Afford Anything - Covid-19 and the Bear Market

Episode Date: March 25, 2020

#248: We are living in a time of extreme uncertainty. Many of us are questioning how we can best use the funds we have to survive it. “Should I sell the funds I have invested in the market, or keep contributing?” “Should I continue with my plans to invest in real estate?” “Should I hoard all of my cash in case this gets worse?!” My friend and former financial planner Joe Saul-Sehy joins me on today’s show to shed light on the answers and how to handle the stock market collapse.   Here are the key points we discuss in this episode: Don’t panic sell and convert paper losses into real losses. Stay the course. If this is your first bear market, welcome to being a real investor! This is how you grow in the long-term. Dollar-cost averaging is your best friend. How this upcoming recession might be different. The silver lining? The economy was doing well going into this. But the speed at which our markets recover depends on the speed and dedication with which we flatten the curve. The financial principles you can use that will guide you to security in these rough times. P.S. – Unless you’ve been tested, default to the assumption that you’re infected and act accordingly. For more information, visit https://affordanything.com/episode248 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hi there. I wanted to give you a quick update for those of you who heard my Monday update. My fever last night hit 103.7 degrees. And the night before that, my fever hit 103.5 degrees. So today, in about an hour, I am going to go for COVID-19 drive-through testing. And I was nervous about whether or not I could drive-to drive. Part of the inherent challenge of drive-through testing is that it means that you may, that you have to drive, even when you're feeling very, very sick. But I think I feel, I feel okay to drive. And I'm going to go to drive through testing, and in two to three days, I should have my results. So on the next PSA Thursday, I will go into more detail about. about what all of this has been like, trying to get doctor's appointments, trying to fine

testing, all of that. In the meanwhile, though, enjoyed today's episode. Joe Saul Seehi and I recorded this episode last week, and once again, it feels like a time capsule. It's like archaeologists have dug up this audio file that demonstrate what life was like last week. I just want to reiterate, I didn't start developing a fever to the best of my knowledge until day nine of quarantine. So I quarantined as a precautionary measure, even though I felt perfectly healthy, for nine days before I started feeling any symptoms. And if that is not an argument for the importance of quarantining as a matter of caution, even if you feel healthy, I don't know what is. Because if what I have is COVID-19, which it may or may not be,

then that means that I would have contracted it between 10 to 14 days prior, presumably. I mean, unless there was some way I could have somehow contracted it while in quarantine, which is also possible. But at any rate, I'm getting drive-through tested today. I'll know within two to three days. On PSA Thursday, I'll describe much more detail about what all of this has been like. For now, enjoy today's episode, which is all about the bear market. You can afford anything but not everything.

Every choice that you make is a trade-off against something else. And right now, those trade-offs are coming into particularly sharp focus. We all have a limited batch of resources. We have limited money. We have limited time. we have limited energy. What is the most important thing that we can do? And how do we direct our money, our time, our energy to the most important things?

That question is always relevant. But it has perhaps never been as salient as it is right now. My name is Paula Pan. This is the Afford Anything podcast, the podcast that recognizes that every choice carries an opportunity cost. and that explores how we can, number one, decide what the highest priorities are, and number two, align every decision to be in accordance with that. In today's episode, I've brought Joe Saul See High onto the show to talk about how to handle the stock market collapse. And I can summarize the key points of our message right now.

Number one, do not panic sell. Do not convert paper losses into real losses. Hold. Just hold. Stay the course. There's an expression that every recession feels unique. Every recession feels like this time it's different. And technically we're not in a recession yet. A recession is defined as two or more consecutive quarters of negative economic growth. And so technically we won't know whether or not we're in a recession for at least two more quarters. But, and to As a practice, I'd never want to predict the future, but I can't imagine that we'll not be. It seems fairly clear that a recession is on the horizon, and it's very tempting to think this time it's different. And certainly there are factors that make this one unique. The uniqueness of that and the corresponding uncertainty can be fear-inducing, but the silver

lining is that going into this, we're going into this strong economically. Businesses were doing well. we had record low unemployment, wages were rising, the market kept hitting new high after new high after new high. So had it not been for this pandemic, we most likely would have continued to do well. Of course, that's a hypothetical. There's no way to know that. But we know that the economy was very strong going into this and that economically we will recover. The only question is, how long will it take before we get there? And that's going to depend on how quickly we flatten the curve.

