When Will the Stock Market Bottom?

00:00:00.000 | Welcome back Portfolio Rescue.

00:00:17.520 | This is the show where we take questions from you, the viewers.

00:00:19.960 | If you have a question for us, askthecompoundshow@gmail.com.

00:00:23.960 | I see everyone in the live stream today.

00:00:25.720 | Thanks for coming.

00:00:26.720 | If you have a question for us in the live stream, put it in there.

00:00:28.720 | We have someone monitoring now.

00:00:29.720 | I know there were some questions last week.

00:00:31.080 | We didn't get to them.

00:00:32.800 | And this is how powerful I am.

00:00:34.720 | Send us a question.

00:00:35.720 | I will move it to the top of the list for the next couple of weeks, and we'll put it

00:00:37.520 | on there.

00:00:38.520 | So let us know what you think.

00:00:39.520 | Especially if you're from Michigan, it'll go right up to the top.

00:00:42.480 | Yeah, I have a place in my heart for those flyover states.

00:00:45.360 | Duncan, anything going on in the stock market lately?

00:00:48.800 | Seems like it.

00:00:49.800 | Seems like a lot's going on.

00:00:51.880 | Let's do it.

00:00:52.880 | We got some questions on the correction again.

00:00:54.880 | They're coming in hot.

00:00:55.880 | What do we got?

00:00:56.880 | Okay.

00:00:57.880 | First up, we have a question from Benjamin, who writes, "Since Ben is a data junkie, does

00:01:02.000 | he have any data or opinions on when markets hit a bottom?

00:01:05.160 | Does the adage 'catching a falling knife' always hold true?"

00:01:08.600 | Guilty.

00:01:09.800 | I am a data junkie.

00:01:12.120 | I like looking at historical data.

00:01:13.520 | I don't think I do it because it tells you what is going to happen in the future.

00:01:16.920 | It tells you what can happen, not what will happen.

00:01:19.920 | It gives you this range.

00:01:21.680 | I have some bad news for you.

00:01:23.920 | You really can't call a bottom.

00:01:25.440 | It's basically impossible.

00:01:28.200 | The problem is that fundamentals don't matter very much, especially when this is happening.

00:01:32.800 | Emotions grab the steering wheel.

00:01:34.120 | That's why markets are always way more volatile on the way down than the way up.

00:01:37.260 | You take this slow stare up and then an elevator down, they say.

00:01:40.820 | It's because when people are losing money, they panic, and then they try to do more,

00:01:44.800 | and they think if they try harder, they're going to figure it out.

00:01:47.840 | It is funny, though, because there are all these sayings about market bottoms, right?

00:01:52.200 | Markets never bottom on a Friday, right?

00:01:54.080 | Which sounds really smart to say, because it's like people think about their losses

00:01:56.800 | over the weekend.

00:01:58.240 | And then another one in the past has been markets never bottom on a huge up day, because

00:02:03.560 | the idea is when stocks get more volatile, you have these big up and down days on the

00:02:07.840 | same days, right?

00:02:09.080 | Because people are going back and forth.

00:02:10.080 | So March 2020, we saw up 8%, down 8%, up 9%, down 10% on a daily basis.

00:02:15.960 | And so the best and worst days in history tend to cluster around these bad bear markets.

00:02:20.440 | Unfortunately, in March 2020, the market bottomed on an up 9.4% day.

00:02:25.720 | In three days, the market was up 18%, and it basically never looked back.

00:02:29.760 | And when it happened, everyone goes, "Okay, it's impossible.

00:02:32.080 | Markets don't bottom like this."

00:02:33.080 | So I think even if you find something that can work, like let's say you found this secret

00:02:37.400 | sauce, it probably wouldn't work forever.

00:02:39.640 | So the only thing I've found is that we can segment corrections a little bit to figure

00:02:44.480 | out how long they're going to last.

00:02:46.200 | So John, let's pull up this first chart.

00:02:48.240 | Let's do a chart on.

00:02:49.240 | This is the S&P 500 since 1950, and I looked at corrections when they're in a recession

00:02:55.360 | or caused by a recession or non-recessionary.

