RPF0705-Current_Events-Coronavirus_etc
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00:00:30.000 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less.
00:00:40.000 | Today on the show, we're going to do something we don't normally do.
00:00:43.000 | Today is March 6, 2020, and today we're going to talk about current events.
00:00:48.000 | Try to keep the show very much focused on things that aren't necessarily current.
00:00:53.000 | My goal is that somebody listening to Radical Personal Finance in 2020 finds most of the content just as relevant as someone listening in 2030.
00:01:03.000 | And I hope that even 50% of the content is relevant in 2120, just like it would have been relevant in 1920.
00:01:11.000 | That's my general hope.
00:01:12.000 | Now, of course, that's hard to achieve, but that's my goal.
00:01:15.000 | But today we're going to break that general trend and we're going to talk about some current events.
00:01:20.000 | So I want to give you just some updates and just chat with you a little bit about COVID-19, talk to you about some economic prognostication, and talk with you about the stock market, which has been quite the up-and-down ride over the last couple of weeks.
00:01:33.000 | One thing that I do not feel, that I do not miss about working as a professional financial advisor is I don't miss fielding phone calls during market volatility.
00:01:45.000 | I'm very happy to be on the sidelines and just care for my own money, but I do still feel a responsibility to talk to you.
00:01:53.000 | And so I want to try to do that here with some updates.
00:01:56.000 | So we're going to talk about COVID-19, we're going to talk about economics, we're going to talk about the stock market, and then if there's time, we're going to talk about just, again, your planning so that you can have an intelligent response to risk.
00:02:07.000 | Let's begin with COVID-19.
00:02:08.000 | I would prefer to wait a few more weeks to get more data before having an opinion, but I think that would be just simply kind of weasley of me, kind of chicken to sit back and not share with you some ideas.
00:02:21.000 | I've tried to be responsible and wait for decent information before talking to you, but not to sit around just for fear of being wrong.
00:02:28.000 | So in that spirit, I would say that I am encouraged by some of the recent medical data coming out about COVID-19.
00:02:36.000 | It does not seem to be the flu superbug, the really bad flu bug that it could be.
00:02:43.000 | Now, that's not to say that we're not going to wind up in a global pandemic.
00:02:48.000 | It is to say that the death rate, it does seem to be lower than I feared and that many people would fear.
00:02:56.000 | Now, that's not to say that you should be complacent.
00:02:59.000 | For example, the flu virus can always mutate.
00:03:02.000 | It could become worse.
00:03:03.000 | Right now, people talk about there being two strains of the virus, one strain that is deadlier than the other strain.
00:03:11.000 | But generally speaking, although the data is still a little bit fuzzy, generally speaking, the death rate does not seem to be as high as it otherwise would be, could be, and this is really good news.
00:03:23.000 | Now, there could still be hundreds of thousands of people that die.
00:03:28.000 | But chances are those people are the kind of people who are at the margins, a little bit older, have other problems with their immune system, have other health issues that they're dealing with.
00:03:40.000 | It doesn't seem to be a major risk for those of us who are healthy and those of us who have young children.
00:03:46.000 | And so that's a blessing.
00:03:47.000 | Now, I think we still need to be very diligent and very cautious to protect those who are weaker, people who are older, et cetera.
00:03:54.000 | That should be a very important priority for us.
00:03:58.000 | But I'm encouraged that I don't think that this coronavirus, this COVID-19, I don't think this is going to be another Spanish flu.
00:04:05.000 | I really don't.
00:04:07.000 | Time will tell.
00:04:08.000 | I'd like to wait a few more weeks before I see, you know, before I'm too convinced of that.
00:04:12.000 | But I don't think that this is going to be another Spanish flu killing tens of millions of people around the world.
00:04:18.000 | So I think we can all be grateful for that.
00:04:20.000 | It does not lessen the risk of a flu at any point in time.
00:04:24.000 | You can always have a global flu pandemic that is another Spanish flu.
00:04:28.000 | It doesn't lessen the risk at all.
00:04:30.000 | And one of the things that's so fascinating to watch this play out in real time is to see how really truly it can spread very quickly around the world.
00:04:39.000 | But another thing that I am optimistic about, one of the things that I think is a good sign is I'm optimistic now about the ability to get information out.
00:04:48.000 | I know people love to beat up on the news media, and I think a lot of some news media organizations deserve to be beat up upon.
00:04:55.000 | There are a lot of people who are working really hard, but some do deserve to be beat up on.
00:05:00.000 | Just like those of us who are financial advisors, some of us deserve to be beat up on as well.
00:05:04.000 | But I do think it's important to recognize how much easier it is to spread information among average people.
00:05:13.000 | There's a positive and a negative side of that.
00:05:15.000 | The positive side of that is that today, although there are more risks of something like a flu quickly being transferred from China to Europe to the United States to South America, all around the world, it can travel very quickly at the speed of airlines.
00:05:32.000 | There's also the ability for information to flow even faster.
00:05:37.000 | In today's world, public health officials in the United States can gain value from the information that's being – the data that's being collected in South Korea or the data that's being collected in Italy, etc.
00:05:51.000 | Then the information can spread quickly so that people can prepare ahead of time.
00:05:56.000 | I noticed that I was very glad to see many people taking significant preparation, stocking up on food, things like that, masks, hand sanitizer, soap.
00:06:06.000 | Much in advance of the outbreaks even being monitored, for example, in the United States.
00:06:12.000 | I think that this is good news, that the information can travel, the news can travel, so that individuals around the world can respond and react.
00:06:20.000 | I've also been impressed to see that it does seem like many of the quarantine efforts have been effective.
00:06:27.000 | I think that they're going to continue to be effective.
00:06:30.000 | Now, the United States has been much slower to respond than some of the other countries.
00:06:35.000 | I hope that that's not the case going forward.
00:06:38.000 | There's still going to need to be some significant response and it's just watched day by day.
00:06:43.000 | But seeing how Japan has responded and South Korea and seeing some of the very effective management, it is nice to see how in our modern society for all of the weaknesses, there are some things that can be done that make things stronger.
00:06:57.000 | I've been fascinated and horrified to see what is happening in China in terms of the way that now people, basically their permission to move about is based upon an app that's installed on their phone.
00:07:10.000 | The privacy activist in me despises the system.
