RPF0309-How_to_Respond_to_Dire_Financial_Predictions
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00:00:29.800 | I've had a few doom and gloomers on this show in the last few weeks.
00:00:37.240 | Some people who make some extremely strong and provocative predictions about the utter
00:00:43.000 | collapse of whether it's the world economy or the stock market or whatever, some dire
00:00:48.880 | prediction.
00:00:50.520 | And that's unsettled a few of you.
00:00:52.240 | I've gotten some emails of people saying, "Josh, well, man, what do I do?"
00:00:55.720 | Well, I always try to ask those people, "Okay, practically, what are the practical steps
00:01:01.080 | of what to do?"
00:01:02.080 | And frankly, I get really frustrated with their answers because I don't find them to
00:01:06.080 | be practically useful.
00:01:07.400 | So today I'm going to tell you what my actions would be or what my advice would be if I were
00:01:14.520 | advising you or anybody on how to actually practically, actionably prepare and respond
00:01:23.600 | to dire financial predictions.
00:01:26.920 | And we're going to try to do this in a rational and thoughtful manner.
00:01:32.120 | Let's see if we can make this happen.
00:01:33.880 | You got to be the judge of that.
00:01:51.960 | Welcome to the Radical Personal Finance Podcast.
00:01:53.880 | My name is Joshua Sheets and I'm your host.
00:01:55.640 | Thank you for being with me today.
00:01:56.960 | I'm so tempted to start this show in the way that Jack Spierko starts his and steal his
00:02:04.360 | tagline, teaching you how to invest and live a rich life now and build a plan for financial
00:02:10.240 | freedom if everything goes right, or even if it doesn't, or if everything goes wrong,
00:02:14.440 | or even if everything goes right.
00:02:15.840 | That's what I'd really love to steal as a tagline for today's show.
00:02:24.840 | Now obviously I just stole it.
00:02:26.480 | So to clarify for those of you who either haven't heard that interview or are not familiar,
00:02:31.080 | Jack Spierko, who was on the show a few weeks ago, the tagline for his show is helping you
00:02:36.100 | build a better life.
00:02:37.100 | Let me see if I can do it.
00:02:38.640 | Helping you build a better life now if times get tough or even if you don't.
00:02:42.800 | And the reason I want to steal it is that even though that's an extremely wordy, I guess,
00:02:49.400 | slogan, it's really a useful one.
00:02:51.840 | And it's the one that I think should be applied to every one of these decisions.
00:02:56.080 | When I talk about how do you actually protect yourself, what do you actually practically
00:03:02.160 | do?
00:03:03.680 | If you're new to the world of financial discussion, welcome.
00:03:09.840 | And I hereby warn you that the talk of financial catastrophe and economic, stock market crashes
00:03:17.520 | and economic doom and gloom, this is a standard component of a discussion of finance.
00:03:27.120 | There's always, always some subset of financial pundits who are predicting economic catastrophe.
00:03:37.280 | And I want to hurry to assure you that I do not disqualify somebody simply because they
00:03:42.880 | are predicting economic catastrophe.
00:03:47.520 | I think it's a very reasonable and rational concern to have.
00:03:51.120 | I think it's very reasonable and rational to consider what would happen if we faced
00:03:57.440 | a market crash.
00:03:58.440 | What would happen if there were a collapse of the dollar?
00:04:00.880 | What would happen if we faced World War III?
00:04:04.500 | What would happen if Donald Trump was elected president?
00:04:08.320 | What will happen if Hillary Clinton or Bernie Sanders is elected president?
00:04:12.520 | What would happen in these situations?
00:04:14.640 | These are all useful and thoughtful things for us to consider, but we've got to focus
00:04:20.200 | on how should we respond and not respond in a knee jerk way.
00:04:25.440 | Let me read you an email.
00:04:26.920 | This comes from a listener.
00:04:28.720 | It's representative of other emails as well.
00:04:31.280 | Let's just call this listener Jay.
00:04:32.520 | He says, "Joshua, I listened to your episode with Robert Kiyosaki tonight.
00:04:35.360 | It had me riveted.
00:04:36.360 | He kind of freaked me out a bit about his dire predictions.
00:04:39.520 | I've recently built up a little after-tax savings with a betterment account.
00:04:43.120 | I do have an emergency savings account too, and we have a couple of rentals and a modest
00:04:47.200 | 401k.
00:04:48.360 | I wish I had dozens of rentals, but the thought of being over-leveraged always makes me a
00:04:52.360 | bit nervous.
00:04:53.920 | And I have some work to do, settling my wife on slowing down her overall spending, which
00:04:58.320 | is killing our financial independence options.
00:05:00.400 | Anyway, are his predictions legit?
00:05:02.640 | Should I really consider buying gold and getting rid of any stock-based investing or betterment
00:05:06.680 | or 401k?
00:05:07.680 | I promise I'm not asking for your financial advisor advice, just friendly advice.
00:05:12.480 | I won't hold you to it, I promise.
00:05:13.920 | Love the show.
00:05:14.920 | My monthly donation is tiny, but I'm a huge fan.
00:05:16.960 | Thanks."
00:05:17.960 | Jay, thank you for supporting the show.
00:05:18.960 | Appreciate all of you who do that.
00:05:21.560 | And I'm going to try to answer it, but I'm going to do it in a practical way.
00:05:25.600 | And let me get straight to the point so that if anybody tunes out at any point along this
00:05:29.920 | episode, here's my advice.
00:05:33.880 | No, you should not, based upon Robert Kiyosaki's predictions, sell your stocks.
00:05:39.640 | You should not liquidate your 401k.
00:05:41.680 | You should not liquidate your betterment account.
00:05:43.540 | You should not go out and borrow lots of money in a leveraged capacity in real estate, and
00:05:48.840 | you should not respond and react to his predictions in an immediate way.
00:05:55.800 | Rather, you should take his discussion, take his predictions, investigate his sources,
00:06:05.120 | think through his arguments, start studying for yourself, slow down, and systematically
00:06:15.120 | take plans to prepare yourself.
00:06:16.600 | I'm going to give you a bunch of action steps over the course of this show.
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00:07:15.880 | If you'd like to check it out, go to radicalpersonalfinance.com/sofi, S-O-F-I, which is short for social finance,
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00:07:40.280 | So go to radicalpersonalfinance.com/sofi.
00:07:41.280 | Now, back to Jay's question.
00:07:45.640 | First thing, how do you protect yourself from dire financial predictions and warnings?
00:07:50.680 | I think you first have to learn and focus on learning how to not react based upon fear.
00:07:59.740 | If you ever find yourself, as Jay wrote here, a bit freaked out, you know you've got a problem.
00:08:06.720 | Now, it's not ... We all face circumstances that can freak us out easily.
00:08:11.880 | That's not the problem.
00:08:12.880 | The problem is if we react based upon that, no good decision ever comes from a place of
00:08:17.600 | fear.
00:08:19.320 | When we start to get into fear, now we're moving with the emotional side and not with
00:08:23.160 | the rational side of our thinking.
00:08:25.400 | So how do you conquer fear?
00:08:26.720 | Well, depends on the type of fear, but in this context, isolate the cause of your fear
00:08:31.920 | and try to think through a scenario and then control for that scenario.
00:08:35.560 | The fear comes from not understanding what you're doing and why you're doing it.
00:08:41.960 | So slow down, slow down, slow down.
00:08:47.280 | There are a couple of aphorisms that I have heard over the years and have passed along
00:08:54.120 | to others that I've thought were particularly helpful.
00:08:58.080 | I think we violate these aphorisms constantly and we pay the price for it.
00:09:02.960 | As a financial advisor, I would share these with clients, but frankly, if people followed
00:09:09.040 | them, I always wondered how much of my advice they would actually take because it was clear
00:09:13.920 | to me that many clients would violate these two aphorisms every time they made a decision.
00:09:19.880 | Number one, don't invest in anything that you don't understand.
00:09:23.480 | You ever heard that advice?
00:09:27.180 | Don't invest in anything you don't understand.
