Money Meets Medicine Podcast
MMM 68: This is When The Market is Going to Crash
When it comes to the market, it is not a question of “if” the market will go down again in the future, but “when” the market goes down. Are you ready for your next market correction, recession, or crash? What will you do when it happens?
That’s what this episode is all about. Stick around as we prepare you for the worst so that when all others are losing their heads, you will not be losing yours.
Today You’ll Learn
- How often market corrections and recessions happen.
- The impact of the recent bull market and its effect on risk tolerance.
- The importance of knowing your risk tolerance.
- Current trends in the market and what we can anticipate using this information.
- For reference: JP Morgan Guide to the Market
- And more!
Ryan Inman 0:00
People always say it's not about timing the market. It's about the time spent in the market. And what if we could prepare you for the next major market swing? All that's what this whole episode is about. Now before we dive in, make sure to keep listening to learn how you can join the financial freedom live boot camp hosted by none other than our very own Dr. Jimmy Turner. And he definitely put that in my intro, so I had to say it. Whoo. All listen today's episode. Let's get in.
Welcome to the money meets medicine Podcast, where we talk all about the personal finance topics you'd wish you'd learned in medical school. I'm your host, Ryan newman, of physician while services and here's your co host, the founder, the physician philosopher, whose favorite ice cream flavor usually involves chocolate and peanut butter because they are delicious together. Dr. Jimmy Turner
Jimmy Turner 0:53
for a while I used to get a ton of crap about this because when I used to eat when I go like cold stone or marble slab I don't know what they have out and where you are. Right, but no cold stone. Yeah. So fries come here once a while and I used to get chocolate and gummy bears ice and my wife would be like, what's the point like the gummy bears just get cold? And then they're hard to chew? Like, why would you do that yourself? So I finally grew up and switch to peanut butter mistakes were made.
Ryan Inman 1:17
I'm just kidding. I love peanut butter too. I'm a bigger kid. I actually do chocolate chip cookie dough.
Jimmy Turner 1:22
Hey, I'm all about it. These don't break your teeth on gummy bears. That's true. Speaking of making changes, and this episode, I think is gonna be really interesting. And everybody's always talking about what they think the markets doing. It's going up, it's going down. And I can't wait to dive into this because I think it's a really important topic. And it's something that people spend so much time thinking about. I wouldn't see headlines or hear somebody to doctors lounge talk about X, Y or Z going up or down. But before we do that, we get to hear from one of our amazing fellow podcasters and the doctor Podcast Network as this episode's sponsor for the show is Dr. Wiseman. So I'm gonna let her take it away. Hey, there,
Dr. Errin Wiseman 2:01
this is Dr. Aaron Wiseman. I'm a fellow doctor Podcast Network member life coach and Mama three, I kick butt I take names and I help other high achieving people do the exact same. And today, I want to invite you over to my podcast doctor me first. It's well over 300 episodes, and each one is filled with inspiration and advice from amazing guests. So grab your wife, your mom, your sister, your best friend, and come tune in as we explore what it means to be a woman in medicine, and a woman in this world. Because this podcast is a dose of everything that I needed when I was burned out exhausted and ready to quit it all. At the end of the day. I do this to help you feel more connected to yourself and to connect with others. I love to in my show with a kick of encouragement. So here's my favorite tagline your life. Your calling your pulse matters. See over a doctor me first.
Jimmy Turner 2:58
All right. So Ryan, this show ups and downs, dips and dives. It's like the dodgeball dip, dive duck Dodge, whatever.
Ryan Inman 3:06
I've no idea what you're talking about. You've never seen
Jimmy Turner 3:08
Ryan Inman 3:09
I've seen it. I'm just making funny.
Jimmy Turner 3:11
Nobody makes me bleed my own blood.
Ryan Inman 3:13
That's awesome. Yeah, we're going to talk about the market. And we're going to predict the market our crystal balls are working today. No, they're not. We don't have a crystal ball. We don't know what's actually going to happen. market could be diving today, we're recording this a little bit early. So it's not like we record it and then publish it the next day. market could already be crashing by the time we're recording this, we have no idea. Or it could be a decade until the market actually experiences a market crash that everyone has been predicting. And I joke all the time. And I say hey, Jimmy, let's just go back to the recent memory of 2008 2009, where basically the housing crisis caused this whole issue. And there's been movies made about all the fraud that was occurring everything and it crushed our markets. You know, at one point they were down like 50 some odd percent. Since then, every major news publication every single year has said we're going back into a recession, the market is going to collapse, the market is going to crash every single year. And now we're in 2021. So they're 13 years. And they got their shot in March of 2020 when COVID happened, and everyone thought the market was collapsing and that needs to sell and we experienced some super crazy volatility. I remember doing a show on financial residency during that time period. If you have not heard that show, I don't remember exactly what it's called, which is probably poor marketing on my part. Go look in March of 2020. And it'll be very obvious when you get there. But we did a whole show talking about the volatility and how to keep calm and why to keep calm. But we are going to revisit some of this because sometimes our memories are a little short. And we don't remember all the details perfectly. And when you're in the moment and all of a sudden emotions run high behaviors change mindsets change and wait a lot of things going on. So I want to cover this. I think it's really important because at some point the market will quit. Don't quote, crash again. And when it does, we want you to be prepared. And we don't really want to see the community doing what they were doing in March of 2020, which was panicking, running for the hills and screaming, Oh, my gosh, we're all in trouble, the sky is falling, the sky is falling, help, don't want to do that. A lot of the things that I saw in the financial residency community reading questions that came in from money means medicine, just seeing a bunch of physician communities was like, all of a sudden, everyone understood that passive investing works, that it's the thing to do. But when the market corrected, everyone turned into active investors, hey, I think the cruise lines are gonna come back and everything will be okay, and they've taken this huge haircut, I think I'm gonna buy into this, or Hey, I