PODCAST EPISODE 231: Holding Strategy in the Midst of Crisis




      • 00:00 – Episode begins, Paul welcomes listeners.
      • 05:05 – Historical trends on market declines.
      • 07:04 -What the disciplined investor should know.
      • 11:33 – The truth of the stock market’s performance.
      • 15:00 – closing thoughts
      • 15:32 – Episode ends, thank you for listening.


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Full Episode Transcription



Hello, and welcome to your business, your wealth. My name is Paul Adams, CEO of sound financial group. And I am not joined by my partner Corey Shepherd today as he is out of the office on vacation. So you all are left here with me. But you’re left here with me in good hands today. Today what we’re going to talk about is the evidence around our investing. Last week, we talked a little bit about the volatility in the markets going on right now. And we get that it can be scary, we get that it can make you uncomfortable. And what I want to do today is talk a little bit about the evidence around investing. And we’re going to demonstrate some evidence for the fact that the markets make it through upheaval in times like this, we have a foreign war in Europe, that hasn’t happened before or not in many, many decades, we have possible involvement of the US, we have sanctions, we have increasing interest rates, the Fed is meeting this week, probably will have been done and raised a quarter point or more by the time this podcast episode releases. On top of that, there’s the question of what rising interest rates will do to things like the real estate market and we have fuel prices at an unbelievable high along with inflation. And in the midst of all that you hear all these things from people about what you should do with your money, that you ought to buy gold, you ought to get out of the market, you should buy this kind of stock or buy that kind of stock. Or somebody comes to you and said, Here’s here’s a product recommendation that’s going to protect you from the downside. And what I want you to think about and change your frame around is asking them what’s the evidence that what you’re recommending over the next 20 or 30 years is going to be better than what I’m doing with an academically allocated globally diversified portfolio. Out with One Note,

I’m speaking to those people that have an academically allocated globally diversified portfolio. If you went into a very tall building with marble floors and had a portfolio recommendation made to you that you implemented that may or may not be highly diversified, it may or may not be academically allocated. If you went to a strip mall and a very friendly financial advisor who helped put you in a portfolio that may or may not meet this criteria, if you’re wondering if your portfolio meets that criteria, you can reach out to us info at SFG wa comm you can find our website in the description of this podcast or the video, we’d be happy to have that discussion with you. But full disclosure, we’re not talking about every investment portfolio people have, but one that is academically allocated and globally diversified. And what you can do when somebody makes that recommendation of you should get gold, say help me understand how holding gold would have been an effective tool for me over the next 20 or 30 years. And why do I keep saying 20 or 30 years and taking it off of this very recent situation. It’s because almost all of you listening, have decades and decades to come of investing. If you listened to our last episode, we talked about how the market has gone up and down and recovered repeatedly over the last nearly 100 years. And there are so many reasons to be afraid to be scared to have your money out of the market. Now there are reasons to have money out of the market, like on the short term basis. Like I might need an extra couple $100,000 for my business. And maybe I need to keep that handy, because I don’t want that to be exposed to volatility. And that may have been bad planning originally, because perhaps that money should never have been at risk. If in times of upheaval, you realize that you need access to that capital. But for now, as we’re having this conversation, we’re talking about this long term money, the money that needs to produce returns for us decade after decade after decade, to keep us in the position that we can build financial independence for our aims for the future. So that you have the opportunity to have the life that you want down the road or as Ray Dalio said which I’m probably misquoting slightly is real investment risk isn’t the volatility of the markets, real investment risk is not having enough money to be financially independent. And I think that that says it so well of what’s going on in the market today. And so when somebody says to you, I want to be in gold, or I should be in this or should be in that. Just say what evidence do you have that that would work out? Well, and in the remainder of our conversation today, I’m going to show you some of the evidence that we demonstrate to our clients in the rare instance and it’s okay. We try to do our best to train our clients to be ready for markets like this. But we still periodically get that call get that question of what should I do right now? And the thing to do is look for where the evidence is about What strategy is going to give us the best long term outcome? Let’s jump into it. So this is a measure from 1926, up through the end of 2020. And what you can see is after a market decline of more than 10%, which is where we are right now, the one year look ahead and returns was 11.3%. In the Standard and Poor’s 500. In three years, it was 10.2. And in five year look at it was 9.6%. That’s key, this realization that after markets decline, markets tend to rise. And they tend to rise because as we’ve said, many times on this show, times of great market volatility are when the greatest transfers of wealth happen. Now, we’re not talking about government transfers, we’re talking about transfers from the scared and disciplined investor, to the courageous, disciplined investor. Now, when you look at that, you go Yeah, but Paul, when it really is scary, because these market declines are happening all the time. And certainly, if we watch the news will feel like that, because they will talk about whatever index is down. And we’re not always listening for wait was that the s&p 500, or the Russell 3000. This is a study of the last 95 years. And out of those 95 years, if you measured your portfolio annually, the portfolio was up 71 of those 94 years. And when it was down, it was 21 of those years, or 24, I’m