00:09:31.120 | Many of us have violated that advice constantly throughout our lifetime.
00:09:36.440 | This is one of my issues with the mainstream practice of financial advice, especially when
00:09:43.400 | we invest using just publicly traded mutual funds and ETFs and things like that in the
00:09:48.040 | broad-based stock market.
00:09:49.800 | Most of us jump into that with very little understanding.
00:09:52.760 | What's common practice now is we sign up for a job and the employer will automatically
00:09:58.300 | move our 401k contributions into a life cycle target date retirement fund.
00:10:03.360 | We're automatically investing our savings in there.
00:10:05.800 | They'll automatically enroll us.
00:10:07.360 | Yes, I can make all the arguments as to why that's a good thing, why that contributes
00:10:11.240 | to good behavior, why that helps people, but the reality is we're asking people to invest
00:10:15.800 | their money in something they don't understand.
00:10:18.880 | I don't think we should do that.
00:10:21.640 | Don't invest your money in anything that you don't understand.
00:10:25.440 | Take that farther.
00:10:26.960 | Don't start a business in something that you don't understand.
00:10:29.240 | Slow down and get to the point of understanding what you're doing.
00:10:32.600 | I'm going to give you some specific statistics in a moment on the stock market that many
00:10:38.920 | of you will be surprised by.
00:10:41.360 | Slow down, slow down, slow down.
00:10:42.360 | The second aphorism here is of course move slow and take your time.
00:10:46.560 | Here's the piece of advice.
00:10:48.600 | I believe I can source this one to years ago.
00:10:52.120 | I listened to a Brian Tracy seminar on investing advice and he gave this one.
00:10:57.760 | He says, "Take as much time learning about an investment as it takes you to earn the
00:11:02.480 | money you put into it."
00:11:04.800 | Now, I don't know if I've ever fully practiced that advice.
00:11:10.440 | I don't know if it's actually fully practicable, but I love the intent behind that.
00:11:18.180 | Take as much time learning about an investment as it takes you to earn the money you put
00:11:22.020 | into it.
00:11:23.020 | If you're going to make a hundred dollar investment, you should probably do a little bit of research.
00:11:28.320 | Thousand dollar investment, how long does it take you to earn a thousand bucks?
00:11:30.840 | If you're going to make a hundred thousand dollar investment or a million dollar investment,
00:11:34.960 | how much time should you spend researching that investment opportunity?
00:11:41.080 | A lot.
00:11:43.280 | Now again, I don't know that it's possible to apply this in the legal sense, in the technical
00:11:51.000 | actually following this to perfection, but at least directionally pay attention.
00:11:59.700 | Think about the major financial decisions we make in life, especially the major financial
00:12:04.300 | mistakes that perhaps you and I have made and ask if some of those mistakes wouldn't
00:12:09.180 | have been avoided if we'd spent a little bit more time in research based upon the size
00:12:14.180 | of the financial decision.
00:12:16.500 | I know for me, I probably could have avoided some pretty big mistakes.
00:12:22.080 | Those two aphorisms together should indicate that moving slowly is a good plan.
00:12:30.560 | I always like, I'm going to be full of aphorisms today, I always like one of the other aphorisms,
00:12:35.160 | investments are kind of like buses, a new one comes along every few minutes.
00:12:38.240 | I had a hard time believing that one when I was younger, but at this point I feel it
00:12:43.080 | very strongly.
00:12:44.920 | Investments are kind of like buses, there'll be a new one along every few minutes.
00:12:48.920 | And the case of actual investments, every few months, every few weeks, every few years,
00:12:53.400 | there'll be opportunities.
00:12:54.820 | Are there macro market trends that are really useful if you hit them?
00:13:01.240 | Yes.
00:13:02.240 | But in any market, at any time, you'll be able to find opportunities if you just give
00:13:07.520 | a little bit of time.
00:13:09.720 | There's always a trade that'll come along if you're paying attention, there's an investment
00:13:13.640 | deal, there's a deal, they come along consistently.
00:13:16.800 | So don't move based upon the fear of missing out when it comes to investment decisions.
00:13:22.720 | Now in addition to slow down, slow down, slow down, study, study, study.
00:13:29.080 | It's your money and you are responsible for it.
00:13:33.360 | So if you have any desire of building wealth, you should take an interest in the subject
00:13:39.240 | of wealth.
00:13:40.240 | You should be studying it in depth.
00:13:42.200 | I believe you are, that's why you're here listening to this show.
00:13:46.400 | You're taking that interest, you're working on it.
00:13:49.720 | I commend and affirm you for that.
00:13:53.960 | That is what will set you apart from many of your fellow investors.
00:13:59.880 | Frankly, I do not know of or see a guaranteed home run for the financial protection of a
00:14:06.920 | portfolio in isolation.
00:14:09.800 | I don't know of one answer to the question of how do I protect my portfolio from an economic
00:14:14.400 | crash?
00:14:15.400 | I don't know.
00:14:16.400 | There are lots of strategies that could be implemented in different market conditions
00:14:20.120 | depending on the type of portfolio that you have.
00:14:23.800 | But those strategies are going to be very specific to your actual investment plan.
00:14:30.400 | Just the simple fact of do you own mutual funds or do you own individual stocks or do
00:14:35.120 | you own ETFs?
00:14:36.120 | Each of those comes with a unique set of strategies that you can apply to protect yourself from
00:14:41.800 | a market crash, from a prophecy about the market going to pieces.
00:14:48.340 | Those strategies are complicated and they're specific.
00:14:52.320 | It's not as simple as get rid of stocks and buy gold.
00:14:55.260 | It's not.
00:14:59.000 | I'll do my best in future shows to cover some of those strategies, but they're very particular
00:15:03.640 | and very unique.
00:15:04.640 | Frankly, especially when it comes to stock portfolio management, this is my weakest area
00:15:10.160 | of professional knowledge.
00:15:11.160 | That's why my show is called Radical Personal Finance, not Radical Investment Management.
00:15:17.040 | It's my weakest area.
00:15:18.240 | My strength is on the personal finance and financial planning side.
00:15:21.080 | My weakness is in investment management.
00:15:23.680 | I'm constantly looking for intelligent people who have experience in portfolio management.
00:15:27.400 | I'm constantly looking to figure out how can we bring some of these strategies to the context
00:15:32.320 | of an audio format podcast.
00:15:34.520 | There's so many different aspects of it.
00:15:36.720 | But here is why I still continue to do a show and my argument as to why even if I do those
00:15:41.840 | shows that will be less impactful to the majority of the audience than what I'm going to cover
00:15:47.080 | today.
00:15:49.120 | Most people, most listeners to this show and most people in general do not fundamentally
00:15:54.480 | have an investment problem.
00:15:59.240 | For most people, fundamentally a market crash is not going to wipe you out.
00:16:06.160 | If you are using a mainstream financial strategy and you go through a market strategy, as long
00:16:12.380 | as you don't freak out and sell, chances are that in the fullness of time, the value of
00:16:18.680 | your investments will come back.
00:16:21.480 | Unless you have all of your money invested in one single company that goes completely
00:16:26.480 | bankrupt and you didn't take any preemptive action, most investments will be self-cleansing.
00:16:34.600 | If you're investing through the use of mutual funds, the mutual fund manager will cleanse
00:16:40.840 | the bad investments out over time.
00:16:44.020 | If you're investing using an unmanaged fund, a passive fund, just simply the index, the
00:16:49.560 | way those are structured, that will cleanse the bad investments out.
00:16:54.660 | Most companies, though they be rocked back on their heels during a time of massive market
00:17:00.320 | disruption, most companies will come back.
00:17:02.640 | The values of their shares will recover.
00:17:05.440 | Just because the stated nominal value of your investment portfolio declines dramatically,
00:17:11.760 | that doesn't necessarily mean that the underlying value of your investment has been affected.
