Is The Stock Market Broken? #521

Imagine hopping on a flight to visit your parents on the other side of the world. You don’t avoid flying by plane because there’s likely going to be some turbulence- a few rough patches are to be expected. You take advantage of the modern marvel of a transatlantic flight and you go and see your family! Similarly, the stock market is the greatest wealth creating machine in history- it’s amazing! Investing in the market to achieve millionaire status has become possible for a much wider swath of folks but the path comes with its fair share of corrections and bear markets. To go back to the analogy- what if it's starting to look like air travel is no longer safe? You start to consider that upcoming flight! Sure, we’re seeing some market volatility now but future market predictions aren’t looking all that rosy either. Is it time to consider pulling out of the market? During this episode we’ll discuss why the market saw massive gains over the past 2 years, why we’re optimistic about the future of the stock market, what you should be doing if we experience a future of weak returns, and how you should be investing regardless of what’s going on with the stock market.

 

During this episode we enjoyed an Escape From Lager Mountain Flying Machine! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe if you’re not already a regular listener, and give us a quick review in Apple Podcasts or wherever you get your podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

 

Best friends out!

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Episode Transcript

Speaker 1 (00:00):
Welcome to How the Money. I'm Joel and I am Matt,
and today we're asking the question is the stock market broken?

(00:26):
Is the stock market broken? It makes me think of
like if you've always gone to a certain candy machine.
So our kids when we go to visit uh Kate's folks,
the in laws, they've got this Eminem's machine and at
their house, Yeah, like an old timey like gumball machine
that they've stuck peanut Eminem's in with a little jar
of quarters or coins to the side of it. And

(00:47):
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

(01:07):
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

(01:29):
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,

(01:49):
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

(02:10):
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

(02:32):
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

(02:55):
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

(03:15):
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

(03:37):
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

(03:58):
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.

(04:19):
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.

(04:41):
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

(05:04):
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

(05:24):
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

(05:46):
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.

(06:09):
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.

(06:30):
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,

(06:51):
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

(07:11):
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

(07:32):
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

(07:52):
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

(08:13):
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

(08:33):
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

(08:55):
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,

(09:18):
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

(09:40):
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

(10:00):
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

(10:20):
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

(10:40):
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

(11:03):
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

(11:25):
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

(11:45):
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,

(12:07):
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

(12:29):
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,

(12:49):
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

(13:10):
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

(13:31):
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,

(13:54):
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

(14:16):
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

(14:37):
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

(15:00):
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

(15:21):
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

(15:42):
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

(16:03):
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

(16:29):
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

(16:52):
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

(17:15):
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

(17:37):
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

(17:57):
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

(18:20):
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

(18:42):
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

(19:04):
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,

(19:26):
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

(19:46):
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

(20:07):
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.

(20:29):
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

(20:49):
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,

(21:10):
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

(21:30):
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,

(21:51):
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

(22:13):
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

(22:34):
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

(22:55):
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,

(23:16):
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,

(23:37):
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

(23:59):
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

(24:21):
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

(24:42):
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

(25:02):
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

(25:23):
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

(25:46):
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

(26:08):
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

(26:29):
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

(26:51):
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

(27:12):
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

(27:34):
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

(27:57):
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.

(28:20):
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.

(28:43):
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,

(29:06):
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.

(29:28):
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

(29:48):
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

(30:10):
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

(30:33):
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

(30:54):
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

(31:15):
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,

(31:36):
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

(31:56):
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

(32:16):
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

(32:39):
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,

(32:59):
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.

(33:22):
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

(33:42):
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

(34:03):
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

(34:24):
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

(34:46):
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

(35:07):
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

(35:29):
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

(35:50):
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

(36:12):
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

(36:33):
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

(36:55):
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.

(37:19):
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,

(37:41):
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

(38:04):
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

(38:27):
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

(38:47):
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

(39:10):
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

(39:31):
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

(39:53):
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,

(40:16):
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

(40:38):
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

(40:58):
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

(41:21):
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

(41:41):
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

(42:05):
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.

(42:31):
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

(42:54):
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

(43:16):
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

(43:38):
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

(44:01):
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

(44:22):
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

(44:44):
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,

(45:04):
Best Friends Out.