There are many economists who say, the stronger of a dose of economic medicine that we take right now, the more quickly we'll recover. In a normal recession, business revenue might decline by 10%, 20%, a decline of 30% would be extreme. Now look at China. China implemented draconian measures for both containment and mitigation. And in the short term, the revenues in several industries dropped 90%.

A 90% business revenue decline. But because of that, they were able to level off the curve, and they are now, they seem to be, poised to make a quick recovery economically. By contrast, places that did not take aggressive early action, places that let that curve grow exponentially and did not take flattening the curve seriously, are poised to have a much longer, more protracted downturn with more jobs lost and for longer, with business revenues down and for a longer period of time, with the markets down and for a longer period of time, with the markets down and for a longer period of time. time. So the speed at which our markets recover depends very much on the speed and level of aggressiveness with which we flatten the curve. What's best for public health is best for the economy. Oh, and P.S. Change the default assumption. Unless you've been tested, default into assuming that you have it and that you don't want to spread it to anybody else. And for the next two

weeks, make every decision from that mindset. Right now, most people are defaulting to the assumption that they don't have it. And many of those people are infected but asymptomatic. So default into assuming that you have it and your goal is not to spread it to anyone else. If we all do that, then not only will many lives be saved, but also our 401ks are going to look a lot better, a lot faster. So with that introduction, here is a conversation between my self and former financial planner Joe Saul Seehigh, the host of the Stacking Benjamin's podcast, and of Money in the Morning, discussing how to handle this current situation. Enjoy. Hey, Joe. Hey, I like the fact that you and I, you and I have been natural social distances for a

long time. I know. So there's a meme going around. It's this picture of like kind of a shocked looking face. And the caption is, when you find out that your normal daily life, is what other people refer to as quarantine. It's so weird. I've been in my mom's basement for nine years doing podcasts, and now it's cool. I know. Seriously. I work out of my bedroom closet.

This is my everyday life. Nothing has changed. I mean, the only thing that's changed is that I don't go to the grocery store in the gym. That's it. I do go to the grocery store, but not the gym. Yeah, which makes it sad because I like going to the gym. And not to make light of, by the way, the virus, because as you and I have said, countless times, it's very serious and people need to take it seriously.

But to have a little bit of fun while we're all quarantined, I think is cathartic. Oh, yeah. No, I'm not making light of the virus. I'm making light of my own lifestyle. If anything, this has taught me that when this is all over, I need to get out more. It's good that we're finally the cool. kids. We were social distancing before it was cool. We're the hipsters of quarantine. You weigh any length of time, everything will come into Vogigan, which is why I've never thrown out a pair of

jeans. So, let's talk about the bare market. Let's talk about how to handle the fact that stocks have dropped back to their, whereas of the time of this recording, what, early 2017 levels. Right. So there is a right and I hate to characterize things as wrong. But frankly, I'm going to. There's a right and wrong way. There's a right and wrong way to assess the economic situation when it comes to the management of your own portfolio. The wrong thing to do is freak out and panic sell.

Do not panic sell. My favorite expression right now is your 401K is like your face. Don't touch it. I got some clarity when I, I mean, A, this is my fourth rodeo for this type of thing. And so I feel bad, I feel especially bad for people where it's the first one. Because to some degree, that doesn't say I know more than other people do, Paula. And I don't want that to be misconstrued because I don't. Right.

But what it does say is you become a little okay with uncertainty and the fact that this is the way the market usually goes, right? the market will find a way to make the biggest number of people uncomfortable at any time. And it's usually when you least expect it. And it comes out of the blue. It's a virus. It's not a declining economy. And if we go back to before this, the economic conditions, if you remember, were the economy was slowing a little, but it was still very robust.