think this stock is gonna do well, or these guys are gonna come out of the pandemic really strong. And all of a sudden, the mindset went from my investments should be boring, I need to just understand passive investing time in the market, instead of timing the market to I'm going to go and some of them were actually using leverage using margin to go buy stocks, which is crazy to me to do that. But they were doing that and trying to pick individual securities. On the other end, we had people that were literally selling everything and stuffing it to cash, and their money market accounts, hoping to ride it out. And what we experienced, we haven't really experienced before, as severe and as quick, but we had a complete Vshape, absolute dump in the market to then rebound right back up. So the market, and we'll talk about this, I'm going to reference JP Morgan's guide to the markets, I think it's a fantastic resource for that. But at one point, we were down 34%. And within a few short months, we were back to positive. And if you sold on that downturn, and you didn't get back in, you're now buying in at 3040 50%, potentially higher than when you sold. And that is what crushes people's portfolios. And I think the reason that a lot of people were in that point of panic mode was because they were already too risky. And I know Jimmy, you've seen this too, with people that talk to you in coaching. I've worked with hundreds of physicians all across the country at this point, we've seen this a lot where we start talking about investing, and their risk tolerances, and the need to take risk and the ability to take risk. And when it comes out to it is the bull market that we've had since basically 2009 when the market bottomed until now, yes, there's been some dips and some pull backs and nothing like we've seen with the pandemic. But it essentially allowed everyone to feel immune, like the stock market always goes up. It's been going up for as long as I can remember, because people's memories don't go back even 10 years. And I think a lot of people have even forgotten what happened in 2008, and nine and how horrible that was. I mean, we had 7% 8% swings in a day. Like it was crazy. Now we've seen that with COVID. And I think in that march of 2020 will be the reference point that is actually going to be used in all the risk tolerance questionnaires. It used to be 2008. I think it's gonna get added and what if you saw your investments decline 34% in 30 days, that was not a normal thing that never was asked anywhere. But it created this unlimited risk tolerance. And I think that is what really sparked a lot of people to get spooked out and to potentially sell and we don't want you guys do that. So part of this is going to talk through the educational why not to do that the only part is talking about why you felt that way.
Jimmy Turner 8:40
Yeah, and I think it was Leif dollying over physician on fire who I first saw this from and even if it's not his maybe he got it for someone else. But before March of 2020 happen. He basically called it the Nike swoosh market where like 2008 2009 happened and everything went down. And then basically from that point on a went up on like a, you know, 30 or 45 degree angle for the next 10 years. And so everybody experienced this unprecedented bull market, and all of a sudden had just massive amounts of risk tolerance.
Ryan Inman 9:10
This is like the square root correction is that we're gonna call this now.
Jimmy Turner 9:14
Yeah, I guess because it was a V when it happened to hit like the the division sign. But like it was really, really interesting. Because I, for example, didn't really have my financial enlightenment until fellowship and 2015 2016. Whatever year that was, I caught this thing on the upswing. And ever since I invested in the market from that point forward until March of 2020. It basically just been up. And I had talked a lot about risk tolerance. I talked a lot about myopic loss aversion. And I prepared myself after reading tons of psychology and behavioral finance. You know how we make decisions around money. And so when March happened, it was actually fascinating because a lot of people were running around with their hair on fire and just running for the hills, like you said, but I found it really interesting because being on the other end of that spectrum, it didn't bother me at all. Because I really wrap my head around the psychology of it, I just knew I was gonna be staying the course. And it's like, I thought it was really interesting to be cool, calm and collected on the sideline while everyone else was running around and freaking out. And the reason I mentioned that is because really having knowledge like we're going to share with you today on the show really does go a very long way, in terms of preparing you for that. I think one of the one of the things that was interesting about that, that I always talk to people about is just your risk tolerance in general, if you went through that, and you lost, like major amounts of sleep, or you had a really hard time, that says something, it's like Ryan's gonna, like, hey, the risk tolerance questionnaire is gonna change, like, that was a moment where he really did probably provide a ton of information about you, I don't know if you've reflected on it or not. But it's worth thinking about, like, how did you feel when that happened, if you didn't even notice, you could theoretically even add more risk, if you did notice, and you considered selling or you sold. And that tells you something about your risk tolerance being lower than you expected it to be. So I think it's gonna be fun to talk about today, right?
Ryan Inman 10:56
Yeah, I need to. And this is not specific investment or financial planning related advice. We're talking about what is happening in the markets, and what could happen in the future. And part of this, we want you to know, like, the markets are volatile, they will continue to be volatile, they will always be volatile, and understanding that markets have been flow and that you will make money and you will lose money. The important thing is to keep investing, and to stay the course and to not make changes. We've talked about an investment policy statement and putting together rules about what you're investing in, and why you're investing in it. And if you want to make changes, like maybe having a cooldown period, okay, hey, I want to make a change, but I'm not gonna make a change for, you know, 30 6090 days, if you said, hey, look, I'm really nervous in March of 20, or even February 20, I think COVID is gonna be really bad. I think the US is not prepared. Clearly, we weren't prepared, I think the markets are gonna absolutely get crushed. And I don't want to, if you had a rule that said, great, but you have a 90 day cooldown to make any decision. So if you want to sell to all cash, you have to wait 90 days, if you would have done that, you would have basically not only saved yourself, but you wouldn't have had to come in try to figure out how to get back in you, yes, experienced that volatility. But you have to be right twice. I think that's the important thing that people have to realize.