00:02:57.280 | And you can see non-recessionary corrections tend to last a little less time.

00:03:02.320 | They don't fall as much.

00:03:03.320 | If you're in a recession, it's going to last a lot longer, closer to a year.

00:03:06.640 | The average downturn is like 30%.

00:03:08.580 | So we typically see those crashes during a recession.

00:03:12.000 | If it's a non-recessionary one, it doesn't go down as much.

00:03:14.880 | It's more of a correction.

00:03:15.880 | So let's take a look at the recessionary ones first.

00:03:18.240 | So John, let's put this next chart up.

00:03:20.320 | I took the S&P since 1950.

00:03:22.320 | I looked at these drawdowns during recession, and then I looked at what happened at the

00:03:25.560 | bottom.

00:03:26.560 | So what's the CAPE ratio?

00:03:27.560 | What's the P/E ratio using trailing 12-month earnings?

00:03:29.560 | What's the dividend yield?

00:03:31.080 | I wish I could find a pattern here.

00:03:33.400 | There really isn't much.

00:03:34.400 | The only pattern really is in the 70s and 80s, valuations were much lower, yields were

00:03:37.720 | much higher.

00:03:38.720 | Now they've been much higher and yields lower.

00:03:40.820 | You can see in 2009 that the P/E ratio was over 110 because earnings fell off so much.

00:03:45.820 | So leaning on fundamentals during a market correction is not going to help you very much.

00:03:51.440 | I wish there was a line in the sand, but there really isn't.

00:03:54.460 | And actually during recessionary corrections, it's kind of rare when there isn't a bear

00:03:58.760 | market.

00:03:59.760 | It usually happens more often than not.

00:04:00.760 | It's almost always a bear.

00:04:02.160 | So let's look at the ones outside of a recession, because I think that's probably more apt for

00:04:06.120 | today, unless people think the economy is really rolling over.

00:04:08.840 | So again, there's more of these.

00:04:10.320 | Again, the valuations and the P/E ratio and the dividend yields, there's no level you

00:04:15.240 | can find in the sand that's going to do something.

00:04:17.400 | I do have some potentially good news.

00:04:19.600 | Assuming this current downturn, the economy doesn't slow, we actually had GDP numbers

00:04:23.920 | come up this morning.

00:04:25.800 | On a nominal basis, before inflation, the U.S. GDP grew like 11.7% in 2021.

00:04:32.140 | After inflation, it was still talking like 4 or 5%, pretty good.

00:04:37.440 | So let's say the recession doesn't happen and we're just a regular downturn.

00:04:40.600 | John, show up to the last table here.

00:04:42.660 | This is bear markets outside of a recession.

00:04:45.320 | It basically doesn't happen.

00:04:47.080 | So if you're worried about this correction turning into a crash, you never say never

00:04:50.360 | with the markets, but really 1966 and 1987, I put these other ones up there, they were

00:04:55.160 | 19 and change.

00:04:56.640 | I really don't know who decided, who's the grand wizard who said, "All right, 20% is

00:05:01.880 | a bear market.

00:05:02.960 | That's it."

00:05:04.040 | I don't know who said that, but for some reason in the 1970s and the 1990s and two times now

00:05:08.520 | since 2008, we've had these 19% and change that don't get to a 20% bear market on a close.

00:05:13.860 | I don't know if you want to call those.

00:05:15.000 | Duncan, what's the ruling here?

00:05:16.000 | Are those bear markets or not?

00:05:17.000 | If they're 19.8%, do you round up?

00:05:19.200 | I'd call that a bear market.

00:05:20.280 | Okay, close enough.

00:05:21.280 | But it's pretty rare outside of a recession to see an all-out crash besides like a 1987.

00:05:25.180 | So maybe that's a feather we can hang on our hat.

00:05:27.760 | Obviously again, you never say never, but that's about the only thing I can think of

00:05:30.040 | now that, you know, obviously the other side of this, predicting recession is pretty hard

00:05:34.040 | too.

00:05:35.440 | The last one was easy.

00:05:36.440 | Tom Hanks got COVID and NBA shut down and everyone was told to stay home for eight weeks.

