This is the affluent entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth
so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money and scale your life while creating a deeper impact and living with complete freedom, because that's what it really means to be an absolute entrepreneur. So, well, two days ago I get a call from a client. You know, that was after Monday's 1100 point drop and then Thursdays and Friday's drop in the stock market. Now, I happen
to do some consulting work. I've been a mentor and a money mentor for people for decades now and helping them build their wealth. And this happens to be one of the families that I kind of oversee their financial journey. And as a family CFO, well, and they looked at me and they said, hey, what do we do? You know, we've had three big days of declines, you know, and I'm concerned about our future. What does this do for our plan? What does this do for what we're trying to accomplish?
And if you're invested at all or even if you're not invested, but you want to invest and you want to build wealth, this is the kind of stuff that scares people. This is the kind of things that get people to say, the stock market is risky, it's rigged against me. I'm never going to win. So what I want to do in this episode is what I did with him is I gave him a perspective of
what caused it to give him a framing around it. And so we understand it, but more importantly, gave him some things that we are doing proactively to not only survive it, but to thrive through it. And I'm going to tell you exactly what I did personally on Monday because I saw it as an opportunity. All right, so let's just talk about it. I'm going to bring up some charts and some things because I think it's important to get a perspective. I'm going to go back to a week ago, and
that was on Thursday. On Thursday. Now we are in their earnings season. So we're getting earnings from companies that are announcing things like Google and Apple and Tesla and Amazon. And some of the earnings weren't as good as expected and the guidance that they gave. So what happens is that they announce their earnings. They say, here's what we made. Here's what we thought we were going to make, here's how we missed it or we made it or we beat it
on revenues, on bottom line. But then they give guidance, and they give guidance as to what the future is. And some of that guidance was soft. Some of that guidance was, hey, we think it's going to slow. And so what that did is it caused selling. And when they're selling, the stock market drops, prices drop. And so at the same time that we have earnings, we were getting economic data, and the Fed
was meeting to decide what they were going to do with interest rates. So on Wednesday, Thursday, Friday, a week ago, when this happened, Wednesday was the Fed meeting. Thursday was manufacturer data, and Friday was labor data and unemployment data. And so when you look at the earnings that happened and the data, I'm going to walk through it and you'll see what's transpired. Wednesday, feds came out and said, we're going to hold interest rates the same. So there
isn't a decrease in interest rates at this point. But they put on the table that at the September meeting that there's likely a possibility of doing that, which was fine. Okay. That's pretty much what people expected. Then on Thursday, and I'm going to jump to, to the iPad so you can see this on Thursday. Okay. Prior to Thursday, we were at a high. We were at a high here. Okay. At 41,250, approximately. Okay. And this was July 17, couple weeks later, we get the manufacturing numbers on
that Thursday. Okay. The manufacturing numbers were not where they anticipated. They were softer than they liked. And so this was the first drop, the Thursday drop. Okay. And. Okay. It dropped manufacturing numbers a little softer. All right. Then Friday came, and they released the unemployment. Unemployment went to 4.3% from 4.1%. It went up. And that actually raised some concerns for people. That raised some concerns for people around unemployment and recession and the
possibility of recession because we've had some layoffs. And so now all of a sudden, they started to look at and say, wait a second, the feds have not, they didn't jump in the game soon enough, and now we're heading into the recession. So we had recession fears a couple of years ago, and we've been waiting, waiting, waiting. Nothing has happened. But now it reared its ugly head again. Now let's be really clear whether we're technically in a recession
or not or we're technically going into a recession or not. Isn't the issue. The issue, I think, is, is that it's actually more costly to live. Go to the grocery store, go to the gas pump, you know, go try to get housing, any of those things. It's much more expensive. So whether we're technically in a recession or not, based on the economist terms, we are feeling the pinch. And so now all of a sudden you're feeling the pinch. You're seeing layoffs and unemployment rate goes up. You start to feel
uncertainty. Uncertainty creates fear. Fear creates risk. And people are adverse to risk and what do they do? They start to sell. And that's what happened. And so we have these two drops that happened on Thursday and Friday. And then we enter the weekend. And over the weekend, Japan's, Japan's stock market had their biggest one day drop of over 12% in one day. Now that was before we opened up on Monday. Okay? Now there's a reason for it. I'm going to explain it here in a
second. But it's a perfect storm of, of events that happened. But what ends up happening is that the Nikkei index drops 12% in one day. Now we open up on Monday, our stock, stock market opens up in fear because now there's fear of a global recession and some other things. And we have that 1100 point drop on Monday and we end up down here. Okay, we end up down here. And so that's what happened over three days. I get it. That can cause some fear. I get it. That, that can create a situation.