Jimmy Turner 12:18
That is the important thing. I completely agree.
Ryan Inman 12:20
What I mean by that is, let's say you were right, in February, us now prepared, markets don't get this, they're gonna get sideswiped, this is gonna be horrific. I'm selling. Cool, you got the sell, right. But unless you didn't timed it, basically, in April, that this is the bottom and I need to get back in, you've got to be right on the entry back in. And that's the hardest part. Wall Street always says there's blood in the streets, right, the sky is falling everyone's negative people thinking that this is gonna keep going. And the market is just gonna absolutely collapse every time the market experiences, basically a 20% correction. Everyone thinks the market is not coming back ever again. And I'm going to talk about that in a second. Why I think that is laughable. But that is how people felt that is what all the news was saying. And we had some nasty volatility, right? We're talking massive, massive multi 1000 point moves in the market, obviously down, and people were really worried. And to turn around and go, Hey, I know I'm right. The second time I'm going to buy back in isn't going to happen is so hard to time and predict. And at that point, why are you trying to time and predict this, we know that active management does not outperform passive management over a long period of time, in 10 years, it's about 10%, that active management beats passive. So I'm going to stick with the 90% winner. Instead of thinking I'm smarter than I am, and my crystal ball works. And over a 30 year period, it goes down to 3%. So I'm going to stick in the 97% range, and not try to pretend I know what is actually going to occur tomorrow.
Jimmy Turner 13:59
I've got this one financial guy, he's in that 3% he just gets you right every year,
Ryan Inman 14:04
and he's gonna charge you multiple percent a year in order to do that, right, he's buying in funds. Well, maybe he's a stock picker, but they're likely buying other funds, who then those managers are going to charge a nice expense ratio to actively beat the market. Usually those are about one and a quarter to one and a half percent. And then that advisor whose hand selects and crafts, this perfect portfolio of really good active managers is going to charge you at least 1%. They always compare to a benchmark. Let's say the s&p make it easy. The s&p returns 10% this year, well, if you had those active managers and the advisor that's going to beat the market. And let's say it was a one and a half percent expense ratio and a 1% advisor relationship that you're paying the 1% they have to make 12 and a half percent just to beat the s&p to break even to breakeven, like when you look at it in that term. It's like oh, that's pretty hard to do. And if you think about 10% None of them are successful over a 10 year period, and 3% of them are successful over a 30 year period. There's a reason why passive investing ends up winning. And it's cheaper, and it's easier and you don't have to think about, it's just boring. It is boring. But boring is so
Jimmy Turner 15:16
good. It's so good. This is the reason why I wanted to mention that. By the way, I was kidding earlier, when I said I knew a guy that can beat the market. I completely agree with what Ryan saying. But the reason I think this is so important to bring up about boring investing is because the thing that makes you want to sell that myopic loss aversion when you notice the change, you notice the drop and you can't help but stare at it and think about doing something because there's terrible things happening in front your eyes, if you're boring, investing is going on, you're not even gonna want to pay attention to it. It honestly, in some ways, it's just easier to ignore. It's not about timing, the market is about timing the market, I'm gonna let my portfolio do its thing. I've got this written plan, it says that I'm not supposed to do this until they X, Y or Z. Making things boring. is actually such an important thing, I think was jack Bogle, right? Who said this thing, of course, is the most important thing in investing. And I forget the guy that said that, like the four most expensive words in the English language are This time, it's different. Both of those ideas combined, like just don't screw it up, just stay the course, don't make a change. Because the problem is the second that you start thinking about it, and you start rationalizing things. And I don't know if anybody listening is this way, but man, I can rationalize anything. I've been thinking about getting an MX five RF Miata for I don't know, a year now. And I've rationalized that
Ryan Inman 16:28
decision. It's only been a year. I feel like I've been hearing about this thing all the time. I'm like Jimmy, just buy the damn car ready? Like,
Jimmy Turner 16:35
exactly. See more talk about it, the more I'm just gonna have other people tell me I should totally buy it. And I get emails about it like, hey, yeah, yeah, about the Chevy SS or the Miata or whatever. We are very good at rationalizing bad decisions just because you can rationalize it or make it logical. Oh, yeah. But the markets going down. And I can see that there's some other indicators that are making me concerned and I bet I'll be able to pick when it's gonna come back up, you can totally convince yourself that what you're doing is reasonable. Because you're too involved. Keep it Boring. Boring is good.