Unemployment was incredibly low. Companies were selling things. People were shopping. All the economic indicators that we saw slowing, but still really good. We don't know where this is. is headed. But I think when I look at those economic indicators, I think the second that we get a handle on this crisis, unless it goes long enough that we fundamentally change those things, like will, and by the way, we don't know, will businesses do different business differently now

that people are working from home? I don't know, maybe to some degree. That might even be a good thing. But will businesses work differently? Will airlines be changed and fewer people do business travel now than before possibly don't know about that will this this go away before small businesses can recover i don't know that but to to the degree that we will go back to normal which i'm willing to bet that we will i think that the best attitude to have is to look past it and go back to those same fundamentals that you and i have been talking about for a long time the truth is in the fundamentals. The truth is not on a headline online or on television. That's not the truth. That's, that's, that's the truth for the next four minutes. We need to go back to the truth that's been the

truth forever. Back in, back in 1993, and I'm getting up on my soapbox a little, so I'll apologize. Go for it. Back in 1993, Paul, when I became a financial advisor, one of the first rules I learned was having an emergency fund is number one and paying down debt is never bad. Right. We're seeing that more today than ever, right? we're getting proof of that again. And during uptimes, you've had people fight you on that. I've had people fight me on that. It still is the truth. 1993 or today, it's the same exact thing. So sticking with those bedrock principles, I think is what really pulls you through it, not the ever-evolving list of headlines that you're going to see on CNBC or Fox Business or any place else.

100%. Have an emergency fund and to the extent that you are able to reduce your debt. In any economy, regardless of bear market or bull market, that's always a good idea. And when it comes to an emergency fund, I've had a few people ask me, how large should mine be? The minimum is between three to six months of your living expenses. Make sure at a minimum you've got three to six months. If you want to be a little bit more aggressive, I would have... Absolutely no objection to having six to nine months worth of living expenses stored up.

You know, if you're at that nine month mark, don't worry that you're too heavy in cash. Having a big emergency fund is never a bad idea. And I would say in addition to that, look at your annual out-of-pocket maximum for your health insurance. So what is your health insurance deductible? And when you add up all of the co-pays, how much does that all add up to? what's going to be your annual out-of-pocket max, I think you need to assume that you're going to use the full extent of your health insurance this year. So before you do anything, before you, I know there are a lot of people who are excited about buying on the dip, who are excited about taking advantage of the fact that the market is on sale right now, the fact that stocks are historically significantly lower than they used to be, that's great if you've got that enthusiasm. and that's great to gradually, continually buy, make additional contributions above and beyond your

normal dollar cost averaging. That's fantastic because at the end of the day, contributions, not timing, but contributions are the single biggest determinant of long-term portfolio success. And so if you are regularly dollar cost averaging, and on top of that, your enthusiasm for buying on the dip leads you to make more contributions than you otherwise would have, then fantastic because now you're making additional contributions. And so I think that's great. But do that only after you, number one, have an emergency fund and number two, have enough

money set aside to cover your annual out-of-pocket maximum for your health insurance, your deductible and your other annual out-of-pocket max. So with that, do you want to dive into then, Paula, the down market specifically? Yeah, let's do it. I want to talk about for a second something I rarely do, which is I looked at some technical charts the other day. And for the audience, let's bring you up to speed on two ways that professionals look at investments.

There's fundamental analysis, which is what Paula and I both look at most of the time. And there's technical analysis, which I rarely look at. So fundamental analysis is analysis. And by the way, fundamental analysis is a way you should look at your own personal financial situation, which is I go, I look at a company and decide if I want to buy that company's stock. I want to know, is the company healthy? So I look at are the number of sales going up?

