What The Wealth Retirement Podcast

Stock Market Turmoil: When to Worry and What to Do? (105)

• Jonathan Bednar II, CFP • Episode 105

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Market volatility triggers panic, but historical data reveals why staying calm and sticking to your financial strategy is the smartest approach during turbulent times.

• Every time CNBC has aired a "Markets in Turmoil" special since 2010, the S&P 500 was higher one year later by an average of 40%
• Market fluctuations are natural and expected parts of long-term investing
• Panic selling locks in losses and typically causes investors to miss the subsequent rebounds
• Market value is fundamentally driven by corporate earnings, but short-term movements are heavily influenced by fear and greed
• A "war chest" or "bond buffer" with five years of fixed income can provide both income and psychological reassurance during downturns
• Market declines represent buying opportunities, especially when quality investments have been indiscriminately sold off

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Thanks for Listening!

Jonathan

Speaker 1:

Markets in turmoil what investors need to know. The market's down. The headlines are screaming panic. But should you be worried? Today we're cutting through the noise to give you a clear, level-headed approach to investing in these turbulent times.

Speaker 1:

Welcome back to the what the Wealth Retirement Podcast. I'm Jonathan Bednar, certified Financial Planner, and if you've been watching these markets lately, it's been a little bit of a roller coaster. But before you let fear drive your investment decisions, let's take a deep breath and put some things into perspective. In today's episode, I'm going to cover why market turmoil isn't unusual, the biggest mistake investors can make in volatile times and smart strategies to keep your financial plan on track. So let's go.

Speaker 1:

The premise of this podcast came from a blog I stumbled upon and the data was by Charlie Belillo, and it is really kind of an indicator based on the CNBC specials that get aired when things are going haywire in the market. They have these special kind of after-the-market-closes roundtables where they're discussing the headline markets in turmoil and they spend three, four, five, six hours discussing everything that's going on. And what it does is it drives hysteria, drives confusion, and really what it's doing is making money for CNBC. Every time that another person tunes in they're watching. It gives more advertisers reason to advertise with CNBC. Cnbc is a news company that is owned by Comcast, which is a television and television, you know, information company. And so to think that these people have I don't want to say they have bad intentions, I mean these people are just talking about what's going on, but they're also not thinking of that from your perspective, from your financial plan, from your investment position. They're just talking, um, and so what that does is without you knowing the con full context of what they they're saying and without them knowing the context of your personal situation, because they're not giving advice, or they're not giving specific advice.

Speaker 1:

Let me say it that way. They it causes the hysteria, causes the, the fear, the panic, and the more that fear and panic festers, the deeper and stronger it gets. And so I'm going to come back to these stats that Charlie put together based on this markets and turmoil, but first I want to just kind of talk a little bit about what's going on right now. We've got tariffs, we've got here in the United States a lot of deportation, so we've got a lot of political angst going between the two political parties. We've got a big kind of cultural divide that is causing frustration for people. We have inflation numbers just came out and they ticked up. So now we've got a sign that maybe inflation is rising again and that maybe we're not going to have a federal reserve rate cuts this year, or maybe not as many as expected, and and so we're still seeing we still have global conflicts going on, so we're still seeing just a lot of volatility as the new administration comes in and starts to put in their policy and still kind of dealing with some of the things from the prior administration. There's a lot going on and we're just we not sure what's what's going to happen. We had a great market return in 2023. A great market return in 2024.

Speaker 1:

People have gotten used to the market just going up and so it becomes not addicting. But you fork when you see you know every, every time you log into account, every time you get a new statement, the market's a little bit higher and your investments are going up and it feels good. It's like a warm hug from your investment portfolio. But what's key and what's important to understand is these markets do not go straight up like the space shuttle. It is normal for these markets to fluctuate up and down and sometimes we see significant drawdowns, like we saw in 2022 or 2020, even back to 2008,. The great financial crisis or the dot-com bubble burst in the early 2000s. I mean, we've had a lot go on the past 24 years and there's going to be future things that happen too, that we don't know what is. We just can't plan for them. So it's important to realize that the market doesn't go straight up, that these market swings are natural.

Speaker 1:

So what drives earnings or what drives share price for companies? At a basic level, it's earnings. The more people buy from companies and their goods and services, the more that those companies make, and the more they make, the higher their share price goes. Now I'm oversimplifying this, but earnings drive share price. What drives the market? Well, some of that, but also I think it's a lot more to do with fear and greed. You know, if we see a panic sell going back a couple of weeks ago when Deep Seek was announced, it sent panic into the likes of the AI companies here and the market and would cause a pretty hard sell-off really significant in some individual stocks and then pretty steep also in the indexes and so it's normal to see these fluctuations. But fear and greed can kind of drive.

Speaker 1:

Some of this drive, some of this and the other is just short-term thinking, getting back to away from your long-term investment policy, getting away from your long-term strategy and focusing on what might happen next week or next year or next month. And some of that short-term thinking can derail your long-term objectives if you're not taking those with a grain of salt. So I want to kind of dive in back on this markets and turmoil thing and just kind of share every time that the S&P 500, excuse me every time that CNBC has done one of these markets and turmoil specials again, they're usually some significant event, some major sell-off in the market or some geopolitical action. Something triggered these markets and turmoil Going back to 2010,. Looks like May 6th of 2010 was the first one. There's been over a hundred times since 2010 that CNBC ran this special after hours for this markets in turmoil. What I find incredibly interesting is every time one with 100% accuracy to this date.

Speaker 1:

Now I don't know what happens from here, but to this date the one-year return of the market, meaning the S&P 500 index, you know, which you can't directly invest into. There are other you know, alternatives, ways to do that. But when I'm talking about the market. I'm talking about the S&P 500 index. The index is up every single time that you know the one-year period, like what happened one week or one month or three months from that special. You know, I don't know and I don't care. What I'm trying to say is, when you think longer term and you stick with your investment policy, the market works and that's what we see here.