Ryan Inman 17:02
Now, when it comes to investing, boring is good. And for those of you that are like, you know, guys, I agree with you most of the time, this time, I'm not going to agree with you, I think we should be more in tune with our money. And we'll take a small sliver of your portfolio and do a one or two or even a three year the further you go out, the more evident this will be. And take, I don't care 10% of this is what you need to do it. Some of you can just track it and say, Well, if I would have bought this, how would I have done it not actually put real money to work. But some of you you have to lose money in order to learn. And that's okay. But don't bet the farm on this. My idea is to go again, not investment advice, do your own thing. But I call it a Lottery Fund, go in and pick individual stocks go trade actively managed stuff, go give this to your advisor who thinks they're smarter than the market itself, I don't care, however you think you're going to beat the benchmark, and put the bulk of your money that way that you should invest. And in 1235 years, however long you can withstand holding this and seeing it go up, because the longer we go out, statistically, you're going to lose in terms of maybe they both go up, maybe your Lottery Fund goes up 10%, but the overall market might be up 20 1530 I
Jimmy Turner 18:14
actually had this conversation with my brother in law the other day, so I gave a shout out to Jordan. He is a cryptocurrency fanboy. And so we're talking about it. I was trying to explain to him like, and not to derail the show, but blockchain technology, I think it's really cool. I think it makes sense. It would make sense to me if it stayed, I've got no problem with that. I've got no problem with investing in that. But the problem is, and this is what I was trying to explain to him his individual securities and like picking stocks, or picking funds that are going to win is a loser's game. And I know that. And so I kept trying to tell him, Jordan, when these things get assimilated into an index fund, where they are one of the things that they have in them, or there's an index fund variety of something that allows it to be balanced. And when the losers lose the winners when like, it all still comes up together. Like it doesn't an index fund strategy. Sure. I'm all in He's like, well, you're gonna miss out on these massive gains. I'm like, I'm not gonna miss out on anything. My investing is boring. And that boring investment went up 30% last year, like, hold up. I think that it's really easy to do that. I told him the same thing. I said, Hey, Jordan, like I'm happy to compare portfolios, a couple years, if that's what you want to do, because at the end of the day, like it's not that those individual things are thinking about whether it's Amazon or Google or cryptocurrency or whatever. It's not about that. It's about the diversification, it's about the fees. It's about all of the things that go on in the background, and also your inability to ignore them because you're picking stocks and you're playing roulette at the casino with your investments. All of those things working together, make it very hard to get it right next to impossible.
Ryan Inman 19:43
So I'll jump on the crypto train here for a second and then we'll get back to kind of how the rest of this works out. But we've received so many emails, voicemails, just comments everything around cryptocurrency and I love diversification. I think being full diversify makes total sense. And if you say, Hey, I love cryptocurrency, and I want to have a piece of that, whether it's just Bitcoin or it's Bitcoin and all coins, and you want to create your own little index and your quote unquote, taxable account, and that's what you want to do with one to 3%, or percent, maybe even over your net worth, so be it. That's your Lottery Fund. Have at it. Awesome. You were trying to further diversify out, it's now earning this reputation as a new asset classes emerging. Awesome. I'm totally for it think it's cool, go for it. But when you put 30 4050 8090 100% of your net worth, in this, you might as well go play poker or do something like gambling because that's essentially what you're doing. If you did that and say, Hey, I'm going all in on Tesla all in on Jimmy, all in on whatever was the latest craze. moderation is key, right? If you said, hey, look, I really love Elon Musk, I think Tesla, brilliant. I think it's going to the moon, this is gonna be amazing. Fine, take 1% of your portfolio allocated to Tesla, if you're right, and it quadruples. Okay, so you've made some decent money. But if it goes to zero, which Tesla won't go to zero, but let's say Bitcoin goes to zero, I don't think it will either. You're out 1% or 2%. Now, that's not sexy and fun. And you're not going to get these massive gains were 20x your stack and all of a sudden you're worth millions. But the point is diversification is good. I love real estate, I don't like how real estate is talked about in a lot of the group's most people have never done this for a living, or just commenting on Hey, have bought a house, this is good. The problem is it's kind of the gateway drug and you get going and three, four or five years down the road. 80% of your portfolio is real estate or more. And they're borrowing from their 401k to do that, and I'm seeing the same thing in the crypto market. They're borrowing from their 401k to turn around and buy cryptocurrency or they're moving into a self directed IRA. So then they can buy bitcoin in their IRA. So they don't quote unquote pay the tax. They're just over allocating to it. Who knows, maybe your brother in law throws everything into bitcoin and three years down the road goes Jimmy, you're an idiot, I 20 next to my stack, but the amount of risk that he had to take in order to do that he had to be compensated for the risk he was taking otherwise. The other end of the flip of that coin though, is that he could have
Jimmy Turner 22:20
lost a lot and it's more likely to do that. We don't
Ryan Inman 22:23
know right? Just like I don't know what the markets gonna do tomorrow. I don't know what the cryptocurrency markets gonna do. I mean, that thing is so volatile changes like multiple percent in an hour. So I have no idea what the bond markets gonna do. I have no idea what the stock market is gonna do. Well, hey,
Jimmy Turner 22:37
Ryan, you just go create your own like index fund of cryptocurrencies. That'll be your billion dollar idea. You can retire, you say heard it here first.
Ryan Inman 22:44
You heard it here first. I love it.
Jimmy Turner 22:47
Hey, guys, it's Jimmy. And before we get back to making fun of Ryan, I wanted to make sure our money meets medicine listeners don't miss out on a completely free two day boot camp called the financial freedom boot camp. I'm gonna be hosting on May 10, and may 11. I'm a firm believer that financial freedom is one of the most important tools that doctors need in order to be able to practice medicine however they want. So during this two day Bootcamp, we're going to talk about your financial freedom and how to get there faster without having to work harder in medicine. It's completely free. No pitch, no product, no sales on this thing is completely value for you. On day one, we'll discuss the importance of cash flow, and specifically tackle how to defeat monthly payment mindsets. On day two, we'll talk about creating cash flow outside of medicine. So both days q&a coaching to follow, I'd love to see you there, save your seat at this live boot camp, you can register at the physician philosopher.com slash boot camp. That link is in the description to the show notes seats are limited. I'll see you on May 10. Now back to the show.