00:05:40.280 | So we all knew exactly when the recession started.

00:05:42.920 | So that one's kind of tough, predicting recession too.

00:05:46.760 | But I'd say like, there's an old saying that the only people who can nail a bottom are

00:05:50.000 | liars and people who are lucky.

00:05:51.960 | That's pretty much it.

00:05:52.960 | It's hard to do because there's so many emotions going on.

00:05:55.480 | And once stocks start falling, a lot of people will think, "Oh, they're only going to fall

00:05:59.000 | further."

00:06:00.000 | And other people are trying to catch a falling knife.

00:06:01.000 | So unfortunately, I can't pick a bottom for you and there's no data that will tell you

00:06:05.680 | that.

00:06:06.680 | You look at price, but even that is an indicator that can work sometimes and not work other

00:06:11.240 | times.

00:06:12.240 | It seems like the best strategy to calling a bottom is to just continually call for one.

00:06:16.280 | Yes.

00:06:17.280 | Just like calling a crash.

00:06:18.280 | You call a crash every single year, eventually you're going to be right.

00:06:21.080 | It's got to happen.

00:06:22.080 | All right.

00:06:23.080 | What's our next one here?

00:06:24.080 | Okay.

00:06:25.080 | So up next, we have kind of a long one, but I want to remind everyone, we also release

00:06:28.960 | this as a podcast on the Goldmine, and so I do need to read this for our listeners.

00:06:34.880 | So this question is from Brett and he writes, "I'm 25 and make about $55,000 a year.

00:06:42.200 | While you guys give tremendous investing advice, you also mention the importance of gaining

00:06:45.500 | life experiences that make you happy.

00:06:47.680 | I'm planning to take a year to backpack through Europe to see friends and family.

00:06:51.240 | I'll have about $27,000 saved and will probably come home with around 15.

00:06:55.800 | The job I currently have is nothing in my field of interest and I only accepted the

00:06:58.740 | role during the uncertainty of COVID.

00:07:01.120 | I've mentioned my plan to friends and while most are supportive, some are calling me crazy

00:07:04.840 | or saying this is money I could put towards a home or investing.

00:07:08.200 | I have a few thousand saved between my Roth and 401k.

00:07:10.880 | Am I crazy for doing this?"

00:07:12.440 | This is a good one.

00:07:14.920 | I like this.

00:07:15.920 | Yes.

00:07:16.920 | This is very good.

00:07:18.560 | What's the Ben Stiller gif from Starsky and Hutch?

00:07:20.360 | Just do it.

00:07:21.360 | Right?

00:07:22.360 | Do it.

00:07:23.360 | And honestly, I wouldn't listen to your friends and family here.

00:07:26.600 | You're 25.

00:07:27.600 | You're young.

00:07:28.600 | You have no responsibilities.

00:07:29.600 | It sounds like no house, no kids.

00:07:32.340 | You will never get this opportunity again.

00:07:34.140 | And I think the fact that you've already managed to save enough money and plan for this shows

00:07:38.100 | that as far as finances go and saving, you've already got those habits in place.

00:07:42.240 | So yeah, you're going to spend this money and blow it potentially and it could be, if

00:07:46.200 | you compounded it over 40 years, what would it be like?

00:07:48.560 | But think about how those memories will compound.

00:07:51.200 | You will create memories on this trip that will last a lifetime and you will never, ever

00:07:55.400 | regret it.

00:07:56.640 | So I would say just completely do it.

00:07:59.800 | Obviously, the job situation when you come back is something you have to think about.

00:08:02.760 | I don't know if you're planning on working remotely or what you're doing for income in

00:08:05.240 | the meantime, if you're just going to live off your savings for a year.

00:08:07.800 | But when you're in your 20s, do it.

00:08:09.160 | You're never, ever going to have an opportunity to do this again, ever.

00:08:12.680 | I'm not going to be one of these fire people that says, "No, you can't spend money.

00:08:15.560 | You can't enjoy yourself.

00:08:17.320 | You've saved your money.

00:08:18.320 | You planned it out.

00:08:19.320 | You can always play catch up later."

