Voiceover: [00:00:00] Welcome to Metcalf Money Moment. The podcast unlock financial clarity and confidence with expert insights to achieve your goals. Hosted by Jeb Graham, Ethan [00:00:15] Hutchinson and Eric Wymore. Each episode offers decades of combined expertise in wealth management, retirement planning, and more. Join us for practical strategies to inspire your financial journey.
Now, your host.[00:00:30]
Jeb Graham: All right. Welcome to Metcalf Money Moment, the podcast. My name's Jeff Graham. I'm here with Ethan Hutchinson and Eric Wymore, co-hosts of the podcast. How you [00:00:45] guys doing today? Pretty good doing, doing very well, thanks. Good. You know, I guess it's Thursday here, uh, mid-March when we're recording this, and obviously it's been a pretty turbulent time in the markets.
The last couple of weeks we've been talking about it, [00:01:00] uh, we've seen some ups and downs and I know this is something for all of us we've been through before. Right?
Eric Wymore: Yeah, absolutely. I think, you know, we've talked about. You know, things that we've had more conversations with, with clients, it's always about some kind of market volatility, a market [00:01:15] downturn type of stuff, and, and what's gonna go on with the markets.
So this is nothing new to us. That's right. The cover shades conversations have shifted from talking about the weather to the markets.
Jeb Graham: That's right. I mean, it's been, it's basically been kind of boring the last couple of years, right? Because right. Markets [00:01:30] have just kind of gone up and so. Review meetings are a little bit easier and, and people have a little bit less fear.
But, you know, we always say as, as financial advisors is that, you know, we have kind of two jobs, one of which is to be a financial advisor and one of 'em is to be a little [00:01:45] bit of a psychologist, right. Or a, or a psychiatrist. When, when markets are volatile and people, uh, are feeling fear and experiencing different emotions about their money, and I think this is one of those times, uh, that people are, are starting to do it.
And the reality is. The market really isn't [00:02:00] down, uh, very much relative to where it has been in in other times in the past. Like, I think from, from the recent high as of today, the market, the s and p five hundred's down about 10%, which is just kind of a normal correction. Um, however, I [00:02:15] think it's because of the news and the headlines and how fast it's happened that it's, it feels a little bit more drastic probably for some people.
But, um, you know. So, so one of the things we thought would be great to have a podcast about is just about the [00:02:30] psychology of investing and things that people can do during down markets to kind of just keep themselves on track and keep their mind, uh, moving in the right direction. And so, um, you know, there, there's something that was put out called, uh, the, the Wall Street [00:02:45] Cheat Sheet.
It was actually in in Time Magazine. Uh, and, and we're gonna show you guys this clip here, uh, and this diagram of what this is, but it talks about the different emotions that that investors experience during different market cycles. And if you think about it, you know, the [00:03:00] market goes, it goes in cycles where it goes up dramatically, it kind of peaks and then it goes back down.
They call that cycle the peak to trough cycle, okay? And so people have very different emotions in a trough than they do a peak. And so I think going through. [00:03:15] You know, what we think of some of the emotions in this chart that people feel during this peak trough, um, cycle is very, very important and, and kind of starting in the trough, you know, a lot of times, so the trough would be like, we've just been through a bear market and the market's been down [00:03:30] for a while.
People are pretty discouraged. And a lot of times, you know, when the market, so say you've been in a trough for the last year, you know, the market starts to go back up and people actually are experiencing at that point in time disbelief, right? They're like, you know, the market's going up. But the market doesn't go up.
'cause in their mind they're, [00:03:45] you know, the mar the stock market's not a good thing to invest in anymore at that point in time. And then, you know, if it keeps going up, they eventually start to feel hope that like, hey, maybe this is a recovery. And then it keeps going up. And then they go through optimism, right?
And then they start to believe, [00:04:00] they go through belief, then they go through thrill. And at the very, very top, you know, they'll see, they'll feel euphoria, which what we actually experienced, and we were talking about this yesterday. Uh, we saw a lot of clients experience euphoria back in 2021, where we had people calling in saying, Hey, I wanna buy [00:04:15] this meme stock, or, I'm gonna take out $20,000 and I'm gonna invest it on my own because I know I can do better than what, you know, my more diversified portfolio is gonna do.