00:07:15.000 | I cannot stand what the Chinese government does in many cases.
00:07:20.000 | But I do admire that possibly it may be effective going forward in the future.
00:07:25.000 | We're not going to know any real data for sure what happened for years because we're right in the middle of the crisis right now.
00:07:36.000 | And I'm trying to sound an optimistic tone because I think the data warrants an optimistic tone from a medical perspective.
00:07:43.000 | But I want to be clear, I do expect many, many more people to be infected.
00:07:47.000 | I do expect this infection to spread dramatically around the world still going forward.
00:07:52.000 | One of the things that I think you need to be mentally prepared for is I think there's a very good chance that this flu epidemic is going to be affected by seasonality.
00:08:02.000 | None of this is proven.
00:08:04.000 | I could be wrong on this.
00:08:05.000 | But from my reading, from people who seem more knowledgeable than me, that seem trustworthy, there does seem to be a significant impact of weather on the transmissibility of this flu.
00:08:16.000 | So one of the things that could be very helpful for the northern hemisphere is as the northern hemisphere goes into a summer season coming up, weather warms.
00:08:25.000 | That could help to contain the threat of the flu.
00:08:29.000 | It could also be a double-edged sword because what that would mean is if the flu were to back off during the summer season as the weather gets hotter, it'll just basically go underground a little bit.
00:08:40.000 | And then it would come back possibly with a vengeance towards the fall when things cool down a little bit.
00:08:45.000 | So those kinds of predictions really are unknown and I want to concede that.
00:08:50.000 | But I am grateful that the medical diagnosis does not seem currently to be as serious as it otherwise could be.
00:08:59.000 | I think we'll know more about that in the next couple of weeks, but I'm optimistic.
00:09:03.000 | I hope that my optimism is not misplaced, but that's genuinely how I feel.
00:09:08.000 | I'm optimistic and I'm not significantly concerned about the death risk to me, to my family, to you, to our neighbors.
00:09:19.000 | We need to be careful with those who have compromised immune systems, who have other systems, other problems as well.
00:09:26.000 | But I don't think it's going to be quite so devastating as it could be.
00:09:31.000 | Now, another few weeks we'll tell the story and so we need to pay careful attention.
00:09:36.000 | What I find fascinating about watching this particular event is seeing how people are responding and seeing how people are not responding.
00:09:43.000 | And just simply observing what's happening because so much of these kinds of events is driven by how people respond or don't respond.
00:09:53.000 | So those are my thoughts on the current virus.
00:09:57.000 | Keep an eye on it yourself and we'll see what happens.
00:10:00.000 | Again, I expect the numbers to continue to grow, but I'm encouraged that it seems less deadly than it otherwise could be.
00:10:07.000 | Now let's talk about economics.
00:10:09.000 | I remain deeply concerned, and in fact I'm probably more concerned than I was, about the economic impact of the COVID-19.
00:10:19.000 | I think that if the infection rates continue to spread, there will be major economic impacts from this.
00:10:26.000 | I don't see how the economic impacts that are already clear, for example the disruptions in the travel industry, airline bookings down, cruise bookings down,
00:10:36.000 | the disruptions of the hotel industry, people canceling festivals, people canceling things like that.
00:10:43.000 | I don't see how that doesn't get worse.
00:10:45.000 | I don't see how that this doesn't continue to make the general economic situation much more difficult.
00:10:54.000 | I don't see how at the moment we avoid this being part of a triggering event, some triggering events that take the United States economy into recession.
00:11:05.000 | It seems so severe in terms of the economic effects that I just don't see how this doesn't trigger recession.
00:11:12.000 | There is a lot of overall weakness in the economy.
00:11:14.000 | There's been a lot of challenges.
00:11:17.000 | We're overdue for a recession in the business cycle, and I don't see how this doesn't trigger that.
00:11:23.000 | In my own opinion.
00:11:24.000 | Now, again, time will tell.
00:11:26.000 | It is fascinating to watch the Federal Reserve, you know, 50 basis point cut in the funds rate, just massive stimulation going on.
00:11:36.000 | And so, you know, the Federal Reserve is doing everything that they can, and it'll be interesting to see if it works or not.
00:11:41.000 | You know, if you're a pro-Federal Reserve person, then this is an interesting test to see how good the Fed is.
00:11:47.000 | If you're a skeptic, this would be an interesting test to see how good the Fed is and see what actually happens.
00:11:51.000 | I don't think that this kind of stuff is the right response.
00:11:54.000 | I think it is.
00:11:56.000 | I don't think it's the right response, but I'll watch it and see.
00:11:59.000 | And so while I'm optimistic about the flu at this point in time, I'm personally increasingly pessimistic about the general economy.
00:12:10.000 | Now, that pessimism is kind of a mixture, though.
00:12:14.000 | I will concede to you that I have been looking for a recession for quite a while.
00:12:20.000 | And it, of course, sounds bad, and I want to acknowledge that my previous, I thought we would be in recession in 2017.
00:12:29.000 | I really did.
00:12:30.000 | I was wrong.
00:12:31.000 | I thought we'd be in recession in 2018.
00:12:33.000 | I really did.
00:12:34.000 | I was wrong.
00:12:36.000 | I thought that there would be a recession, going back, I think I thought there would be a recession in 2016, and I was wrong.
00:12:43.000 | So I want to fully concede that my economic prognostications have completely failed.
00:12:49.000 | And so I want to be very humble about my opinion.
00:12:52.000 | I don't want you to think that I'm some kind of expert who's just gotten everything right.
00:12:56.000 | I have been wrong, and I've been amazed to see how wrong I was.
00:13:00.000 | But that said, I've been waiting for a recession because I think a recession gives opportunities.
00:13:05.000 | And for people like me, who are younger, who have significant investment time horizons, I've been stockpiling cash and just waiting for recession.
00:13:15.000 | Now, I don't know if it's here, if it's wrong.
00:13:18.000 | I'll keep on stockpiling cash and waiting.
00:13:20.000 | But I do think that there is going to be a mixture of pain and also opportunity.
00:13:26.000 | That's always how recessions wind up working, is there a mixture of pain for some people, but there are also a mixture of opportunity for other people.
