Is The Stock Market Broken? #521

of quarters or coins to the side of it. And it makes me think that if we went to visit them and the girls stuck a coin in there to get some of those peanut Eminem's and it didn't work, they would say, Hey, this thing's broken. This is I'm not getting the treats. I'm not getting the candy like I used to. And I think that's how a lot of folks have been approaching the stock market. They've they sort of seen it as this ultra savings account that just only goes up in value, where they've only seen

their balances grow over time. And that's why we're asking this question today because I think there might be some folks wondering have things changed, Is it going to be different this time? And they want to know what they should be doing. That's why we're talking about investing and talking about the stock market. Recent returns have not not been so good if you are largely exposed to the

stock market, and future predictions aren't so great either. We're going to kind of kind of talk about the stock market from both of those perspectives today on the show. Before we get to that, Matt, I want to mention we we got feedback from a listener, Amanda, who is participating in the How the Money Tell Your Stuff challenge, which by the way, just updates you. I sold three things, uh this past weekend? Got after it? That's all right?

Were you shamed? Turn on the jets. You shouldn't feel shamed. No, I wasn't, but it really I it lit a fire to me because it was something that I'd put on the back burner. Why we talk about this kind of stuff. We talk about money because we want you focusing on

your money. I got challenged talking about the challenge because we want you to be made myself more than a hundred bucks on those three items, which is great, And it just felt good to clear some things out that I've been meaning to clear out that I've been meaning

to sell. And you know what, seeing people like happy to buy that electronic gizmo or gadget for pennies on the dollar from what you'd buy it brand new makes me happy to would was the electronic device we an old iPad, like an iPad generation two that had just gotten really slow, but some people really want those. Still is going to be able to put that thing? We had a chromebook that we were using for virtual school.

Rome Books are not great. They're kind of slow too, but it was one of those things where we had bought it during you know, on sale or something to to help facilitate virtual school during the pandemic, and now we're not using it anymore. I got it from the school. We stole it from how to Scratch out of this code that was exactly at the top. No, we actually got it ourselves. Yeah, well, something worth mentioning to. Amanda mentioned going to consignments words to sell some of her stuff.

That was really cool to mention because personally, I don't know what consignment stores are like. I mean, I know what they are, I just haven't participated in them myself. I know that you can leave things there at the store, they take a cut when it comes time to sell because they've got the storefront all that kind of thing. I don't know. In my mind, it's like this old

school term. It's like, if you go to consignment shops, I bet you also buy stuff on layaway, Like it's a part of the same sort of generation generational I don't know, I think a shift in my mind. I think of consignment stores as people who are more modern antique enthusiasts or something like vintage people. And sometimes those consignment stores are actually perfect for some of those items where you're like, I think this is worth something, but

I don't know how to go about selling it. I don't know how to find the right buyer who's going to pay the amount that this thing is worth. And so Amanda mentioned consignment shops for for some of those things. I think she's got a good point. Because let's say I've got a mid century antique and I just post it on Facebook yard Sale myself, like I did for Facebook Marketplace. I guess right, the chances are I am

not going to get top dollar. But but let's say somebody else with a mid century following on Instagram of ten thousand people. Uh, they might be able to take that same piece and sell it for twice as much as I could, because those the buyers that want that kind of stuff are specifically looking at this person's page consistently. They know they have good stuff. And so that's kind of how I think of consignment source. I think it can help you find the right buyer if you have

an item that's of particular specific niche value. That's that's true. So I will sell you that bedroom set for a little under two thousand dollars and you can take it to the consignment shop. Okay maybe maybe No, I'll give you eight hundred for it, and then I will go take it the consignment I put to you for eight hundred. Let honestly, I think I think it might end up around like in the eight range personally. Well, there, we'll see. That's one of the beautiful things I think about American

capitalism is people can buy things. We want to talk about capital I know we will, we will in the sentise, But I have something just that middle middlemen or women can profit because of the laziness of other folks or you know, and you can have literally I'm lazy to business four kids, I too can be lazy and or or busy and find I'd rather have someone else maybe sell something on my behalf and maybe we both end up profiting, which is But all right, enough about that, Matt,

Let's mention the beer we're having on this episode. This one is called Escape from Logger Mountain by Flying Machine Brewing. I think is that? What are they are? North Carolina? They got the North Carolina logo on there or the outline of the state. So that's how you know it's legit came from that actual state. Looking forward to enjoying us one today, buddy, Yeah, no doubt, me too. But let's move on. Let's let's ask the question. Is the stock market broken? We've got a lot of ground to

cover on this on this one, Matt. And really, when you look at it, the stock market is the greatest wealth creating machine in history. And investing in the market to achieve millionaire status, like that's what people want, right, You want to become a millionaire, You want a million dollars in the retirement accounts. Well, that's become possible for such a large amount of folks in this country, in particular, thanks to workplace retirement accounts and low cost index funds.

