Hey parents join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck, family fun giveaways and exciting Kings hockey awaits. Get your tickets now@lakings.com/promotions and create lasting memories with your little ones. I'm a little late to the party, but not too late. And I've decided to go ahead and take the bait and talk stocks today.

Global stock markets all over the place. US stock markets also all over the place. And today I'm going to share with you some ideas and some thoughts that I hope will be useful to you as you try to figure out if you should be changing anything in your portfolio.

Welcome to the radical personal finance podcast. My name is Joshua sheets and I'm your host. This is the show where we work each and every day to help you clarify your path to financial independence. And today we're going to talk about that within the context of investing quite frequently, actually, you get these opportunities to do that.

And it's always interesting to try to tackle a current event with a long-term perspective, but let's see if we can do that today. Been a busy last couple of weeks around the sheets household here and around the radical personal finance global headquarters. We have indeed moved, as I mentioned to you on a recent show.

And so the move has been, uh, it's been great, but it's also been more challenging than I thought. The biggest challenge in our lives right now is working with a colicky baby. Uh, and that's really been a major impact. And also I have been working day and night to get our old house ready to list and ready to sell and have been moving as fast as possible, had a goal of having it finished.

As I record this, it's Tuesday, August 25, 2015, had a goal of being finished by last Friday, but had some things come up, uh, that the house wasn't quite ready. So now I'm working hard to get done by the middle or realistically end of this week. So that's the biggest priority for me right now is to get that house on the market.

And so as such radical personal finance has taken the toll and I apologize to you for that. Hopefully, uh, you will all be able to understand. I am convinced that it's a great move just as I see how much my situation, my time is going to be freed up with being just in the future, being able to produce the show and being able to bring you more content.

I'm, I'm extremely excited about it and I'm learning a lot of things about the real estate process and a lot about myself. I'll bring you all those details on a future show, but, uh, the, the show content here has been spotty and hopefully, uh, you can understand and bear with me.

I expect, uh, after August, September ish year, I expect, uh, things to be much more consistent and hopefully we'll, we'll turn the corner both with personal life and, and, uh, business life. Uh, but I want to talk about a stock market. Now it's been a little tough. I didn't get my studio fully set up and had some issues even getting it, uh, working here in the new house.

And so it hasn't been easy for me to get things set up and I've been watching the, uh, stock market drops over the last few days. If you're not familiar, it started late end of last week. Uh, and then yesterday, Monday, uh, was, uh, the market open was in the United States was marked by greater than a thousand point decline in the, in the Dow.

And so this obviously is food for fodder from all, all perspectives with finance. And this is an interesting, an interesting time for me to be watching things because I'm in a unique position, which I've never been in, uh, through the course of my adult life, ever since I started paying attention to money.

And I'm in the unique place of sitting on the sidelines completely and absolutely of this, uh, of these market changes. Uh, ever since I was, I guess I'd say probably about 18, I've been an investor in public and trade of securities. Uh, so I've owned stocks through every market change since I was 18, which would have been 95, 95.

So it would have been about the end of the nineties, uh, that, uh, I was born in 1985. So end of the nineties was about 98, I guess would be when I was 18. And I started to purchase my first mutual funds. Then I've been for the last six years in the marketplace as a professional investment advisor, uh, having a direct financial interest in the movements of my clients and being a steward of their funds.

And so those are different perspectives that bring different potential biases into, uh, into my own life. As an investor, we often are going to have a, uh, a bias and a desire to kind of see ourselves doing the right thing. And so we're going to have, usually if you listen to most people talk about investments, they've got their way that is what they're convinced is right for them, but they're not able to step back and be objective about it because the pain of a change or the pain of admitting that they might be wrong about something is too deep, too difficult.

Also, uh, there are conflicts of interest as a financial advisor. Uh, there are conflicts of interest with, uh, where your fees come from, with where your markets come, where your, just your revenue comes from with the actions of your clients. This is a constant challenge that financial advisors face.

And it really is truly, uh, a challenge. If you're, if you get paid fees based upon your clients being invested in stocks, and that's the bulk of your earnings. And if you get paid fees based upon your clients continuing to be invested in stocks, that does create a powerful incentive for you to encourage your clients to stay the course.

And you've got to recognize that. Doesn't mean you can't surpass it, but you've got to recognize the conflict of interest. But the interesting thing is for the last year, I've had no personal financial connection to anybody else's investment accounts. I don't earn any fees off of anybody's investments. I don't do any, uh, asset management services.

So I make, I have no financial incentive to, uh, to maintain a certain course of action with regard to investments. Doesn't mean that I don't still have biases. So for example, one of the interesting things I've, I've been giving time as I've transitioned here on radical personal finance, I've gone, been going back and kind of examining some of my own biases, examining some of the things that I previously believed to see, do I still believe these things?