00:13:34.000 | And so in the days to come, as perhaps the financial picture becomes more clear, I'll try to give you more ideas on how to profit for a recession.
00:13:41.000 | For now, I'm content with my work to try to prepare you for the coming recession.
00:13:45.000 | The most important episode of Radical Personal Finance that you need to listen to if you have not listened to it, it's episode 666 called "How to Prepare for the Coming Recession," released in September of 2019.
00:13:58.000 | If you have not listened to that episode, I would beg you, please go back and listen to that episode, because in that episode, I give you my very best advice on how to prepare for a recession.
00:14:08.000 | And I personally have implemented all that advice, and I'm focused on preparing for a recession.
00:14:15.000 | Now, the good thing is that even if I'm wrong, and we'll talk about this when we get to risk management in a minute, even if I'm wrong, I'm not hurt.
00:14:22.000 | And I really feel like this is one of the worst, the most misunderstood things that people miss is how it's important to prepare for things without necessarily setting yourself up to be hurt by things.
00:14:35.000 | To prepare and to be willing to admit that I don't have a crystal ball, and so let me do things that are going to be good one way or the other.
00:14:42.000 | But please go listen to episode 666, "How to Prepare for the Coming Recession."
00:14:46.000 | I think that advice is more relevant than it ever was.
00:14:50.000 | And so pay careful attention.
00:14:53.000 | I think there's going to be some significant economic headwinds.
00:14:56.000 | The most important thing you can do is maintain your job.
00:14:59.000 | If you can maintain your job through a recession, then that will allow you to profit from it.
00:15:07.000 | Even if your profiting is as simple as buying stocks when they're on sale, dollar cost averaging into the stock market, then you'll still be protected and you'll still be able to profit from recession if you can stay employed.
00:15:21.000 | It's if you wind up unemployed where things become very difficult.
00:15:25.000 | In the podcast feed, if you scroll back in the podcast feed, you'll see that I put a replay immediately after episode 666 of episodes 192, 193, and 194, which were all about how to keep your job in a recession.
00:15:39.000 | 192 is called "Recession is Coming," "How to Not Get Laid Off in the Next Recession."
00:15:43.000 | 193, "Make a Backup Plan in Case You Get Laid Off in the Coming Recession," "Simple Action Steps for You to Consider."
00:15:49.000 | And then 194, "You Just Got Laid Off, Here's What to Do Next."
00:15:53.000 | That's an episode that if you find it useful, keep it in your list.
00:15:57.000 | I've sent that to many people who've just said, "I just lost my job," and my answer is, "Listen to this episode and do what I've told you."
00:16:02.000 | I really believe that the advice in that series is extremely sound.
00:16:08.000 | So I am tightening my belt, looking for recession ahead, and I'll be surprised if it doesn't arrive.
00:16:15.000 | It'd be great.
00:16:16.000 | I'll be happy that things are going well.
00:16:18.000 | If it does arrive, I'll be happy because hopefully it'll mean some opportunities to make investments at lower prices, which I think is really an opportunity.
00:16:28.000 | Now let's pivot to the stock market.
00:16:31.000 | As I record this at 3 o'clock, 309 Eastern Time, so the markets are not yet.
00:16:41.000 | They're going to be closing here in about an hour.
00:16:43.000 | And for the day, again, down another, it looks like, 3% on the S&P 500.
00:16:49.000 | And so it's been quite the tumultuous last couple weeks, down 3%, most several days, three or four out of five days, and up 3% a couple other days on the S&P 500.
00:16:59.000 | It's certainly a tumultuous time in the stock market.
00:17:02.000 | So let's talk some strategy for you.
00:17:05.000 | So the most important thing for you to do when you're in the middle of a market like this is to stick to your pre-chosen strategy.
00:17:17.000 | You've got to stick to your pre-chosen strategy.
00:17:21.000 | Now I don't know what your strategy is, but your strategy that you previously chose had plans for this type of market condition.
00:17:31.000 | Now the most mainstream strategy is the idea that you stick with it.
00:17:39.000 | Modern portfolio theory, the markets are efficient, they're responding to these new threats.
00:17:45.000 | The decline in stock prices are largely attributable to the potential declines in company profits, and so this makes sense.
00:17:54.000 | And if you buy kind of the tenets of modern portfolio theory, there's a lot of people in this audience and in the personal finance world who are very committed to the efficiency of the markets.
00:18:05.000 | They believe in index fund investing and passive investing.
00:18:08.000 | Well, in that situation, you don't try to time the market.
00:18:10.000 | You just simply stay put and you keep on buying.
00:18:13.000 | You just simply ignore.
00:18:16.000 | And so you look at your statements, you open things up and say, "That's interesting," and you keep on pressing forward.
00:18:23.000 | And so if that's been your strategy, you cannot destroy your strategy by selling now.
00:18:29.000 | You must stay the course on your pre-selected strategy.
00:18:35.000 | Do not freak out. Do not sell. Stay the course.
00:18:39.000 | Now if your strategy involves some kind of more active trading, more, you had some stop losses set up and you were planning to adjust your portfolio based on market conditions, then stick with that.
00:18:51.000 | I can't possibly talk about all the different ways to play it, and I'm uncomfortable giving advice, giving investing advice in a format like this.
00:18:59.000 | That's not my interest and it's not my – frankly, I just have a hard time sleeping.
00:19:04.000 | I don't mind taking that risk with my own money.
00:19:07.000 | I don't mind being wrong with my money, but I don't like to be wrong with other people's money.
00:19:11.000 | And so just stick with your strategy, whatever your strategy previously was.
00:19:16.000 | Stick with your strategy.
00:19:17.000 | That's the important thing.
00:19:19.000 | Don't change your strategy when you're in the middle of an emotional euphoria or when you're in the middle of an emotional crisis.
00:19:29.000 | Dysphoria, I guess, would be probably the word.
00:19:32.000 | Don't change your strategy there.
00:19:34.000 | Recognize that this is an emotional time and I'm going to stick with it.
00:19:39.000 | If you are finding this period of market volatility extremely painful, then I would commend to you that you should pay careful attention to that data point.
00:19:52.000 | And in the future, when we come out of this current crisis, in the future, you should make a plan to adjust your investment plan.