Fidelity alone one of our favorite brokerage houses. They reported that about four hundred and forty two investors have more than a million dollars in their four own case as of last year. That's just Fidelity customers. So we we potentially have millions of people who are millionaires in this country and it's easier to do than than ever before now.

And it makes me think, Matt of maybe, like some of our earliest episodes of how the Money that we like to pretend never happened because they weren't that great. I kind of refused to go back and listen because I don't know that I could bear the weight of our in aptitude in those early as episodes. Not in aptitude, just lack of total awesomeness. You can say that we've

gotten better. We've done a lot. In five D episodes, they were functional, yea, Like I pictured almost like a craftsman who's like a drywaller, somebody who knows how to do drywall, Like is that drywall up on the wall, does it hold? Does it create a wall? Yes, it's all of those things, but there's sort of an artistry to it, and that's what you develop over time. You can tell bad drywall, you see the seams, you see the tape protruding. Maybe I'm getting a little too poetic

when I show to the podcast. We just sit out and talk. But we have gotten better at sitting down and talking. And just just because of the path hasn't always been smooth, I means some episodes have been better than others, and along the way, most of our episodes hopefully have generally gotten just a little bit easier for people to listen to. Well, that doesn't mean that the whole ride hasn't been worthwhile. And then those first episodes

weren't necessary in part of the growth process. And right now it just kind of makes me think like, well, we're experiencing some market turbulence, and future predictions of what the stock market is going to do incoming years aren't looking so hot either, And so I don't know, should you not take a flight maybe because there's gonna be turbulence. Should you not go see your grandma because on the

way there might be some bumpy bumpy ride in the air. No, of course you're still going to take the airplane ride in order to cut twenty hours off your trip if flying across the country. And so today on the show, we're gonna kind of talk about how we think you should be thinking about the current shopping market and then

how that should also influence your your behavior. It's right, Yeah, you're saying that the general trajectory of the stock market has been up into the right, that's what we're talking about today, but more recently, like what you're specifically talking about here is volatility, because the stock market has been in the dumps. You know, this has been a terrible

start to investing so far. Ino And like we often see during these bouts of volatility, a lot of investors they start wondering if if things are gonna be different this time. Right, it's been a it's been a good hundred years. It's been a good run. But it's all over now. And it's not just a chicken little mindset

that's that's running amuck in your friend group. There are a ton of different financial forecasts out there that are being made about the fact that we're in for a lower performance year and and even less sellar returns for years to come. And it's not even just the talking

heads like on CNBC sutting this nonsense. We can dismiss them pretty easily when the imney be exactly the different investing TV shows out there, respect the companies like Fidelity, like you just mentioned, like Vanguard, other large banks, they're predicting average tenure future returns in the three to four percent range, and those predictions could be significantly off in honestly,

in either direction. Of course, these are just educated guesses, but given the last decade of incredible returns, they might not be too far off. But even still, what do we do with this information today? You know, should predictions of these appar future returns affect how we should invest today? That's what we're discussing today on the podcast. Yeah, so you you hinted at the fact that the last ten, ten, twelve years, Matt have been just incredible when it comes

to stock market returns. And so let's talk about that bowl run for a second, because a lot of how the money listeners, they've really only experienced what it looks like to invest in the middle of a bowl run, not counting maybe like the blip we saw in when we thought it was the end of the world, but that recovery, that stock market covery. Recovery in the the teeth of the beginning of COVID was just incredibly rapid, so most of us barely experienced it, and that we're

worried about other things too. At that exactly that that was a not is the stock market broken, but it's humanity broken. Yes, again, at that point there was bigger things, and once we got that under control, it's like, oh, okay, no, things are gonna be fine. But right now all the focus is more on the market because there's less societally

to focus on. And when you when you look at these returns historically, like with returns over the past couple of years and almost average annual return since the Great Recession, some folks in their in their twenties and early thirties, they might have been starting to think that the stock market literally only ever goes up. Right now, you only get those peanut eminem's anytime you want, think wait on demand. Our recession is the thing in the past. Uh, And no,

the answers is that's not the case. And so yeah, some folks started to think that cash was trash and that saving money was stupid. Investing, of course, is where it's at, and so yeah, but we we you and I we like investing. We're not hating on investing. We think it's necessary when it comes to building wealth, but not to the detriment of other prudent personal finance decisions. And so folks now are starting to realize maybe some of the importance of emergency funds or savings, liquid cash.