Do they have a low debt level or no debt? How much free cash flow do they have? Like I'm going to go into the fundamentals of how that company's run and how they progressed over the last few years to try to determine if I think. that this company is worth investing my money in. By the way, a great strategy that I used to do when I was a financial planner, Paula, was that I would walk my clients to that. I'd say, if I was evaluating you as a company, and I'm looking at your debt level, I'm looking at your cash on hand, I'm looking at sales, I'm looking at your income stream and seeing how that's going versus your

debt, where are the weak points? What would you have to tell your investors? And it's funny, when you look at it from that perspective, a lot of people get much more clarity and they're a lot less emotional about how they're doing financially. So that's fundamental analysis. Technical analysis, I like to call voodoo because it is used by traders. And traders look at these charts to show how the stock market's done lately, whether volume is higher, volume is low. They use things like the stochastic, the MACD. I'm not even going to go into how these work, but they have all these things that they use to determine if they're going to make these short-term trades or not. They're not in it for years like we should all be.

They're in it for a day or 20 minutes or an hour. But during times like this, I love looking at these technical trading charts. And let me tell you a couple things that I saw. First of all, when everything hit the fan, you saw volume of trading go through the roof. Trading volume is four, five, six times higher than it is during normal trading times. Think about that for a second. If we're worried about the long term, the dumbest thing to do during this is to go trade. Why the hell am I selling my stuff now? Whenever you have a market, and by the way, a market that's falling, it's because there are people who are begging to get

out. Now, you could, you could say, well, Joe, a lot of those people are buyers. Yes, they are. But you wouldn't see the stock market go down and huge volume at the same time unless a lot of people are selling. Guys, that's a dumbest thing to do. Why would you sell now? It's crazy to sell now. You are begging to lose money if you sell. And yet I see this volume that is crazy. And then the second thing I look at is something called the 200 day moving average, which is the average of how stocks, in this case, I was looking at the S&P 500, the 500 biggest stocks in America, how that moving average compares to where stocks are trading on that day. And the interesting thing, you go back, I went back to October and I saw three times where the stock market traded below the 200 day moving average.

And that's an indicator that traders use, by the way, to decide that it might be a good time to buy. And by the way, nothing to do with long term once again, just short term, today might be a good day. And back in October and then again, early this year, when stocks went below the 200 day, moving average, immediately, Paula, there was a surge for about the next week

in both times. And by the way, you can go 10 years back and you can see that there's a surge. I wouldn't trade on any of this because the bigger point is this.

The 200 day moving average is so flipping far above where stocks are trading today. It gave me a ton of comfort because that combined with the level of volume. I've got a bunch of

for lack of a better term, we'll call them morons, who decide today's the day I'm going to sabotage my own strategy and I'm going to sell. Well, I've got a high level of volume like I have now and I got a 200 day moving average that is way, way, way, way, way, way below the line where it usually goes up. I don't know where the market's going tomorrow, but I know that this is sheer lunacy if you're thinking about selling and having a strategy instead that starts with what can I do, I think then you start reframing things. And so here's, here's some suggestions. Interest rates are low right now. The Federal Reserve just made a move to lower interest rates

between zero and a quarter percent. That, by the way, the interest rate that the Fed uses is an interest rate that is used among banks. I've had people ask me and you probably have two, Paula, hey, the mortgage is at zero. Nope. No. Yeah, no. The rate at which the Fed loans money to the banks is zero. Yes, that is zero or a quarter point or somewhere between those two. So that's very low. But that gives us some opportunities. And to be clear, that is not why the Federal Reserve did it. The Federal Reserve does that because they want you to spend more money. They want you to get into more debt. They want to make loans easier. We're going to do that a different way because we're way smarter than that. We're going to use it to get our financial house in order. So the things that

people can do that are directly tied to that rate are car loans have gone down in the interest rate on car. So if you have a car loan, refinancing that car loan and probably through credit unions where you're going to get your best deal is a good idea. Second thing is if you have credit card debt and you can't figure it out, consolidation loans are at a lower rate than before. Adjustable rate credit cards will also see their interest rates drop. But if you go look at the fine print that's usually once a quarter. So you probably didn't see it drop right away when the Fed made that move, but you will see it. You'll see it in the next few months. But lock in the rate, cut up your credit card, learn to live a cash lifestyle until you can get your house in order and then maybe

go back to credit cards. There are also some good deals on balance transfer cards right now. So afford anything.com slash balance transfer. It's an affiliate link of ours, but there are some very, for anybody who does have credit card debt who wants to balance transfer to and consolidate their loans onto a card that has a 0% rate, there are some very good deals happening there right now. So afford anything.com slash balance transfer. And that's all tied directly to what the Fed did. Now, the thing that's not tied to it that people think is tied to it is mortgages. Mortgages are actually tied to treasuries where we're loaning money to the government.