Uh, just so if you walk away from a certain way of, of, of acting and thinking, it doesn't mean that immediately, just because you don't have a financial incentive, uh, that all of a sudden you can walk away from your pattern of thinking. Best example to illustrate that, that I can think of is if you, uh, let's say that you're raised in a, uh, a devoutly religious family, a Christian family or a Muslim family or Jewish family, and then you decide, well, I need to change a course.

And I've decided that the way I was taught is not how things are. And you become atheist. So you transition doesn't mean that all of a sudden now the entire way of thinking in which you were trained is suddenly changed. Or if you go the other way, you're raised in atheist and, uh, you're converted to become a believer.

Then all of a sudden you're not entirely different. There's a new way of thinking that you have to take on and adopt. And I have the same experience with, uh, the, the place of being a professional financial advisor. However, the other aspect of it is, as I've stated here on the show, as of a number of months ago, I can't remember the exact date.

I'm no longer invested in any publicly traded securities. So at the moment, currently in August of 2015, all of my family's household investment accounts are in cash. I don't own any bonds. I don't own any stocks. Everything is in cash as I've readjusted and reoriented my own personal investment strategy.

And I don't intend to give on the show here, the blow by blow of exactly what I'm doing with my money and why, but I will give some big picture and try to share some, some lessons from that. But what that means is that when I went ahead and sold a number of months ago, I've got money sitting on the sidelines.

So I can watch these gyrations in the market with a somewhat more dispassionate eye, which is interesting because since I was 18, I haven't been in that position. I've had my money on the line every step of the way. My point in sharing these things with you is just simply to say that it's, I have a unique perspective and I'm going to try to share some of that with you.

In addition to my own personal experience, I want to tell you just a little bit about systems of thought and schools of thought and how that also gives me a unique perspective. I am personally intensely suspicious of mainstream thought. I, any long time listener of the show is going to know that.

I'm very suspicious. I'm very suspicious of propaganda. I'm very suspicious of how societies are controlled, but I'm also trained in mainstream thinking. So when I watch the different perspectives and I read people's opinions and philosophies on different sides, I can relate to most of them. I can relate to the hardcore mainstream financial advisor on CNBC, and I can also relate to the hardcore conspiracy theorist on CNBC if they make it there.

So I can understand what's behind those. And so what I'm going to try to do here is give you some ideas that are filtered through the fact that I understand where you might be coming from. And I don't claim to be an expert. I don't claim to have a crystal ball for the future, but I do have some observations that I believe will be helpful for you as you try to make sense of the things that are going on, specifically as you try to figure out, should you be making any changes in your own personal portfolio based upon the events of the last few days?

That's my hope and my purpose, and you can let me know how I do. First, I'd like to point out to you that the news engine, the news industry thrives on disaster. This makes it very, very challenging to be able to make excellent decisions. If you are at all connected to the news machinery, you're going to be influenced by the messages therein, whether that's mainstream news or whether that's just simply the internet news that comes out most of us through our Twitter feed or Facebook feed.

You're going to be influenced by what you see and times of disaster and times of crisis make for the best headlines. Now, I can make some arguments that are going to put you into a panic. I can talk about the ephemeral value of money, how the fact that our entire society is built on valueless paper money.

I can talk about the indicators of global collapse. I can talk about the manipulation of the economy, and I can work you into a frenzy and say, "Well, it's time to sell everything and get gold coins and move to the mountains." But I can also flip it around and talk about why everything is great and why you should simply stay the course.

Both of those messages – and there are many more messages that could be done. Both of those messages can be powerful because depending on your background, they might feed a bias that you have. If you're already inherently suspicious of government and political control of society, then when I talk about the fact that the whole financial world is very much a scam and that the whole idea of telling you as an investor to do nothing, to stay investment, that's just part of the financial company fee assurance program to make sure that the investment management fees keep coming in.

Or if I talk with you about how you've got to stay invested, stay invested, and you say, "Well, wait a second. Who's making money off of my staying invested until retirement? Why is all my money locked up?" That's going to feed a certain bias of you. But if you are – if you have a perspective on the world where you say everything is going to be great no matter what, I'm just going to keep doing what I'm doing and I talk about staying the course, staying the course, and that's also going to feed a confirmation bias where you just want to continue on.

And so I want to just point out that the information that you expose yourself to is going to have an influence on your thinking. You need to be very careful with the information that you expose yourself to. With regard to the market, one thing I believe to be pretty much true is that all of the opinions that you hear about why people are buying and selling today in the markets are simply unfounded lies.

Nobody has a clue why people are buying and selling. There are millions and millions and millions of people who are participating in the public securities markets and each one of them has their own individual perspective on why they're going to buy or why they're going to sell. Remember that in times of market panic.