Those are important things, even though it can feel like a dumb decision, especially in the short term when other people are finding ways to make money what looks like hand over fist and you're sitting there with that e fund intact and you're like, why am I not investing this? Well, I think now we're experiencing the reason why people should not be investing that emergency fund. There's a cushion that's

necessary for folks to have. Yeah, I mean, this is why we came up with the seven money gears, because there's a formulate process that we want folks to go through, and it's not just about getting that cushion, but there are other important things to do as well. We definitely want folks to take that balanced approach. But yeah, you know, those outside gains that you're talking about, they were not

going to last forever. Especially with the low interest rates we saw with the FED intervention like that all helped to speed some of the growth that we've scene, And so it's important to zoom out and to take a broader look at what the stock market typically returns because if, yeah, if you only paid attention to the past twelve or thirteen years, it can be easy to flee yourself into thinking that these outside returns are the new normal. So lately I've been running a good bit more. I'm trying

to train for the Peachtree Road Race. That's Atlanta's premier tin k available to anybody who signs up for the most part. But like, it makes me think of track your closest friends. It's so many people. But okay, imagine if you you're training or like during a race, Uh, you're watching your time, You're you know, you're you're tracking your pace. You get to a portion of the race where there's maybe a long sort of easy downhill, you would see your pace just go off the charts, like

you would see your your average pace just declined significantly. Uh, and it's gonna look like you're gonna be able to maybe set a personal record, maybe even a pr for your age group, who knows, But it would be foolish to just assume that you would be able to maintain that ace uh once you started to gain elevation again, which gets a heart attack hill, right, isn't that what they call it? Uh? Cardiac cardiac cardiac kill whatever it's like, rather next to the hospital. But the same is true

with the market as well. You know, we've had some incredible bursts we've had we've had some periods of some stretches where it just, I mean, the returns were off the charts. And while we do believe that the market will continue to go up over time, you know it always does, that doesn't mean that the pace of that

growth will stay the same. Yeah. No, I think that's a really good way of putting it, Matt, Because in that race, yeah, you're feeling good about your pace, but then you hit the tougher sections and you are inevitably going to slow down. So humans just can't run up hill as fast as they can run down. There's some folks who disagree with you, but really, oh yeah, there's there's people who who like to book it up hills.

It's tough going fast down hills because I think personally, I think I'm more prone to injury because you're going a little bit fast, a little out of control. Yeah, that's gonna be the best acceleration. It's hard on the knees to write that's true. Well, it actually that reminds me, Matt of a piece that Barry red Holtz wrote recently.

He's a financial writer and and he was discussing the fundamental reason that the market has been having a rough go of it lately, and he he uh talked about Occam's razor, which which basically means that the simplest explanation is almost always the correct one. And he was saying that that means that, well, the simplest explanation is just what's called mean reversion. That's at the heart of recent declines.

It's the fact that we have experienced these outside gains and of course now we're paying the price as the stock market is retreating. And it's kind of it made me think of like a baseball player who starts off the season first month of the year hit more. Sports were hitting everybody with all the different illustrations we can think of, So baseball player hitting three seventy five, but typically they're hitting to fifty, Right, that's their normal average.

That's pretty average, I would say, Actually, I don't know. In modern baseball though, more strikeouts the worst batting averages. Lately, it's really tough for sport to watch these days. Yeah, but but what if it's that your first time that bat and you get to hit your bat in a thousand That's right, that's true. Yeah, but what's what's the likelihood that's gonna last all season? Uh? Not likely unless get like some sort of season ending injury right after

that hit, I guess. But yeah, it's a nice start of the season to be hitting close to four hundred. But in reality, you're going to experience mean reversion, especially in those dog days of summer. Even if you have a killer month in May, let's say July and August are gonna come around and your batting average is gonna start to dip. Start feeling that summer heat, let's start sweating a little bit more than you were down there

in spring training. Plus, yeah, then you're an othern Colorado where it's nice and cool games into the season and you're probably starting to have some fatigue. There's just no way to continue it for a whole season. And and so, Yeah, that things are coming back down to earth, and the same thing is happening with the market. Right, those exorbitant returns that we've seen over the past you know, decade, they're not the new forever reality. Although I think some

people were starting to think that it was. They were at least treating their money as though the stock market was this eminem candy machine that was going to continue to produce until we reached the moon status I guess, or whatever that was gonna be. I don't know. Yeah, and hopefully we're not bumming you out with this more somber conversation. But even though we are injecting you with a dose of realism, we still have plenty of reasons

to believe that you should be investing in the stock market. Uh. And we're actually gonna talk some specifically about what you should be doing with this new information, the fact that not only have we entered some periods of volatility, about that there is some talk about the fact that the market may not be what it used to. We'll get to all of that right after this break. Aren't that we're back. We're still talking about the stock market. Is it broken or is this just uh, the reality of

how the stock market works. We'll talk about maybe the fundamentals of how the stock market works here in a little bit, and we'll also talk about whether or not folks should be making changes to their portfolio kind of based on what's happening right now and based on some of the predictions, like you talked about those those Fidelity in Vanguard predictions where it's like growth gonna slow a good bit and and your portfolio isn't going to you're

not going to see the games that you've been seeing, So then how do you approach that likely near term future. We'll discuss that in just a second. But I wanted to talk about optimism for a second, because you know, I think stock market optimism is a good thing for all of us to have, and I myself am pretty optimistic and just as an individual. But you know, I think it's also possible to take optimism to the extreme. Right.