00:17:17.480 | Illustration on this point, if you are living in a house that today has a market value of
00:17:21.440 | $200,000, that house is delivering to you a certain lifestyle, certain qualities, keeping
00:17:28.560 | the rain off, keeping you warm, keeping you cool, giving you a place to have a bed at
00:17:32.080 | night, that house may decline in value in nominal terms by 30% based upon the local
00:17:40.760 | real estate markets, but it continues to provide you with those same characteristics of keeping
00:17:46.820 | the rain off, keeping you warm or cool, and keeping you a place to sleep at night as it
00:17:50.560 | did before.
00:17:52.200 | In a similar way, a good, well-run company might decline in value based upon external
00:17:58.240 | circumstances.
00:18:00.400 | The nominal value of that stock might decrease based upon ... Excuse me, the nominal price
00:18:05.200 | of that stock might decrease based upon a 30% overall decline, but you still have human
00:18:11.200 | beings that are using the capital assets of that business, looking to exploit the market
00:18:15.800 | conditions and if a company is well-run, it'll come back.
00:18:20.120 | You shouldn't be scared of market crashes.
00:18:23.040 | Here's the reality of market crashes.
00:18:24.640 | The average intra-year peak to trough decline of the stock market is 14%, meaning that in
00:18:30.760 | any calendar year, the peak to trough, top to bottom decline in the generalized value
00:18:37.360 | of the stock market is 14%.
00:18:40.360 | The record highs, the worst years, been up in the 50%.
00:18:45.040 | Back in '29, '30, the other major periods were '87, 2001, and 2008, if you go and look
00:18:52.280 | at some of the charts for that.
00:18:54.160 | The best years, down about 6%, but the average intra-year peak to trough decline is 14%,
00:19:04.760 | which means that if you're sitting there looking at a 10, 15, 20% market decline, although
00:19:11.840 | you might feel differently, you should say, "Hoh-hum."
00:19:18.160 | You should expect about a 30% decline every few years and you should be prepared mentally
00:19:24.160 | and financially for a 50% market decline at least a couple of times during the course
00:19:30.120 | of your investment lifetime.
00:19:33.360 | You should be prepared for that if in any way past history is indicative or illustrative
00:19:38.500 | or correlates to future events.
00:19:41.960 | Is that a guarantee?
00:19:42.960 | No, of course not.
00:19:43.960 | Past performance is not necessarily indicative of future performance.
00:19:46.480 | We know that, but you should know that going in.
00:19:51.840 | What happens is when people make bad predictions, then all of a sudden this emotion and these
00:19:55.600 | waves of terror grip people, and then you take a 20% decline and you're ready to say,
00:20:00.960 | "People are going to come out with machetes and knives and kill me in the street," and
00:20:04.240 | it's just not the case.
00:20:06.680 | That's normal.
00:20:07.680 | If you can't handle that volatility, nothing wrong with you.
00:20:12.720 | Recognize that you can't handle that volatility and move to something else that's less volatile.
00:20:19.240 | My argument is most people don't fundamentally have an investment problem because if the
00:20:25.360 | market declined by a substantial percentage, that would not be the biggest impact on their
00:20:34.160 | life.
00:20:35.160 | Let me ask you that question.
00:20:37.320 | If today you woke up and realized and learned that today, yesterday, excuse me, the generalized
00:20:47.360 | stock market prices of stocks declined in value by 50%, how would your life and lifestyle
00:20:55.720 | today be affected?
00:21:01.640 | For the majority of my listeners, the answer would be not a bit today, except for that
00:21:08.680 | cold feeling in the pit of your stomach, but today your lifestyle would not be affected.
00:21:15.560 | What about this week?
00:21:18.400 | Just an out of the blue stock market crash.
00:21:20.440 | For the majority of my listeners, this week your lifestyle would not be affected.
00:21:25.560 | The reason why this impact would be minimal is simply because most people are not living
00:21:31.880 | on their investments.
00:21:34.880 | Rather, most people are living on their income.
00:21:41.000 | If you are living on your investments, you're actually not living on your investments, you're
00:21:46.480 | living on the income from your investments.
00:21:51.320 | It's your income, and your expenses will get to that, it's your income that sinks you.
00:21:59.240 | Income is what destroys people's finances, the loss of income.
00:22:05.200 | That's destructive.
00:22:08.200 | If the market value, the market price of your investments declined, that just simply affects
00:22:13.880 | your net worth, but you can't spend net worth.
00:22:16.560 | You've got to take income and spend that.
00:22:21.080 | My practical advice, if you're expecting a difficult situation, my practical advice is
00:22:29.400 | ignore your investments, temporarily, and focus on your income.
00:22:36.760 | A market crash will only affect your current lifestyle to the extent that you're living
00:22:42.480 | on and spending the income from your portfolio, and to the extent that your other sources
00:22:48.620 | of income are affected by the surrounding environment.
00:22:53.840 | Would a market crash, a 50% market crash, have an impact on your lifestyle and mine?
00:23:01.640 | Absolutely.
00:23:03.160 | Will it be an immediate thing simply because of the market crash?
00:23:06.040 | No.
00:23:07.040 | It's the underlying causal factors of that market crash that would result in a change.
00:23:11.920 | Think back to the flash crash a few years ago.
00:23:15.440 | Really weird thing, all out of the blue, just the market just plummets.
00:23:20.060 | Could never figure out exactly what it was.
00:23:22.300 | Seemed like there were some algorithms that got messed up, but it freaked everybody out.
00:23:27.420 | That did not affect your lifestyle.
00:23:30.580 | Didn't affect mine, didn't affect any of our lifestyle.
00:23:33.100 | That was a market crash.
00:23:35.620 | But because of the artificial environment of it, it didn't affect us.
00:23:39.700 | I mean, there were some traders that were pretty freaked out, and a lot of people trying
00:23:43.100 | to figure out what on earth is going on, but that didn't affect you and me.
00:23:47.740 | Rather, it's the underlying economic factors that will affect us.
00:23:54.260 | Compare that with a market crash like in the late 2000s.
00:24:00.660 | Those market crashes were symptoms of the underlying economic problems, and all of us
00:24:07.300 | were affected to some degree by that.
00:24:11.620 | Now, if you're living on the income from a portfolio, you need to take different steps.
00:24:19.460 | I'm going to briefly intend to cover that at the end of this show.
00:24:23.860 | But if you're not yet living on the income from a portfolio, you shouldn't focus on just
00:24:29.540 | the investments.
00:24:31.660 | You should focus on your lifestyle.
00:24:36.100 | That's what I would emphasize.
00:24:38.400 | Do you need to manage your investment portfolio?
00:24:40.260 | Yes.
00:24:41.260 | If you make mistakes with your investment portfolio, will that cost you in the result
00:24:43.780 | of future income and future dividends?
00:24:46.220 | Yes, you should focus there.
00:24:48.020 | But you don't need to freak out about that.
00:24:50.020 | Rather, if you're going to freak out about anything, you need to freak out about your
00:24:54.900 | actual income, protecting that.
00:24:58.380 | Income is the magic key to everything.
00:25:01.580 | Everything in your life is based upon your income.
00:25:04.180 | So you must assure and insure your income as much as possible.
00:25:08.820 | How?
00:25:09.820 | First, pay attention to your job.
00:25:12.020 | Because what happens is, let's say that you're in an industry that is going to be affected
00:25:15.900 | on the back end.
00:25:17.020 | Stock market crash and all of a sudden you're in a job where, let's keep it very tied to
00:25:22.220 | investments.
00:25:23.220 | The people who would be most affected in the short term by a stock market crash are the
00:25:27.220 | financial advisors.
00:25:28.500 | This is one reason.
00:25:29.980 | When I was earning a significant portion of my income based upon revenues of fees, client
00:25:35.300 | fees based upon managing investment accounts, I did not want to take my other sources of
00:25:40.420 | money and invest a lot of money back into stocks.
00:25:43.900 | I think if you are a financial advisor whose compensation is tied to the value of your
00:25:49.220 | client's investments, it's foolish for you to make stock investments a primary and very
00:25:56.100 | large portion of your investment portfolio.
00:25:58.860 | Because what happens?
