The Art of Wealth Unbroken

The Power of Thinking Well

Episode Notes

"Thinking Well" - it could be a super power.  At the very least, it's a character trait that's vital in our current state of market volatility.

Fear is a powerful emotion.  Michael Wallin equates market panic to the reaction the movie Jaws - when people were suddenly afraid to go to the beach.  When you look at the numbers of actual shark attacks, that fear was largely unfounded.  That same overreaction and panic often causes people to exit the market or make changes to their investments - which often results in "locking in a loss" and not giving your portfolio a chance to recover and grow.

Having a solid financial plan in place accounts for both market volatility and the resulting fear.

If you need help putting together a financial plan - so you can stick to it - feel free to reach out to Michael and Stacey.  You can find them on our website - artofwealthunbroken.com.  Or give them a call at 855-378-1806.

Additionally, for our podcast listeners who visit the website, we are making the LifeArc plan free to you - with no obligation. This will help you get started on taking stock (no pun intended) of your overall financial picture.

Episode Transcription

Jag: Welcome to the Art of Wealth Unbroken podcast. We're here each and every week to provide you with investment and economic insights. We're here to discuss trends and developments in the field of finance and retirement. Creating certainty in uncertain times. These discussions can help you make better informed decisions so you can make better financial choices with the wealth you've built and are continuing to grow.

Our goal is to help you live the lifestyle you've imagined for retirement. Stacy Andres is a registered financial consultant. And Michael Wallin is a certified financial planner. I am Jon 'JAG" Gay and for our topic today, guys, we're talking about thinking well. 

Stacey: Hello JAG. Hello, Michael. The topic comes from an article that one of our research firms has prepared. And it talks about bridging the conversation with clients regarding volatile times in the markets that we're currently experiencing. 

Michael: Absolutely. And JAG. Hello. Uh, glad to be back with you. I know I missed a couple of the last episodes as I've been traveling. Stacey, thank you for taking the banner and keeping it moving forward.

But I am really excited about today's topic and Stacey, many investors today are looking for guidance and direction. It's why listeners are dialing into the show today. The markets are moving like the teeth of a saw blade. One day, it's up. The next day, the gains are being given right back. 

Jag: That's quite a graphic analogy, Mike.

Stacey: Well, that is actually what it feels like. Sometimes that's very true. One of the things that we have found is that for clients, being able to control emotion is absolutely key. And our research has made the comparison between what we call "thinking well," as to having a superpower and thinking well, really, is the ability of a client to not let what's going on in the market,

the sawtooth, the analogy that you just gave, dictate how they're going to respond. One of the things that I try to do. And one of the things that you try to do is, when we're working with a client at the beginning, is setting an expectation as far as how their assets are going to be managed. And so this article, actually goes as far as stating that being able to think well is a character trait that actually does not receive enough attention.

But I would argue the point that thinking well is really, above all else, what really, really matters. All other qualities really should be taking a back seat to a person, having a character trait that allows them to think well in a situation like we're going through right now, 

Michael: Stacey, when I was reading this article, it made me think back on times in my life that I've allowed something to completely change the way I thought.

And I personally lived one instance, uh, that impacted me and I feel probably impacted many of our listeners was the movie "Jaws.". That movie has caused so many individuals to change where they vacationed. Whether or not, they would even consider getting into the water, as well as the fear that they have passed down to their children.

And you chuckle there JAG, it has been impactful. How's it impacted you? 

Jag: Well, it's funny. The movie actually came out before I did. It came, it came out in the mid seventies and I was born in 80, but I remember hearing about the hysteria around it. By the time I was conscious, growing up in the east coast in Boston, I was not as afraid of sharks, but even the rare shark attack always makes the news. right? 

Michael: Absolutely. And that's the essence of what "thinking well" to me really meant as I read this article. Cause, in reality, we have less than 72 shark bites per year, and many of those bites could have even been avoided. Such things as you know, surfers wearing black,water suits and they're paddling on top of their surf board, they look like a seal.

Well, those sharks have attack them and you know, our numbers would probably be even less than that. And I find that to parallel in many ways to investors today, reacting to contractions in the market, some of those could really be avoided and a bad experience in the past should not cause an investor to completely avoid investing for future opportunities as well as income needs that they have.

Jag: Fortunately, the shark attack numbers are small. And if we have any surfers that have been attacked by sharks, that Michael has now said, it's their fault. They're probably not going to come join us. But fortunately that's a very small cross section of our audience, right? 

Stacey: Absolutely. We're talking to the larger percent of the population. Fear is a very, very powerful emotion.

When I was teaching clients classes on how to trade stocks. One of the things that we talked about often was the battle between fear and greed. People can be too greedy and they hold onto something too long when they should be selling it. And then all the ones, the gains that they had actually disappeared because they didn't sell when they should've, they wanted more. And fear is the exact opposite. Fear can cause a person to react in a way where the actions they take would be sooner than if they just allow the scenario to play out. IT wasn't too long ago, probably in episode two or three that we discussed this, but the average rate of return for an investor that is doing things on their own is between 2.5% and 3% less than what the S&P has returned over that same period of time. And that is all because fear dictates how a person responds. So helping our clients navigate through fear, different concerns, trials, the triumphs. That they have are all an essential part of what we call our InfoRite process. What we have done is that we have built and re redefined our process over many years as external conditions, from the market to administration, uh, global economic, supply and demand conditions and internal conditions. What happens within a family. There's deaths, there's marriages that take place. Marriages fall apart, divorce, uh, retirement, birth, education, all these different kinds of internal pressures that can dictate how we respond to an event. So all these areas have really educated us on areas where improvements could be made and proper recommendations then are formed as a result of that. 