Speaker 1:

Every time they run this hysteria they try to generate and again they're just generating income and advertising dollars for themselves and getting watchers on their show, advertising dollars for themselves and getting watchers on their show and people are making catastrophic decisions based off of what these people say and they panic and sell and they feel safe in cash and the best thing you can do is take a deep breath and turn the news off and do something else. But it's wild that 100% of the time you see a one-year return. So one year from the date of that being aired, the market is positive and it's positive by an average of 40%. So one year later, the market is positive and it's 40% higher than the time they did. That markets in turmoil. I think this is fascinating when you think about how people make decisions about their investment portfolios and letting a little bit of information from the news, from their neighbor, from their uncle, someone influence their decisions and it'd be catastrophic for their portfolio. And if you just ignore the news, ignore what Uncle Bobby said, if you ignore the hot tip from your neighbor or the fear mongering from your neighbor, it works out in the long run. So just wild to kind of think of that stat. So what should you do? Don't panic, sell.

Speaker 1:

The worst days in the market are often followed by the best. So if you cash out on one of these ugly days where the market's down three, four, 5%, usually we see the market rebound one of the next couple of days. So if it's down 5% one and up 4% the next, you know you just lost 9%. You went down the five, you captured that five and then the market went up four. So instead of being down net one, you're down nine, down net one, you're down nine. And people don't understand that. They just go back to. We had a client call this past week Take me all the cash, 100%, one and a half million dollar portfolio, all the cash paid, long-term and short-term capital gains for a non-qualified account. Just fearful. And they've had fantastic 2023 and 2024 years. So the notion that you just make these random decisions without any thought of thinking that we're going to continue to consume and import and export and these markets are going to continue to grow.

Speaker 1:

The problem with this panic selling is you lock in the loss. You miss out what happens the next day. It's because, again, usually the best days are followed by some of the worst days. You miss the recovery. The second thing is timing the market's very, very difficult. Missing the 10 best days in the market can dramatically cut your long-term returns, and timing this market gets very, very, very difficult. I would argue it's almost impossible, because not only do you have to be right once when you get out, but you got to be right when you get back in. And I would also argue even more you don't have to be right twice, you have to be right repeatedly. If you're going to continue to do that, you have to be right multiple times. So don't try to time the market, don't ignore your plan, don't listen to markets in turmoil.

Speaker 1:

What should you do? Stick to your strategy. If you have a diversified portfolio, it's designed to withstand these market swings. A lot of our clients have what we call the war chest or the bond buffer. It is a portion of your account that is designed to provide income, if you're taking income without having to sell equities. It is a buoy to help eliminate some of the market downturn. It won't eliminate all of it. The markets fluctuate but we've got what we call this war chest that usually has got five years worth of fixed income set aside to kind of weather, these storms, and I think that gives a lot of people confidence. So stick to your strategy. We have constructed it on purpose, specifically for your future, but also for what happens next week that we can't prepare.

Speaker 1:

If you're young and you're still investing, keep investing. Use these downturns to buy in. If things get haywire and the market's selling off dramatically, these are great entry points because people are just throwing the baby out with the bathwater. They are just purging everything. This is a great time to pick up things cheap that people are going to regret selling a week later and then finally look for opportunities. If you see something that just seems really, really wild, thinking back to 2022, these Mag7 names got obliterated, absolutely obliterated, and they're all up multiple Xs since that. You know 2022 low. I mean, some of these are up, you know four, five, six, seven times what they were in 2022. You know, four, five, six, seven times what they were in 2022. So, again, if someone's going to, you know, just throw everything out and if you can, you know, look for these opportunities and you've got a place to just dabble in and pick up a position. Don't be afraid to do that. In closing, you know these market terminals are not new. It's part of the game. You should stay the course and focus on these long-term goals.

Speaker 1:

I hope that you found this piece really insightful for the markets and terminal piece. I'll share this on our YouTube page so you have that and just be aware, so that you know as you read it, look at it with an open mind. Just think about you know how you take in these news and how you would normally react. And then think about you know the actual data behind this and say just be honest with yourself, truthful, you know how would I react. Am I the one that's, you know, looks to buy the opportunities and keep investing and hold steadfast to my plan and this reassures that I'm doing the right thing? Or am I panic, selling and throwing the baby out with the bathwater and then this markets and terminals piece kind of gives me the data to say, okay, maybe I am getting sucked into the hysteria and the panic and I should go back and look at the data to say, usually this market returns In fact again to this date it's been 100%. So I just think it's really insightful to think of when you can actually look at hard data versus someone just saying to do X, y, z things. So, with that said, I hope this has been helpful. I'll share this piece on the YouTube page.

Speaker 1:

Be confident in your retirement. If you haven't already subscribed to the podcast, please do so. It really helps us. If you're looking for a second opinion or want help, or even if you have a question, send it to me. Send it to info at ParadigmWPcom. I'd love to have a conversation. I'd love to answer your questions. Have a wonderful day. Thanks for joining me on another episode of what the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and a light bulb went off, share it your friend, aunt Judy, the random guy in the office who's always talking about investments. Wealth isn't about just that should change. It's about our choices, chances and changing our financial futures.

Speaker 1:

The information in this podcast is informational, in general in nature and does not take into consideration the listener's personal circumstances. This podcast does not intend to be a substitute for specific and financial, legal or tax advice. You should consult the approved qualified professional prior to making a final decision. Securities offered through LPL Financial member. Finra SIPC. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Independent Advisor Alliance and Paradigm Wealth Partners are separate entities from LPL Financial.