Ryan Inman 23:41
Speaking of, you know, returns and how things have worked, I'm going to talk through JP Morgan's guide to the markets and this is something I really don't like JP Morgan Chase, pretty much at all. But this is the thing that I think they do a phenomenal job of tell us how you really feel Ryan, I really don't like them. If they said hey, I want to sponsor your show. It's your money's no good here. Like I don't like them. Sure. I guess all press is good press. I just gave them press. But they stink. I don't like them. I'm not a fan. But what I am a fan of that they do is this guy to the markets, you can literally type in jpm guy to the markets and this PDF will come up. This will be way more info than you ever probably want to know. Strap in Ladies
Jimmy Turner 24:23
and gentlemen, it's about to get real.
Ryan Inman 24:26
I showed it to Jimmy and he's like, Whoa, what? What is going on here? It's 86 pages of fun. Yes, fun. This is the equivalent of you probably reading your employee handbook, in terms of what you think is fun. But I really liked the stuff. They put this information. I think it's fantastic. And I want to talk through a couple pages of this because I think it's really important to understand you don't have to nerd out on it. I want you just to get the kind of high level but I am going to go a little bit deeper than we normally do. Just to kind of illustrate the point. So For those that want to Google that put us on pause, go find it. And I'm going to go to page 17. teaching a lecture here. For those that want to follow. For those that don't, it's all good. I'll talk to you a little bit. So the first one, I want to talk through page 17. Here is talking about the s&p intra year declines versus the calendar year returns. And it basically is a bar graph on the x axis. So it shows what the market had done overall, the s&p 500 in that year from January 1 to December 31. And let's just I'll use 1980. It's their first data point that's there. So in 1980, the market returned over the whole year, if you bought on January 1, thing sold on December 31, the s&p 500, it was up 26%. Cool. But intra year, it was down at one point 17%. So if you think about that, if you'd have bought your $1,000 in January 1, you would have lost 17% or 170 bucks throughout the year, but the year ended up positive 26%. So you're left with $1,260. And the reason that's important is because over since 1980, that they have this data shown here, the average, enter your drops, including 2020, which was by the way, 34% is that the average market drop is 14.3%. I want that to sink in for a second. That means that in the year, you will experience a double digit loss if you're 100%. stock. Again, this is what we're talking about the s&p 500. But the annual returns over the last 41 years, again, since 1980, has been positive 31 times. So you're experiencing double digit losses, and 31 out of 41 times 31 times you will make money and 10 times you will lose money. crazy to see it's like a three to one difference with a double digit loss. And put that in perspective. Last year 2020 we experienced a 34%. intra year drop, you know what I'm talking about March and April, it was painful. Last year, the market returned positive 16% so that's an entry year swing a 50 50% bottom to top.
Jimmy Turner 27:10
So think about that, if you had $100,000 I could have gone down 34%. So you know, whatever the bad math is here, right? $76,000 that's bad math.
Ryan Inman 27:20
It's really bad math. $660 Plus, okay,
Jimmy Turner 27:24
whatever. And by the time that the your finish, you would have actually been up 16 grand. We started
Ryan Inman 27:29
with 1000 bucks. But yes, I went to 100
Jimmy Turner 27:32
Mo Money Mo Problems. We did this before,
Ryan Inman 27:34
don't listen to Jimmy's math, but you get the point, right, we were down a lot. And then we finished up and the year before we were down only 7% enter year and it was up 29. Now 2008 when we talk about how ugly that was enter year was down 49%. And we finished down 38% it's not like this works every time the market does lose money 2009 it was down 28% at one point, and finished up 23. Like the next year, it was down 19% enter year, it finished even on the year. So the idea though is that you will see massive swings intra year, alright, and trying to time the exit in the entrance are very tough. But just because we're down 10 1112 14% 14% is average that we are going to be down in any given year, which is crazy and 41 years, most of the people listening haven't even been alive that long. So I think the data is reliable in terms of looking back and just seeing what has happened now, past performance doesn't guaranteed future results. And we could experience 10 years in a row we've been down in the market lost money that could easily happen. We have no idea. Right? My crystal ball doesn't work. The point is I want to show you that volatility is normal. And even if it's really bad, it can still turn out positive. And so the emotions that you feel when the market is collapsing, quote unquote, and that the sky is falling and everyone's freaking out. No, that 14% is average. And if it's more than that, then you go Okay, hey, we're experienced a little more volatility than normal. But it's not the in the world things rebound things happen. And 31, our last 41 years have been positive, despite double digit enter your drops.