00:26:00.580 | Well, the market declines in value.
00:26:02.820 | That dramatically affects your income.
00:26:04.820 | Your expenses in a financial planning practice are constant.
00:26:08.140 | So you have high expenses.
00:26:10.140 | Now your income is dramatically affected.
00:26:12.180 | And right when you need some other money, you go and turn to your stock investments
00:26:16.860 | and, "Oh, wait a second.
00:26:17.860 | My million dollar stock account is down to $600,000."
00:26:21.220 | Now, some people say, "Boo hoo, you have $600,000."
00:26:24.740 | The point is, you don't feel really good cashing money out when your portfolio is down 40%.
00:26:30.220 | So as a financial advisor, if you're in that situation, you need to have your investments
00:26:37.020 | in something that has a higher probability of being non-correlating.
00:26:42.180 | I want something that doesn't correlate, if at all possible, to the movements of the market.
00:26:48.860 | So the financial advisor would be most affected in the short term because their income is
00:26:54.620 | based upon the market value of the stocks.
00:26:57.500 | Most of their clients are not going to be hugely affected in the short term.
00:27:01.900 | Who's next affected?
00:27:03.060 | Well, what happens is the financial advisor starts feeling the pinch.
00:27:06.980 | And so the financial advisor lays off some of their staff, one or two staff people that
00:27:12.020 | were just on the edge, maybe a marketing assistant or something like that.
00:27:16.140 | Those people, because their income is hurt, that has a ripple effect.
00:27:19.540 | The financial advisor stops capital investments in their situation.
00:27:22.700 | They don't buy new computers this month or this quarter.
00:27:25.240 | They don't go and buy the new trading software.
00:27:28.140 | They kind of make do with the same financial planning software they've been using for a
00:27:31.300 | few years instead of going out and seeing what's the good things.
00:27:34.040 | They don't take the trip to the conference this quarter because they're feeling the pinch.
00:27:39.360 | They don't take the trip, which is going to incur hotel fees and plane fees and registration
00:27:43.180 | fees.
00:27:44.180 | They just decide to stay home and just save that money.
00:27:47.100 | They pull back a little bit on the golf games.
00:27:49.900 | And all those things have the ripple effect.
00:27:52.540 | And that's what happens.
00:27:55.300 | That's how market crashes affect.
00:27:57.980 | It's not the crash.
00:27:59.580 | It's all the ripple effects.
00:28:01.060 | It's the underlying weakness that is illustrated in the crash.
00:28:06.220 | And it's also all those ripple effects.
00:28:08.820 | So you got to pay attention to your income.
00:28:12.580 | Make sure that if you're on a financial advisor's staff that you're not the expendable one.
00:28:19.400 | Make sure that you're the valuable one.
00:28:21.840 | Pay attention to your job.
00:28:23.220 | Be valuable.
00:28:27.220 | Be valuable.
00:28:29.980 | If you can maintain your income source through just about any recession, depression, stock
00:28:37.420 | market crash, etc., you can come out okay on the other side.
00:28:41.900 | If you lose your income source, or sources, you're in a difficult, difficult spot.
00:28:50.660 | So spend your time focusing on your income.
00:28:55.680 | Make sure that when there's a list of employees who need to be laid off, do everything you
00:28:59.640 | can to be at the bottom of that list instead of at the top.
00:29:02.880 | And then do everything you can to make sure that when you do get laid off, it's easy for
00:29:09.900 | you to get going again.
00:29:11.440 | Establish your reputation.
00:29:12.440 | Build your connections.
00:29:14.760 | Make sure that you are the go-to person in your industry.
00:29:18.280 | Establish yourself as an expert.
00:29:19.280 | I'm working on a course right now.
00:29:21.400 | It's a working title is How to Establish Yourself as a Leading Expert in Your Field.
00:29:26.380 | Something along those lines.
00:29:27.380 | I'll come up with some better marketing term for it.
00:29:28.900 | But basically, it's the point is this, is how to establish yourself as the go-to expert
00:29:33.460 | so that you don't have to do this hard work of trotting around saying to everyone, "Please,
00:29:37.140 | please consider me."
00:29:38.140 | Rather, people come to you and say, "Please consider us."
00:29:40.640 | You can do it.
00:29:41.640 | If you haven't listened, go back and listen to episode 192, 193, and 194 of the show.
00:29:47.200 | That was my effort to try to say, "Hey, we need to pay attention to this."
00:29:52.520 | The titles of those shows, 192 was called Recession is Coming, How Not to Get Laid Off
00:29:57.480 | in the Next Recession.
00:29:59.800 | Guess what?
00:30:00.800 | Recession is still coming and you still need to make sure you don't get laid off in the
00:30:03.920 | next recession.
00:30:04.920 | 193 was called Make a Backup Plan in Case You Do Get Laid Off in the Coming Recession,
00:30:09.640 | Simple Action Steps for You to Consider.
00:30:11.960 | Guess what?
00:30:12.960 | No matter how hard you work not to get laid off in the next recession, you might still
00:30:17.600 | get laid off, so you need a backup plan.
00:30:19.800 | And 194 is called this, You Just Got Laid Off, Here's What to Do Next.
00:30:24.720 | So that's the show where if you did just get laid off, you might need some of that information.
00:30:28.200 | Go back and listen to those shows.
00:30:29.400 | That's an expansion on this concept, but basically everything is based upon income.
00:30:35.360 | So think first and foremost about your income and assure that and insure that.
00:30:45.600 | Now how do you protect in case you do lose your income?
00:30:48.360 | Well, the first thing is savings.
00:30:50.960 | I would suggest to you that if you don't have money that is safe from market volatility,
00:30:55.480 | I think you've made a poor decision.
00:30:57.960 | No matter your life stage.
00:31:01.000 | It's the fact that you don't have money that's insulated from that market volatility that's
00:31:06.600 | the problem, not the market volatility.
00:31:08.560 | We've all heard it a million times, don't risk money you can't afford to lose.
00:31:12.360 | Well, okay, good.
00:31:13.520 | But the question is, are you risking money that you can't afford to lose?
00:31:17.600 | You know what, frankly, many people, if not most, I'm making these percentages up so I'm
00:31:22.920 | trying to be careful with my language, but many people have done exactly that.
00:31:28.240 | The only real material savings they have are, first, majority of people don't have savings.
00:31:34.720 | And if they do have savings, the only real savings are either in home equity and/or in
00:31:39.600 | possibly a 401k.
00:31:44.040 | It's trouble because if you face market volatility, you have money that's a very illiquid asset,
00:31:50.600 | takes a lot of time, a lot of emotional energy, and a lot of expense to sell a house.
00:31:55.960 | And all of a sudden when there might be ripple effects and markets are down, people aren't
00:31:59.720 | feeling so confident, it's kind of tough to sell a house.
00:32:02.820 | Most houses that people own are not very marketable.
00:32:05.640 | It takes a lot of money to bring them up to a marketable condition.
00:32:09.760 | If you've ever sold a house and real estate agent says, "You got to shine this thing up,"
00:32:13.360 | guess what?
00:32:14.360 | You got to have money to get the work done to shine that thing up, get it ready for the
00:32:18.120 | market.
00:32:19.240 | So what happens in many people's situations, they face this double whammy.
00:32:23.960 | They don't have very much money, if any, in liquid savings, just money sitting in a savings
00:32:30.680 | account, money market funds, safe dollars.
00:32:33.420 | They don't have any non-risky assets.
00:32:36.760 | They don't have any money in life insurance, cash values.
00:32:39.380 | They don't have any money in an old fixed annuity.
00:32:41.240 | They don't have any money in CDs.
00:32:43.440 | Rather, any money that they do have is in equity in their house or in their 401k.
00:32:49.760 | Market conditions get funky, 401k goes down in value.
00:32:54.240 | The only way they have access to the 401k is through the use of a 401k loan, which can
00:32:58.320 | be troublesome, especially if they're about to get laid off or if they just got laid off.
00:33:02.200 | Also can be expensive to access the money, and most people don't have much money there.