Eric Wymore: Absolutely. the.com was a really.com era was a, it was a really good ex, [00:04:30] um, definition of euphoria when. People were putting money into pets.com and ask Gs and all those companies. Yeah. That never exactly produced a single dollar worth of revenue. Mm-hmm. That's, that's a euphoria moment. That's euphoria for
Jeb Graham: sure.
Yeah. And then, and then what [00:04:45] happens is the market goes down some, and then investors are complacent because they think that, you know, this is just a little temporary pullback and it's gonna come back. And then as it, as it starts to move down to trough, uh, people then start to experience anxiety. And a lot of times the [00:05:00] next is denial.
You know, they, they can't believe that their money has gone down, uh, like it has, and then it's panic. And then finally it hits trough, and then people experience anger, right? So they're angry and, and it goes on for a little bit, and then they're kind of depressed and then that whole [00:05:15] cycle starts back over.
And, and they go through, you know, the market starts to go back up. They feel disbelief, right? And so I. So what we've found is that there's really kind of three, three, uh, big emotional rollercoaster items of investing, and you've got your fear and [00:05:30] greed cycle, which we we're kind of talking about there. Uh, and then you've got your recovery or your recency bias and your confirmation bias.
Just to hit on those real quick, um. When you talk about fear and greed, it's exactly what we were talking about in 2021, right? Is, is people are, are, are [00:05:45] greedy because the market's gone up and they think it's never gonna go back down. So they're experiencing greed and they're a lot of times making irrational decisions at that point in time.
And then on the fear aspect of that, I think a, uh, you know, a great example could even be just right after that in 2022 is, you know, interest [00:06:00] rates have gone up. Markets have gone down and people are, people are wanting to go to cash when the market's trading at 20% off of its most recent high, which typically, you know, what Warren Buffett would say is that's the time to buy, not, not the time to sell.
Um, and then [00:06:15] you've got your recency bias. The recency bias is where people really, um. You know, take recent events and they, they weight them higher than they should be. You know, I think my, my greatest example of that's gonna be 2008, 2009, [00:06:30] we had the big, uh, great. Fi financial crisis. And I think for three to four years after that, people thought in their mind that the market just went down 50% on a regular basis and that it crashed all the time.
The reality is it doesn't crash all the time. Uh, that was something that happened [00:06:45] recently and people thought that it happened more often than it actually does. And then your last one's gonna be confirmation bias. And I think this is really, uh, prevalent right now, specifically with our political environment, you know, is that people, you know, they have a, they have a.[00:07:00]
A belief system, you know, that maybe the market does good when Republicans are in, or it does good when Democrats are in. And whatever their belief is, they, they tend to think that the market's gonna move, uh, based on what they believe it's gonna do. And a lot of times those beliefs aren't, aren't. Right.[00:07:15]
Um, so, you know, I think the, some of the things that we've been talking about, if, if we're gonna go through, uh, ways to avoid, uh, falling into some of these traps, I think the first thing we were talking about is just diversification.
Ethan Hutcheson: Mm-hmm. Yeah. Yeah. In, in, in our [00:07:30] industry, our line of work, there are tons of, you know, rule of thumbs or cardinal rules about investing.
Um, the, the main one that we talk about is buy low and sell high, which we'll talk about here in a little bit. But the biggest one that everyone teaches and preaches is [00:07:45] diversification. And what does that mean and, and how does it work? Diversifying your portfolio, you're spreading your, your risk across different asset classes.
So rather than owning just Apple stock, you know, you might own large cap indexes, mid cap indexes, small cap, [00:08:00] international, emerging markets, bonds, treasuries. There's, there's so many asset classes that we can put into the, these portfolios, depending on your risk tolerance is kind of how aggressive you would, you would invest.