Now it may be true indeed that various pieces of news might have an impact on the market, so China's markets might be changing and correcting and therefore that's going to have an influence on the U.S. stock markets. That might be true, but that doesn't necessarily indicate what's going on on any moment to moment, day to day basis in the market.

So for example, you might have two traders and both of them have predicted this trade, but they've set themselves up in opposing positions, one to profit from the rise and one to profit from the fall in stock prices. So people are making money both ways. Professional traders make money on the upside and on the downside, depending on their perspective.

That is going to exert an influence on the market prices of stocks and those people are in the same market as the little old lady who just sits back and cashes her Coca-Cola dividend checks and then she dies and then her son or daughter as the executor or executrix of her estate feels the need to go ahead and sell those shares and that sale might be taking place on the same day for a totally different reason.

Multiply that times millions and millions of people and nobody has a clue why the markets are moving in a certain direction. If you acknowledge that as being true in any sense, then it will make it very annoying to you to watch the news because what happens is that when you see somebody reporting on financial news, you can quickly see that people are mixing up their strategies and they might be reporting on here's what these professional traders from this company are doing and that's an accurate assessment.

But in the aggregate, the market is just simply a giant auction house and people are all buying and selling for their own different reasons. When those things are shaking out in the short term, it's very difficult to pinpoint what's going on. In the long term, you can pull back and look and get a broader assessment of the aggregate, but in the short term, it's very difficult to know what's actually going on.

The biggest lesson that I'd like you to take from this, from the last few days, is ask you a question. Do you know what you own, why you own it, and what your plans are with it? If you do, then we'll know how to respond and that's where I'm going right now with some responses.

You need to know what you own, why you own it, and what the value is. If you do that, then you won't be knocked off your feet by market movements like the last few days. This, I believe, is one of the fundamental problems with our modern investment culture. We've taken the realm of investing from experienced professionals, pension fund managers, large corporate investors like insurance companies, and we moved it into the realm of everybody.

But there hasn't been a corresponding transfer of knowledge and experience and temperament from a professional investor to an individual investor. One of the most damaging things, I believe, that has happened to many people's personal finances is instead of being enrolled in a professionally managed pension portfolio, now many people have a privately run 401(k) account.

And so with a press of a smartphone app or a click of a mouse, you can open up your 401(k) balance and you can see everything that's in there and you can buy and sell at a moment's notice. If you haven't developed the education and the temperament to be able to respond to market conditions appropriately, that can be a death trap.

And statistics indicate and the analysis of the real life returns of many investors indicates that most investors simply don't have the temperament or the experience to be able to handle it. So you need to be confident what you own and understand it. Now, should you respond to the last few days of trading losses?

And as I record this, right now it's 1.38 PM on August 25, 2015. Lots of trading losses the last few days. Today, the Dow is up 1.5%. The S&P is up by a percent and a half. So today they're trading gains. Who knows? That's often to be expected after a day like yesterday.

But should you respond? That's the question that you might be asking. My answer is yes, you should respond. You should take a look at what's been going on and then you should respond to the last few days of market activity. Now, those of you who are extremely astute will notice I didn't say how to respond.

So let's ask that question next. How should you respond? Is Joshua Sheets going to tell you to buy stocks now that they're down? Or Joshua Sheets going to tell you to sell stocks now because this is the beginning of the end? Well, here's my answer. Yes, you should respond to the market conditions and your response should be the exact precise response that is outlined in your written investment policy statement, which has been crafted based upon your overall investment strategy.

So you should open up your written investment policy statement. You should take a look at the parameters, the goals, the decisions that you've made surrounding the portfolio and then you should respond as you previously planned to respond. Frustrating, isn't it? But this is the difference between professional investors and amateur investors.

An amateur moves constantly based upon the whims of the moment. This is how many people – this is interesting. We also – I believe one of the major differences between people who are successful in life and people who are unsuccessful in life. The amateur investor takes the news of the day and reacts to it.

That reaction is unpredictable because it's non-premeditated. It's random. It's based upon whatever the last little bit of information is that slid into that person's line of sight. But a professional doesn't react. A professional responds. A professional investor has a clearly written investment objective. Here is something that I am working to accomplish.

Then they have a clearly written investment strategic plan and they have parameters in that plan. Now, that doesn't mean that they're not going to adjust in the moment. There may be reasons to change the investment policy statement. There may be reasons to change the plan. But you don't do those things in reaction to what's going on.

You do them when it's appropriate to change the plan. Let's compare this for sake of illustration to goal setting. Let's talk about something like an exercise program. An amateur like me goes out and exercises based upon how they feel on a given day. Well, I feel like doing this today.

I feel like doing that today. I feel like doing the other exercise. Today I don't feel so much like this. There's no – generally from many – most people who work out in a gym, there's no clear objective. Most people aren't working towards a specific goal. They're not working towards a specific athletic event.