And here's what happens there. If you don't mind, Paula, we'll go through the mechanism for a second. Yeah, yeah, do it. Treasuries get sold at auction. And I think this is really cool, by the way. Maybe I'm too much of a money nerd, but this is pretty neat. So imagine a room full of people sit at this auction to go loan the government money. Imagine if that's you, by the way, if I could have an auction where I get to see who gets to loan me money.

This auction, though, works differently than any other auction you've been at. Every other auction you go to, you're buying stuff and it goes to whoever will pay the most. A treasury auction, the winner is whoever will give the government the lowest interest rate win. it's actually who will ever pay the least or get paid the least is going to win their business. So just to use- It's like a low-bid situation, basically. Yeah. Yeah. Yeah.

So the federal government starts off at, you know, I'm going to make up numbers, 5%. I got somebody over here that says 5%. This person then says they'll take four and three quarters. That person will say four and a half. And they go lower and lower and finally, Betty sitting in the back of the room says whatever interest rate, and she's the first one to get the treasuries. when that happens, by the way, people that already have treasuries, they've already loaned at a different auction at a higher rate. If I'm choosing bonds to buy on the open market, I can choose the ones that Betty just got, which are for a really horrible rate, or I can choose ones that are a higher rate from somebody else.

I'm going to buy the ones that give me the higher interest rate. So the value of treasuries at higher rates are going to go up, the price of those are going to go up, while the price of ones at low interest rates, of course, are low. That mechanism means, so what are we seeing? We're seeing interest rates on treasuries go lower, meaning people, because everybody's afraid of the stock market, people going, dude, I'll just take next to nothing. Like, I will, hey, I just want to get safe debt, which the United States is considered incredibly safe debt. I want safe debt. So I'm going to take a very low interest rate. Mortgages are tied to those. So mortgage rates are going down, but they're going down for a related but not the same reason.

That might give you also, Paul, an opportunity and something that during this time we feel like so much stuff is out of our control that we can control. We can call our lender and say, can I maybe refinance my mortgage? Can I either speed it up? Can I get a lower interest rate? Depending on what my situation is, I can get myself better terms than I had before. I will say if you are considering doing that, I have heard from a number of the students in my course. Basically, everybody who was attempted to do this has told me that their lenders have essentially said, join the waiting list. I'll get back to you in three weeks. Yeah, I was reading up just this morning where people have said volumes are five and six times the number of people want to refinance.

Yeah, exactly. So the lenders, the underwriters, the people who process these things are incredibly overwhelmed. Might be hiring. But if you are thinking about refinancing or if you are thinking about buying a property, because it's, you're not going to be hiring. because mortgage interest rates right now are at the lowest that they've been in 50 years. So it's a great time to take out a new mortgage if you're thinking about buying a property, if you're thinking about buying a rental property, assuming that your emergency fund is taken care of first. That is the foundation of everything. But assuming that your emergency fund is taken care of first and that your annual out-of-pocket maximum for your health insurance is taken care of first, assuming those two things are in place,

and assuming that you are not at significant risk of losing, your job or getting your hours reduced. So, you know, assuming that those fundamentals are solid, it's a fantastic time to buy another property. I'll just warn you, getting approved for a loan or, heck, even getting a call back from the lender is going to take a lot longer than it used to. So start the process early. Well, that's I was going to say. There's two ways people are going to take that as they're listening to you say that, Paula. You're going to say, well, then I shouldn't do it. Or get in line right now. Get in line right now, yeah. Yeah, my message is get in line right now. Yeah.

If you're going to do it, get in line right now. We'll come back to this episode after this word from our sponsors. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in payments technology built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size. But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth-third better is all about. It's about not being just one thing, but many things for our customers.