Michael: Stacey, that's a great point where the InfoRight process really takes a look at both quantitative and qualitative measurements of an individual and having a true plan, having a goal.

And you talk about if you're properly invested. I think when we're sitting with clients, one of the essential things that is very integral in establishing a long-term successful plan is that you're building in the expectation of a contraction in the market. The markets do not always move on the proverbial escalator, up and to the right. We all wish they did, but that's not what the markets do. And market volatility, normal change in the market is 10%. So if you're investing your dollars today and you see a contraction in the market of 10%, that should not really alert you because that's normal volatility, mostly in what we've seen of the recent years.

Now, when you're looking at a correction that may occur between 10% and 20% of a correction. That's typically taking today from what our research firms are showing as an 80 to 90 trading day time period for a recovery. But now if we're moving into a recession, which I know that "R" is on the tip of a lot of people's tongues right now, that which could be that average drop in the contraction is 36% 

On average, that will take 300 trading days to recover. And let me compare that against some of the "stinking thinking." I get some of the thinking, well, that one of my clients came into the office and shared,two days ago. We were sitting here, the client shared with me that they were 72 years of age and that they really wanted to make sure that they were in an ultra conservative approach, simply because they did not have 10 years to recover.

And so I looked over at the client and I said, have you experienced that in the past? I said, because my research and what I look at, just looking at the indexes and normal volatility movement of the market, whether, if we're following the S&P 500. When was the last time it occurred that it took 10 years for the S&P 500 to recover back?

That is not recent information. And they kind of go back to thinking about how.The lesson of "Jaws" has been shared down to the next generation. That fear. Yeah. The next generation is we share with JAG here. You know, it's this idea: don't get in the water because this movie depicted this large shark. Well, when has a client really experienced a correction in the market that has taken them 10 years to recover?

Stacey: I don't recall anything like that in my lifetime. If a client would come to me and they were to share that information, I would want to see what was going on in their portfolio at that time. What were the positions that they were invested in? Were they letting fear dictate when they exited the market? And when they got back in? Because a typical investor using proper asset allocation to align with their investment goals and their risk capacities is not going to experience that type of recovery time. 

Michael: Let's go back to probably a recent event that most of the listeners would be familiar with. What was the recovery time from the 2008 financial crisis?

I mean, that was the biggest news. We had the financial sector imploding. We saw a huge drop in the market of over 51%. What was the duration for recovery on that?

Jag: I was alive for that, by the way. 

Stacey: Yeah, that was five, five and a half, six years from the peak of 2007 to when the market recovered in March, 2013.

Jag: And that's long by recovery standards, right? 

Stacey: It is a long period of time. Absolutely. And some portfolios did a little bit better, some did worse, but that is a long time to go. Look at what happened in 2020. That was yeah, different events, different circumstances. But there, the market had pretty much fully recovered within about six to seven months.

Michael: I would go as far as to say that recovery period should have been explained. If an individual is properly aligning their assets based upon when they expect to need those assets for income planning or some other type of income need in their life. It is an extremely long period of time for recovery.

If you're going to be dependent upon those monies in five years. But if you're not looking to use that portion of your portfolio for 15 years, The recovery of five years and then go into the bull market like we've experienced for the last 10 years that did not negatively impact a client. Mostly if they use a blend of tactical and strategic investing strategy.

Stacey: Absolutely. And that goes back to exactly what we dug into a little bit more last week, the different buckets and the bucket strategy. And how the money that you need immediately, you don't have at risk. The money that's at risk is money that you're not going to be accessing, like to your point, 10 or 15 years down the road.

So something is happening over in that bucket. It has the time that is needed and required to make a full recovery, maybe even exceed the prior high point and then have some of that money funneled down into the buckets that are providing your income right now. 

Michael: My final thoughts on this would be don't allow fear and let that essence over into the amount of risk that you're taking.

Don't allow that fear to be applied to every single dollar that you have. You need to partition those dollars. Based upon when you're expecting that time horizon and the need for those dollars. One of the best books that I have read really talked about using your money to create an income stream that meets all of your basic needs.

And then let another portion of your investment be what is controlling your future inflationary income. If you get too conservative with your dollars today, if the current saw blade environment that we're talking about creates so much fear that you go to the sidelines. When the market recovers, you are not going to be in a position to benefit at that market recovery.

You're going to lock in your losses and moreso, you're going to have less buying power because your returns will not keep up with inflation and your dollars are not going to be able to buy the same amount of goods and services in the future as what it's buying today. 

Stacey: So when we look at the name of the podcast, the Art of Wealth Unbroken, that's ideally what we are doing with the plans that we construct. You and I are both putting plans together that help our clients navigate the saw blade environment that we're in right now, because they aren't necessarily relying on that money.

They don't need that today. There is an income plan in place that helps our clients navigate the next 2, 4, 5, 10 years, and not have to be in a position where they need to worry about running out of money because the structure of the plan allows them and is positioning them so that their money will last as long as they do.

Jag: They're not relying on the market performance as much as they are the overall plan, because it builds in and allows for these periods of volatility and downturns. This is what Stacy and Michael do. They help you put together a financial plan. If you want to know more, you can go to our website, art of wealth on broken.com or the phone number is:

Michael: 855-378-1806. 855-378-1806. 

Jag: And if you do visit the website or give us a call. We do have an offer for our podcast listeners. Mike, you want to explain that? 

Michael: Yes, we are offering to any of our listeners that go to the website, a free subscription to Life Art Plan. That is the industry leading data gathering system. This will help them be able to get their house in order and in preparation of building a financial plan to help them navigate through uncertainty to certain times. 

Jag: And I will leave you with this again, as a new England native, and Jaws did take place in New England. Stay outta of the watah!!. This shahhhhhks!