The_Biggest_Benefit_Of_A_Bear_Market
00:00:00.000 | Hello, everybody. It's Sam from Financial Samurai. And the bad times are back again
00:00:06.200 | with the S&P 500 below 3,700. So it's down more than 20% from its high. The NASDAQ is
00:00:13.220 | closer to down 30% from its high, around 10,600. And the Dow is below 30,000. Now, obviously,
00:00:22.280 | things don't feel great right now. Although the consumer continues to be spending, traffic
00:00:27.800 | continues to be high, travel continues to be high. And I think that's a product of revenge
00:00:33.360 | spending and people just cooped up and they want to spend their money and get on with
00:00:39.200 | their lives, right? But I think with a 70-80% probability, a recession is coming over the
00:00:44.640 | next 12 months. And we actually might already be in one. We could. The first quarter GDP
00:00:50.920 | was down. Why can't the second quarter GDP be down as well? What's also concerning is
00:00:56.680 | that the Federal Reserve will likely continue to hike the Fed funds rate well into a recession.
00:01:03.500 | So it's really hard to stop once you've telegraphed you're going to start. And it's really hard
00:01:08.680 | to stop exactly at the point, the tipping point. It's kind of like skating to where
00:01:14.280 | the puck is going. You've got to ease into that spot. Or it's kind of like snowboarding
00:01:19.680 | and going really fast downhill. You've got to ease into that slide to get to the exact
00:01:25.520 | point. And more often than not, we tend to overshoot a little bit. And that's probably
00:01:30.840 | what's going to happen. The Fed is probably going to overshoot on their rate hikes after
00:01:35.480 | we already go into recession, after there's a ton of job losses, after the market has
00:01:40.560 | really given up a lot of its gains. And that's just the way it is. But if you've been reading
00:01:46.240 | Financial Samurai for a while and you've been listening to this podcast for a while, we're
00:01:50.680 | all about trying to forecast our misery to be happier and to forecast our future so we
00:01:56.600 | can look ahead and be ahead of the curve. We're definitely not always going to get it
00:02:01.600 | right. We're probably not going to get it right much more than 55, 60 percent of the
00:02:06.240 | time. If you've got a 55 percent to 60 percent hit rate in terms of investing, you're going
00:02:11.900 | to crush it over the long term. But hopefully we have our proper asset allocation for our
00:02:18.440 | net worth. We're not over leveraged. We're not on margin. We don't have too much debt.
00:02:24.240 | And we're just taking our punches as we go down as we've experienced the glory of going
00:02:29.000 | up. Now, in this episode, I want to talk about one of the biggest benefits of being in a
00:02:34.800 | bear market. And this benefit really changed my life for the better. So back in 2012, I
00:02:41.120 | did leave my day job behind, partly because I saw the return on effort decline. No longer
00:02:49.560 | was working hard at my day job going to provide me the wealth that I wanted, the income that
00:02:56.080 | I wanted. No longer was working hard going to guarantee me the next promotion. Right.
00:03:01.720 | So when you're working, you're obviously want a raise and a promotion. And if you're going
00:03:05.880 | to work hard and not get that, well, then why bother? So the best thing about the bear
00:03:10.920 | market is that it allows you to look at what really, really matters. If money was stripped
00:03:16.780 | out of the equation, are you doing what you are doing because you enjoy it or because
00:03:23.760 | you need the job to survive? Now, obviously, it's going to be a combination, hopefully,
00:03:28.440 | of both. But I think a lot of us, if we're really honest with ourselves, especially if
00:03:33.280 | we're working at the same job for 5, 10, 15, 20 plus years, we probably don't love our
00:03:40.440 | job as we once did. And if that's the case, and if money is hard to come by, which it
00:03:47.160 | is now, what would you do differently? And so my answer to that was, I wouldn't work
00:03:53.760 | in the money industry. Because one, it's hard to make money. And two, if you spend your
00:03:59.920 | entire life focused on trying to make money and make other people money and other institutions
00:04:04.560 | money, eventually, that's going to feel pretty soul sucking. And so what I did was, I decided
00:04:10.320 | to focus more on Financial Samurai, which is obviously a personal finance site to help
00:04:15.400 | people build wealth, but also do more of what they want and live the lives that they want
00:04:22.000 | to live. But since I left in 2012, there have also been plenty of ups and downs. And I talk
00:04:29.040 | about this in one of the posts, 10 years of fake retirement later, here are the most important
00:04:35.160 | lessons learned. So even after I've stepped away, you would think life would be much more
00:04:40.560 | relaxing. But it's really a self imposed discipline that you need to exercise to feel relaxed.
00:04:49.760 | Because when you're on your own, you've got to motivate yourself to get better to provide
00:04:54.960 | for your family and so forth. So now that the bear market has returned, I'm actually
00:05:00.080 | looking forward to taking things down a notch sometime around August or September of 2022.
00:05:06.880 | It's been a really difficult time since 2020. When the pandemic started, to stay at home
00:05:13.200 | children, writing, managing everything, it's a lot of work. And I think a lot of working
00:05:19.580 | parents can empathize with this time period. And so if things are not doing well right
00:05:25.320 | now, if the stock market is going down, if the real estate market is going to start to
00:05:29.520 | fade, then the main thing you can do is really budget your finances, well, save cash, stack
00:05:36.560 | that cash and wait for better opportunities over the horizon. Because these downturns
00:05:41.480 | can last one to three years easily. The average bear market lasts about 12 months and has
00:05:48.000 | a 35% drawdown. We're now about five months into this bear market, and we've drawn down
00:05:54.280 | a little over 20%. So in a way, you can see the next eight months mentally, as a time
00:06:02.640 | to relax, to rejuvenate, to think about the things that matter most. At the same time,
00:06:09.600 | if you need that money, that financial security, then it's important for you to be strategic
00:06:15.160 | right now, by developing those relationships that matter by checking in on those people
00:06:21.120 | who actually have control over your future, so that you don't get let go during the next
00:06:26.720 | round of layoffs. I believe the time to spend your money, if you have the money, is during
00:06:33.840 | a bear market because that can help soften the blow. And the time to work hard and to
00:06:39.320 | grind is during a bull market, because that is when you can get the highest return on
00:06:44.560 | your effort. So if you're feeling burned out, as I'm feeling burned out, take this bear
00:06:50.240 | market as a positive signal, as a pause on your journey to financial independence, as
00:06:56.400 | a break time, as a three-day rest period between the games and an NBA final series. Eventually,
00:07:04.160 | the good times will return again. And when they do, I hope everyone is well rested, well
00:07:10.960 | planned and well positioned to benefit. Thanks so much for listening, everyone. I'm still
00:07:16.480 | busy promoting my book, Buy This, Not That, How to Spend Your Way to Wealth and Freedom.
00:07:21.440 | It comes out July 19th, 2022. And I really thank you for pre-ordering a hard copy of
00:07:27.600 | my book. And shout out to various podcasts, including Adulting is Easy, Crazy Money, Tropical
00:07:35.160 | NBA, Yelp, Google, the William & Mary Finance Club and so forth for listening to me speak.
00:07:42.560 | It's been a real pleasure and it's been really fun to talk about all the chapters and all
00:07:46.400 | the dilemmas in the book. So if you're interested in having me speak to your company or to your
00:07:50.840 | organization, just shoot me an email and let me know what your proposal is. And I'll probably
00:07:56.400 | take you up on your offer. Take care.