They're not working towards a specific biomarker that they're trying to improve, their weight, their body fat percentage. They're just kind of working out because they know that they should exercise. And so their results are random and their approach is random. Some days they feel like running, so they run.

Some days they feel like lifting weights, so they lift weights. But a professional doesn't do that. A professional athlete has a clearly written objective. I am going to compete in the Olympics. I am going to compete in this weightlifting competition. I'm going to compete in this bodybuilding competition. They have a clear objective for what they're trying to do.

They also have a clearly developed plan. If they're training for a marathon, they have a marathon training schedule. If they're working towards a specific weightlifting competition goal, they have a training schedule. Now, within that training schedule, they have some flexibility. So if they have a particularly heavy day on Monday and then they have a light day on Tuesday and they're supposed to have a heavy day on Wednesday, they come in on Wednesday and they really aren't feeling like lifting heavy that day.

They have a consultation with their coach and they sit down and they say, "I don't feel -- I just don't think we should do that." And the coach adjusts a few things. But it's not random. It's planned. Now, look at the results that a professional athlete gets as compared to the results of an amateur athlete or even just an average person and compare those to investing.

If you're investing professionally, you're investing with a clear objective. So that means that your portfolio has an objective. For one portfolio, let's -- as an example, let's say that you're managing a trust account for a trust that is designated and your intention is this trust account is going to be transferred to your grandchildren.

Well, in that account, you now have -- let's say that I've done that. I'm 30 years old and I'm thinking about my grandchildren. So I've got a now 100-year time investing perspective. If that's my goal for the funds, then I'm going to sit down and I'm going to create a strategy that I believe will help this trust fund to grow long-term with an eye on those 100-year returns.

Now, in light of that, this is why we talk so much about time horizon in investing. In light of that 100-year goal, does it make any sense for me to change my portfolio based upon the market correction this week or next week? If I've got a 100-year time horizon, hopefully the investment strategy that I've outlined for myself is going to have taken that into account.

If not, I don't know what I'm doing. Now, compare that to a fund that I've set aside and let's say I've shared on the show at some point I plan to take a year or two off and take my family and we're going to travel to all 50 state capitals.

It's going to be part of Joshua's home education plan of U.S. American education to understand the U.S. American culture. We're going to take a year. We're going to travel to all 50 state capitals. Well, the funds that I've set aside for that, I definitely need to have a plan that's going to account for short-term market corrections.

If we were leaving on a trip next week, I'd be in trouble if that money was all sitting in a Dow Jones ETF. But my response is going to be dictated by the strategic objective and the plan. So the same thing should be the case with your portfolios. Each portfolio should have a clear objective, a clear goal, and then a clearly written investment policy statement.

No professional invests without a written policy statement. In fact, I could probably make that the difference between a professional and an amateur. My point is you should respond based upon the plan that you've already established. You should not react. Now, what if you – what if all the – everything I've just said for the last 10 minutes is going over your head because you don't have an objective, you don't have a clearly stated goal, you don't have an investment policy statement, you don't have a written plan.

What if all that is true? Well, my plea to you is don't do anything. Don't start with saying, "Okay, I'm going to cash my investment accounts out. I'm going to change these things. I'm going to go over why." But don't just react to this. Rather, take this as a learning experience and start at what actually matters, which is building out an objective, creating a plan, and then implementing the plan in an intelligent way.

Now, let's talk about some responses to market – current market conditions. I want to – and I want to illustrate to you how depending on your plan, your response will differ. What you actually do will differ based upon your plan. And I believe this will show some of the distinctions that there are among investors, but it will be broad enough that it will be applicable to many of you.

And I'm going to go over four major strategies. Now, there are an infinite number of variations of each of these. So for example, my first of the four that I'm going to cover is I'm just lumping it together as a short-term trading strategy. We could talk about dozens and dozens and dozens of short-term trading strategies.

I'm just trying to teach you a framework for looking at things, not focus on the specifics. But the four strategies I want to cover are what if you have a short-term trading strategy? What if you have a long-term single-stock ownership strategy? What if you're pursuing an active mutual fund ownership management strategy?

Or what if you have a passive mutual fund management strategy? Now, I want to illustrate how your responses will vary dramatically depending on which of these strategies. So let's start with a short-term trading strategy. Now, this is obviously very nebulous. What are we trading? You could be trading any number of things.

Here I'm just going to be talking big picture about stocks. But you could be trading options. You could be trading commodities. You could be trading futures. There are so many different markets that you could be trading and any of those markets could be moving independently. So here I just want to emphasize the fact that your trading strategy is going to dictate your move.