00:08:20.320 | Again, you've already shown that you have those habits.

00:08:21.680 | So the only thing I'd be worried about is taking a year off and finding a job when you

00:08:25.120 | come back.

00:08:26.120 | But if there was ever time to do it, during a pandemic when people's lives are changing

00:08:30.160 | and it's a pretty decent job market, I say you're in your mid-20s, go have fun, stay

00:08:36.260 | in some youth hostels in Europe and enjoy yourself.

00:08:39.080 | Yeah.

00:08:40.080 | It's like Josh said a while back that traveling at 70 isn't more fun than traveling in your

00:08:44.960 | 20s or 30s.

00:08:45.960 | No.

00:08:46.960 | I mean, when you're in your 20s, like when I was in college, we stayed in a bunch of

00:08:50.400 | youth hostels and it was so much fun because you're around all these other young people

00:08:54.720 | and you're at the campfire and it's kind of dirty.

00:08:59.480 | But I look back at it now and I go, "I would never stay in that now.

00:09:02.160 | What?

00:09:03.160 | Are you kidding me?"

00:09:04.160 | But back then, you don't care, right?

00:09:06.160 | And you just wing it and you have these plans and you never know where you're going.

00:09:09.480 | I say the memories you'll get from this will compound even more than your money.

00:09:13.600 | I'd say just don't listen to your friends and family.

00:09:16.400 | Have fun.

00:09:17.560 | Enjoy yourself.

00:09:18.560 | But make sure that you can hopefully have a decent income back and use this as an experience

00:09:23.120 | as a jumping off point for finding something that'll help you when you come back for your

00:09:26.200 | job too, I think.

00:09:27.200 | Yeah.

00:09:28.200 | Yeah.

00:09:29.200 | That's good advice.

00:09:30.200 | Yeah.

00:09:31.200 | All right.

00:09:32.200 | Let's do another one.

00:09:33.200 | Okay.

00:09:34.200 | Up next, we have a question from Ulf.

00:09:35.200 | He writes, "I'm nearing retirement and have stocks with substantial gains in both my IRA

00:09:38.160 | and non-IRA accounts."

00:09:39.400 | I'm not exactly sure what he means by non-IRA, but you can discuss that, I guess.

00:09:43.520 | "I need to use some of this for my retirement, but I also want to leave as much as possible

00:09:47.640 | to my children when I die.

00:09:49.480 | Which funds should I use up first, the IRA and pay income tax, but no capital gains,

00:09:53.400 | or the non-IRA with capital gains tax, but no income tax?"

00:09:57.180 | So he's talking here like he has a brokerage account, probably just a taxable brokerage.

00:09:59.960 | So basically, I have this taxable money and this tax-deferred money.

00:10:03.280 | What do I do?

00:10:04.280 | We get a lot of questions like this, actually.

00:10:05.280 | Like, "I'm retiring.

00:10:06.280 | Where do I take it from to make sure that I minimize my tax bill?"

00:10:09.920 | So obviously, we're going to bring in our tax expert here, the one and only Bill Sweet

00:10:13.480 | to help with this one.

00:10:14.480 | General, good to be back with you.

00:10:17.280 | Bill lives and breathes this stuff 24/7.

00:10:19.280 | I do.

00:10:21.340 | So Bill, obviously, this kind of thing is circumstantial depending on your income levels

00:10:25.400 | and what the gains are.

00:10:27.760 | But I think this is a good starting point for a lot of people who are near retirement

00:10:30.760 | and wondering, "Well, what do I do just to minimize the pain here?

00:10:35.640 | Because I'm going to have to pay taxes somewhere."

00:10:38.000 | So what's the rule of thumb on this stuff?

00:10:40.000 | Yeah.

00:10:41.000 | So first off, shout-outs to Ulf.

00:10:42.000 | I think it's really awesome to think about that next generation.

00:10:45.240 | But what we're talking about here, Ben, is the key difference between how assets are

00:10:48.260 | taxed both while the primary calendar is alive and then post-mortem, right?

00:10:52.200 | Because this is grim stuff, but Ulf asked the question.

