything like that. We’ve just one choice to be done. Good. I was like, 46.
Yeah, well, I I tell the partnership agreement.
Jeff, I think by our estimates, though, you didn’t meet us till your late 40s, you probably achieved it right around 4748, that you, Jeff Miller, for those of you that haven’t met him, you can listen to the episode on the Millionaire Next, or a Millionaire Next Door. And I said, I just want to beat you by a little bit. So much. But the thing is that I just put my money and it could have just as easily gone the other way. But it’s not going to affect my asset values in 20 3040 years as I continue to live on that money. And what I’m doing right now, is practicing the mindset that I need to foster in my old age. If right now while you’re earning an income, maybe you’re in the top 1% of household income earners, and you’re still freaking out about the funds that you will not access for years to come. You just got to spend more time training yourself more time exposing yourself to your coach and advisor in this kind of data and information. Because everybody else is going to tell you you can time the market. And they’re either telling you in a cloaked way or an unclothed way. The closed way is, oh, you can’t don’t want to do it yourself. There’s too much going on in the market, etc, invest with this active asset manager over here. And they will outperform the market. So not saying you could do it, but somebody can. Now all the discount trading platforms are saying you can do it. But they’re both making the same argument. Somebody can time the market, though there is this is like one of the biggest frauds pulled on the American public by big box financial retail. And that is that anybody can do it every academic study, the only studies that kind of hint that maybe there’s some inefficiency in certain publicly traded markets that would allow you to be able to get some additional return or some asset manager to get additional return. The only studies showing that are from the people selling that service. All the academic studies point over and over and over again, that the market is too efficient. That there’s too much information being communicated in the prices, there’s no way a human being or even a computer program currently can even keep up with it predicted or consistently or predictably produced outsized returns because of quote unquote, information they have nobody else has. It is a hoax, it is a fraud. It’s not real. But it will seem real in the moment,
it is kind of like the Health Studies commissioned by the tobacco companies on cigarettes.
They help you with your breathing, especially the menthols Cory. They’re super good for you. So while we’re talking about the conspiracy of big box financial retail, let’s spend a few moments talking about how the media can lead you wrong. Is my screen still showing I’ve sort of just been jammed along. Okay. Do I need to hide this thing that says hide? Or is that not going? That’s not showing? Oh, good. Well, look at look at us figure out our live stream right in front of everybody.
All right. So.
So this is great. Here’s the article, we’re gonna pick on several we went a little long in the market timing. So we’re just going to look at personal finance 101, my favorite, the Complete Guide to managing your money. Oh, it’s complete, guys.
And it’s only a 17 minute read this faster than average on reading. So I probably get through it in 15.
You could totally read it twice in 17 minutes. So, in case you needed additional help and reading a 17 minute article,
there’s a tip. Just forgive me. I’m just having a little fun. We’re feeling a little punchy guys, this is this is maybe punch below the belt, but I don’t care. It’s funny. Here’s the thing, Cory,
feel free to disavow me.
The point during this.
This guide lays out seven key steps to focus on to get you’re working toward long term financial security. Follow along from start to finish or jump to the sections you want to learn more about. Thank you. Here’s the thing. Maybe maybe a tome like free to choose by Milton Friedman. I need a guide on how to read that. I need a guide on how to read the Bible, maybe even a guide on how to read a book like Atlas Shrugged or Ken Falaise Pillars of the Earth. I don’t need a guide to walk me through how to read this article. Okay. So we’re going to talk about a few things that probably Too bad. Like you should set short and long term goals. Fine. Accept no problem. That’s a good thing. Create a budget. I’d prefer that they go with spending plan. But that’s semantics. Yeah. Good. So far, so good. Which by the way, most of these personal finance articles and gurus get those first couple of things, right? Like, maybe you should have some money set aside for emergencies. And you should save some money. There’s your emergency fund. I had to create a financial cushion you you keep money in cash and don’t spend it all. I don’t know why that’s a minute long. Because I shouldn’t take it three seconds. So you’re right, Cory, I am a little punchy. My bulletproof coffee has my brain on fire this morning. Pay off costly credit card debt. So far, we’re in agreement with them. But these aren’t the things where people go wrong. You should save for retirement,
I will actually say, I appreciate that they put a savings cushion first, before paying off credit card debt. Many sites actually put that the other way around, which leaves you in a really tough spot if any emergencies happen. So, so far, so good.