Well, let's just start to look at some of this. Let's unwind what some of the caused Japan where I think we're at and what I think you need to do to, to carry it forward. Now, if this is helpful for you, here's what I want you to do. Because when we allow our emotions to get involved, we will tend to make bad money decisions. I want to make sure that you have the information to make informed, logical, valuable decisions about your wealth. That's what this channel is
about. If you have not do me a favor, subscribe to the channel right now. It's easy, it's free. Click the button. Subscribe so you can stay in tune and so you can get real information that's going to help you take control and master your money and build your wealth. All right, so let's, let's look at this. There's this idea or this, this whole thing that was being done by traders called the, I call it the yen trade. It's,
it's uh, it's, and there was an unwinding. So what they're doing, what happened in Japan, and this is really important to, to really start to look at because what happened in Japan is that Japan's economy has been in a situation where they had extremely low interest rates, like 0.50.4, okay? Unheard ofly low interest rates. The same time, their yen was weak
against the dollar. So what people were doing is that they were borrowing yen at cheap money and investing it in a place where they could make more money. So what ends up happening is that they borrow at 0.4 or 0.5%, and then they invest it back here in the US at 5.5 or 6% or 5%, and they make that difference. They make the arbitrage on it, if you will. And at the same time, what they were doing is that because
the exchange rate on the yen, the yen kept getting weaker. What was happening is that when they were paying back the debt, they actually got more yen. So they made more money. So they made money on the arbitrage, and they made money on the exchange rate in doing that. And it was a great trade that they were doing on an ongoing basis and making money on it until over the weekend, Japan said, enough's enough. We cannot have our currency continually
declined. And they started to increase interest rates and try to strengthen their currency. And the yen started to go back up, and the interest rate started to go back up. And so what ends up happening now is the people that borrowed, it's costing them more to pay it back. And because the yen is now strengthening, they don't get as much back on the exchange rate, which meant they were upside down, which meant that the only way they could satisfy paying back the borrowed yen was
to sell assets. And so all of a sudden, they were getting calls to sell their assets to satisfy the requirement. Hence what happened in Japan. It was this perfect storm of everything, because they were short on the payback. Okay, if you look at the yen, it went from 161 to 143, and now it's going back up again. And so this created a cycle of fear that that was a concern for people. And so that's
what happened in Japan. At a high level, there's more things to it, but at a high level, they got caught in an arbitrage situation that wasn't producing positive results anymore because the interest rates were changing, the exchange rate wasn't as advantageous any longer, and they were leveraged and they had to pay back the loans that meant sell. And when you sell stuff,
prices go down. That's what happened. Now, on the other side of it, we open up our stock market on Monday, and we're feeling the brunt of it, and it is us that are sitting back saying, oh gosh, in order to satisfy this, I got to sell these other assets. We got an 1100 point drop on Monday and now we're concerned about that. And one other thing that gave concern for a recession, and that is something
called the Som indicator. This is a, it's a tracking or an indicator that has been used since the fifties. And what they're doing is they're looking at the unemployment rate over a three month moving average. In other words, they've watched the unemployment rate over three months and said if it has gone up more than half a percent from the prior year's low, it has been almost 100% effective in
predicting a recession. So all of a sudden they're looking at this indicator saying, wow, we went to 4.3%. We had a lot of selling. And now the Som indicator is give is lighting up saying, hey, unemployment has gone up more than half a percent from the prior year low. That's an indication that recession is coming. So all of that is what got baked in, that got people to be concerned. And uncertainty gets people to start looking at how do we sell, how do we do these things. So that's what
happened. It was all emotional based. Now, some of it's factual because when the rates are changing and exchange rates are changing, those are real. But some of the reactions to it can be emotional. And this is where we start to
get in trouble. I want to give you a perspective. I want to go back to these graphs so I give you perspective to hopefully allay some fears so you understand what we're looking at, because there's so many people that will say we dropped 5%, we dropped 6%, we dropped 9%, but we're still up for the year. And if you understand, when you understand how the market works and how you unders, when you understand how investing long term works, you won't get shaken out of the market by fear. I did.