00:33:06.020 | So you get a whammy upon whammy.
00:33:07.560 | I don't know how many is a double whammy, triple whammy, quadruple whammy, but now in
00:33:10.960 | order to access the money in a 401k, they got to sell investments when the market's
00:33:14.800 | down, they got to pay taxes and fees and possibly interest, and the money's difficult to get
00:33:20.480 | out.
00:33:22.980 | So that's a problem.
00:33:24.680 | And then on the flip side, in thinking about selling the home, most people move too slowly.
00:33:30.480 | They don't have the money to shine the house up, so now they got to retail.
00:33:33.680 | Instead of being able to get a retail price for it, the house is a little bit ugly, so
00:33:37.200 | they got to get a wholesale price for it.
00:33:38.880 | Sell it to an investor who can spiff it up and flip it.
00:33:41.760 | Well, that cuts out a good amount of money.
00:33:44.600 | They got to sell quickly because they need money, so now they can't wait for a good offer.
00:33:48.480 | They're feeling the pressure, so there you got to drop the price.
00:33:52.400 | And all of a sudden now, people are not feeling so confident.
00:33:57.520 | The majority of people aren't rushing out and saying, "Oh, let me go buy a house.
00:34:00.960 | World's going great.
00:34:01.960 | The stock market's going great.
00:34:02.960 | The economy, everything's going wonderful, so let's just run out and buy a big expensive
00:34:06.120 | house."
00:34:07.600 | So that's why the average person, most of your and my neighbors, get hammered.
00:34:16.520 | It's not necessarily just the market volatility.
00:34:18.840 | It's the fact that they didn't do planning, so we need savings.
00:34:21.040 | You need money that is safe from market volatility, and if you don't have that money and if you
00:34:25.600 | don't have a lot of it, I think you've made some poor decisions.
00:34:28.800 | Now we've all done that.
00:34:29.800 | I'm not trying to be insulting.
00:34:31.200 | I'm just pointing out this is the reality.
00:34:34.920 | You broke the aphorism of don't invest money you can't afford to lose, but you broke it
00:34:39.360 | because, "Oh, it's just putting money in the 401(k)."
00:34:40.880 | That's one of my issues with the mainstream financial advisor community is that we teach
00:34:45.080 | that but we're slow to actually implement it.
00:34:46.720 | We tell people, "Put the money right in the 401(k), put the money in the Roth IRA, et
00:34:49.880 | cetera.
00:34:50.880 | Get it invested."
00:34:52.000 | And I recognize the reason we do that.
00:34:54.120 | It's because we're working so hard to get people to actually cross that hurdle and stop
00:34:57.720 | spending the money and to invest it.
00:35:00.240 | But you're not an average person if you're listening to this show.
00:35:03.680 | Let's talk about expense.
00:35:04.960 | Savings is the core because savings gives you basically income that you could spend.
00:35:09.800 | If you had a year of savings, say your expenses are $4,000 a month and you got 50 grand sitting
00:35:15.240 | in a savings account there, you're going to feel a lot better and you've got a year's
00:35:22.480 | worth of expenses covered.
00:35:26.200 | Savings is the primary buttress.
00:35:29.800 | This is incidentally one of the keys if you are living off of the income from your investment
00:35:34.880 | portfolio.
00:35:36.240 | Having substantial amounts of savings makes a huge difference in your comfort level.
00:35:48.400 | If I get to the point in the future where I'm living on the income from a portfolio,
00:35:51.960 | I would always be seeking to maintain two years, two to three, something like that,
00:35:59.240 | at least two to three years of expenses just sitting in a savings account somewhere.
00:36:05.000 | Because I know if I can get through two or three years without having to affect my lifestyle,
00:36:10.600 | two or three years makes a huge difference in markets.
00:36:14.600 | Two or three years gets you from 2008 to 2011.
00:36:17.720 | Go run the numbers, that makes a big difference in the value of your portfolio.
00:36:22.920 | So savings, if you don't have savings, that's your action step.
00:36:27.880 | I wouldn't run out and sell all money in my 401k.
00:36:31.400 | If I don't have any savings, I might move a little bit of it to a safe point.
00:36:35.280 | I might move a little bit of it into a cash fund or cash equivalent or I might reduce
00:36:39.840 | my contributions a little bit.
00:36:41.680 | I'd stop putting money in the stock account and I'd just start putting money in the savings
00:36:44.840 | account.
00:36:47.080 | Because the other thing the savings buys you is it buys you purchasing power when everyone
00:36:52.000 | else doesn't have any.
00:36:53.160 | I mean I've tried to be as open as I'm comfortable being with my own personal investment plans,
00:37:02.240 | but frankly I'm a contrarian.
00:37:04.600 | I want to be sitting on cash ready to buy deals when they're available.
00:37:08.680 | I want to have the network built.
00:37:09.880 | I want to have the deals be coming to me.
00:37:11.360 | I want to have the cash set aside.
00:37:12.560 | I want to have the sources of financing.
00:37:14.200 | I want to be there and be ready when the world is going crazy.
00:37:18.600 | Because guess what?
00:37:19.600 | It always goes crazy.
00:37:21.180 | It's just a predictable cycle.
00:37:23.200 | I want to be ready.
00:37:24.560 | I wasn't ready the last time.
00:37:25.680 | I wasn't ready in 2008.
00:37:27.760 | So I don't know.
00:37:28.760 | Is it 2016?
00:37:29.760 | Is it 2020?
00:37:30.760 | I have no idea.
00:37:31.760 | I'm going to keep working productively along the way, but I'm going to be ready and I suggest
00:37:36.620 | you are too.
00:37:37.620 | Next, expenses.
00:37:39.340 | This is the other key thing.
00:37:42.260 | What destroys people is they lose their income and they don't have savings or don't have
00:37:49.520 | enough, and their expenses are too high.
00:37:54.000 | And that leads to stress.
00:37:56.960 | That leads to them raiding whatever's left of the 401k at a far too high of a rate compared
00:38:04.880 | to if they had just been a little bit more under control with their expenses.
00:38:08.520 | So how can you buttress yourself against having your expenses destroy you?
00:38:12.080 | Well, let's start with the big one.
00:38:14.120 | Pre-committed income, aka debt.
00:38:19.880 | What do you do when you borrow money?
00:38:21.360 | Well, you are committing yourself to a cash outflow in advance.
00:38:27.020 | If you've pre-committed your future income in the form of a debt obligation, then when
00:38:32.420 | your income is hurt, now you're really hurting because you weren't necessarily planning on
00:38:37.360 | that.
00:38:38.880 | So some simple rules with debt, try don't borrow money.
00:38:44.480 | Or if you do borrow money, make sure that you don't borrow money that's not connected
00:38:50.220 | to another source of cash flow.
00:38:53.700 | Don't borrow money for assets that don't produce income for you.
00:38:57.180 | It's crazy to borrow money for things that don't create income.
00:39:01.120 | And this is the situation that we face in a consumption society.
00:39:03.920 | I got a car payment.
00:39:05.840 | I got a motorcycle payment.
00:39:07.200 | I got a student loan payment.
00:39:08.720 | That one makes me a little bit of tiny income maybe.
00:39:11.600 | Got a house payment.
00:39:12.920 | And none of those things create income.
00:39:14.900 | So when the income dries up, everyone's destroyed.
00:39:18.160 | Now compare that to Jay here was talking about a real estate.
00:39:21.840 | So that's the most simple, actionable way for us to think about it.
00:39:26.360 | If you borrowed money on an asset that creates income for you, and if you have some margin
00:39:31.920 | there, if you lose the income for a month or two, you're not sunk.
00:39:35.320 | All you got to do is come up with a month or two of payments, and then you get another
00:39:38.260 | tenant in there, or three months or whatever it winds up being.
00:39:41.240 | And you get another tenant in there, and then you're okay.
00:39:44.560 | But if you lose your income from your job, the car payment continues tricking, continuing
00:39:50.000 | on.