Okay, good. I’m glad you got that out. Because so far isn’t going to be so good the rest of this article. So let’s start with this. Now, what we’re gonna do is let’s just use, they’re going to talk about a 35 year old, so save for retirement. And here is where we start getting these formulas that don’t make sense on their face. But maybe like a lot of things we read in the news, it takes a moment to sit back and just do some simple calculations, like is that even real? So let’s check this out. So we have a 35 year old and let’s say they’re doing pretty good. They’re making a quarter million dollars a year at age 35. Which then according to them says we need to have two times our annual income, oh, and it even gives us the other numbers. And this, this is great, because they’re also sprinkled throughout the article, Cory, I didn’t realize they were all next to each other. So I will scroll through the rest of the article and do my best to besmirch how big box, financial retail, and the media tend to work together. Rather than people being reasonable and just learning and thinking about money. I will still do that. But we can do all the math at once right here. So let’s cover this. So we got somebody with half a million dollars. And they’re 35 years old
that they make their salary at 35. For anyone Hmm, especially if you can’t see it.
And let’s say we just have a growth rate of 7%. Yeah, thank you, Cory taken care of our audio listeners, in 30 years by age 65. That would be $3.8 million,
without adding anything
to it, if you if you added nothing to it. And you also think about this, your household making a quarter million dollars a year when you’re 35. Assuming that you never get a pay raise, that might work. It might work. It was on tax free accounts might work. But let’s just look at if this person just got 3% income raises. So we’re taking their $250,000 annual income. And we’re adding no money to it. And we’re just gonna use 3% inflation for 30 years, how much money were they making right before they needed a punch out according this plan? $600,000 a year. So we’re going to go for $600,000 a year of income down to
one 151 50. Yeah,
hundred 50,000 of income from 600.
That’s the first roll on 3.8 million, roughly speaking, if anyone’s doing the actual math on their calculator, you can put it in the chat box and give us even more refined number. But I think that’s close enough. Indeed.
So one of the things he talks about is you put money into retirement accounts, Roth etc. Now one of the major problems that we see oftentimes, is most of the advice assumes that what you want to do is work from 22 to 62. And you don’t want to punch out near the neck because one of the biggest recommendations they make is just throw money into qualified plans only with no conversation of you might want some freedom, access, availability of capital for a myriad of reasons before your age 59 and a half, which could go out further, we just saw them in the cares act bumped out the required minimum distributions. We may see distributions from retirement accounts have their dates moved also, not soon. But I’m saying that as people live longer, it’s inevitably going to adjust. So start saving 10% of your gross income in your 20s. And where is my amount that I’m supposed to have in each one of these in your 40s? Oh, that’s well instead of scrolling through the whole article, which we will have in the show notes. Let me go back up here. You’re 50, you’re supposed to have six times your salary when you’re 50. Okay, so let’s take our 50 year old person, this is where you’re gonna see just these, quote unquote rules of thumb. Don’t follow a damned one of them, guys. And the reason you don’t want to follow them is you got it you I think it’s great to use them as a guide. But then you’ve got to learn to do the math. Because you can do the math. And right here, oh, if we just let the money grow, we might be okay. In fact, we had two times your salary again, this person is making a quarter million dollars a year. If they save 20% of their income for 30 years, let’s just look at this. If they continue to do that their net worth would be 8.8 million, giving us a retirement income stream of about 350,000.
that might work to retire if our pre earnings were 606. But look how their math changes. Now, when I’m in my 50, when I’m 50, I gotta have six times my income. Well, let’s just go if we’re gonna go to 50 from 35, how much are we making at that 3% increase each year? So we’re making 389. So what they say six times, Cory, can you do that math,
six times six 389.