It cost me a lot of money because I was scared to get back in. So let's just look at what's happened. This is what I showed you before. This is the Dow Jones, this is the 30 30 companies. And I'm looking at it over a decade. So from 2014 to 2024. And you can see in here that we had these, these kinds of drops. Let me do this in red. Okay? You had this, you had this. That's the pandemic. You had this drop, drop, drop, drop, drop. You had all of these drops. But if we look at this
over the long term. And this is the thing that most people are saying, I should get out. I should get out. Hmm. Should you watch what happens over the long term back here? The market here was at. Was at 15,288, approximately. Okay. Right now, it's somewhere around 39,360. Okay. Even though we dropped 5%, 8%, 9%, and, in fact, there was somewhere, and I don't. I don't know the exact, but it's like something like 17 times, a 5% or greater drop happened during this decade. 17
times. But yet right now, this, if I invested, stayed in, stayed with the investment without getting scared out, it is still up 157%. 157%. Let's look at the. Let's look at the S and P 500, because the other one is 300 stocks. This is 500 stocks. Okay? 500 stocks. This actually started out here at 1694, and currently it's around 5303. That's a 213% increase over that over ten years. That's about a 21% over on average. If you look at it, point being is this, there will be pullbacks, there will be
corrections. There will be drops. But the market, if we're playing a long term game, typically goes up. And so what I'm trying to get at is that I do not want you to get to a point where you freaked out, saying, it's over, it's over. I'm cashing the chips in and going home. That's when we start to make some bad decisions. Look at this. I'm going to clear this one off for a moment, because I want you to just understand where we're at. If we look at it from here, and we look at this from here,
we dropped, and we're here now. We've gone back up a little bit, but where are we? We're pretty much at where we were back in March, April and May. So we're not giving it all back. It's just the thing that we need to understand. So the other. The other reason this is important, that I'm going to get to five or six things I want you to do to keep yourself safe, is this. I want you to look at this chart. When we start to get in fear, we will tend to make emotional
decisions. When we make emotional decisions, we get out of the market. We get into the market because of greed, we get out of the market because of fear. And typically, when we're getting out, we get out too late. When we get in, we get in too late. So we cannot time the market. Statistics have shown we cannot time the market. And if you miss a couple of days that are really good days in the market, you lose all your returns. Watch what happens. This is a study that was done.
Okay? $10,000. $10,000 was invested in the s and P 500 over 20 years. And if you just stayed in the market that 20 years, the $10,000 that you invested would have turned into 65,000, okay? $65,000. Even though you had all the ups and downs. All the ups and downs. If you missed the ten best days during that timeframe, the ten best days. So you only you got out of the market on the ten best days, your 65,000 goes down to under 30,000, you lose 50%.