00:19:59.000 | One of the things that I have changed my mind on significantly in the last decade, a decade ago when I was a financial advisor,
00:20:07.000 | I would have said everybody should have stocks and everybody should just learn how to be comfortable in the middle of crisis
00:20:12.000 | and everybody should know that volatility is the price that you pay for returns.
00:20:18.000 | Today, I no longer believe that.
00:20:21.000 | I simply do not believe that everybody should be in stocks.
00:20:24.000 | I believe that people should go with something that they are comfortable in.
00:20:29.000 | I was much more arrogant back then to just believe that I could teach everybody everything they need to know to be comfortable in the stock market.
00:20:35.000 | Today, I'm done with that.
00:20:37.000 | It's interesting because as I watch the stock market, I've come to appreciate, I've always thought that I had a stomach of iron for volatility,
00:20:45.000 | but I've come to appreciate not participating.
00:20:48.000 | It's been fascinating to watch.
00:20:50.000 | Now, I think I could participate, I still believe in the things I've talked about,
00:20:55.000 | but what I've realized is that there's a lot of health, just a lot of mental health that comes from not being overly exposed to any one investment marketplace.
00:21:04.000 | And I'm more convinced than ever of the value of good personal financial planning to help insulate you from market volatility.
00:21:15.000 | And I'm also more convinced than ever of the value of having various investment types of investments that you can take comfort in during times of market volatility.
00:21:28.000 | A quick intro here, and these are shows, these are topics that deserve their own shows.
00:21:33.000 | But first, good financial planning.
00:21:35.000 | One of the most important things is to care and square away personal financial risk first before investing.
00:21:44.000 | Personal financial risk such as having a good bead on your expenses, having a good amount of income, having a large delta, a large difference between your income and your expenses.
00:21:55.000 | That gives you tremendous options.
00:21:58.000 | One of the most important things that you can do is always have a large, a lot of wiggle room between your expenses and your income.
00:22:05.000 | So if your income goes down, you're not freaking out.
00:22:08.000 | But if your investments are going down, you still have lots of other income.
00:22:11.000 | That's the first thing.
00:22:13.000 | In addition, I think this shows the value of having large amounts of cash.
00:22:18.000 | I used to say, "I have three to six months worth of expenses."
00:22:21.000 | And I think that's still good, right?
00:22:23.000 | That's going to get the vast majority of people to a place of safety.
00:22:26.000 | But I think more and more, and especially if you're depending on--this is mandatory if you're living on your income.
00:22:31.000 | But I think more and more, I've come to appreciate having far more cash, having a year or two or three of expenses.
00:22:38.000 | Because if you think about recessions, the vast majority of recessions can be weathered if you can get through a year or two or three based upon just having cash.
00:22:48.000 | And so this is especially important if you're living on a portfolio.
00:22:51.000 | If you have a couple years of cash sitting aside, you can just leave the portfolio alone.
00:22:56.000 | And we can all concede and recognize that a couple of years will make a huge difference in an investment marketplace.
00:23:03.000 | And so you always want to position yourself for mental and emotional stability.
00:23:08.000 | And you want to position yourself to be able to be mentally and emotionally detached from your investment perspective.
00:23:14.000 | If you have not prioritized having significant amounts of cash and you're just watching huge amounts of your net worth being beaten up right now with declines in market values, that's a very uncomfortable situation.
00:23:27.000 | So learn from that.
00:23:28.000 | And next time, make sure that you have substantial amounts of cash.
00:23:31.000 | I'm increasingly convinced, although I can't prove it, I'm increasingly convinced that the majority of people, if they would just put more cash, individual investors,
00:23:42.000 | if they would have more cash, a few years of living expenses on hand at all times in cash, then they would feel more comfortable with the markets and thus get better overall returns because they prioritized more cash in their personal holdings.
00:23:57.000 | And they knew they didn't have to freak out.
00:23:59.000 | They knew they didn't have to worry about anything.
00:24:02.000 | I think this also shows, in addition to significant amounts of cash, it shows the value of being debt-free.
00:24:09.000 | If you are debt-free, you can dramatically trim your expenses, as I've talked about in the value of being debt-free.
00:24:16.000 | Most people, if you don't have debt, most people could make massive cuts in their lifestyle if they had to.
00:24:23.000 | And this allows you to perhaps invest more aggressively for the long term because you know that if you need to make temporary cuts, you can make temporary cuts.
00:24:37.000 | It's such a more powerful position to be in as an investor if your cash flow needs are very modest and are mostly variable so that you can pull them back to the minimum numbers.
00:24:53.000 | That puts you in such a strong position as an investor.
00:24:56.000 | And again, I'm convinced that this personal finance tactic can help you to get larger returns because now you can invest for more long-term growth.
00:25:05.000 | You can weather the volatility more effectively and you can solve that with good personal financial planning.
00:25:12.000 | The other personal finance lesson I observe as I watch the current volatility is simply the emotional comfort and the value of having various investment classes that, if not non-correlated or at least less correlated.
00:25:30.000 | The average investor, if the average investor just owns stocks and huge amounts of your net worth are tied up in stocks, when stocks become volatile, that can be so uncomfortable and you feel deeply exposed.
00:25:46.000 | But if some percentage of your net worth is invested in stocks but significant percentages of your net worth are invested in other asset classes, you'll just simply feel more comfortable.
00:25:56.000 | And this can be very, very simple.
00:25:59.000 | It can be as simple as a permanent portfolio theory, right?
00:26:03.000 | 25% in stocks, 25% in bonds, 25% in cash, 25% in gold.
00:26:08.000 | That kind of portfolio gives you such tremendous confidence because you have these lightly correlated, if not non-correlated asset classes that function in different economic conditions differently.
00:26:24.000 | And so you always have something that you can look to and take comfort in.
00:26:29.000 | I'm not the world's greatest proponent of the permanent portfolio, although I admire the theory and the philosophy behind it and I admire some of the improvements that have been made over the years.
00:26:39.000 | But I would say to put this even simpler, for the average person, it just simply comes down to good personal financial decisions, stocks, and supplementing those stocks with a little bit of real estate, and then some investments like gold.
00:26:51.000 | Having real estate gives you usually cash flow and the ability to look at your real estate portfolio and focus on that which is less volatile during times of market volatility.