So what we typically say is, you know, if, if we're gonna [00:08:15] have, if we're gonna own a well diversified basket, we do want to have multiple asset classes in there. We just don't want to own the market or the s and p or, or whatever you, you say, we want to have exposure so that when the s and p is [00:08:30] in a spiral or a decline, maybe international stocks and those bonds are appreciating while some stuff is going down.
So you really can balance and weigh that portfolio. A little bit better. Otherwise, you know, if you own a million dollars in Apple and Apple gets cut in [00:08:45] half by bad earnings call, now you have $500,000. So that can be very detrimental to a portfolio and that's when you kind of run into to concentration risk.
So diversification, it's uh, it's an easy tool to kind of abide by. And, and that's something that we build our [00:09:00] portfolios around is diversifying our asset classes.
Eric Wymore: Absolutely. The other, the other thing that we really wanna make sure that. People think of it as a long-term play and we get asked all the time, you know, if it's at a party or some other event, you [00:09:15] know, what's the market gonna do?
And you know, usually a good question and we can return to them is, well, give me a timeframe. 'cause if you're talking six months, I don't know. It could go up, it could go down, it could be the exact same. If you give me a [00:09:30] longer timeframe, say five years, six years, 10 years, then I'm definitely gonna feel optimistic that the market's gonna, you know, gonna be higher than where it's at today.
And I think you have to remember that the markets go up and they do go down, and we have periods of [00:09:45] time, you know, multiple times throughout the year where you're gonna see a 3%, 5% drawdown, uh, in the overall market. That's gonna happen multiple times a year. You know, once a year or once every, you know, 13, 14 months [00:10:00] or so on average, you're gonna have a correction.
And a correction is a 10% decline that's gonna happen. Um, and then you're gonna have about every, you know, call it three to four years, you're gonna have a, a 20% decline, or that might put you into a bear market. [00:10:15] Um, we're seeing that, or we've seen that with the individual stocks. Certain individual stocks have already had a 20%, uh, of pull down or draw down.
And that's the one that's a little bit more meaningful. But obviously that doesn't happen every year. It happens every average, [00:10:30] average three to four years or so. And then the big one is that kind of big reset where it's, you know, 30, 40 plus percent draw down. That's financial crisis.com bubble, uh, and so on.
Those happen, you know, [00:10:45] more towards every 10 to 15 years or so is when you have a great reset. So just keep that long-term mentality. You're going to usually have a much, much better gener, much, much better returns. That's kind of the difference between investing and [00:11:00] trading. You know, if you're gonna be investing, you're gonna be in it for an investor for the long term for trading, then you can figure out, worry about the next six months.
But we're investors and so we're in it for the long term.
Jeb Graham: Yep. I'll tell you one of our favorite charts too. We've shown it in a number of, you know, [00:11:15] LinkedIn posts as well as, uh, some presentations we've done is that, you know, JP Morgan does their what's called guide to the markets. And they put that out every quarter.
And they have a, they have a little big in kinda what you were talking about there, Eric. They have a chart that's called the, the entry year declines [00:11:30] versus calendar year returns. And in essence, what that is, is it's showing. You know, in each given year. And I think, Ethan, you mentioned it yesterday that uh, maybe it was 2020 that I think at one point in time during that year, that was the covid year, the market [00:11:45] was down 35% off of its most recent high or as close to that, something like that.
And then by the end of the year it was up 16%. And so, and if you go back to every year, usually even the years that are down. You know, at some point in time the market was down [00:12:00] further than, than where it was at at year end. And so I think that chart is such a great chart for helping people keep into perspective.
You know, the markets go down because many, many times it goes down and it could even go down significantly during the year. And then it's still [00:12:15] positive, uh, by the time the year's over because it recovers and then goes on to even go higher.
Eric Wymore: Well, well, and you definitely wanna stay invested too during those times, during those draw down times.
And that's something that, you know, there's a, there's always numbers and stats out there. We got a ton of them. But [00:12:30] if you miss the top 10 days, the 10 best days in the market, you know, over, over, over the course of a year or, or five years or however long your timeframe is, if you miss the top 10 days, your returns are cut in half.