Here's the thing that I want you to look at. Seven of the ten best days took place in bear markets. In other words, when the market was going down, the best days happened. So when we get scared, when the market's going down and we get out, we leave a lot of money on the table because you cut your returns in half if you just miss ten days out of 20 years. If I extend that and I go, hmm, what happens if I miss 20 days one day out of, out of the year, each year, 20 of the
best days. Now I'm down to 17,030 days. I pretty well wipe out all my gains. Bottom line is you got to stay in the market, okay? We cannot get shaken out of the market. When we talk about building wealth, when we talk about building a money machine, it starts with the vision for your life and you create a plan. That plan is a plan that you should be executing that is going to be
executed whether we have an up market or a down market. All right? So let's talk about the things that you can do right now to make sure that you're safe, that you're navigating it properly, and that you don't get shaken out of the market because of pure emotions or lack of understanding of what is happening. Okay? And how to prepare for the next thing. So the first
things first. Do you have a plan? Are you looking at the news and sitting back and watching what's on CNBC and saying, oh, man, I gotta sell because that's emotional? Or do you have a plan that is detailed? Like, I have a plan that is detailed, that projects it out, that simulates it out? What happens if the market goes up? What if it goes down? What is my alternatives? You don't go to war without a plan. Now, the plan may go out the window a little bit, and you have to adjust it
but you have to have a plan. If you don't have the plan, that is the first place to go, is to create a plan for how you're going to get to the financial numbers when we do it, in my book, the building your money machine, I walk you through how to do it. But we literally saying, where do I want to go? Where am I at? There's a gap in between. Let's create the plan to fill the gap and get you there. And that plan will take into consideration the ups and downs in the market. It will take in
consideration the risk of the situation. It'll take your circumstances, your risk, what I call in the book a risk triad, your profile, your tolerance, your capacity, all those things, to build a plan that is specific to you, because not all plans are created equal. Your plan is different than mine. But without a plan, that's like taking a trip without a map, without knowing I want to, I want to go to Chicago. I don't know where I'm at. I don't know how to get there. And I'm just going to start
driving. Probably not going to get there. Why are we doing it with our money? Have a plan in place. So that's the first thing. The second. The second is this, is that you have to have liquidity. When we talk about the wealth priority ladder in chapter twelve of my book, it isn't for purposes of saying, oh, you got to have, you got to have an emergency fund. Yes, you got to have an emergency fund. We call it a peace of mind fund, but it is
part of the wealth priority ladder. You have to have liquidity not for the sake of doing anything other than to give you peace of mind when the market drops, or there might be additional unemployment or your job might be shaky or, or something comes up, you're okay because you built it into the plan. If you don't have liquidity, if you don't have that cushion, then the only way you can do it is to go into debt, bury yourself in a hole, borrow or
sell stuff. I don't want you to do that. We have to follow the plan and follow the framework called the wealth priority ladder to make that happen. So making sure that you have the proper liquidity in place for your facts, your circumstances, your age and stage of life is extremely important. Okay? Get that corrected. That also means, at the same time, making sure that you are not allowing destructive debt to creep into your life. If you're using destructive debt, destructive
debt is debt to finance your current lifestyle. That tells me you're living beyond your means, we cannot do that long term. And in fact, we shouldn't do it in any term. And so we need to avoid destructive debt. Build liquidity. That is foundationally, no matter what kind of wealth you have foundationally, that's what you need. It doesn't matter. Okay, number three. Okay, so first is plan. Second is liquidity and being out of destructive debt.
Number three is to avoid these kinds of drops and getting really hurt. We need to have a properly structured portfolio. That means diversification. That means asset allocation. We don't, you know, at the very beginning, I tell people, do not buy individual stocks. It's, it's too risky. If one stock ends up dropping because they had bad earnings, because they got sued, and you've got the lion's share of your assets in
there, your wealth in there, you're screwed. I tell a story in the book about a person who put pretty much everything into one stock, and that stock went from $200 to bankrupt. They lost it all. I don't want that for you. And the way you avoid that is diversification. And why do we do this? Everything I'm talking about right now is building an unshakable financial foundation for you. Okay? A plan. Liquidity, lack of destructive debt and a diversified portfolio. Number
four is I want you to have long term thinking. It's why I showed you these charts. When you start to look at long term thinking, 710, 1520 years, your probability of success goes up. The impact of the short term gyrations of the market, the 1111 hundred point drop in one day are not going to affect you because you are playing the long term game. Okay? So you have to look at long term and not try to time the market.