Should be like 2.3 million,
I think 2.334?
Yep, I was pretty far off 2334. Now, I’m not going to save any money, because they’re not talking about the savings right there. And I need to back it down to 15 years, because that’s how much longer we have age 65. And that leaves us with 6.4 million 6.4 million, based upon the fact that we are going to have a total income of $600,000.
So so far, their math is actually scaling down as you get older, not
not what I was waiting to watch for in the chat yet. You’re exactly right. Do we actually have less money now than we would have? And now just look what happens by your late 60s having 10, late 60s 10 times your annual
sorry, let me say this again. So you say that, let me say this again, for everyone. That’s that’s listening, the the method they’re using is not changing the numbers to chart you staying on the same path. As you get older, the numbers actually change to have you on a lower path as you get older, which depending on when you start thinking about it, which is strange.
And I’ve been seeing these numbers pop up a lot in personal finance articles across the internet over the last 18 months to two years, and there is no basis in reality for them. Well, number one, we’ve talked to you guys on previous episodes that you shouldn’t should all over yourself, I should do this, I should do that. But don’t let these folks should all over you, you should have this you should have that. How about how much is required. For me to have the life I want. How much is required for me to give my children the education they deserve? How much is required for me to give to the church based upon my faith, like that’s the numbers I want. I don’t want to have myself or anyone else should all over the place. Because here’s the thing. Remember, we just talked about the person making about 300 and some thousand, and they’re on scheduled to have, oh, I’ll be darned about 20 times that at age 65 based upon the numbers in their 50s. But now, guys, I don’t even need to do the math on the screen if you’re late 60s 10 times your annual salary is by definition only going to provide you like 40% of your pre retirement income. Now, if you’re one of those people a little bit like me, live radically within your means. You don’t spend that much money, you save a truckload of money. Well, then that works. Because when when I cross the threshold of financial independence, I will be living on a very small portion of my overall income. But that’s why the capital of work can do the job and I can have the financial independence. But they
don’t say anything about that in this in this article,
not even a little bit. In fact, based upon this article, as long as my income didn’t rise too quickly, I could just sit on my laurels based upon what I had set aside at age 35. And according to their article, I will be on pace to be fine. retiring at 40% of my pre retirement earnings. This is the complete financial guide. And one more thing to watch out for and this is not meant to pick on CNN. But I think is a funny way for us to end this today. In searching for some additional articles on this, I found this new website called cnn underscored. And what it appears to be is a website that primarily focuses on reviews of gadgets, wellness, money, travel. And so I was like, oh, let’s see what cnn underscored has to say about money. And I’m just scrolling through here. But here’s what I want you to notice. Everything we’re looking at so far, is totally based on spending. Everything is spending related. There was one down here like I had to scroll until my wrist hurt. But there is one down here somewhere there it is three reasons. You shouldn’t wait to refinance your mortgage. Okay, there’s one financial strategy we found so far out of all those tiles of spending related decisions. And this is probably the best place for us to leave off. Now. I heard that little disruption. Are we still good on my camera? Or do we Oh, we got thumbs up. Look at this. Go. So we did. Oh, we
do need to have a message quick message from our sponsor today, cuz we didn’t do that. Oh, Cory. Why don’t you do that answer. today. Our episode is brought to you by Shepherd family chiropractic on West Lake in Seattle. Now, there was no specific financial renumeration for this episode, we were really against taking sponsor money for these keep these very centered and non partisan, but we did tell my parents we’d be starting the launch. Right? It’s seven Central Pacific, and we were a little little bit late. So they’re starting their day a shepherd family chiropractic. So thanks for tuning in. Sorry, we were a little late mom and dad.
And, by the way, as a side note, and a new promotion that I just created and haven’t run by core yet. Oh, dear
if you if you are one of our first attendees for the YouTube live stream, we will promote your business just like we just did for corys parents, it could be you in our next live stream two weeks now. I
George Burns losing his mind over here, he fell out of his chair,
the first business name to be chatted in our live stream gets promoted that that day. I love it. I love it.