00:39:51.000 | And the only way you can make income off of that is, I don't know, go drive on Uber, something
00:39:54.280 | like that.
00:39:56.280 | It would be an interesting study to think about and to see what happens to the Uber
00:40:02.000 | prices, or Uber and Lyft, how much they pay their drivers during a period of high unemployment.
00:40:07.320 | That would be an interesting study to pay attention to.
00:40:09.920 | Any of you journalists or authors or whatever in the financial fields, I don't know, to
00:40:14.480 | me that strikes me, that's a story headline I would read.
00:40:18.120 | So focus on clearing the debt, and that's something you can do now.
00:40:26.080 | The other thing you can do with debt is control the terms of it.
00:40:31.120 | The better the terms are for you of your debt, the better things are.
00:40:36.280 | So if you have non-recourse debt, where the person to whom you owe money can't come after
00:40:40.920 | you for something if you aren't able to make your debt payments, those types of things
00:40:47.200 | are important.
00:40:48.200 | If you have a lot of margin, was working with somebody recently here, and they owe too much
00:40:53.760 | on their car, well, there's no margin.
00:40:55.680 | They don't have any money, and they can't sell the car and just be free of the debt.
00:40:59.640 | If you can just destroy a debt encumbrance and just get your $300 a month back, it's
00:41:05.280 | a lot easier to give up whatever you paid into it just to have that $300 a month back.
00:41:09.480 | So that's why debt is so destructive.
00:41:12.560 | Consumer debt is incredibly destructive when times get tough.
00:41:16.880 | What other expenditures, what other budget categories?
00:41:19.000 | Well, you can plan ahead and be willing to reduce some of your budget categories on a
00:41:27.560 | voluntary basis.
00:41:29.960 | You can also stockpile some of the things that you need and eliminate some of the financial
00:41:35.760 | risk.
00:41:36.760 | You can buy, I've talked about this in the past with the alpha strategy, but you can
00:41:41.880 | buy all the things that you're going to need for the future.
00:41:43.880 | I want to give you some examples of how this is really practical planning.
00:41:48.300 | The idea is buy the things that you're going to need in the future now while times are
00:41:51.560 | good.
00:41:52.920 | And then you'll be in a better situation where if times go bad, you're not going to be quite
00:41:59.880 | so hugely affected.
00:42:04.080 | And by buying things you need or are going to need anyway, you can go ahead and get the
00:42:10.120 | benefit of those and you're fine and you're happy if everything goes great and we don't
00:42:13.440 | face a market crash.
00:42:15.480 | And if we do face a market crash, whatever the definition of that is, then you're still
00:42:19.600 | okay.
00:42:20.600 | It frustrates me so much when people don't recognize the fact that their predictions
00:42:25.320 | could be wrong.
00:42:27.200 | It frustrates me when people speak with absolute certainty.
00:42:31.560 | When Robert Kiyosaki or Ann Barnhart are just saying, "Well, this is absolutely going to
00:42:34.920 | happen," I'm sorry, you don't know that it's absolutely going to happen.
00:42:38.280 | I don't know that it's absolutely going to happen.
00:42:39.960 | So I prefer to take a little bit more of a reasonable approach and say, "This is a possibility.
00:42:45.080 | How would this possibility affect my life and how can I make a plan so that if this
00:42:49.840 | happens, I'm going to be as comfortable as possible?"
00:42:55.400 | So let me go through some budget categories and give you some examples.
00:42:57.760 | I pulled up an article I just found with a quick web search.
00:43:01.440 | 70 plus basic personal budget categories.
00:43:04.240 | Food.
00:43:05.240 | You can't...
00:43:06.240 | Food.
00:43:07.240 | Groceries, restaurant, pet food, and trees.
00:43:08.880 | Groceries.
00:43:09.880 | What can you do now?
00:43:10.880 | Well, you can practice skills of frugality, knowing how to cook less expensively and you
00:43:15.760 | can plan ahead.
00:43:18.440 | In my family, if we were experiencing significant financial shortfall, I know absolutely how
00:43:25.800 | we could transition our budget to cheaper sources of food.
00:43:30.640 | We have some decisions just enjoying the luxuries of life and some of the health aspects of
00:43:35.320 | why we don't choose to go as hardcore as we could.
00:43:39.200 | But if you know that you could cut a few hundred dollars out of your budget because you've
00:43:42.700 | practiced it or you've thought about it or you've researched it, that can make a big
00:43:46.120 | difference.
00:43:48.480 | Shelter.
00:43:49.480 | Mortgage, rent, property taxes, household repairs, and HOA dues.
00:43:52.560 | If you know your house is due for some things, you need a new roof, you need a new appliances,
00:43:57.080 | things like that, it might behoove you to go ahead and do those things instead of putting
00:44:02.240 | them off.
00:44:03.240 | Because if you put them off and then if you have the cash and you put them off, you're
00:44:06.840 | not going to feel so good about doing it in a time of market crash.
00:44:10.160 | And if you know you're going to have needed repairs and you're worried about sometime
00:44:13.720 | in the future there's going to be a situation, better to have it done today and have the
00:44:17.280 | benefit of it than to wish for it.
00:44:25.160 | I'm pausing because I'm arguing in my head that you might get a better deal.
00:44:29.200 | If you have a lot in the future, if you have a lot of savings, then some of these things
00:44:32.400 | you should consider waiting.
00:44:33.840 | If it's not necessary, just make sure you have enough savings and I tell you in difficult
00:44:37.680 | times you can buy some things for a lot cheaper than in good times.
00:44:42.480 | Utilities, electricity, water, heating, garbage, phones, cable, internet, think through those
00:44:47.240 | things in advance and know what you could cut, know how you could cut it.
00:44:52.040 | You don't have to actually cut it all.
00:44:53.200 | You don't have to go around turning every light off and adjusting the thermostat and
00:44:56.560 | canceling the cable and all that stuff, but at least know that you could and think it
00:44:59.600 | through.
00:45:00.600 | Transportation, fuel, tires, oil changes, maintenance, parking fees, repairs, etc.
00:45:06.040 | Doing some of those things in advance can be really helpful and really useful.
00:45:10.920 | Medical care, going ahead and getting the dental work done or getting the medical work,
00:45:14.800 | those types of things.
00:45:15.800 | So, you can transition some of those things that you need and you go ahead and do it knowing
00:45:20.280 | that you've reduced or eliminated future expenses.
00:45:25.160 | So, can you stockpile some things that you need?
00:45:30.560 | I think it makes a lot of sense to focus on building out some resiliency by having the
00:45:37.320 | physical items that you would buy with money.
00:45:39.880 | So, I've tried to profile a lot of the survivalists and their approach to things.
00:45:47.040 | I think if you focus on providing for the physical needs that you have, if you know
00:45:53.480 | you have a month or two or three months or six months of food available to you where,
00:45:58.240 | "Hey, if my income dried up, I'm okay.
00:46:01.200 | I got enough money to feed my family."
00:46:04.080 | If you've thought in advance about the toiletries that you've needed, you've gone ahead and
00:46:08.160 | purchased those things, you build a level of strength and resiliency in your lifestyle.
00:46:13.480 | I think that's a really valuable thing to consider.
00:46:17.520 | It's hard for me to imagine and you got to do this in proportion to your life, but the
00:46:22.040 | most practical useful advice, like I can't stand people when, listen, Anne Barnhart talks
00:46:26.680 | about like, "Got to go out and buy guns and bullets."
00:46:29.040 | Listen, I've never been in a gunfight in my life, but I eat every day.
00:46:35.360 | I don't ever want to be in a gunfight in my life, but I want to eat most days.
00:46:41.360 | I can't stand it when people say, "Buy bullets."
00:46:44.840 | This is fantasy.
00:46:45.840 | It's a fantasy world.
00:46:47.280 | It's absurd, but there is certainly a good case to be made for the fact that you might
00:46:53.440 | need to have some food when you can't buy it.
00:46:55.840 | I can't stand it when people say, "Go and buy gold."
00:46:58.680 | My favorite, I've had James Wesley Rawls on the show a few times.