You can you can be so optimistic that you're not actually looking at facts on the ground, you're not living in reality. And so there's a difference between a healthy dose of optimism and being optimistic to a point where you're living in some sort of Mary Poppins Fantasy Mary Poppins returns the original, the original probably the new one's really good and it's good. It's good. The girls can't get enough of that. Abbie has been humming what is

the Something music Hall? Yeah, I've only seen it once, so it's been will not stop humming? There. They got distracted when you said, Mary Popps, No, it's all good. But it's adorable when they start dancing with penguins and stuff like that. But but really they're you know, they're they're not in the real world at that point. They're not in reality. That's what we're talking about. And and this is what I think has happened to a lot of investors in the past couple of years, maybe even

some how the money listeners. It's, you know, taking what is otherwise one of the greatest ways to build wealth, and and folks have attempted to make money in ways that don't make much sense. Right. That's given rise to n f t s, random crypto coins, and it is reflective of this frothy environment where sanity largely left the building. There.

There's a difference i'd say between that reality based optimism that reflects what we're saying are historical realities, and then this overly rosy outlook that has I would say, has an element of greed at the heart of it, where people they're not content with average and what folks want is to make money at a pace that is otherworldly. But like our old pal Warren Buffett says, it's time

to get fearful when others are greedy. And we have seen greedy behavior recently, and I think we're kind of on the other side of the hill from some of that greedy behavior. We're seeing maybe some of the demise of some of those more greedy behaviors. Yeah, you know, think it's worth pointing out too. I think one of the reasons we saw some of that greedy behavior, uh is because like think about the amount of money that was injected into our you know, speaking, I keep saying injections.

We're talking about injecting realism, talking about injecting stimulus funds. But like we without having a left a finger, got so much money that we weren't necessarily counting on hug

decentative Americans. Yes, it showed up in our bank and they couldn't spend exactly, and so what do you do with that I think you tend to make more speculative moves, like you tend to gamble that money with the chance that it might go up, especially as you've you've heard people talk about crypto for a while, Oh what are these new n f T s, And you start taking that money, you start putting it in there, and the two people getting rich quickly, and you're like, I better

jump in on that exactly. But like that certainly has been something that has changed. And when others out there were a little more greedy, hopefully we should have been a little more fearful. But like you said, we're we're kind of seeing the tide shifts. We're starting to see it go out that optimism has quickly shifted to pessimism. It's it seems like, speaking of CNBC that they released a survey last month and it showed that only twenty eight or sent of investors think that it's currently a

good time to be in stocks right now. People are just less enthusiastic about stocks because they aren't doing so hot right now. Uh. And the thing is, though the market it doesn't care about how you're feeling. For instance, the ridiculously short COVID blip like you mentioned, So like that's what that taught us, I think, because our our collective society was at that point in time reeling from pandemic fallout, uncertainty. Yeah, yeah, yeah, there's a lot that

we didn't know. But simultaneously the market was climbing rapidly. Uh. And so the current pessimistic mood, it often means that long term investors like ourselves, I think, should become even more optimistic, taking advantage of stock declines so that our investment dollars go even further. Because the flip side of that war Buffet quote I gave Matt, he says to get fearful when others are greedy. Well, we'll be greedy

when others are fearful. And so now that the tide is shifting, stocks are down, who is out there buying more stocks? It's warm, Buffet is and I think it's a sign that we should be too. When more people are pessimistic rather than optimistic, and the consumer sentiment has essentially shifted in terms of how they view the stock market, it's time for us to maybe take the opposite approach, putting more of our money to work. And it's also important to point out that the economy is not the

stock market. There's a lot of talk about the risk of the Fed, you know, tipping the economy into a recession due to the need to raise interest rates because of inflation. Inflation is obviously running hot and the FED is trying to get that under control. We talked about this actually in episode five oh three when we were talking about preparing for a looming recession. Looming recession. That's right, that's right if you recall and a recession is defined

as two consecutive quarters of GDP decline. But the fact is that the stock market, it doesn't necessarily decline during a recession. If you look at the past seventy years, the average return during a recession was negative one And you might say, ah, so the market does go down full is You're wrong, But it's interesting in reality, the returns are even worse in the lead up to a recession.