00:10:54.760 | I think it's noble for him to think about.

00:10:56.840 | So while you're living, any IRA distributions that come from a bucket that involves an IRA,

00:11:02.120 | 401(k), 403(b), anything that's a tax-qualified account that's pre-taxed, you get taxed at

00:11:07.480 | ordinary income.

00:11:08.680 | And so you're going to pay somewhere between 10 percent all the way up to 37 percent, Ben,

00:11:12.920 | to your point, about where their income lies in the tax range.

00:11:16.920 | And so that's criteria one for that tax-qualified asset.

00:11:20.880 | Bucket two would be non-qualified assets.

00:11:22.640 | And Duncan, like you point out, it's probably assets held in a brokerage account, so your

00:11:26.240 | normal taxable non-qualified assets.

00:11:29.560 | After you die, what happens is that basically the IRA continues to get taxed at the heirs

00:11:36.440 | tax rate.

00:11:37.440 | And so post-2019, there's this 10-year clock that starts, and basically your beneficiaries

00:11:42.200 | have to take a distribution, and they have to pay the tax on that IRA within 10 years

00:11:46.560 | of your death.

00:11:47.560 | So that's something to consider.

00:11:48.800 | The point that I'm trying to make, though, is that somebody's going to pay tax on that

00:11:51.400 | IRA, either you are or your heirs are.

00:11:53.900 | And so I think there's a little bit of calculus on what the tax rate is.

00:11:56.720 | When we switch over to the non-qualified assets, what happens is, on death, you get a step

00:12:00.860 | up in basis, or potentially a step down.

00:12:03.520 | And so if Ulf is lucky, he's had a good couple of years in the stock market, let's say, and

00:12:07.400 | he has a 50% gain, that gain gets erased on his death.

00:12:11.120 | That means the cost basis for his heirs are going to be whatever the value is at that

00:12:15.760 | time, right?

00:12:16.760 | Correct.

00:12:17.760 | And so if his heirs decide they want to sell their assets right after they inherit it,

00:12:21.720 | in theory, they're not going to pay any income tax, which is a very cool feature.

00:12:25.320 | So IRAs, somebody pays the tax.

00:12:28.120 | Capital gains, if you pass it on after death, and again, it requires you to die, unfortunately,

00:12:32.920 | to get that step up, nobody pays the tax.

00:12:34.860 | So that's probably the key consideration.

00:12:37.260 | The answer is probably a little bit of both, right?

00:12:39.640 | Because any gains for a single individual, assuming you have no other income under $55,000,

00:12:44.600 | your capital gains rate is zero, versus probably about 10%, 12% for your IRA.

00:12:50.000 | So it's a bit of a calculation every year, but I think in general, I would seek to pass

00:12:53.660 | on the asset that would get that step up in basis, and that means the non-qualified assets

00:12:57.800 | would get spent last.

00:12:58.800 | I want to help out Ulf's children here, too.

00:13:01.960 | How are we able to get his kids some money now so they can enjoy it while he's here?

00:13:05.240 | So what is the tax gift situation, like how much can you give to your kids without paying

00:13:09.040 | taxes on it?

00:13:10.040 | What's that deal?

00:13:11.040 | So I want him to give some of his kids some money now, too, not just when he dies.

00:13:13.040 | Yeah, that's a great question.

00:13:14.280 | And there's two taxes we have to worry about here, because what we've been focusing on

00:13:17.380 | before is income tax, but there also is a gift and estate tax.

00:13:21.440 | But there is an exclusion each year, and I think, Ben, that's what you're getting at,

00:13:24.480 | of $16,000 per person to person.

00:13:27.340 | And so if you're gifting to, a married couple can split a gift and you multiply that times

00:13:32.000 | 2, that's $32,000, and that is gift tax-free.

00:13:35.360 | However, the basis continues on with the taxable gift.

00:13:38.880 | And so again, back to that step-up in basis thing, that's an important consideration to

00:13:42.400 | keep in mind.

00:13:43.520 | If you pass on low-basis Apple shares that you bought at $0.20 20 years ago, your heirs

00:13:49.040 | are going to pay all the capital gains tax in gift, whereas if they get it through your

00:13:52.280 | estate, they get the step-up.