And for some of you, the last few days could have been the most profitable days ever. For some of you, they could have been the most destructive days. Some strategies that you might pursue thrive on volatility. Some strategies die on volatility. You can put in place some options trades that are only in the money if markets stay flat.

You can put in place some trades that are only in the money if markets move and it doesn't matter which way they move. That's a very specific segment of the trading population. I'm not going to go any deeper into this. But you're not the ones listening to this show for investment advice at least.

But I only mention it because to point out that many of you have been making a lot of money the last few days. I should qualify the statement. Some of you might have been making a lot of money the last few days if you've established your trades based upon volatility.

Most people are not pursuing a short-term trading strategy. I mention it just to be fair. But what about if you have a long-term ownership strategy? So simplistically, you're taking a long position with individual stocks. Well, then here, your response to the gyrations of the market the last few days would be to ask yourself, "Has something fundamentally changed with the companies that you own?" That's a key question.

Because just because the market price of what the auction called the stock market says they're willing to pay – the infamous Mr. Market says he's willing to pay for your company. Just because the market price has changed doesn't mean that anything fundamentally has changed. So you want to ask yourself the question, "Has anything fundamentally changed with one of the companies that I own?" This is the reason I short-circuited short-term trading strategies is that although I have a cursory interest in it, interest in strategies and I enjoy reading overviews of them, the nuts and bolts of trading strategies, short-term strategies do not appeal to my temperament.

So I like to interview people on the show from time to time about them, but they don't appeal to my temperament. My temperament is most suited personally with long-term ownership of carefully chosen companies. So this type of long-term going long on individual companies, this is most suited to my personal investment temperament.

So given that, the way that I'm going to approach it is I'm going to say, "Has something changed?" If something has changed, then I might want to buy or if something has changed, I might want to sell. Excuse me. I mixed that up. If I own a company, let's say I own Apple Computers, the most loved stock on Wall Street, I'm going to ask myself, "Has something fundamentally changed with Apple's business model, with their ability to earn money and create profits for me?" Because ultimately, that's the only thing that a company is, is just simply something to generate cash for me to fund my lifestyle goals.

If something has fundamentally changed for the negative, I might want to sell. Now on the flip side, if something hasn't fundamentally changed, then when the market price goes down, that might give me an opportunity to want to buy. Someone said that I own Apple Computer and I love owning Apple Computer.

I'm convinced that the fundamentals of the Apple Computer company are incredibly strong. Well, I turn around and the market price was destroyed. Well, now it's a buying opportunity. But you've got to know that based upon the fundamentals of the company. Ideally, those trades were possibly already established in the sense that perhaps you'd collared your position and you had it ready to sell at a certain decline or you'd already established the fact that you want to buy more Apple Computer and you've got money sitting aside in your cash account and you're just waiting for a price but you knew that if Apple were to ever hit this price, then you'd be ready to buy in.

So that's how you respond based upon your strategy. Those short-term and long-term strategies, the people who are involved on either side, usually they don't seem to mix much, at least the ones – the traders that I talk to. Many traders can't even conceive of how they would own a company for weeks and months and some traders can't conceive of why they would ever pay any attention to the daily stock price or the weekly or even the monthly stock price.

They just read the annual report once – some investors read the annual report once a year. That's more my temperament is to read the annual report once a year and ask myself has something fundamentally changed. But your strategy will dictate your response. What about the strategies that most people in the United States are engaged in whether knowingly or unknowingly?

Here I'm just simply thinking of the 401(k) accounts, the IRA accounts of most individual investors. Well, here primarily you're going to be having mutual funds and those mutual funds are either going to be active or passively managed mutual funds. So let's talk about what do you do if you have a portfolio of actively managed mutual funds, say within your 401(k).

How do you respond to gyrations in the market? Very simply, you must do nothing and trust your managers. This is the one that annoys me more than anything because people forget about the fact that if you've purchased a mutual fund, by definition you've hired a professional portfolio manager. If you don't trust them to do their job, you should sell.

But if you trust them to do their job, do nothing because what happens is – this is actually a major contributor I think to market volatility is if you sell your mutual fund, your fund manager has to liquidate their underlying investments. Mutual funds will keep a certain amount of cash on hand in order to handle redemptions.

But if all of a sudden many of their subscribers to the mutual fund start selling shares, then they have to go and they have to liquidate investments. Don't put your mutual fund manager in the position where they've got to go and liquidate their investments when the market is down.

That's one of the more difficult aspects of managing a mutual fund, which is one of the reasons why many of the great investors and portfolio managers can be drawn to hedge funds because in a hedge fund, they can have a lockup period and they can make it so that you can't redeem your money.

That way, they can work their way through the times of market volatility. But if you've chosen a portfolio of actively managed mutual funds and you just invest within your 401(k), trust your managers. Do nothing. What about the argument – I often hear this one that the managers are stuck in their asset class.