00:27:07.000 | And then having that buttressed by gold and perhaps other asset classes that are totally uncorrelated, you have the ability to change your focus and to manage your emotions.
00:27:20.000 | And I think that's incredibly powerful.
00:27:23.000 | Maybe I'm getting less risky as I get older, maybe that's the case, but I just see how most of us, it's foolish to take an all-stock approach with all your money.
00:27:37.000 | But if you'll manage your stock risk with good personal finance decisions, the nuts and bolts of personal finance, low debt, high income, low expenses or highly variable expenses so that you can ratchet them down when you need to, significant amounts of savings, just stable liquid cash,
00:27:55.000 | and then you'll diversify your investment portfolio across asset classes in a really meaningful way.
00:28:01.000 | You can do this in your portfolio, you can do this with REITs, you can do this with all kinds of funds, but I think it's more powerful for most people just to do it themselves.
00:28:12.000 | That can bring you confidence and make you a better investor over time so that if your investment strategy requires you to stay invested during the bad times, you're more likely to hit that strategy.
00:28:25.000 | I guess the final thing I should point out with regard to stock investing, right now, learn the lesson of what volatility feels like.
00:28:34.000 | Right now, dig into the markets and learn what it feels like viscerally, emotionally, engage the emotion.
00:28:42.000 | What does it feel like for the market to be down 3% every single day, or practically three or four days out of five over the last two weeks?
00:28:50.000 | What does that feel like?
00:28:51.000 | What does it look like?
00:28:52.000 | What do the headlines look like?
00:28:53.000 | Think about the worst case scenarios and really dig into that and embrace that fear.
00:28:57.000 | And then ask yourself what you need to do to avoid that fear in the future.
00:29:01.000 | I think this really emphasizes one of the simple things that you need to always keep in mind, which is investment time horizons.
00:29:09.000 | For example, the standard advice, don't invest in stocks if you've got a time horizon of less than five years.
00:29:14.000 | Well, that's standard advice for a reason, and it's good advice.
00:29:19.000 | But one of the things that I've learned over the years, back when I used to manage portfolios, I didn't emphasize that as much as I should.
00:29:28.000 | But if you've got a use for money within the next five years, make sure that it's not invested in stocks.
00:29:34.000 | You cannot control what happens in the market.
00:29:37.000 | You cannot control if your portfolio dumps 10%, 15% all of a sudden.
00:29:42.000 | This is most difficult with needs that are short-term and that are acute.
00:29:48.000 | So with retirement needs, you can push this off because you can always say, "Oh, you always have a long time horizon."
00:29:53.000 | Things like college funding, you can't push it off.
00:29:56.000 | If you're going to use college savings to pay for it, how would you feel right now?
00:30:01.000 | Or how do you feel right now if you've got a 17-year-old and you were looking forward to them being in college,
00:30:08.000 | and now all of a sudden you're depending on the stocks, which are down 15%, to pay for their college?
00:30:15.000 | Now, don't panic if you're in that situation.
00:30:18.000 | You've got plenty of time.
00:30:20.000 | The need is not going to all be this year or next year.
00:30:23.000 | It's going to be spread out over a number of years, and so you can work this out.
00:30:27.000 | But it's a very vulnerable position to be in.
00:30:31.000 | And so it's better for you if you've got a specific thing that you're planning to do with money.
00:30:35.000 | You're planning to use money for a down payment on a house.
00:30:38.000 | You're planning to use money for a college education, et cetera.
00:30:40.000 | Look ahead, and don't be lulled to sleep by good markets.
00:30:45.000 | Markets can turn so fast.
00:30:47.000 | Don't be lulled to sleep and say, "Oh, well, this is four years from now, but I'm still doing well, so I'm just going to wait."
00:30:52.000 | No.
00:30:53.000 | If it's four years from now, go ahead and start selling, or at least sell what you would need for the first year and move it to cash.
00:30:59.000 | It's a little bit more prudent because it's a lot more painful to be down 15% and be selling than it is for you to be just to miss out on a couple percent on the upside.
00:31:11.000 | It's a lot more painful.
00:31:14.000 | And I think that's a decent place for me to pivot to my last topic, which I want to talk about.
00:31:19.000 | Basically, what I consider to be an intelligent response to risk.
00:31:24.000 | I find it so complicated as I watch people who are so fixated on saying calming words and helping people avoid panic that they're not willing to -- it doesn't seem like they're willing to admit that there's ever a time to panic.
00:31:42.000 | And I find that -- I find it short-sighted.
00:31:48.000 | There are times to panic.
00:31:52.000 | There really are.
00:31:55.000 | I could give you various examples, but if a car is headed for you, panic and go in any direction.
00:32:01.000 | If you're being shot at, panic and do something.
00:32:07.000 | Don't just stand there and freeze.
00:32:10.000 | Now, on a societal level, panic is exceedingly dangerous.
00:32:15.000 | Panic causes people to do crazy, irrational things.
00:32:18.000 | I'm using the word somewhat sloppily here, so I hope you'll listen through that.
00:32:23.000 | But panic is really dangerous on a society level.
00:32:26.000 | Panic, when people are all trying to get out of a building, is when people get trampled instead of proceeding in an orderly way.
00:32:31.000 | Panic is when nobody -- everyone's fighting with one another and they can't get out of an airplane that's sinking, things like that.
00:32:36.000 | So panic genuinely is not a good thing on a societal level.
00:32:42.000 | But I fear sometimes that we're so accustomed to everything working out well that we want to lull ourselves to sleep when there are real legitimate risks, real legitimate concerns.
00:32:59.000 | Now, I like the saying, you know, "Panic early and avoid the rush."
00:33:03.000 | I like that.
00:33:05.000 | I'm the guy that coined that.
00:33:07.000 | It really does make sense that you got to panic early, and if you panic early, then you don't have to panic so bad as people who are left without options.
00:33:16.000 | And I think that the flu epidemic is really demonstrating what I consider to be a lack of understanding by many people of how severe some risks can be and how -- and what the response to those risks needs to be.
00:33:30.000 | Let's talk about flu epidemics for a moment.
00:33:32.000 | I have a great deal of sympathy for public health officials who are trying to manage a flu epidemic because they've got a completely losing job.
00:33:44.000 | It's the perfect encapsulation of the phrase "damned if you do and damned if you don't."