00:13:53.720 | So a bit of pros and cons on each.

00:13:56.360 | Generally, you see gifting done in cash, unless there's another consideration otherwise.

00:14:00.200 | That works for me.

00:14:01.200 | All right.

00:14:02.200 | Duncan, last question.

00:14:03.200 | Okay.

00:14:04.200 | So this last question is, "I see what's going on right now in the markets, and it's making

00:14:09.400 | me really nervous.

00:14:10.400 | It seems to me that this could get a lot worse.

00:14:12.880 | Should we go to cash?"

00:14:14.560 | All right.

00:14:15.880 | Hand up here.

00:14:16.880 | I'm going to admit something.

00:14:17.880 | This is a plant.

00:14:18.880 | We're going to try something different with this last question.

00:14:20.920 | I think we at Ritholtz do a really good job of putting out content and trying to put things

00:14:24.240 | into context and set expectations ahead of time with our clients.

00:14:28.920 | But there's always a big difference between a blog post and a video and the feelings you

00:14:32.800 | get from seeing the money you've created in your life savings evaporate before your eyes.

00:14:36.560 | So there's this great quote from Mir Statman, who's got a bunch of good books on this.

00:14:40.200 | He's a psychologist, and he's like, "Financial advisors frame themselves as investment managers,

00:14:44.280 | providers of beat-the-market pills, when in truth, they're mostly managers of investors."

00:14:47.440 | Right?

00:14:48.440 | And obviously, most people, most clients, are completely fine when something like this

00:14:54.000 | happens.

00:14:55.000 | They've done it by themselves.

00:14:56.000 | They've done it with an advisor.

00:14:57.000 | They don't really sweat this stuff.

00:14:58.800 | But Bill, you've been doing this a long time.

00:15:00.280 | You've had a lot of conversations before.

00:15:01.360 | What are some of the biggest problems when helping clients through this?

00:15:04.520 | Because that's a different situation.

00:15:05.760 | You know your own personal risk tolerance, but every client has their own differences,

00:15:10.680 | and sometimes what you say may not be what you feel and how you act.

00:15:13.880 | So what is your experience dealing with clients like this, and what are some of the things

00:15:17.320 | that they come to you with?

00:15:18.480 | Yeah.

00:15:19.480 | I think the key, Ben, in situations like this for advisors, if you're trying to help somebody

00:15:23.880 | cope with something like this, is do your best to take the emotion out of it.

00:15:28.200 | Recognize that it is painful to watch your assets decline.

00:15:32.160 | And Ben, one of the things you and I talked in the show prep was, the larger your balance

00:15:36.040 | gets, the larger your portfolio gets, the more pain is involved.

00:15:39.720 | When you see your $1 million account balance decline 10%, that's $100,000.

00:15:44.200 | If you see your $5 million account balance dip, that's a half a million dollars, and

00:15:47.720 | so on.

00:15:48.720 | And so I think validating that it's no fun to look at it is step one, because you do

00:15:53.040 | want to recognize that this is not a fun environment when news and media are sort of so focused

00:15:58.040 | on it.

00:15:59.040 | Especially if you're retired, that money going away, for a young person, a bear market

00:16:04.040 | or a correction is a blessing, because you're buying at lower prices.

00:16:06.560 | If you're retired and you don't have any income coming in anymore, you see that money evaporate,

00:16:10.720 | but you're not building it back up with savings that you're going to be buying at lower prices.

00:16:14.960 | So I understand why, even when you retire, it's even more nerve-wracking.

00:16:18.000 | Yeah.

00:16:19.000 | It's the flip side of that, which is a sequence of return risk, that early in retirement,

00:16:23.560 | that hurts more.

00:16:24.720 | So once that gets recognized, though, Ben, for me, the trick is then relate it to the

00:16:28.560 | plan.

00:16:29.560 | Because at our firm, we don't let somebody invest in any of our portfolios until they

00:16:33.360 | have a financial plan built, and we test through this.

00:16:36.320 | We have the conversation.

00:16:37.720 | What are you going to do?