00:47:01.920 | One thing that I appreciate about James is he's actually a reasonable guy.
00:47:06.920 | He has some strong convictions about his predictions for the future, but he's a reasonable guy
00:47:10.880 | and he takes a reasonable approach to things.
00:47:13.760 | His basic survivalism mentality is to say, "Don't buy silver and gold until you've secured
00:47:21.800 | all the things that you're going to need for your life.
00:47:25.020 | Don't buy silver and gold until you have your food and your water and your means of purifying
00:47:29.200 | water and all of that stuff."
00:47:31.020 | Those things are actually useful and practical.
00:47:32.800 | I can't stand the, "Buy gold" advice.
00:47:34.760 | It doesn't make any sense.
00:47:36.480 | Gold doesn't do you any good in many situations except after the fact.
00:47:42.560 | This concept of, "We're going to somehow take gold bars and barter with one another," it's
00:47:49.160 | fantasy.
00:47:50.160 | First, people don't have any ability to understand the actual value of gold.
00:47:58.120 | Go on YouTube, search some of the gold bugs and pull up some of their stuff.
00:48:02.100 | These guys will walk around on the street with a video camera, but the video's on YouTube,
00:48:07.560 | and they'll offer people a one-ounce gold coin if they can get within a few hundred
00:48:13.000 | dollars of the value of it.
00:48:15.360 | I remember in the past, gold was what?
00:48:16.920 | $2,000 an ounce.
00:48:17.920 | They're walking around with a $2,000 gold coin and they're offering it to people.
00:48:20.800 | People are saying, "What?
00:48:21.800 | 50 bucks?
00:48:22.800 | 30 bucks?"
00:48:23.800 | People have no concept of the value of it.
00:48:26.600 | This idea that somehow we're going to go to a gold-based economy is – I think it's
00:48:30.720 | a little bit silly.
00:48:34.000 | What's better than that?
00:48:35.000 | Well, theoretically, silver.
00:48:36.000 | You can get into the whole discussion.
00:48:37.000 | I'll do a show on it sometime.
00:48:38.240 | But if you're going to go to a barter economy, don't buy gold until you've bought silver
00:48:43.000 | dimes.
00:48:44.000 | It's a much more practical amount of currency.
00:48:47.560 | Does that mean that you shouldn't buy gold?
00:48:52.960 | I don't think so.
00:48:53.960 | I think there's a really good case to be made for everybody having some gold coins,
00:48:59.240 | but that's not going to help you in a market crash.
00:49:02.200 | That's so that you have something that's one of those assets that can insure some of
00:49:07.800 | your wealth and you got to know when are you going to sell it on the back end.
00:49:11.520 | So I don't want to go into gold today.
00:49:12.680 | My point is just that it's not practical.
00:49:14.560 | This advice of buy gold and guns is – I mean, I get where they're coming from, but
00:49:19.280 | it's not practical.
00:49:21.200 | What I'm giving you is practical and start with this stuff.
00:49:24.560 | And then, hey, if you want to buy gold coins, go for it.
00:49:27.920 | I like gold coins.
00:49:28.920 | I like guns.
00:49:29.920 | That's cool.
00:49:30.920 | But I'm not going to be shooting people in West Palm Beach, Florida.
00:49:35.120 | There's no chance of that.
00:49:37.200 | So invest in the things that you need and then invest in useful capital.
00:49:43.620 | So if you're in business, think about what can you do to enhance – what's the useful
00:49:47.680 | capital that you can buy?
00:49:49.240 | Look for investments that make sense.
00:49:52.560 | Don't get caught up in fear about a doomsday scenario.
00:49:58.760 | Recognize that the things that you can do to prepare for that are very simple.
00:50:02.760 | And guess what?
00:50:04.040 | Let's say that I'm completely wrong because I fully acknowledge that I could be.
00:50:06.920 | I think about this stuff a lot.
00:50:08.440 | Let's say that I'm wrong.
00:50:10.040 | Let's say there's a massive economic crash.
00:50:13.280 | Let's say we go into World War III.
00:50:15.280 | Let's say that the zombies are running in the streets with machine guns.
00:50:20.720 | Guess what?
00:50:22.080 | Everything that I've described and more is still going to help.
00:50:27.280 | Now in that situation, I'm going to wish that I'd done what James Wesley Rawls told
00:50:31.440 | me to do.
00:50:32.440 | I'm going to wish I moved to Idaho and bought a 500-acre ranch, but I'm not there.
00:50:35.920 | I can't do that.
00:50:36.920 | I'm not at a place for that.
00:50:37.920 | I'm probably going to wish it, but everything else is going to help.
00:50:42.680 | Because when you look at the underpinnings of an economy, it's all based on relationships.
00:50:46.560 | This is to my final point in today's show.
00:50:50.560 | Invest in relationships.
00:50:54.000 | Build relationships in your community.
00:50:56.800 | Build relationships in your family.
00:51:00.120 | Because when you get into difficult times and you study the times of economic collapse
00:51:03.620 | in the past, that's where the benefit has been.
00:51:06.880 | If you need capital to invest in something in difficult times and banks aren't lending
00:51:11.180 | money because their stock is down and they're all freaking out, where do you get that?
00:51:16.120 | You get it from the rich people that you know in your town.
00:51:18.120 | You get it from the people you know who have the capital.
00:51:21.560 | Work on building the relationships and building the community that you need now.
00:51:26.320 | You lost your job.
00:51:28.720 | You got kicked out of your house.
00:51:29.720 | Wouldn't it be nice to have some quality family relationships to fall back on that you could
00:51:34.400 | quickly go and live with somebody, a family member, and actually have that be a pleasant
00:51:41.300 | experience?
00:51:42.300 | That takes time.
00:51:43.300 | It takes investment.
00:51:44.300 | To sum up today's show, maximize your income, minimize your expenses.
00:51:54.420 | Maximize your protection, minimize your obligations.
00:52:00.620 | Minimize your choices and options, and minimize the entrenchment of your current position.
00:52:08.860 | Take those ideas and look at all of your current affairs, and what you'll see is that all the
00:52:14.820 | stuff that you would need to be doing in a market crash is all the same stuff that you
00:52:20.540 | should be doing today no matter what.
00:52:25.660 | When you recognize that, you realize that you don't have to worry about the market crash.
00:52:31.380 | The markets crash, markets go up.
00:52:34.340 | Things change all the time, but it's the same skills, and it's the same activities, and
00:52:39.660 | it's the same habits done reliably and consistently all along the way that lead to the strongest
00:52:47.920 | of results.
00:52:48.920 | I think it's so valuable to think about market crashes.
00:52:52.900 | I think it's so valuable to think about dire economic prognostications, and ask yourself,
00:52:58.940 | how would I handle this?
00:53:01.180 | Because that will improve your risk management skills.
00:53:05.980 | Here's where I want to go back to Jay's email and just touch on these things and show how
00:53:10.900 | this applies.
00:53:12.900 | I've recently built up a little after-tax savings with a Betterment account.
00:53:17.060 | I do have an emergency savings account too.
00:53:19.340 | Jay, that's what you need.
00:53:21.780 | You want to look at that and say, "Am I comfortable with the size of that?"
00:53:24.740 | You should be doing that at all stages.
00:53:27.060 | We have a couple of rentals and a modest 401(k).
00:53:29.420 | That's what you need.
00:53:31.180 | That's what you need to get you through a market crash.
00:53:33.260 | You've got a couple of rentals and an emergency savings account.
00:53:36.180 | You've got some income.
00:53:38.580 | Then you're in a situation where if your 401(k) goes down and your Betterment account goes
00:53:42.700 | down, you still have real estate.
00:53:43.940 | You still have savings.
00:53:44.940 | That's what you should be doing.
00:53:47.060 | I wish I had dozens of rentals, but the thought of being over-leveraged always makes me a
00:53:50.260 | bit nervous.
00:53:51.460 | It should.
00:53:54.020 | You should never be over-leveraged.