So on average, the stock market returned negative two percent six months prior to a recession and negative three a year twelve months prior to a recession. And so yeah, if you want to guess stock market returns after the recession begins seven to between six and twelve months are the return so in the in the extreme positive range after the startup recession. It's it's amazing how the market is almost like forecasting the where the economy is going

to eventually end up. They're not always going in lockstep together, which only reinforces the fact that it's difficult, incredibly difficult to time the market and to figure out when is the actual bottom as the market is looking ahead. But this only reinforces that warm buffet quote right, often when things look bad, that is the best time to invest, which obviously, again it seems counterintuitive, and we mentioned that the historical reality of the stock market just a second ago,

So let's talk about that. For the earnings of publicly traded companies as a whole continue to go up over time, not every company progresses at the same pace um, and some companies are are actually declining while others are booming. But overall, if you own a diversified basket of companies, say for instance, in a Total Stock Market Index fund or the smp F I funder, you're going to see your money grow over time. Because the average return of the market since has been nine eight percent a year.

And so this this beautifully creative and simultaneously destructive machine of capitalism. It just continues. It's march again upboards and onwards, even when world events are scary and when consumer confidence is low, which it is right now. Yeah, Matt, what what you're talking about here? These returns, these historic returns, are based on the underlying reality that of capitalism. And it's as these companies, these individual companies are participating in

this overall system that we have. They are benefiting all of us as they create new items, as new technology comes out, drives prices down and it drives innovation up. And in episode four seventy nine, we discussed why we feel like capitalism is ultimately a force for good. And if you'd access the question is it is it only a good thing? We would say no, free markets that they don't fix everything. There are other problems in our

society that need to be remedied other ways. But ultimately it's the best economic system that we've got and it's increased living standards and it's brought more folks out of poverty than anything else humans have tried. And so, yeah, businesses that we invest in, they're working to create value in our society. And if they find a customer base

and they succeed. Profit is the end results, and as investors in the stock market, we get to participate in some of those profits, which I think is the coolest thing ever. It kind of almost doesn't seem fair Matt, that we can kick back and passively invest. It almost doesn't use almost none of our brain energy, just use our dollars and still see something. I get ten percent

return over the past hundred years. But really, for the average index investor, for the lazy, boring investor route like we are, like we want people to take, it's quite simple and history points to the fact that it's it's quite effective in helping us build wealth. Yeah, it's really interesting too, is to consider how the market, how it self regulates, right, because if you take that, imagine the situation like a worst case scenario where you've got everybody

has become a passive investor and nobody is innovating. Well, what's going to happen to the stock market returns? You could argue you could foresee a world where you could see those returns decline, right, because if fewer people are out there taking risks, because everybody wants to play it

safe and invest in the entire stock market. There is technically less value being brought into the world, which means lower returns, but it's self regulating in this way because there are going to be individuals who say, well, I want to see a higher return, and so they are then willing to risk their dollars in ways that ultimately need to provide more value and more benefits to the world in order for them to receive the benefit from

that direct investment. And of course people who invest within that company, you know, within those individuals as well, we'll see these higher returns I mentioned because you could foresee a world where it's just like, well, if everybody becomes passive total stock market investors, well maybe we are going to see declines in the market. But ultimately I almost see it as like this automatic leveling system that's just

inherently built into the market. But there will always be people who think that they're smarter and who want bigger, better returns, or just want to do something different, you know, like like there will be individuals who want that autonomy and don't want to sit back because they've got something to create. They have something that they want to introduce

into the world. They want to make their mark, and so I think there will always be opportunity for us kick back style passive investors because of those other folks on on the other side of the spectrum. Exactly. It's it's super cool when you think about it that way, but there will be carnage along the way of the stock market growth. You don't get the reward without the risk. You're not going to see that average tim percent return without some subpar years. Uh, it comes with the territory.

But overall, the economy will continue to grow and corporations that you can invest in will continue to earn more money. And again, some companies they're gonna stick around for decades, creating loads of profit for investor is, but others won't stick around for for long or do anything terribly noteworthy. And that is one of the coolest aspects of capitalism is that it automatically self cleanses. The market decides what companies are going to stick around and which one's get

the boot. But again, the general trajectory is up into the right. It's it's healthy to remind ourselves that the entire value of the U stock market, the entire market, was one point to trillion dollars back in Apple alone is worth significantly more than that. Right now, I think it's double that. And so we've got enough historical data in our corner to point to the reality that despite these immediate market setbacks that we're experiencing, progress will continue

and we can all benefit from that progress. This is why we're optimistic. It's not because we have some sort of pie in the sky reason to think that things will always get better. We can look back at history. History informs the future. It is not guaranteed, but we can be encouraged by that fact. Yeah, it's not some sort of Pollyanna, no hoping and wishing, or it's not like in Ostrich putting our head in the sand, just kind of against all odds, wanting something to be the case.

It is truly the historical reality. We have precedent really that we can look to telling us what the stock market is likely to do in the years ahead, and despite massive shifts to the way our country functions, will continue to be the greatest wealth building machine moving forward.