It's that easy. Yeah. So that's why you stay invested even during the down times. [00:12:45]
Jeb Graham: Yep. And we'll go into kind of some opportunistic rebalancing here in a minute. But before that, another thing, um, you know, that's, that can be very, very helpful, is to use products that actually provide gar guide rails and what [00:13:00] we would call downside protection.
And to give a little bit of a, a background on this is when I first got into the business. I worked for a big insurance company that underwritten a ton of annuities that actually had what they called guaranteed income benefits at the time. [00:13:15] Okay? Now, and there's still some of those out there, guaranteed withdrawal benefits and stuff like that.
In essence, what it was is you would invest a certain amount of money and then they would, they would give you a writer on there that would allow it to grow at a certain rate, and then it would guarantee that you could take a certain amount of income [00:13:30] off of that rider value down the road. And I, I'll tell you, what we found out is a lot of times.
Those products where the value of those things was. It was not necessarily the rider 'cause the, 'cause the irony of it is very rarely did you have to use the [00:13:45] rider, you know, for people, because the market historically has gone up about 75% of the time. Meaning usually the market outperforms the guarantee, uh, in many cases.
And so, however, what we did find is that it helped clients feel a sense of safety [00:14:00] when the markets went down. And it made 'em, you know, it made them less likely to make a bad decision and sell out when the market's at an unfavorable spot. Well, today, a lot of those products have evolved a lot. Okay.
Meaning there's things that we can place in [00:14:15] people's advisory accounts. When I say advisory, just their investment accounts with us, uh, that we can, if, if they're willing to commit to a certain time period. So say we're gonna, we're gonna buy a three year product, well, we might be able to invest in something like the s and [00:14:30] p 500 or the nasdaq.
Or, or, uh, the Russell 2000. And basically we can put guardrails on it and say, Hey, we have a buffer of a certain percentage on the downside. So if three years from now that index is down, you know, we, we have, [00:14:45] we're buffered on the downside and we're not gonna take that full loss. And a lot of times you still get a hundred percent of the upside of that.
So. So there's certainly ways, and even if that, that protection doesn't come into play for that client, it, it provides safety and it makes people just more [00:15:00] comfortable, uh, I think investing and, and not making bad the wrong decisions at the, at the wrong time. So,
Eric Wymore: absolutely, and think about it, if that, you know, if someone needs, you know, needs to take a withdrawal or a required minimum distribution or something like that, and they [00:15:15] know they're gonna start doing that three years from now, five years from now, and they're nervous and they wanna make sure that it's there.
I mean, what a great opportunity to stock some money into there. You know that it's gonna be, gonna have some of those protections around it gonna be available for you. It's gonna grow if [00:15:30] the market goes up. It's gonna protect if the market goes down. Um, and it'll be there for your, you know, for your distribution when you need it.
Ethan Hutcheson: Um, speaking towards, I know Jeb mentioned it earlier, the opportun opportunistic rebalancing. Um, again, back to those [00:15:45] initial cardinal rules we talked about goal of investing, right? Is to buy low and sell high. Um, or
Jeb Graham: according to, according to Andy, he said, you can just buy high and sell higher. That's, that works too.
You
Ethan Hutcheson: could do that as well. Yeah. Yeah, I like that one. Um, but you know, [00:16:00] being in the industry for as long as we have. We've kind of understood it's virtually impossible to time that market. Um, if I knew when the high was gonna be, we would sell. And if we knew when that low was gonna be, we would back the truck up and deploy all that [00:16:15] cash.
But you just don't know when that's gonna happen. So, Eric, talk to us a little bit about opportunistic, rebalancing some of the mistakes that people make along the way and, and kind of what rebalancing does to those portfolios.
Eric Wymore: If you, again, if [00:16:30] you have a, you know, a really solid, diversified portfolio, you're gonna have, some of the investments aren't going to perform as, as bad, so to speak, uh, when the market declines.
Uh, a great example [00:16:45] of that is a lot of fixed income during COVID five years ago, you know, where, where we're sitting right now, which is five years ago you had a lot of fixed income that was. Possibly not even down, but possibly even up, has increased in [00:17:00] value, uh, during the covid, um, during that big covid drop.