00:53:56.460 | I don't buy this nonsense about borrowing $500 million and buying real estate.
00:54:01.860 | Now, I'm willing to be wrong, but I don't buy it until I see some proof.
00:54:07.820 | Doesn't happen.
00:54:11.180 | You should not be over-leveraged.
00:54:14.260 | Even when you're using leverage, you're always thinking about what's the worst-case scenario.
00:54:17.660 | When you're looking at your real estate portfolio, you should look at it and say, "Let's assume
00:54:21.220 | the worst-case scenario.
00:54:22.900 | How would I fare and how can I minimize my risk?"
00:54:27.340 | Maybe you'll get busy and pay off this property and you'll refinance this debt here to better
00:54:31.300 | terms.
00:54:32.660 | That's exactly what you should do.
00:54:34.860 | Goes on anyway, "Are his predictions legitimate?"
00:54:38.300 | Of course they're legitimate.
00:54:39.300 | He's making the predictions.
00:54:41.180 | Guess what?
00:54:42.180 | There's always somebody making predictions.
00:54:43.820 | Now, to Kiyosaki's benefit, I haven't read his book, Prophecy, in years.
00:54:49.140 | It's probably been updated, but just go down to Barnes & Noble.
00:54:52.300 | Do what I do.
00:54:53.300 | Every few months, go down to the local bookstore and just browse and there's always a new book
00:54:57.300 | on prophecy.
00:54:59.860 | There's always a new financial prognosticator saying, "This is going to be the year."
00:55:04.180 | Now, I don't know if this is going to be the year or not, and I don't know how to know
00:55:07.900 | if this is going to be the year or not.
00:55:09.940 | If you want to pick a guru that knows, go for it.
00:55:12.940 | All I know is I've seen a lot of gurus get embarrassed and be wrong.
00:55:17.360 | What I choose to do is to recognize that could happen.
00:55:21.220 | Let me make a plan for it.
00:55:23.220 | Let me also make a plan in case it doesn't happen.
00:55:25.540 | Should I really consider buying gold and getting rid of any stock-based investment better than
00:55:29.060 | 401(k)?
00:55:30.060 | Sure, you should consider it.
00:55:32.100 | Should you do it?
00:55:33.100 | Well, that's going to depend.
00:55:34.940 | Can you handle the volatility of the stock market?
00:55:38.900 | If not, you probably should get out.
00:55:40.620 | I think a lot of people should get out of the broad-based stock market because they
00:55:45.980 | can't handle the volatility and they make stupid decisions.
00:55:48.420 | They have bad financial advisors who can't coach them through the corrections and the
00:55:52.660 | crashes and whatnot.
00:55:54.620 | I think a lot of people would be much better served in investing all that money in some
00:55:59.260 | other capacity.
00:56:01.060 | I really do.
00:56:04.100 | But I'm not finding fault with the stock market.
00:56:05.740 | In the stock market, you pay the price for your returns by being willing to sit through
00:56:10.300 | the volatility.
00:56:11.300 | Now, should you consider buying gold?
00:56:13.660 | Yes, you should consider it.
00:56:15.740 | So here's my challenge to you.
00:56:18.180 | Consider it and understand why you should buy it, when you should buy it, and then when
00:56:23.900 | you should sell it.
00:56:26.620 | What is your purpose for it?
00:56:31.180 | What are you going to do with it?
00:56:32.520 | What benefit does it bring you?
00:56:34.980 | What's your plan for it?
00:56:35.980 | What percentage is appropriate?
00:56:37.540 | Now I know I'm supposed to be giving you those answers and hope I'm not copying out.
00:56:40.700 | I'm just trying to wrap up the show and say, "Yes, you should consider those things just
00:56:44.260 | like you should consider the scenario of any person."
00:56:47.460 | It's why I try to bring such a diversity of guests.
00:56:49.580 | Do I do it great?
00:56:50.580 | I don't know.
00:56:51.580 | But I'm trying to present a huge variety of perspectives and opinions, and you should
00:56:57.860 | consider what anybody has to say.
00:57:00.300 | But at the end of the day, you are responsible for your money.
00:57:03.980 | You're responsible to do the research.
00:57:05.700 | You're responsible to understand what you're doing and why.
00:57:11.980 | You're responsible.
00:57:14.820 | Pay attention to that responsibility.
00:57:17.500 | Learn from everybody.
00:57:19.460 | Incorporate new research.
00:57:20.460 | When somebody mentions a book, mentions something, buy the book.
00:57:23.660 | I'm going to listen to podcasts.
00:57:25.460 | First thing I do, somebody recommends a book, I stop.
00:57:28.140 | If I think it's going to be valuable, pull out my phone, pull out the Amazon app, buy
00:57:31.500 | a used copy.
00:57:32.500 | You usually pay a penny and $3.99 of shipping.
00:57:35.620 | Just click, one click buy, done.
00:57:38.180 | Now come look through that book.
00:57:39.180 | Do I agree with this author?
00:57:40.180 | Do they have something I haven't seen before?
00:57:41.940 | Is there some thought here?
00:57:43.300 | Is there something that I can gain from what they're having to say?
00:57:47.620 | And look for the information.
00:57:48.620 | And when you make a habit of doing that, you slow down, you do your research, you study,
00:57:52.740 | study, study.
00:57:53.780 | Then what'll happen is you won't respond to these predictions from a place of fear, but
00:58:00.860 | you'll have a confidence that you know what you're doing and you know why you're doing
00:58:05.540 | it.
00:58:06.540 | You know where your blind spots are and you know you can get through.
00:58:09.140 | And you know what?
00:58:11.060 | That's what will transform you into a millionaire.
00:58:14.500 | And that's what will transform you into the type of person that could be picked up, placed
00:58:18.340 | in almost any society, in almost any place in the world.
00:58:21.900 | As long as there's a little bit of freedom and enough advantages, you can apply those
00:58:25.260 | same skills.
00:58:26.260 | And if you lose it all, you can build it right back.
00:58:29.260 | One of the most amazing things for you to study in the future is look at how many times
00:58:37.300 | self-made millionaires have lost it all and gotten it back again.
00:58:41.460 | It's really, really astounding when you start looking at it.
00:58:46.020 | It seems like most millionaires have to lose it all a couple of times till they finally
00:58:49.660 | get their risk management down.
00:58:52.340 | So I don't think it's required.
00:58:53.540 | I think you learn vicariously.
00:58:56.140 | But the key is the thought process and who you become and the process that you apply.
00:59:06.180 | Hope that's helpful to you all.
00:59:07.180 | It's my best way of answering it.
00:59:08.780 | I guess I've seen so many people.
00:59:11.060 | In 2008, I watched so many people.
00:59:13.740 | I'm going to freak out.
00:59:15.540 | Cash out my 401k.
00:59:16.540 | Buy a bunch of silver coins.
00:59:18.900 | How's that working for you?
00:59:24.300 | Not so well.
00:59:25.300 | Thank you all for listening.
00:59:26.300 | I appreciate the time and attention that you have honored me with today.
00:59:30.020 | I hope this content has been useful.
00:59:31.340 | If you have any comments on today's show, feel free to come by the blog and comment
00:59:35.140 | on this episode.
00:59:36.140 | I'd be happy to hear about that.
00:59:39.660 | If you've got any additional ideas, if I have any blind spots, feel free to come by and
00:59:42.860 | share with me.
00:59:43.860 | Thank you to the patrons of the show.
00:59:45.820 | If you would like to support the show directly, unhindered by using any advertisers, if this
00:59:49.740 | content today has been useful to you, I would invite you to become a patron of the show.
00:59:55.400 | Take the financial impact of this show in your life.
00:59:58.900 | Take 10% of that and send it to me, radicalpersonalfinance.com/patron.
01:00:03.340 | All the details there, radicalpersonalfinance.com/patron.
01:00:07.380 | Until next time, move slow, study, study, study, and think carefully and comprehensively.
01:00:15.540 | I wish you all the best.
01:00:32.500 | Bye.
01:01:01.460 | (upbeat music)