But if you want it to be that in your life, if if you want to be able to use the stock market to your advantage, well there are some things you're gonna need to realize and and one of those things might be making some changes to the way that you're investing. And so we'll talk about whether the current market reality and you know, future lower return predictions should actually cause you to do anything different with your portfolio. In the here and now. We'll get to some of

our thoughts on that right after this. Alright, we're back to the break talking about investing in the market. And I still have that song stuck in my head. Uh do you'm are you? I'm not a fan of that. Yeah, I guess we just haven't I don't know, watched it again. Then, well, maybe we should only cranks out the hits. If you can invest in a person, invest in him, I think. I think you're right, him and Tom Brady. Maybe maybe they're both at the top of their game and there's

only you can only go down from here. I think so. I mean, lin Manuel is one of those prolific individuals who everything he creates seems to turn to gold. It's got that Midas touch. Hamilton's obviously, in conto another one. I mean, just really, if you get him involved in a project, it's gonna be great. Okay. I feel like we're going off track again, but we're talking about investing, and we've talked through some of these some of these

trends that we're seeing here in the near term. We're talking about the overall larger trend of the stock market, which you should expect. But there are a few things that you can do differently with the information that we've talked about so far, and with the predictions that we we truly may not see the kind of returns that

we've seen over the past twelve thirteen years. There are a few things that you can do differently with this information, the fact that returns may not be what they once we're and so for starters, one of these things that you can do is start salking away more money. If returns are likely to be lower, you might need to invest more of your paycheck in order to reach some of your financial goals. If that's something that is financially possible for you, ramping out the percentage that you are

stalking away is a solid move. We're not necessarily talking about taking extreme measures extreme steps here, but just to keep doing what you what you've been doing, but maybe

just ratching it up a little bit. You might want to increase that amount that you are investing, put your foot on the pedal just a little bit harder, and add a couple extra percentage points maybe to what you're putting into your four one K. Investing more in light of potentially inferior returns moving forward is one great way to kind of counterbalance things and to make sure that you're gonna hit those financial goals that you've got for yourself.

And hear what we're saying here, This is just a slight change to the behavior that you're already doing. You're already going in the right direction. Just maybe just juice it just a little bit more. We're not telling you to pull the e break, you know. We're not telling you just throw it in reverse and totally wreck your vehicle.

We're not telling you to start serving or we're not telling you that at the last second exit off the highway, cutting a bunch of people off and potentially reckon yourself. That is not what we want you to do your portfolio. And we don't even need you to like pedal to the metal right like you can. You don't have to go from saving eight percent of your paycheck to saving right that's just not necessary. But in light of those future inferior returns, then stacking more money away does make

more sense. And another another course of action that you could take is to take more risks with your investments. Right, this is something that that needs to be discussed mat but really it's best done on a case by case scenario.

It's hard for us to tell everyone that they should be adding more risk to their portfolio because we've got listeners of all ages and stages, people who are in the wealth building phase of their life to people who are in the wealth preservation stage of their life, and and there's a different tact that needs to be taken for each of those individuals depending on where they are.

And I think for some people accepting more risks it makes sense if there if they are still in the wealth building phase of life, and you know, the short term bouts of turbulence aren't going to significantly impact them, and so it's actually gonna help boost their returns if their dollar cost averaging by investing in a slightly more

risky way. And what I mean by that is mostly that if you're if you have an insufficient allocation of your investment portfolio towards stocks, so ramping that up and having more exposure to the stock market in the future could and should over the years, actually help boost your returns.

But but then for others, taking on more risk could impact their ability to retire, Matt, It can have a significantly negative impact if you have too much stock market exposure and you need those funds in the new term, if you have to start drawing on those funds because you're quitting work. So for instance, like my parents, they're supposed to be quitting work altogether in the next within the next nine months, and there's no way I would tell them that they should have more stock market exposure

at this point in in their life. And so, yeah, you have to kind of take your own specific situation into account. More risk is helpful for some but harmful for others. Yeah, that is a healthy way to expose yourself to more risk, because if you're if you're in your twenties, you don't need to be in a sixty forty portfolio where where you've got bonds, Uh, you should probably be in stocks. I'm nearly forty and I in stocks. But that can be a healthy approach to adding more

risk to your portfolio. But you can also you could veer off the highway and take this, you know, into into the danger zone. Some folks in search of high returns have opted for even riskier asset classes like crypto, which is still a highly unproven and very speculative place to put your money. Some folks have seen their wealth cut in half or or even more with no real historical assurance that there is going to be a significant

bounce back by any means. Uh. And you know, can you gotta ask yourself, can you stomach that sort of draw down? Because knowing your specific timeline, knowing your talents for risk is this is all going to be crucial information before we start amping up your risk level. And for a lot of folks, the best course of action is to keep doing whatever it is that you're doing right now, even in the midst of subpar market predictions. We would not recommend for you to gamble in order

to increase your return. Just stay the course. Yeah, Matt, there is a certain window in which taking on more risk might make sense for people. But then there is the ability you can turn the risk style up to like nine thousand, and that is what putting let's say everything in toward into different crypto coins would be and and some folks have taken that approach and it has hit him right where it hurts lately, because, yeah, the

crypto market has been not so great. And no matter what Matt, there are a few things that people should always pay attention to, whether we're experiencing a bowl or a bear market. And if you pay attention to these few things in particular, I think people are are likely to have a good wealth building experience over the years.