That's true. So the argument goes like this. And so when someone like me starts saying, "Trust your managers. Do nothing. Let them invest the money." That's what you hired them to do. It's what you're paying them lots of money to do. I say, "Well, don't you know that the fund manager can only invest in large cap stocks?

So even if they think large cap stocks are going to tank, they have to sell a certain number – excuse me. They have to maintain a certain percentage of their portfolio in large cap stocks." It's true, which means if that bothers you, you should have chosen a mutual fund that had a different investment strategy where the fund manager was given more leeway.

But if you chose that mutual fund, you chose them because you wanted your money invested in large cap stocks. And so you should have read your prospectus and your prospectus says the restrictions that are on your manager and the manager is just simply doing the job for you. And so ideally you've intelligently constructed a portfolio that's going to match your goals and if you're choosing an asset allocation strategy, you're saying that I don't know what the future holds.

So I always want 20% of my assets to be invested in large cap stocks and because of that, I want my fund manager to maintain their funds, at least 80% of their investable funds in large cap stocks. If you want a fund manager who is going to be trading the account and saying, "We're getting out of large cap stocks and moving into small cap," you should choose a different mutual fund and you should have chosen one.

But trust your mutual fund managers. At the end – on the end of my outline today, I'm going to emphasize this point but I'll go ahead and say it here. You are the small guy or gal in the world of investing. You have no possible chance or hope of competing in the stock market and intelligently trading ahead as an individual layperson listening to this show.

Don't think for an instant that you're going to be able to pull open your Fidelity app on your smartphone and you're going to see the stocks are going down and you're going to be able to intelligently trade your 401(k) dollars out of the account. You're not going to be able to say, "I'm going to move from my large cap US stock mutual fund into bonds right now because I'm going to predict the market gyrations." You don't have enough information.

You don't have a plan. You don't have enough expertise. So the number one thing you can do in that situation is do nothing and trust your managers. Now a tiny proportion of you get really annoyed when I say something like that. You're the portion who should change. You should not buy mutual funds and you should go and manage your money.

But the vast majority of the listeners of this show, you have no possibility of competing effectively in this market which is why I encourage you, compete effectively in a market where you do have an outsized advantage. Compete where you're the big dog. That might mean in your company of salespeople, you become the key salesperson.

It might mean in your local real estate market, you compete there. It might mean that you look around and notice that your city or town has a dearth of hot dog vendors and so you start a hot dog vending business. But you're not going to compete in the mainstream US stock market.

So recognize that and trust your managers. Let's move on to the fourth one. I belabored that point a little bit too much but I just – I hate it. I hate seeing it because what happens is so many people think, "Oh, I'm going to manage this fund in and out and I'm going to buy and sell my mutual funds within my 401(k)." You're not going to effectively do that.

Your only choice when you bought into that account and you invested through your 401(k) and you chose a portfolio of mutual funds, in order for that strategy to work and it can and should work, you must trust your managers. They're the ones who are looking at the underlying performance of Apple computer and saying, "We're going to bet on Dell because Dell is taking over from Apple." They're the ones who have investment research teams and what happens is you pay them all this money to do their job for you and they've carefully positioned the portfolio.

They've got all kinds of analysts that are out beating the streets and then you say, "Oh, the news is going on and the Dow is down 500 points. So I'm going to go ahead and sell my funds." You destroy your strategy. What if you've got passive funds? Let's say that you don't have an actively managed mutual fund where your portfolio manager is sending somebody out and they're going to this company and interviewing the management and they've got their researchers and they're having – you just bought some index funds.

Well, here again, recognize your strategy. If you're pursuing this strategy, you are betting on the long-term growth of the US American and world economies. You're betting on an efficient market and you're betting on your asset allocation strategy. And so again, sit tight. That strategy is predicated upon the long-term efficiency of the markets and what's happening in the last few days is that the markets are correcting to the proper appropriate valuations.

That's your strategy. Now if you don't believe those things to be true, you're not betting on the long-term growth of the US American economy or the global economy. If you're not betting on an efficient market, then you should change your strategy. But don't do it in a panic and reaction to the last few days of market gyrations.

So what practically can you do? Well, here the key is to maintain an appropriate asset allocation strategy. I'm not just talking about managing what percentage should be in long-term large cap versus mid cap versus small cap. I'm talking about in your life. If all your money right now is in stocks and that's the extent of your net worth and then you get fired and you don't have any cash, you're screwed.

So that's why you keep cash on the side. Don't have money invested that you're going to need in the short-term. The five-year rule of don't invest the money – have any money invested that you think you might need in the next five years is a legitimate rule. Think about – anytime there's a market crash, think about what five years of change can do.