00:33:49.000 | Think about something like closing down schools.
00:33:51.000 | Okay.
00:33:52.000 | If you're going to respond to a flu epidemic, you've got to be ahead of the curve.
00:33:58.000 | And this is especially important if you have a flu or sickness that has a long, contagious incubation period where the actual individual is asymptomatic, but they may be outspreading the virus.
00:34:11.000 | And especially if you don't know how long that contagious period is, this is really -- this is the most dangerous thing.
00:34:17.000 | If you're going to do something like quarantine a city or shut down school, in order for it to work, you've got to do it early, very early, before there's even evidence that that's really, really necessary.
00:34:31.000 | Now, here's why you're damned if you do.
00:34:34.000 | If you do it early, before it's necessary, that has the possibility of working, and that can stop a spreading flu right in its tracks because it can be effective enough if done early.
00:34:48.000 | But the problem is if you do that and it's done early and you stop the spread of an epidemic because you take drastic action, everyone looks around and says, "There wasn't any risk.
00:34:59.000 | Nobody got sick.
00:35:00.000 | Come on.
00:35:01.000 | What are you doing?"
00:35:02.000 | Now, on the flip side, if you don't move early and you let the thing develop and you let the people incubating to spread and spread and spread, by the time you actually take the action when the evidence warrants it, well, it's too late.
00:35:15.000 | And so it doesn't work.
00:35:16.000 | And everyone says, "You didn't do your job.
00:35:18.000 | You should have done something."
00:35:20.000 | And so it's a very unenviable job that they're in.
00:35:24.000 | Now, thankfully, you and I don't have to worry too much about that.
00:35:27.000 | It's not our jobs, unless it is, in which case I'm sympathetic for you and I wish you all the best.
00:35:34.000 | But in our own lives, we have more freedom and more flexibility.
00:35:40.000 | But the key is you've got to be out of sync with most people.
00:35:46.000 | There have been minor shortages in the United States on preparedness items, things like bleach, soap, food, water, et cetera.
00:35:58.000 | I've had pictures from listeners showing me totally empty shelves at Costco, things like that.
00:36:04.000 | Now, I think there's going to be more shortages in the coming weeks, but I don't expect shortages on some of those things.
00:36:10.000 | The Costco supply chain is phenomenal.
00:36:13.000 | They will quickly take up the slack.
00:36:15.000 | So while I do expect more shortages, shipping is dramatically down from China, and I think that there's significant economic challenges ahead.
00:36:22.000 | I don't expect it on things like meat or oatmeal.
00:36:26.000 | I think that stuff is probably going to be fine.
00:36:28.000 | Rice and beans, right?
00:36:29.000 | It's going to be available, I think.
00:36:32.000 | But the key is recognize that six months ago there were no shortages.
00:36:38.000 | And so it's very hard, but the best time to be out buying rice and beans and bleach and soap was six months ago when there was not even a threat.
00:36:48.000 | Now, if you missed it six months ago, the best time was back in January or early February, which is why I tried to raise the alarm then.
00:36:58.000 | When I started to see things coming from China, I tried to raise the alarm, and in my own life, I took action.
00:37:05.000 | I went and I stocked up. I went to the store and I got a bunch of masks.
00:37:08.000 | We had some, but not enough.
00:37:10.000 | And so I got a bunch of masks.
00:37:11.000 | There was no shortage.
00:37:12.000 | There was plenty.
00:37:13.000 | There was plenty of food in the store.
00:37:16.000 | And then as I watched it and it got worse in the beginning of February, I went ahead and bought more.
00:37:21.000 | And I said, you know what?
00:37:23.000 | I need to increase the family's food supply.
00:37:24.000 | So I bought a couple more months of food.
00:37:26.000 | But I was doing it before there were shortages.
00:37:28.000 | Now, I felt a little bit foolish, right, because thinking, is this really necessary?
00:37:35.000 | It's probably not.
00:37:37.000 | But you know what?
00:37:38.000 | If it does become necessary, I'll be glad I took action.
00:37:41.000 | And again, I'm more prepared than the vast majority of people.
00:37:44.000 | But I still felt foolish because I think, am I going overboard?
00:37:48.000 | Is this really necessary?
00:37:50.000 | You never know.
00:37:53.000 | But the intelligent response to risk is to respond fast and to respond early while it's relatively easy to respond.
00:38:03.000 | Now, I've been amazed to read, especially in the personal finance space, I've been amazed to read people who make fun of that kind of thing, who say, oh, this is an overreaction.
00:38:15.000 | I've tried to describe how severe of a threat a flu, a global flu pandemic really is.
00:38:21.000 | Trust me, it's not an overreaction.
00:38:24.000 | It may be, and I hope it is, and I think increasingly that it's going to be unnecessary, it may be an unnecessary preparation.
00:38:33.000 | But it's not an overreaction.
00:38:37.000 | It's an unnecessary preparation in the same way that my fire extinguisher in the kitchen, my smoke detectors in my house, my flashlights in the bedroom, all of those are unnecessary.
00:38:54.000 | The fire extinguisher is going to sit there on the shelf for years.
00:38:57.000 | I'm never going to use it.
00:38:59.000 | The smoke detectors are just going to be annoying when I burn some food.
00:39:02.000 | I'm never going to use them.
00:39:03.000 | They're never going to wake us up in the middle of the night.
00:39:05.000 | The flashlight by my bed, never going to need it until or unless someday I do.
00:39:15.000 | And that's what it's like with preparing for a flu pandemic.
00:39:17.000 | A flu pandemic is potentially a far more devastating affair than a house fire.
00:39:27.000 | Now, it's far less likely, obviously, but it's only less likely in the fullness of time, or in a short period.
00:39:35.000 | It's very likely in the fullness of time.
00:39:38.000 | And so, think about how people are describing risk and recognize how important it is to live a lifestyle of preparation, to be prepared in all circumstances.
00:39:54.000 | I was trying to come up with analogies to draw that would make this more accessible, because the flu pandemic is such a weird, you got to understand compounding, you got to understand viral infections.
00:40:08.000 | It's just a hard subject.
00:40:10.000 | Biology is not most of our strong suit.
00:40:14.000 | But I was thinking about it in something like boating or sailing.