Jimmy Turner 29:15
Yeah, and I really think that this is shown in so many different ways. Like we're looking at the JP Morgan one and I remember the one from Business Insider where they basically had, I forget how much money but they kept X number of dollars in the s&p 500 for 10 years. And they looked at it like you just missed days in the market because you pulled money out and you missed the best days in the market because of what you're talking about, like timing. The worst days in the market, the best days in market is very hard. And even by just missing seven days out of like, almost 4000 days if you miss those best days, which often happen after the worst drops. So the point where you're most likely to sell everything is usually followed or often followed by one of the biggest gains and if you had your money out of the market at that point, you've lost a substantial amount of money and very, very, very few people understand the vault It goes both ways, not just in the year, but oftentimes in the week, or in the month, like in a short period of time. And so you see everything dropping, like, Oh, I gotta sell and then by the time you're like, finally have the courage to buy back in, it's probably already swung in a direction that could potentially hurt you. And the thing is, you just don't know the crystal ball is murky, like, we don't know what's gonna happen, and you're causing yourself a lot of pain by doing that. But if you can understand what Ryan's putting down, which I thought this was really cool, like, just how massive those swings are, all of those years basically had negative returns in them, right. And yet, still, the vast majority of them had a positive return, if you just kept your money in, if you just stayed the course,
Ryan Inman 30:33
nothing makes money forever. Every year, we've had some sort of drawdown or loss, if you were to actually realize it, if at the end of every day you sold your position you bought in at the beginning of the day, you will lose money throughout the year, it will happen. But over the year, it showed us that 31 out of 41 were positive, but we still had 14%, on average, you will lose no one trades that way, you should never trade that way. But for the example is that you will lose on average 14% of your money throughout the year. But this statistic is almost a three to one ratio, you will come out ahead at the end of the year. It is really powerful. It's a graph. It's really nice. If you just sit there and look, we can almost talk the whole show just on this graph. I think it's fantastic. But I want to move on real quick, because we've seen some volatility in recent markets within the last four or so weeks, talking about inflation and the Federal Reserve. And I think it's really important to dig into the inflation and what the Fed is really excited. Now, when we look at core CPI is really factored or defined by what is happening in terms of pricing minus food and energy. And for those that are following along. This is page 31 of the guide to markets by GPM. And when we look at the 50 year average of core CPI, it's at 3.8%. Now they have changed the way over the years on how this is calculated. So I don't really using this as the predictor. But I like is the thought exercise of how this works every year, we expect that the core CPI has been going up at 3.8%. And when the Fed comes out and says, hey, look, we're going to see inflation will occur and we know it's gonna occur, it's actually gonna be transitory in nature, it's gonna be here quickly, and then it's gonna subside quickly. And everyone's worried about how much in terms of the trillions and trillions of dollars they're putting into the market, which rightfully but they're saying we expect inflation to occur. But if we look at January, we had 1.4%, core CPI, and in February, we had 1.3%, I think March and April are going to be very different. And I think that they're warning to come out and say, Hey, we think this is going to be transitory nature, is because if we look year over year of what prices have done, think about what happened in March of 2020. And April of 2020, the entire world basically shut down, prices were falling, people were losing jobs, everyone was hunkered down if they were paying attention and doing the right thing. With prices coming down. If we compare from a depressed price, to now the world's kind of opening back up, things are normalizing things have been going up, it's going to look like we had massive inflation, when in reality, it was comparing it to a place that was extremely depressed, which is March in April. So I think they're giving the warning of, Hey, this is coming. And the reason I wanted to dig into that a little bit was because we've already seen some increased volatility in the market. Lately, some of you have realized I've lost some money because the markets been selling off in these like high growth areas, which is what's been really fueling this whole market rally that we've had since COVID, as occurred, and they've really migrated a lot of the funds to the tried and true the things that are gonna withstand the test of time, the paper products, the coke, the businesses are always going to be here, but they have very low growth expectation, and then those prices have been going up. And it's because the Fed is saying, Hey, we're not gonna have inflation. But if we see inflation, the market is predicting that the Fed will raise rates. And when they raise rates, all of these growth stocks get hurt. So it's all interrelated. Again, in the weeds, I know this is a little more complex than we normally get. My mind just exploded.
Unknown Speaker 34:17
As far as you know that
Ryan Inman 34:18
I apologize. And if you need to rewind, do that. But the idea that I'm trying to present is that there is so much information and rhetoric out there about why things are going to go through the moon, right? If you listen and say, okay, inflation's going crazy. Therefore, all the assets are going to be bid up because there's just more dollars out there to buy these assets. That's one camp that saying hate stocks to the moon, and real assets to the moon. The other side of this going well, if we have inflation, the Fed is just going to raise rates. Therefore I'm going to sell all of these things that are vulnerable to rates getting raised and then money piles into quote unquote, safer stocks or safer assets in that it's tough to decipher who's right who's wrong. No one has a crystal ball, people are predicting and thinking things are going to happen comes back to our original point that we were making. But the idea is I just want people to know that there is volatility. And there's going to be continued volatility because this is a inless, basically tug of war game. And the Fed basically told us, hey, look, we are not raising rates. And I'm going to move to page 37. For those that are following along, talking about the Fed funds rate and what they expect, we are not going to move rates for quite some time, in quite some time to them means 2023 is really what they're looking at, we're not going to really want to change rates until we see meaningful inflation, not transitory inflation, meaningful and inflation. And the market said, we call you bluff. We don't think that's accurate, we think you're gonna raise it quicker. And that's why some stuff has been selling off. Again, who's right, I'm going to take the opinion of don't fight the Fed, they're going to tell you, it's not going to be raised. And all their expectations, when they get together. And they meet, they show. It's anonymous, but they show what they think. And they put those little dots on the chart of Hey, this is what we think is gonna happen. And they don't want to move rates, I'm gonna go with the Fed doesn't want to move rates. But also, if we look at how much in quantitative easing they're doing, it's also further proof that they're not going to let the rates move, I'd read something, Jimmy, this is a maybe a couple of weeks ago isn't going to be perfect. But if rates were to tick up 1%, you would add something like 300 or $300 billion of interest alone, just in a 1% tick up for the government debt. And that alone would be the amount more than they've paid all year in 2020. It was something like astronomical, it would be like if it moved up, or no, it was half a percent. it in a basically pushing the government into bankruptcy, if they went back to 5% rates, which by the way, was like 2000. In the year 2005. We have those type of rates. So they're essentially saying, if we had to raise rates that much, it would bankrupt our government, the Fed is not going to let that happen.
Jimmy Turner 37:09
That's pretty crazy.