If you go back, one of the most interesting things, if you go back to 1929 and if you factor in and you look at what – if you had invested everything right before the crash of 1929, it takes – depending on which data set you look at, if you factor in the deflation of money and the dividend growth – excuse me, the dividends paid from stocks, the average investor in 1929 took just under five years to break even right through the Great Depression.

That's when you factor in dividends and deflation. You can't just take the straight stock price. It's much longer there. But if you stay invested five years, you broke even through the Great Depression. I only point that out because it's a little bit sensationalistic to – but it's an indication of look how much things can change in five years.

So if you've decided that you're going to need your entire portfolio tomorrow, then yes, you should sell and take it and run. But if you're going to need your entire portfolio in 20 years, then you should sit tight and maintain your approach to your investment policy statement. The only time that you change your investment approach is when your goals change.

So when I changed my personal investment approach, I did so over a long period of time because my goals changed. My goals and my plan have changed from what they were five years ago. So I waited for what I thought and guessed to be an intelligent time, period where markets were strong, prices felt high to me, didn't see a lot of upside, I vaguely timed the market, then I went ahead and sold because my goals had changed.

Your goals don't change when there's a five-day market correction. Your goals change when the long-term strategic objective changes and then you adjust the portfolio to fund that. You have to remember that volatility is the price of the larger stock market returns that you get. You only get the returns if you're willing to sit in for the volatility.

I didn't pull the statistics at my fingertips but these are fairly accurate. I'm pretty accurate with numbers. Someone can check me out and find the actual data and post it in the show notes if you want to. But the average intra-year decline of the stock market is something like 14%.

It's like 10% to 15%. I think the number that sticks out in my mind is 14%. That means on any random year, you should expect the market value of your investments to wander up and down by about 14%. Every three years, you should expect about a 33% drop. So what you should always do with percentages in stocks is put them into your portfolio with regard to actual numbers, cold, hard numbers.

Let's say that you got a half a million bucks sitting in your 401(k). Well, about every few years, you should expect to see a 33% drop, which means that if you have a half a million bucks in your 401(k), it would be entirely normal to watch that account go down from $500,000 to $330,000 on your statements.

That's normal. If you're not willing to sit in with that, you ought to get out of stocks. If your investment advisor isn't warning you that that is normal, you ought to find a new investment advisor. That's the price that you pay to get the higher return to the markets.

Now, that is not comfortable for most people. If it's not comfortable for you, get out and go somewhere where you can compete effectively where you're going to be comfortable. This is one of the things that makes me angry when people just automatically recommend stocks for people and they don't hold open the idea that some other people might have a much better wealth-producing plan.

If you can't deal with a 33% drop just about every three years, you ought to go somewhere else. You ought to buy some insurance contracts. You ought to build your own business and keep your money in cash. You ought to go buy and sell rental properties. You ought to go do something else.

But if you can't sit and watch your $500,000 portfolio drop to $330,000, you should not be in stocks. You should expect it. If you go out in the long term, you should expect at some point in your lifetime, at least a few times over the average course of an investment lifetime, your portfolio to drop by half.

That is normal, which is why I've said on the show previously the primary job that I see of a good investment advisor is helping you to predict that and understand how it's going to feel when times are good. What happens is if you've never anticipated market declines like it happened in the last few days, you sit there wondering is the world coming apart.

But if six months ago your investment advisor walked you through and said, "Hey, guess what? You got a million dollars sitting in this account or you got $100,000 sitting in this account. How are you going to feel? What are you going to do if six months from now this portfolio drops by 30% or 40%?" Well, if you thought through it, back to war gaming, if you thought it through and you said, "Well, I'm not going to feel great, but as long as I've got $100,000 in cash sitting in a bank account, then I'm going to feel better.

Okay, I'm going to just make sure we got the $100,000 in the bank account." That's why financial planning is such a powerful tool for an investment advisor to be able to help divert attention from what is causing problems. I hope some of this is useful to you. It's difficult for me to do the type of show that I've just done, which is trying to give a broad overview because realistically, there's so much – I could argue from different strategies.

What happens is people have blinders because they just have their strategy. Some people are of the mind that I'm going to make a little bit of profit every year and then the next year, I'm going to go ahead and once I've made my profit for the year, I'm going to pull back.

There's nothing wrong with that. If that's your strategy, follow it. So what often happens is with punditry, commentators try to talk to everyone all at once without zoning in and saying, "Here's who I'm talking to." If you are pursuing an active trading strategy, ignore the advice to sit tight and pursue your trading strategy.

But if you are like one of the mainstream, straightforward, average US Americans, just has some money in a 401(k), you've got to stick with your strategy. You're doomed if you try to strike out on your own. You've got to do your best to ignore market gyrations like this. The good news is this.

Remember that for every seller, there's a buyer. So some of you are going to be making a lot of money in these few days. Remember that if the gloom and doom predictions of the future are right, the good news is you're stuck with everyone else. Is the whole concept of stock investing illusory?