00:16:38.720 | What is it going to feel like?

00:16:39.720 | We try to prep this.

00:16:41.040 | So when we're going through it in real time, it's not the first time we've had the conversation

00:16:44.800 | about what a 10 percent, a 20 percent, a 30 percent decline, hypothetically, might look

00:16:49.960 | like.

00:16:50.960 | So part of our role as financial planners, as CFPs, as advisors, or even helping out

00:16:55.240 | your friends and family, your mom and dad, is always to make sure you're not investing

00:16:59.360 | in a portfolio that you can't sustain, the kind of drawdowns that we're experiencing

00:17:03.440 | here.

00:17:04.440 | And Ben, you know, this is a relatively minor situation so far, right?

00:17:07.800 | We don't know what this could turn into.

00:17:09.400 | But we're all driving, looking at the rearview mirror.

00:17:12.240 | And so we only know what happens.

00:17:13.720 | And I think just that second part about always keeping in mind that we only know what happened

00:17:18.040 | last week or last month, we don't know what's going to happen next.

00:17:21.580 | But here's data.

00:17:22.580 | And Ben, that's why I think the work that you do, that our team does, is so important

00:17:25.680 | to show people this is what happens next.

00:17:28.520 | The problem is, too, that most of the time you're in a state of a drawdown.

00:17:31.740 | We anchor to these higher levels.

00:17:33.120 | But so the data I've found is that 5 percent of all trading days is an all-time high for

00:17:38.160 | the stock market, going back like 100 years.

00:17:40.480 | Alternatively, 95 percent of the time you're in a drawdown.

00:17:44.280 | And I looked at the data.

00:17:45.280 | We talked about it last week.

00:17:46.280 | In the last 70 years, one out of every other two, one out of every other year is a 10 percent

00:17:52.280 | drawdown or worse.

00:17:53.280 | Right?

00:17:54.280 | So we're kind of in that now, right?

00:17:55.280 | And it's been, it usually doesn't work like a schedule like this, but it's been about

00:17:57.960 | two years since the last 10 percent correction in the S&P.

00:18:01.480 | And unfortunately, it is normal, but it almost feels like you need that reminder every time

00:18:05.600 | it happens that this is normal.

00:18:07.800 | And wait a minute.

00:18:08.800 | You know, I saw my account balance a month ago was much, much higher at the year end.

00:18:12.880 | And now it's this.

00:18:13.880 | Oh, geez.

00:18:14.880 | I can't.

00:18:15.880 | I can't take this.

00:18:16.880 | Get me out.

00:18:17.880 | And again, we've tried to do a really good job with our clients of setting expectations,

00:18:20.220 | but there's always people who say like, OK, I know this is going to get worse.

00:18:23.800 | Let's go to cash now.

00:18:25.480 | Like just let's stop.

00:18:27.240 | Stop the bleeding.

00:18:28.240 | Go to cash and we'll reassess.

00:18:30.480 | And that's why I like setting an asset allocation and understanding the risk profile and time

00:18:34.280 | horizon of your clients is so important because you have to set that ahead of time, right?

00:18:39.760 | You don't make a, you don't do it while you're in battle, right?

00:18:42.920 | You do it before and you plan it, right?

00:18:45.320 | And so you figure out ahead of time and you figure, OK, what's a durable enough portfolio

00:18:49.280 | for me to handle these corrections and build them into the plan?

00:18:52.680 | Not like hope they don't happen because we know they're going to.

00:18:54.480 | We just don't know when and we don't know why.

00:18:56.400 | Yeah, exactly.

00:18:57.400 | And kind of pre-mortem it.

00:18:58.400 | I think that's what you're getting at.

00:18:59.400 | Like, what, how should we react if this happens?

00:19:02.080 | And the answers are pretty, pretty standard.

00:19:04.340 | It's rebalance.

00:19:05.340 | It's deploy assets that you have in cash to pick up, you know, smaller balances.

00:19:09.360 | But at the end of it, I think what clients really need to hear, what people need to hear,

00:19:12.240 | what we all need to hear is it's going to be OK.