00:40:21.000 | If you bought a boat and you said, Joshua, what would you do your recommendations for me with a boat?
00:40:26.000 | I would give you some recommendations of how you can stay safe on a boat.
00:40:31.000 | Many, many people are killed boating, drown all the time.
00:40:34.000 | And so, certainly, there are some simple things like you should know how to swim.
00:40:38.000 | That's good, but that's not good enough.
00:40:40.000 | So, you think about all of the risks.
00:40:44.000 | You try to keep your boat in good repair.
00:40:46.000 | You don't play around if things aren't working.
00:40:48.000 | You want to make sure that when you turn the key that the engine is going to start.
00:40:51.000 | If the battery is getting old, you replace it before it fails.
00:40:55.000 | If you study mechanical things, boats, airplanes, cars, the majority of things that break on them are entirely predictable.
00:41:03.000 | Why is aviation -- why does aviation have such a tremendously good safety reputation?
00:41:11.000 | It's because of the constant required maintenance that every single airplane, in the United States at least, has to go for its annual checkups.
00:41:20.000 | And it has to have everything cared for, everything inspected.
00:41:23.000 | And if you're diligent about inspecting an airplane, the vast majority of time, you can eliminate a problem before it happens.
00:41:32.000 | It's not sexy, but it's effective.
00:41:36.000 | By doing the necessary maintenance items, you eliminate the problem.
00:41:40.000 | Now, the same thing could be done to vehicles.
00:41:43.000 | People who don't want to be left stranded on the road can just simply choose to be proactive with maintenance.
00:41:49.000 | On a vehicle, there are very few things that are catastrophic failures.
00:41:53.000 | The majority of things that fail are predictable.
00:41:55.000 | They get to the end of their life.
00:41:57.000 | You go out and turn the key and the car won't start.
00:41:59.000 | Well, that's because the battery is four years old.
00:42:01.000 | If you replace the battery at two and a half years or three years or whatever it is,
00:42:05.000 | and you don't wait to try to get that last few dollars of value out of the battery,
00:42:08.000 | there's a very good chance that you'll never have a dead battery.
00:42:11.000 | If you replace the starter regularly or you replace the things that go bad in advance,
00:42:19.000 | your car will almost never leave you on the side of the road.
00:42:22.000 | So, similar things with boating.
00:42:24.000 | If you are concerned about, you know, it could be 30 miles offshore, you want to make sure that boat is in good repair.
00:42:30.000 | And so you do inspections.
00:42:31.000 | You make sure that everything is working on it.
00:42:33.000 | But then you make other plans as well.
00:42:36.000 | So, obviously, you have life jackets.
00:42:38.000 | You might have a life raft if your boat is big enough for one.
00:42:41.000 | You make sure that you have an E-Purb.
00:42:43.000 | You make sure that you wear the life jackets.
00:42:45.000 | You make sure that you have radios.
00:42:46.000 | Then you make sure you have a backup radio.
00:42:48.000 | So, you have your standard UHF/VHF radio.
00:42:50.000 | Then you have your backup VHF radio.
00:42:52.000 | You have your E-Purb, a satellite communicator.
00:42:55.000 | You have these things.
00:42:57.000 | And the goal is that you never need them.
00:42:59.000 | But you're not stupid for having them.
00:43:01.000 | You're not somehow--I'm not a fear monger.
00:43:04.000 | If I come to you and I say, "Let's talk about a safety plan for your boat."
00:43:10.000 | And the same thing with your life.
00:43:13.000 | If you would go to all that trouble and to all of that hassle and expense of preparing your boat,
00:43:23.000 | then why would you not do it in every area of your life?
00:43:28.000 | A few years ago, in the town where I'm from, in Jupiter, Florida, there were a couple of young men
00:43:34.000 | that went out fishing one afternoon together in a boat and they never came back.
00:43:38.000 | And this was a very emotional thing for the town because it's a town built on fishing.
00:43:46.000 | And everyone looked for them and they disappeared.
00:43:48.000 | And it was just a devastating thing.
00:43:50.000 | Anytime you lose teenagers who are in the prime of their life, it's just a devastating thing.
00:43:56.000 | And I've often just thought of that.
00:43:58.000 | Because I don't like to spend money on stuff.
00:44:00.000 | I don't want to buy an E-Purb.
00:44:02.000 | I don't want to buy an inflatable life jacket.
00:44:05.000 | They're expensive.
00:44:06.000 | I'm talking about the suspender type of thing that you wear all the time.
00:44:09.000 | I don't really want to wear it.
00:44:10.000 | I don't want to have a backup radio.
00:44:12.000 | I don't want to do this stuff.
00:44:13.000 | I don't want to spend the money on it.
00:44:15.000 | But I always look at it and I just simply say, "What's the risk if I don't?"
00:44:21.000 | What's the risk if my son goes out on a boat and I didn't model for him wearing the life jacket?
00:44:29.000 | What's the risk if I didn't have the backup radio?
00:44:33.000 | What's the risk if I didn't have the E-Purb?
00:44:35.000 | What's the risk if we didn't go ahead and get the life raft?
00:44:38.000 | Hopefully it's all wasted.
00:44:42.000 | Hopefully it's entirely wasted.
00:44:44.000 | But the risk is worth it, worth spending the money on.
00:44:49.000 | So the same thing comes down to things like preparation.
00:44:52.000 | Don't let anybody tell you that you're stupid if you're looking and saying there's a flu pandemic,
00:44:57.000 | potential flu pandemic, and so I went and bought food.
00:45:00.000 | Or even if you bought water.
00:45:01.000 | I don't recommend necessarily buying water.
00:45:03.000 | It's hard to see how a flu pandemic affects the water flowing out of your tap.
00:45:07.000 | But I think you should just have water, period, because there are lots of other things not related to a flu pandemic
00:45:11.000 | that could affect water coming out of your tap.
00:45:13.000 | So this is practical, this is important, and this is the intelligent response to risk.
00:45:21.000 | Panic early, because if you panic early, it can solve the problems.
00:45:26.000 | But while you're panicking and preparing, make sure that you do things that are intelligent,
00:45:31.000 | that are going to work, and then you can sit back and be completely relaxed.
00:45:36.000 | At this point, I am very relaxed about the coronavirus.
00:45:41.000 | Not because I don't think it's going to have significant issues.