And it doesn't mean they won't be immune from downturns or portfolio losses, but it will mean they'll be able to stay the course and they'll be able to experience the wealth generating abilities of the overall style market over the years over the decades. And so let's talk about a few of those things. One is choosing the right funds to invest in and specifically opting for diversification, because I will say having a diversified portfolio has felt pretty

boring over the past few years. In particular, Uh, there have been a lot of people chatting about Cathy Wood and her ARC fund a r k K, which is the innovation fund killed it during the pandemic. Yeah, I mean like to see some of the returns. She was experiencing the exploding growth of some of the companies that she was betting on. It drew a lot of eyeballs, that drew a lot of media attention, and it drew

a lot of investor dollars. People were excited, they wanted to participate, they wanted to be a part of the next big investment fund. And so yeah, it's it's drawn actually some similar interest as the fund has been plumbing recently too. And it can just be tough though for people to watch while other people out there in the investing space are making a killing when you're just humming

along getting basic average SMP level returns. And so yeah, diversification, though, it can be boring on the way up, but it's a lifesaver on the way down, because when you look at what's happened with that Arc Innovation Fund just in the last six months, and when you look at what's happening to the overall stock market, you know what, it's a whole lot easier to stomach what's been happening in the overall stock market than it is in just a

handful of those high flying stocks. Anybody who decided to invest most of their retirement in that arc fund is understandably freaking out right now because the roller coaster ride they've been on and right now they are not sitting in a good place. And I would be frightened if I if I had my money there. And so I

think that diversification point is is crucial. Finding a fund that's that's highly diversified, that gives you a wide exposure to the overall stock market is is important so that you're not putting all your eggs in one basket or just a few baskets. That's right. Yeah, So regardless of what the market is doing, pay attention to the choice of funds that you're putting your money in. UH And a part of that's a part of that fund choice is paying attention to the all important expense ratio as well.

We we don't want you to pay more when you don't need to, because these fees will eat into your returns, especially the longer you plan to continue investing those dollars. You want to make sure that you are kneecapping yourself and experiencing poor returns due to a poor choice of funds. And so if you've been listening for any amount of time, you know that we love Vanguard, we love Fidelity and Schwab.

Those are the discount brokerages who offer the diversified total market style funds that we love with microscopic to virtually non existent fees when we're talking hundreds of a percentage point when it comes to what they're charging you, that's what we want to see, either that or nothing at all. Yeah, but I see those higher fees as like insult to injury, especially when that fee laden fund is underperforming those broader markets, super cheap index funds that that you and I love.

It's quite literally kicking you while you're down. Yes, yes it is. And so let's say you are invested in a way that aligns with your own specific risk. Laurance, Well, an important step to take when it comes to staying the course is to insulate yourself from the feeling of pain when the market is not doing so hot. Not by avoiding market participation, not by not investing, but might not looking at what's going on with your portfolio. That is a mistake I think people people make is that

they're they pay too much attention. Because once you kind of have your strategy down, once you know your risk, Colorance and once you have started stocking money in every two weeks like clockwork on on the rag, well, who cares what's happening. You're gonna want to continue to ride it out through thick and through thin. And so what you might need to do is to one yet not look at your portfolio performance, especially especially in times of turbulence,

and also avoid the headlines. So don't log into your account and kind of see that you're down six percent on the week or on the year. Right, those those inputs and and seeing them firsthand can trigger an emotional reaction, leading to potentially a knee jerk reaction on your part, selling, maybe at the wrong time, locking in losses. And yeah, this costs you money and it negatively impacts your financial future, especially if you're moving money that is in the market

while it's down into cash. You're doing the exact opposite thing. We want to see you, uh, we want to see you actually funneling more of your cash from the sidelines into the market to take advantage of basically the sale that's happening in the market at the current moment. And so, but it's really important to kind of have a couple of mechanisms in place that prevents you from doing something that's emotionally charged, that could that could ultimately affect your

future wealth by thousands or tens of thousands of dollars. Yeah, it's important to remember that these temporary market downturns, they're not costing you anything unless you sell. Once you sell, you cement those losses. Uh. And So in the game of investing, it's important to think and act for the long term. And you do that by reminding yourself why it is that you're investing in the first place. And and for most of us, it isn't to get filthy rich.