I love it too. But let’s just be clear. If you have a business with a wildly inappropriate name,
will not say it.
I’ll let Paul do it. Yeah, of course.
All right. So here’s, here’s kind of where we want to leave it today. And this is something that we forgot to do in our last live stream, we were so enamored with the equipment. But getting back to some we promised to do a little bit earlier this year, which is we’re creating a catalogue of the way that Corey and I think about things, the way our guests think about things, some unique insights that we can garner. And what I want our kids to think about, from the unique insights we get from a guest or time that we spend with one another thinking through some of these financial topics is that no one has your future in mind, when they create an offer. No one has your future aims in mind. Now, that sounds kind of heavy. And for some of you listening, this could be heavy. I mean it to be very heavy for when my children listen to this. But everybody creates an offer based upon their aims. And they don’t have a direct interest in whether or not it helps you with yours. When they create the new Mercedes, and roll it out and some new feature that makes last year’s feature obsolete, where they think you know all about the aims of their clients about the cars last year. No. were they thinking about the aims? I think this is some years old. But I think Mercedes did some kind of study that 70% of all the people that buy their cars, it’s not financially responsible for them to do so. Like these, it’s prevalent all over the place. And that’s why what you have to do is check for where your interests align with people based upon what this tool is going to do for me. Well, it helped me meet my aims. Will this coaching program I’m considering helped me meet my aims. Will it care for my family in the long run? Well, this financial advisor are their interests aligned in a way that they can allow for my aims to be met while they meet theirs. Because the bottom line, nobody’s out there doing pure charity work, and if they were you should worry about taking their help, because they also have no vested interest in it working if it’s just charity You see, what we have to do is think about what’s important to us and our future in our finances. That’s why we talk about we need to design and build a good life. It takes design, it takes reflection, it takes purpose, it takes having a stake in the future and saying, this is what’s okay with me, this is what’s not, there are many people driving some slamming cars that pass you on the road today, who will be living with their children in their old age. There are people with some amazing houses that you see, you know, as you drive down the road and think man, would I love to have that, and the financial stress that it’s putting on them is going to lead to a divorce. There’s that. And all of the people that participated in those transactions, were just looking out for producing the outcomes they wanted for their business. And so my encouragement to all of you, and certainly as Cory and I have these messages that kind of relate to our offspring, to just keep your aims in mind, with every transaction you’re going to encounter, and whether or not this new thing you’re going to deploy money, energy or resources into actually leads you closer to where you want to go, because nobody on the other side of that transaction takes your future on is their responsibility, not the person writing the article, not the person writing the book, you. And if you want an interesting podcast on that just search our podcasts for being your own fiduciary. And it’s going to give you some insight about the way that we would encourage everyone including our own children, to be primarily responsible for your financial future. You can’t completely outsourced somebody else you can hire a household financial officer with someone like sound Financial Group, but you have to be responsible for those outcomes. Cory, another successful live stream in the bucket. We are so thankful to all of you for coming on and joining us remember our promotion, first business to end up in the chat. Probably gets a shout out unless I don’t like you. With that. We hope you guys have a great rest of your week. We’re so glad you could join us here on Tuesday morning. Be sure to like be sure to subscribe, be sure to find something interesting one of our videos and share it with a friend. And as always, we hope that this has been a contribution to you being able to design and build a good life and upset
The entire world. Yeah. So I see why you’re nervous.
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surprisingly, depending, there’s some folks it’ll still there’s still some conversation around around that, although it’s going more and more in one direction. But even in that uncertainty, the market was going up. And that’s really my point. It’s been about elections and choosing presidents but that we really didn’t know and the market was still going, going up. And a lot of times people talk about the uncertainty of elections, pushing that down. Now I have no idea why that was happening. And anyone who tries to say they do really doesn’t either. But my point is you think and anything can happen.
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I said, Jeff, I said,
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Florida and prevent the ills of big box financial retail from impacting your future. Have a great week everybody
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