Is it all fake? Well, if it is, you have no possible chance of out-competing it. So you're just along for the ride with everyone else and you can benefit from the political control over the aggregate markets just like everyone else is going to. Hopefully that will make a few of you feel a little bit better.

I sincerely hope that you have not been blindsided by the events of the last few days. I've tried on this show up till now to emphasize to you the things that you can do to protect yourself. I tried to bring you different positions and perspectives and I hope that you've been implementing the advice that I've been giving.

I don't – I don't intend – I don't plan this show ever become the type of day-to-day commentary of what you should do because I don't have a clue about what the future holds. I don't have a clue. But I do hope that this show is the type of content and education and information that you can use to position yourself so that no matter what the future holds, you can thrive and prosper.

I used to love when Jim Rohn would talk about the seasons of life. Sometimes there's summer. Sometimes there's fall. Sometimes there's winter and sometimes there's spring. The fundamental of economic analysis is the idea that there are cycles. There are economic and business cycles and we'll go through them. When I talked about recession a few months ago, my effort to say prepare for it, I think we'll be heading into recession in the future.

I'm not predicting whether that's this month or next month or next year. I am saying prepare for it. If you really get the deeper level focus of strategy, which is built around objectives, goals, plans, if you get that life planning strategy, then you can apply the specifics that are appropriate for you.

Remember that stocks are just simply one thing that you can own and buy and they do some things for you. But basically all they do is they just print cash. So you should be comparing their merits and their demerits with every other option and opportunity that you have. Some of you are not well suited to the stock market.

If you're sweating over the last few days, that's probably you. It doesn't mean you're a bad person. It doesn't mean that you can't become comfortable with stocks. But it might also mean that you should recognize that and build and pursue a different strategy. So I won't belabor the point because I've emphasized that.

But to calm yourself in times of fluctuation, go back and look at the plan. I'm not the oldest guy out there. I'm 30 years old. But I'll tell you, in my adult lifetime, I've seen so many times that the time to be looking at the plan is when you're in the middle and everything is going wrong.

That's why you plan. You lay out the vision. You lay out the goal. You lay out the action plan that you believe will get you towards that goal. And then you work your way through it. There's always a dip right when you're in the middle of the action plan.

But that's not the time to abandon the plan unless circumstances have significantly changed. It is the time to assess the plan. But it's not the time to abandon the plan. The athlete who has a couple bad workouts is not doomed. The athlete who abandons the plan and decides to do what they feel like probably is.

Please consider that carefully as you assess your strategy, assess your financial plan, and figure out what your response should be to recent market conditions. Hope has been useful. It's always so challenging to do shows like this. It'll be interesting to see. I had planned to do this last night before markets had rebounded.

Anyway, it's always challenging to do time-bound content. But hopefully this content is timeless and I'm just simply building off of recent events. Stay focused on your plans. Recognize that you can build wealth in good times and in bad. And it really only matters a little bit. It does affect your plan, but it only matters a little bit.

Thank you all for listening today. I've done my best for you today, but if it's a little bit choppy, forgive me. I'll be back in the normal flow of show creation very soon. I want to thank you to each and every one of you who over the last weeks and months, but specifically last week, has signed up as a Patreon supporter.

That has been incredibly encouraging. As I've been away from the microphone for the last week, I get an email every time one of you signs up as a patron. Right now we're up to 218 patrons, 218 individual patrons who are supporting the show. I would love to get that number to 250.

The dollar amount is less important to me. Obviously, the dollar amount is what pays my bills. But what I mean is it's less important to me than the aggregate number because it's a different type of person who listens to a show casually versus somebody who takes the time and the effort to go to a webpage, pull out their credit card, put it in and say, "I'm going to support Joshua at a certain level." For all of you who are supporting the show on Patreon, I have been neglectful of properly delivering the benefits there.

I apologize. I've just been overwhelmed and I haven't been able to keep up with it. It's high on my list as I get the house sold here and get the business fleshed out, as I get the business properly staffed. It's very high on my list to do a much better job of delivering the benefits to you, the advanced notifications of shows, things like that.

Just know that I'm embarrassed about it, but growth pains. But if you're not supporting the show, please consider going to RadicalPersonalFinance.com/patreon and you can sign up there with little as a buck a month. We're at 218 patrons right now. Working hard. I'd love to see that number at 250.

It would be so encouraging to me. So if you would like to support the show, please go to RadicalPersonalFinance.com/patron. Cheers, y'all. Be back soon. Don't just dream about paradise. Live it with Fiji Airways. Escape the ordinary with Fiji Airways Global Beat the Rush Sale. Immerse yourself in white sandy beaches or dive deep into coral reefs.

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