Then the other thing is I want you to dollar cost average in no matter what the market is doing. Buy. When the market dropped on Monday, I wasn't happy. I watched some numbers go red. All right? But what did I do? I called my team and I said, buy. We have an opera. Things are on sale. Nordstrom is having a sale. You don't run out of the store. When Nordstrom is having a sale, you run in the store. The stock market was having a sale on Monday, okay? I told my team,
buy. And that's what we did. We will. Dollar cost average ongoing. No matter whether the market's up, down or indifferent. We are, we are looking at things for the long term because I know that long term, that market is either 200 points percent up in that last decade or 157% up. We have the opportunity to do that, this goes back to DCA. Dollar cost averaging needs to be part of your plan. And then two last things I want you to do. One is to leave your emotions at
home. If you start to feel that your emotions are taking hold of you, whether it's greed or fear, we're going to make bad choices. We're going to make wrong time choices. We're going to make choices that are driven by emotions and not logical thinking. The reason you have a plan is to look back at the plan and set your emotions aside. Leave your emotions at home when it comes to your money choices. And when you do this, it makes it easier to execute
on the plan. Now, the other thing to look at is, the last thing I want you to do is to secure your income. And the way you secure your income is to make sure that you've established value. Whatever the solutions are, whether you're an employee working in a company, whether you are in business working for customers, whatever the solutions you are bringing to the table, make sure that people understand
the value you create. And if you really want to secure your income, you make sure that you increase the value of your skillset, your work ethic, and the things that you produce. By making sure that you are the most valued employee, valued business. By providing immense value to the people you're providing it to, you make yourself invaluable and you start to secure your income. Now that's one way to do it. The second way to do it is I think that you need to think about multiple
streams of income. It's no longer a luxury, it is a necessity. And once you have your income spinning and making money, I want you to look and say what is tangential to it, what's adjacent to it, that I can make an additional income stream. It may not be at the same level, it may be $500 a month, but it is dollar 500 a month of a cushion that keeps you rolling. If something happens to your main income stream, the days of relying on the single income stream are
gone. Okay? So those are the things that you need to do that will sustain you. It doesn't matter whether the market dropped 1100 points this week and then it goes up 2000 points in the next week. It doesn't matter. It's going to do that. That is what markets do. They cycle up, they cycle down. The key is that we're not going on that adrenaline ride with them, that we have a plan in place, we're executing a plan. We have a long term vision.
I've secured my income, I have a diversified portfolio, and I am going to do this on an ongoing basis. Long term, that's it. All right? Things happen. Japan happened. Data happens. The fed happens. We can't control that. Let's control the controllables and let's live our life and not allow emotions to get involved. This isn't a time to panic. This is a time to double down on your strategy and your plan and to execute with discipline and dedication to
the long term. I hope this helps. I know I threw a lot at you. I put grass out there and all that stuff. But I wanted to give you a perspective that hopefully strips away the emotions and the fear that was, that was being generated last Thursday, Friday and Monday, especially so you can look forward and prepare yourself and do the right things. So it doesn't matter what's happening and that, you know, long term, you, your family, your legacy are okay. All right? I
truly believe that financial freedom is your birthright. We just got to go out and claim it. And I want to make sure that I light the path to for a million families to claim it. I want one of them to be you. I hope that this helps. I hope that this settles you down. I hope that this gives you perspective. I'd love to hear from you. If you have got questions or comments, let me know. And in the meantime, make sure you subscribe. Stay on this journey with me. All right. Talk to you soon.
See you in the next episode. Thank you for listening to the affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.