00:19:14.760 | And if we have a plan going into it, going into battle, as you say, Ben, you're able

00:19:19.160 | to reference that and use that as your touchstone.

00:19:21.760 | And if I know that, hey, this has happened several times, this on average happens every

00:19:25.480 | two years and it's nothing that you need to worry about.

00:19:28.180 | That's the message.

00:19:29.180 | It's going to be OK.

00:19:30.180 | And I think if you're, if you're an individual investor watching this and you don't have

00:19:33.840 | an advisor you're leaning on and, you know, plenty of individuals can do this on itself,

00:19:37.440 | but like even a bad plan is better than no plan, because I know there's a lot of investors

00:19:40.520 | right now who started a few years ago and they just decided I'm going to buy whatever

00:19:43.560 | works and it's going up and now it's down a lot and it's like, now what do I do?

00:19:47.560 | If you didn't have a plan going into it, figuring out a plan at the time is going to be ten

00:19:50.920 | times harder.

00:19:51.920 | Like, so again, even a bad plan is better than no plan.

00:19:54.480 | It's a very expensive time to find out who you are.

00:19:57.200 | Well, and as, as a little bit of a follow up, we have probably a ton of people right

00:20:01.080 | now who got into the market, young people who got into the market during the meme stock

00:20:04.800 | mania and that kind of thing.

00:20:06.260 | And so they're probably really at a loss right now, like, you know, what is going on?

00:20:09.280 | Like this, you know, they were seeing names double over a week or, you know, that kind

00:20:13.120 | of thing.

00:20:14.120 | And it felt really easy there for a while.

00:20:15.720 | And yeah, unfortunately it's not always going to be that way.

00:20:18.200 | That's the thing.

00:20:19.200 | If you're in a more speculative part of the market, your swings are going to be even wider

00:20:21.680 | than a more diversified portfolio, like we use with our clients.

00:20:25.080 | It's tough.

00:20:26.080 | Like on a brighter note, everyone in the chat now is sharing like all these great places

00:20:29.520 | that they've traveled to.

00:20:30.520 | That's awesome.

00:20:31.520 | It's making me jealous.

00:20:32.520 | When are we going to sit by a campfire?

00:20:34.000 | It's like six degrees and it's like six degrees in Michigan.

00:20:36.960 | I think we need to do this show from, you know, some exotic location or something.

00:20:41.320 | That sounds good.

00:20:42.320 | Let's do it.

00:20:43.320 | My backyard.

00:20:44.320 | I did see some questions too.

00:20:45.320 | So we're going to pull those questions.

00:20:46.320 | We'll get them in the future.

00:20:47.320 | Remember, if you want to just email us and not put it in the comments here, askthecompoundshow@gmail.com.

00:20:53.840 | Duncan, how close are we to 100,000 subscribers now?

00:20:56.920 | Are we getting there?

00:20:57.920 | Very close, right around 94,000.

00:21:00.720 | So we're getting there.

00:21:01.720 | That's awesome.

00:21:02.720 | Yeah.

00:21:03.720 | All right.

00:21:04.720 | I like those big round numbers.

00:21:05.720 | Duncan's going to do 100k hat when we get there.

00:21:06.720 | We'll do that.

00:21:07.720 | idontshop.com for all of your merchandise needs.

00:21:09.920 | I think we have a Portfolio Rescue t-shirt there.

00:21:12.840 | Ben doesn't drink coffee mug.

00:21:15.120 | The compound hoodie sweatshirt that I have, I like that.

00:21:19.240 | Thank you again to Bill for joining us.

00:21:20.840 | Keep your eyes peeled.

00:21:21.840 | We might be adding some kind of headwear at some point.

00:21:23.840 | We haven't been happy with the tests we've done, but at some point there will probably

00:21:27.120 | be some headwear.

00:21:28.200 | Duncan is a hat guy.

00:21:29.640 | 95% of all market downturns, Duncan has been wearing a hat.

00:21:32.680 | We'll be back next week.

00:21:34.720 | See you then.

00:21:36.400 | See you everyone.

00:21:36.880 | [Music]

When Will the Stock Market Bottom? | Portfolio Rescue

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