That's not that's not our goal. It sounds nice, but it's not our goal, right. Not many of us need or want tens of millions of dollars in assets. Instead, we would rather get to a point of financial security and then hopefully to be able to chief financial independence in a reasonable amount of time. Uh. And So when you remember why it is that you're investing chasing these returns, it seems less important all of a sudden. It's why

it's so important to keep your timeline in mind. Right, going back to like the running uh analogy, If you know it's it's difficult to know how fast you should be running if you don't know if you're running for a hundred meters or if you're running a tin k, right, and so that's going to have a massive impact on the pace at which you're expecting to run. And so the same thing is true when it comes to the rate at what you expect to see returns within your portfolio. Yeah,

I like that, Matt. If you remember that you're investing for future retirement, that you're still thirty years away from the desire or the feeling you have like I need to double my money by investing in some sort of speculative asset within the next three to six months. Well that kind of goes away because you're like, that's not the game I'm playing, Like why am I? Why am I even trying for that? Really, all I want is

financial independence twenty years down the road. And so you can kind of like chill Ox and let other people, you know, do their crazy gambling thing all that take part in all that speculation. You don't have to do it because you're not playing that game. And then ultimately, what we would say when it comes to the stock market is is there's no better alternative when you're looking

to grow wealth over the long haul. Again, if you're in the wealth building phase of your life, the stock market is where you're gonna want to be stashing dough. Despite the volatility and the lackluster future predictions. You know, if you haven't noticed, even with recent upticks in what savings accounts are paying rates on money or stashing away with your bank, they still suck. And that doesn't mean

that you shouldn't be saving. You should, Like we're still fans of people having liquid cash, like we talked about earlier in the episode. It just means that you need market exposure to grow your nest egg because if you're just saving, you're not going to see your returns compound

in any meaningful way. And so yeah, while the next few months and potentially even the next few years might see smaller, insignificant returns, it's still smart to bet on American ingenuity and to invest your money in our collective future. I would say, in order to grow your wealth for for your future. Really, when you're looking at alternatives, there aren't many that rival the wealth building potential of the

U stock market. That's right, man, That's what we're putting our money in the stock markets as well as into the coffers of wonderful craft breweries, including those of Flying Machine. This is Escape from Lagger Mountain. This is a dry hopped rice logger with a couple of hops here that they're calling out. And I noticed here too that this is a beer out of Wilmington's. There are a lot of great breweries in Wilmington in North Carolina in general,

but I mean specifically Wilmington. They must have really good beer laws up there in the north in North Carolina, and it's a incentivize all of this great brewing. But what ye what your thoughts on this specific beer? Okay, I will say I haven't had many rice loggers. I haven't either, and I thought it was really tasty it Maybe I should have more rice loggers because this one

was especially this summer year. It was nice and light, but it also had those refreshing hot vibes like you could tell the dry hops gave like nice hop a roma and good hot flavor without being overpowering. And so this was this was a great beer. I was a

big fan. Yeah. So from what I understand when it comes to beers that are brewed with rice it's it works as like a clarifying agent, and so it literally makes it taste cleaner, like cleaner and fresher, which is great when you're enjoying a nice cold logger like this, but it also literally makes it clearer when you're looking at it, and so it tends to pour a bit clearer as a you know, compared to like a hazy

pale ale or something like that. But uh, the Flying Machine and the fact that they have the skull in here, this reminds me a lot of Is it parish that has the like the ghost in the machine? I don't know. There's a lot across the New Orleans Brewery right, there's also a great brewery. But we definitely enjoyed this one

again from Flying Machine out of Wilmington, North Carolina. And so if you're able to pick one of these up wherever it is that you live, highly recommended, especially as an alternative to those macro loggers out there that you can buy. Yeah, this is one of those well crafted loggers there, the macro ones. It's amazing how big of a difference there are between a lot of the new craft loggers that are being made. This one has a

ton of different flavor profile action going on. It's delicious and it's clean, like you said, and versus like the muddled just kind of like not not so great flavors. Stinky logger yea, yeah, of the stinky ones that like you smell like your uncle, you know, so you know, you know whatich uncle we're talking about. Everyone's got one. And plus the label on this beer is as really

beautiful as well. You can find a picture of it up on our website at how the Money dot com, along with any resources that we may have mentioned during this episode. Right, and so if you if you haven't signed up for the how the Money newsletter, by the way, you totally should go at how the Money dot com slash newsletter. We are sending it out for free once a week into your inbox every single Tuesday morning. You'll get some of the best financial nuggets that we have

to offer in your inbox. But Matt, that's going to do it for this episode. Until next time. Best Friends Out, Best Friends Out.