Ryan Inman 37:10
It is going to artificially keep rates lower until we've really worked through what this is. It's an experiment, we don't know what's going to happen. Obviously, they're hopefully much smarter people than me running this and looking at the data and seeing what it is. And they have all the data at their fingertips to see this where we get little pieces here and there as information is pushed out to us normal people. But again, comes back to if I'm going to try to time the market, and I'm going to try to buy and sell, like, what information are you using in order to do that? And you've now got to be right twice, and which camp Are you in because everyone's got their own camp of, Hey, I'm in the feds gonna let the rates raise because we're gonna have high inflation. And there's so much information out there. But this is one of those that you will hear and why I want to bring it up on the show. In our super nerdy show. We're compacting all the nerdy stuff in one show, by the way. The reason is because you're gonna start hearing about what the Fed is doing, and inflation and expectations. And I think it's really important to just take a step back, realize how the data flows, how things kind of correlate, there's no perfect answer, there's no crystal ball. But it's, I think, really important to understand how they all get pieced together, so you can start formulating and making decisions on your own. And quantitative easing, for those that don't know is basically the Fed is printing digitally some dollars, they're going out into the open markets, and they're buying securities, they typically buy debt, government debt, they've been buying some corporate debt. And we don't know the extent of exactly everything they're buying, but they're more transparent than I actually thought they would ever be. But they're transparent and at least enough to say, Hey, this is what we're buying, and how much and when they're going out and doing these things. It is helping really keep the rates lower. This isn't the first time we've had quantitative easing. And we'll talk about I think the couple periods of time that we had it, because I think it gives relative to how much is actually coming into the market. Again, I'm on page 39 of the JP Morgan guide to markets in QE one was announced in November 2008. And it lasted 16 months. And the Fed bought some treasuries and MBs. And their balance sheet went to increased by $1.4 trillion in QE two went from November of 2010 to June of 2012 19 months, and their balance sheet increased basically half a trillion dollars. I'm just throwing around half a trillion and a trillion but these are big numbers. And until we we get 2020 by QE three was a September 2012 to October 2014. So 25 months in length, and they increase their balance sheet by $1.6 trillion. So if you think about that, all three keys that spanned multiple years, basically from 2008 to 2014. off and on, they were going in and buying treasuries or mortgage backed securities. And they increase their balance sheet by about $3.5 trillion, which again, is a lot of money. But in March of 2020, and it's still ongoing. So we're 12 months in 13 months in QE four is here. And they've bought treasuries, they've sent out loans, they bought him MBs. And so far, they have increased their balance sheet by almost $3.6 trillion in a 12 month period. So they have done more in this than they have ever done before. And that is why you're hearing people talk about inflation, as why there's so much money that is getting injected into the economy. And the Fed is ever going like, Hey, guys, heads up, we're worried about deflation, because money just isn't that moving around the globe, people are still hunkered down, they're not spending their savings. Good news for high thought, at least the silver lining is that Americans are saving more money than they ever have before. It's because they're not spending money. It's hard to spend money when you don't leave your house. So I'm like, Hey, cool. But the feds like that stinks. Because we need money to move we needed to circulate, and we need to keep putting more money in. So money will actually circulate. And so this is where you're getting both sides to the camp, right? Someone's saying inflation is occurring, because look at how much they've put in. And it's literally a Jimmy can tell you that he's seen the charm. It's like a hockey stick up of what the Fed balance sheet looks like. And the other side of this is going well, they're doing all of this. And it's artificially keeping rates lower, and coming back, super nerdy. And then I'll let Jimmy actually talk for a little bit. But the reason I'm going through all of this detail is because when we start talking about two things, one is I can time the market, I want to have the ability to buy and sell stocks, and I think I'm smarter than the market or I know what's going to happen or this industry is going to recover faster than whatever industry or reading the tea leaves and you can figure it all out. There is so much more behind just what that one company is doing. The economy, the fed the macro global economy and what's occurring, how much the banks are putting me they're talking about putting between us and the other three major central banks like over five trillions of dollars in the last 12 months. That is massive amounts of money that is hitting in. And that has ramifications across all asset classes all across the board all across the world. And understanding how these pieces go back and forth, is really important. In this whole going right back to the very beginning of the show, time in the market matters more than time in the market can be right both times maybe once or twice, you could. But there's just so much data and so many things out there that you're going to hear. I wanted to give a high level on so you can get Yes, more as well more in a high level. But I wanted to talk through at least so you can understand how things are moving within the system, at least a little bit better.