What opportunistic rebalancing is, is basically taking a portion or rebalancing your portfolios, selling some of those that have not gone down as much or possibly even [00:17:15] increase in value and reallocating or redeploying that money into an investment that has gone down, uh, with the, with the rest of the market.
The idea is eventually, as we just already talked about, the market does recover. It's got a [00:17:30] hundred percent recovery rate, you know, but from every bear market is recovered a hundred percent to all time highs. This is the opportunity to sell some of those that have not down as much or possibly even up and to more of the aggressive portfolio portion of your portfolio to ride the [00:17:45] recovery a lot faster on the way up.
Ethan Hutcheson: Definitely. Yeah. Rebalancing helps with eliminating that focus that people have on trying to time that market. Um, so when, you know, when you do rebalance, it's not like we just kind of on a [00:18:00] whim say, oh, we're gonna rebalance today. We, we kinda look at, you know, do we do systematic rebalances, right?
Quarterly, rebalances, monthly rebalances. You can also rebalance probably too much, um, to some extent as well. So there's a, there's a method to the madness. Um, and just know that [00:18:15] rebalancing is a tool that we use in times of volatility to just help help. Climb out of that hole. On the other side of things,
Eric Wymore: you know, this is, the market is the only place that you could literally love something at a hundred dollars a share, [00:18:30] and then a few months later it's $70 a share.
And you absolutely hate it. It's only place on earth. Everywhere else you're like, I'm pretty excited. I just bought a, a car for 30% less or a house for 30% less. But, but the market is place that everybody hates that. [00:18:45] Doing that strategic rebalance, having your plan, doing your, your, your monthly or s or or ev biweekly paycheck contribution to your retirement plans.
That helps eliminate some of that volatility and helps you, gives you [00:19:00] opportunity to do what we want and that's buy low and sell high.
Jeb Graham: I would say too, you know what, what you're saying there, everyone wants the stock when it's a hundred bucks, but they don't want it when it's 70 bucks. That kind of comes back to the beginning of the podcast where we're talking about fear and greed.
You know when you're at, when [00:19:15] you're at a hundred dollars, everybody's greedy. And when it's at 70 everyone's fearful. But you know, if you can kind of reverse that thought process, uh, a lot of times that can create a lot of success in investing over time. So. Guys, this has been very good. Just to kind of [00:19:30] summarize, um, you know, is that as we're talking about psychology of investing, you know, the, the key to investing long term is, is to stay invested, to stay disciplined, and not to let your emotions get the best of you and that, you know, historically.[00:19:45]
Obviously we can never guarantee what's gonna happen in the future. Uh, however, uh, markets do have a 100% recovery rate. We were joking earlier, we say, you know, they always say the grim reaper's undefeated, right? Everybody dies someday. Well, historically, the market's undefeated as well. [00:20:00] It's always come back.
Now, we can't guarantee that in the future, but I think if you're playing the odds and you believe in the stock market, uh, that's a good thing to, to think about when the market's down. Uh, and then, you know, like Ethan was talking about diversification. Uh, you gotta have a diversified [00:20:15] portfolio. 'cause that, that, that's what allows for that opportunistic rebalance, uh, in times when the market's down.
And it also, uh, just over time helps you be invested in a lot of different things. So, um, this has been a great time guys. Thank you for, [00:20:30] uh, all of us joining today. And, uh, this is Metcalf money moment. Sign it off.
Voiceover: Thanks for tuning in to Metcalf Money Moment, the podcast. We hope today's episode provided [00:20:45] valuable insights to help you unlock financial clarity, confidence, and peace of mind. For more expert advice and resources, visit metcalf partners.com. Until next time, make every money moment count.[00:21:00]
Disclaimer: Jeb Graham, Ethan Hutchinson and Eric Wymore are registered representatives with and securities offered through LPL Financial Member FINRA SI PC Investment advice offered through W CG Wealth Advisors, a registered investment advisor, W CG Wealth Advisors and Metcalf Partners Wealth Management [00:21:15] is AR separate entity entities from LPL Financial.
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making the decision.
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