sorry, and that is 25% of time meaning of all the years, three out of four up 25% are down. That’s a that’s the thing that doesn’t feel like when you watch the news on a day to day basis. Why is it the news, the media, the articles I spin through on my phone that tempt me to click because of their headline? Why do they say otherwise? Because they’re working to capitalize on that part of our brain that wants to defend ourselves from threats, that wants to defend ourselves from what bad could happen to us out in the marketplace, what would happen to us that would compromise our dreams for the future of financial security. And while in fact, they’re warning us about all of these problems, it goes overlooked all too often that those articles are actually the threat to our security, the articles that would say we should abandon strategy. Because if you look at them, none of them have evidence to be able to produce outcomes for us on an effective basis, decade after decade. But there’s plenty of fodder to throw at us in the media. Because if you look at the daily of the standards and Poor’s 500 It’s nearly 50% bad days. Two good days, you know, that split tends to be 48 49%, bad 51 to 52%. Good on the daily. But when those are aggregated across the annual we get 75% good years and 25% bad years. So the media has lots of reasons to Shell us, if you Well, with all of this negative thinking. And here we are worried scared, unsure what to do next. What we want you to be able to do is realize that the market is this way that nearly half the days are going to be quote unquote bad news. Why do they do it? Well, they want our money to be emotion. Those advertisers are advertising financial products. Any show that’s talking about terrible market outcomes look at to some of the advertisers are and they’re promising something to cure that anxiety that was just created by the media that we consumed. And where does that put us what has us going down the road in this deep fear, this fear of like we’re going to lose out and it’s a little bit like trying to get ahead and traffic by zooming in and out. You know, we’re putting the pedal on we’re hitting the brakes hard were ducking around other cars. And for anyone that’s ever been in a hurry and experienced that. As soon as you get off on the exit and start slowing down, you stop at the stoplight waiting for your turn off the highway. Nearly always anybody you pass the last 10 minutes passes you in the next 30 seconds. And you realize that all of that stress, all the anxiety, all of the risk was unnecessary. Well, what does that look like if you have an academically allocated globally diversified portfolio? Well, here’s an example of a 60% stock 40% bond portfolio after some of the major tragic market events over the last 30 years. We have October 1987 Stock Market Crash nearly 40 years here The year after up 19% to three years later, 33%, five years later 61% up. And yet, what did people say in the October 819 87? Crash, the market is coming to an end. It’s unfair these companies, like it just turned out not to be accurate. Then we have 1989 SNL crisis, enormous disruption in trust for financial institutions. And yet, it turned out okay, 49%, up five years later, let’s go a little more recent, the march two thousand.com crash. And that portfolio had two year two periods, the one year period, and the three year period was where it was still negative, but 37% up after that, and a 6040 portfolio was not hardly damaged on the downside, even during the tech bubble crisis. Then we have the terror attacks of 911. We have the 2008 bankruptcy of Lehman Brothers, the entire financial crisis that stemmed throughout the world. And yet, five years later, our portfolio was up 59%. And then August 2011, which was the first time the US debt had ever been downgraded. You see, in the midst of the current tragedies, the current things that are being thrown at us and put on our radar 100% of the time, we see that the market bailed itself out over and over and over again over these periods.

But it still can leave us worried, somewhat offer you one more piece of evidence before we park today. And that is it’s never as good as it seems. And it’s never as bad as it seems. You see this chart goes back to 1979. And it measures the Russell 3000 index, the T chart to the upside and the downside is demonstrating where its highest high was each year, and where its lowest low was. And you can see the performance at the year end of the blue bar, that it was never as good as it seemed during the year, except for 2013. It actually ended on the high. But it also was never as bad as it seems. And I want to point this out, look at even 2009 2009 had tremendous downturns. It was down almost 30%, intra year, but ended over 25% up, you have 2011 where you ended up with a very small return. But you had tremendous down to like 20% down during the year 2020. The market, as we all know, we just live through this had tremendous downturns during the year, but ended well well into positive territory. So when we’re asked what’s the evidence of our investing strategy, working out for clients decade, after decade after decade, these are some of the things that we show them. And what I want to encourage all of you to do is any of those sources of information, it might be a CPA, it might be an attorney, it might be just a well meaning friend, some financial adviser, a pundit on TV, an article we read, but look for where’s the evidence that this is going to work out for me in the long run. And you’ll see that even if they offer evidence, nearly all the evidence is going to say something about the next six months, about the next year, about the next maybe year and a half. But rarely, if ever, are they demonstrating a strategy that can work for us to meet our aims for the future, to make sure that our money produces the outcome we want for ourselves and our families. Instead, they’re saying, here’s what you need to do right now, to avoid this outcome in the next six months. So you can ask them, What should I do? What should I do different than I’m doing to take care of my family, my aims and my concerns for the future for the next 30 years. Because even if you’re 65 right now, but you’re healthy, you and a spouse could make day 293 And your money needs to last that long. Which means this isn’t going to be the last market you go through. It’s just this market whenever this market is is just the most scary for you. Because each market recession we go through each set of market volatility, you have more money than you’ve ever had before. And so each time I don’t want you to put your head in the sand I don’t want you to hide out I don’t want you to shred your statements. As soon as they come in. I want you to look right at it. Look at the monster volatility look at the monster of how they tried to scare you in the media. And the reason I want you to look right at it and walk through it with us alongside you if we’re your advisor is because each time you do that it builds courage. And it better prepares you for that next market cycle where you’re going to have more capital and it’s going to feel more scary. So with that, I want to remind you There are people out there that you care about who are scared right now that you can take a moment and text them this podcast, you could text them this video. You could give them a different look, you don’t need to say that they should become clients of ours, but you could send this to them to just assuage some of their fears and put them in the position that they perhaps could have the kind of confidence about their future and the future of their investing that you have. And with that, we’ll look forward to seeing you back here next week.



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