Jimmy Turner 43:06
Ryan each one of the weeds a little bit and which I think is a good thing because I think it reminds everybody listening just how much you know about finance fooled all of you, which I think it's cool because like on the show, we typically try to stay pretty high level. And it's good every once a while to dive into the weeds and get into that stuff and let people have an idea of the the happenings behind the scene. But the time in the market piece you just mentioned, I think one thing that all throw out there at the end of the show is one thing that helps me do that. And to stay the course is knowing market history. And I think some of the graphs you just showed, even though they're different extents, the cyclical nature of the market, it's going to come up, it's going to go down. And if you look at it and just take average of the things like basically a bear market happens on average since the 1930s, about once every four to five years. In a market correction. I love asking people this question in a lecture by the way, so if you ever attend a lecture of mine, you can think about it before you answer. I talked to you enough. I'm good. Yeah. How often do you think market correction or a drop in 10%? from the most recent high happens as a listener, if you're driving around or doing the laundry, or the dishes or cooking dinner or whatever? Just think about that? How often do you think that happens? A drop 10% drop? And the answer is about every year and a half. That's the average. So there are times where it goes longer. And there are times where that happens more often in a shorter time period, but the average is every year and a half. So this isn't a question of if this stuff happens, it is a question of when. And if you can set your mind up in a position to know that this is going to happen, the drops are going to happen. And the goal is to stay the course to stick to the plan to stay in the market that will allow you to rest at night when the market does take a deeper dive to not if but when and I just want to throw that out there because that really does at a very high level help me stay in the market during these crashes. These bear markets, these corrections that we all know are going to come. Yeah,
Ryan Inman 44:50
and I'm hoping that changed a little bit of your perception of the market because all this data is what is influencing the market and so much more. There's so much more data than even Just what I went through with payroll, and there's 1000 things that can go into this. But these are the big buzzwords that you're gonna hear talking about inflation and interest rates, and how these things flow. And I want you guys to just at least understand high level where we're at today. And so if you hear it in the doctors lounge, or you turn on CNBC, and you hear some talking heads, talking about something like this, at least you've got a little bit more ammo, a little more info, if you will, to feel a little bit better about the conversation. So you can at least hear, but again, I don't think anyone should be taking any action in their portfolios, because they heard Oh, my goodness, inflation is coming. And I need to go load up on whatever stock or asset class that you think it just is silly, is absolutely silly to change your investment philosophy based on external factors that you can't control at all. Now, if you said, huh, talking through those, and I could stomach at 34% downturn in 30 days, maybe I shouldn't be 50% stock and bond maybe should be little more aggressive. Okay, work through it, have some rules, talk about when you'll make that change, and how you'll make that change. And if you're on the other side going well, I've been 100% stock, and I sold out in March, and I haven't gotten back in and I've been terrified. I think on the other side of that coin, make sure you do some research, put in some rules, and some specific guidelines on how you're going to invest and how you're going to put money in. Those are the things you can control, right, those two things, how much money you put in, and the amount of risk you're willing to take what you can't control, which is what everyone tries to sell you is what the market is actually going to do. And trying to beat that as a benchmark, I'm going to beat the s&p 500, or beat whatever it may be.
Jimmy Turner 46:38
I love the way you just said that. By the way, Ryan, because this is like coaching one on one. Like literally what you teach in coaching is like the circumstances what it is like what the market does is what the market does, what you think about whatever the markets doing is going to determine how you feel and what you do. And it's literally the thought model that we that we teach everybody. And so if you can wrap your head around that, know that the markets going to do what the markets gonna do, and then you get to decide what you think about that. Because as soon as you frame that positively in terms of your risk tolerance, sleeping at night, versus how much assets versus high risk assets versus low risk assets you have. That's really going to help you because it allows you to reshape things, hey, I love the people that come out of like a stocks on sale. They've just told themselves a different thought, the markets going down and they look at it as an opportunity to buy their index funds on sale, their stocks on sale, whatever they're investing in, because they reframe that they don't get upset when it goes down. They're like Yes, finally, all they did was flip that script in their head, the same exact thing that happened to that person as the one that runs around with their hair on fire. so important.
Ryan Inman 47:36
Yeah, if I'm gonna go buy soda at the grocery store, and the price is $15 for a 12 pack, I'm gonna be like, I didn't get in soda. Like, I'll drink water or whatever, which I should anyway, a bunch of doctors like, yeah, you idiot, stop drinking soda. But I'm not excited to buy that. And if I go to the store, and all of a sudden, that same 12 pack is $2 am I gonna go Oh, gosh, it's dropped from 15 to $2. I don't want that sold anymore. No, I'll be like, oh, maybe I should buy some more of this. Like, maybe I should grab some in case it moves back up. And in the stock market. It's not a, hey, I'm gonna buy this and kind of start to flip out later or consume later. I guess you're consuming it later with your investments end up being your paycheck at some point in providing income. But you should be excited that you can accumulate assets is long as you are in the asset accumulation phase of your career, if you're a pre retiree or in retirement, and you're not going to be very excited to see your money go down. But that will occur in retirement, you will have plans for that. But if most of you listening are mid career or maybe even early career physicians, you're an asset accumulation mode, you should be excited when the market dips. If it's not, and it's going up 20% every single year, every time you buy you're buying a little bit less because you're paying 20% more, you would be actually very excited to buy when the dips occur. But human behavior in psychology teaches us that pain is not fun. And when you see red in your portfolio, that is not a good color, you'd much rather see green. But in reality, if you still have money to put in the market, it's nice to actually be able to buy the dips, and all sorts of memes around buying the dip and diamond hands. I'm like a diamond hands my stock. Is that cool? It's not apparently that cool? Well, before we go, we want to make sure you go hang out with our friend Aaron Weissman over a doctor me first podcast listener on the podcast app, you're listening to us. And right now she's one of the members of the doctor Podcast Network. She's got a fantastic podcast, and we really like Aaron and enjoy her company. So we want you to check her out. Fantastic show over there. And thank you so much for being here. We really appreciate all of you. If you can please subscribe the show and tell one other physician or spouse, a physician that the show exists so we can help them understand money and feel more confident and be able to make better money decisions. So it's all about before we go, we're gonna make sure we hit that disclaimer. Alright everyone, have a great week. Catch you on next Wednesday. Take care.
Jimmy's daughter 50:06
My dad Dr. Jimmy turn is a practicing anesthesiologist Mr. Aiman is a fee only financial planner, you should know that this show is not personalized financial advice for you. In fact, this shows only for your general education and entertainment purposes, for keep listening to learn how to become a fleet yourself Angel girl, or go find a great fee only financial planner like Mr and meant to create a personalized financial plan for you.
Ryan Inman 50:34
On the x asset, x x x, she says keep saying acids on the x axis. I liked
Jimmy Turner 50:42
x x is better personally.
Ryan Inman 50:44
It's x x is what let's run with it. I don't care.
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