00:45:44.000 | I'm encouraged by some of the data, but I still think it's going to spread.
00:45:47.000 | I think it's going to be a big story, and I think it's going to be months and months and months.
00:45:51.000 | But because I'm prepared, I can be relaxed.
00:45:54.000 | In the same way that when you're going out the inlet and the waves are high,
00:45:58.000 | if you're wondering, "Do I have life jackets in this boat?"
00:46:02.000 | And you know that your radio is not working, and you know that the last time it was hard to get the engine started,
00:46:06.000 | you're pretty nervous about that.
00:46:08.000 | Whereas if you have the gear, you can go out the inlet and be much happier
00:46:13.000 | and enjoy your time out on the water.
00:46:15.000 | That's how I see it.
00:46:19.000 | In conclusion, we're very much in a "damned if you do, damned if you don't" situation.
00:46:27.000 | If you went out three weeks ago and you stocked up on food, you did the right thing.
00:46:35.000 | Now, hopefully you just bought food that was normal, that was cheap.
00:46:39.000 | You were careful with your finances, but you did the right thing.
00:46:43.000 | And I'm optimistic that this flu is going to be less impactful than I feared a few weeks ago.
00:46:49.000 | That's what I'm hoping.
00:46:51.000 | Give me a few more weeks, but that's what I'm hoping.
00:46:54.000 | But you did the right thing in that situation.
00:46:57.000 | That was the prudent response.
00:47:02.000 | You should be glad, and I'm sure you are.
00:47:05.000 | You're glad that it's not necessary.
00:47:07.000 | I hope it's not necessary, but you still have to be prepared.
00:47:11.000 | Now, on the flip side, if you didn't do it, friend, just because this wasn't the time
00:47:21.000 | does not mean that you shouldn't be prepared.
00:47:27.000 | Back to my smoke detector and fire extinguisher analogy.
00:47:31.000 | If the smoke detector alerts you to the fact that you're burning a pot and you walk over
00:47:34.000 | and you turn off the stove, that doesn't mean you don't also need the fire extinguisher
00:47:39.000 | if it had actually caught fire.
00:47:43.000 | So pay attention, and don't be so arrogant as to think, "I live in an advanced society
00:47:50.000 | and all these people are just fear-mongering."
00:47:52.000 | No, the risk is really legitimate.
00:47:55.000 | It's really real, and it's worth preparing for.
00:47:59.000 | The time to buy the life jackets and the E-perbs and the spare VHF radio is when you get the boat,
00:48:08.000 | not when the storm clouds are in the sky.
00:48:12.000 | The time to buy the smoke detectors and the carbon monoxide detectors and the fire extinguishers
00:48:18.000 | is when you move into the house, not when the stove is on fire.
00:48:23.000 | The time to have cash and to diversify your investments and to rebalance
00:48:28.000 | is not when the market is falling apart.
00:48:31.000 | It's when you first make the investment.
00:48:36.000 | The time to think about what's going to happen when interest rates go crazy is now,
00:48:42.000 | not when interest rates are going crazy.
00:48:45.000 | You're going to be unusual because most people can't think about it,
00:48:47.000 | but that skill, that skill of forethought, if you develop it and you implement it
00:48:52.000 | in a thoughtful, careful, prudent way, it's one of the most valuable skills
00:48:56.000 | that you can develop on your path to financial independence.
00:48:59.000 | That's the skill of risk management.
00:49:01.000 | That's all I have to say for today.
00:49:03.000 | I hope that this was helpful to you.
00:49:05.000 | I'm going to be running this next week a sale on consulting.
00:49:10.000 | I've done a bunch of consulting here at the beginning of the year,
00:49:12.000 | but my March and April calendar is now fairly light, and I have loved doing consulting.
00:49:18.000 | I've got a couple of shows planned for you probably coming next week
00:49:21.000 | on just some of the lessons that I'm learning with consulting
00:49:23.000 | and the things that are just so clear.
00:49:25.000 | I ignored doing consulting, with the exception of a handful of high-level clients,
00:49:31.000 | for the last couple of years because I was traveling so much.
00:49:33.000 | Now that I'm traveling less, I can do it, and I love it.
00:49:36.000 | It's just been so great.
00:49:38.000 | It has reengaged me with financial planning in a way that wasn't happening previously
00:49:43.000 | because it gives me such valuable feedback.
00:49:48.000 | The sale is going to be--it's a March Madness sale.
00:49:53.000 | We'll call it that.
00:49:55.000 | It has nothing to do with basketball.
00:49:56.000 | It's just simply that my calendar for the end of March and April is light,
00:50:00.000 | and so I want to fill it up.
00:50:02.000 | I do 10 consulting calls per week.
00:50:04.000 | If you would like to talk to me, doing another deep discount, March Madness sale,
00:50:09.000 | email me, Joshua@radicalpersonalfinance.com.
00:50:13.000 | I am going to--I will--what's the percentage?
00:50:15.000 | I will lower my hourly rate from the norm, which is $400 an hour, to $250 for an hour.
00:50:22.000 | There's a $150 discount.
00:50:24.000 | I have not yet had a single unsatisfied client with regard to consulting.
00:50:30.000 | Sorry, I wasn't right.
00:50:32.000 | One, one moderately satisfied client.
00:50:35.000 | He and I didn't get along very well.
00:50:39.000 | But other than that, the vast majority of clients that I have engaged with
00:50:43.000 | have been thoroughly happy with me, and I stand behind my work every single time.
00:50:46.000 | I always tell clients, "If you're not happy, don't pay me."
00:50:48.000 | So if you would like to sign up for a consulting call during the month of March,
00:50:52.000 | using code MARCHMADNESS, email me, Joshua@radicalpersonalfinance.com.
00:50:56.000 | I'll give you a $150 discount from standard rate of $400 to $250 per hour.
00:51:01.000 | Email me, Joshua@radicalpersonalfinance.com.
00:51:04.000 | It has to be booked during March in order for that sale to go
00:51:08.000 | because I do have continual flow of inquiries at the standard rate.
00:51:13.000 | So email me, Joshua@radicalpersonalfinance.com.
00:51:15.000 | Tell me, March Madness Consulting Call, and I will get you set up.
00:51:18.520 | Thanks.