Big Bank muscle, fintech hustle. That's your commercial payments, a fifth-third better. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens. Maybe you need serveware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays, you can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving.

I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving, it's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget. Wayfair has something for everyone. Plus they have a loyalty program, 5% back on every item across Wayfair's family of brands. Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals.

Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-Y-F-F-A-R.com. Sale ends December 7th. We already talked about don't panic, don't sell. But let's talk about the other one. So what do you think about buying and people that are going, is this a right moment to buy? Is this the right moment to buy? Oh, I've been buying the whole way down.

I have put more money into the market. I've been, I'm consistently catching falling knives, you know? Just as this whole thing has been unfolding, I've been buying small amounts. I've been buying relatively small amounts, you know, 500 here, 1,000. there, 500 here, a thousand there. I've been buying consistently for, geez, ever since this all began, and I am going to continue to do so. I found some subscriptions that, you know, I was no longer taking advantage of. I tried to do that twice a year. So I freed up nearly a couple hundred dollars and immediately, immediately started saving that, just dollar cost averaging into my brokerage account.

Yeah. And by the way, and what I did too, which, you know, I don't. believe in market timing, but I also, uh, I don't need this money for a long time. I wanted to stay very broad based. So I wanted to make sure that I had an exchange traded fund. But I went Paula because of the fact that this was going to be quote extra money. I went with, and this is not a recommendation. This is what I did. I went with small cap value. And the reason I bought into a small cap value fund is because it's going to rock there the hardest. It's going to greater the worst. I don't know when the bottom's going to be. But if I believe that the economy is coming back, I want this thing to get horrible because I know that using this concept called standard deviation,

just what goes down the most goes up the most. What goes like people, people want no down and all up. There's no such thing. So I pick the one that I thought is going to be incredibly cratered, which means a couple things that I think are important. While you and I are watching people panic online going, I just want to sell my stuff.

I want to sell my stuff. You and I are losing money, hand over fist right now with the contributions. Yeah. Oh, I've lost on paper. I'm actually going to sit down and calculate my net worth, it's going to be a very sad exercise. But yeah, I guess I shouldn't, I shouldn't lobby a guess before I've actually done it. But if your goals are far away, I think to both our point, if your goals are far away, you're very happy doing that. Because historically, and I read a great piece just this morning about this with my breakfast, historically, this is when you make money, guys. Yeah. We talk about an efficient market. This is one of the few times the market's nowhere

near efficient. As I mentioned with that 200-day moving average thing, the market isn't even close to efficient. Everybody's selling. This is the time. This is the time. A couple of things. Number one, with regard to this incredible volume of transactions, including a huge volume of of quote-unquote people who are selling, one thing to remember is that a lot of transactions right now that are processed are not individual investors or institutional investors, but rather algorithms that are trading. Right. And because there's so much volatility happening right now, that volatility might be triggering

something in the algorithms that triggers those algorithms to sell. And so some of the selling that's happening might not be individuals. It might not be humans that are panicking. it might be like an algorithm that was poorly written. Algorithm. Yeah, but I still think. I still think. I like that,

but I still think there's people panicking. Oh, yeah, yeah. That's also true. But it might just, you know, it's not the case that all of the sales are coming from panicky humans. You know, some of those sales are coming from algorithms on the fritz. I want to address one more thing that I've been reading about.

Twitter conversation I had recently, somebody going, is this when I buy Delta Airlines? or is this when I buy rural Caribbean cruise lines? Is this when I buy these individual companies? I have a definite thought about that, but I'd love to hear your thought. So generally speaking, I am not a fan of buying individual stocks, and I understand the temptation to do so. And so if you are going to buy individual stocks,

Number one, keep it to an extremely small portion of your portfolio, 1%, 2%, 3%, absolutely no more than 5% of your portfolio at the most. I probably wouldn't even go that far. Like keep it to a very small portion of your portfolio. And think of it not as an investment, but rather as the equivalent of you going to Las Vegas and playing the slots. But doing it while social distancing. Yeah, exactly. Exactly. And that's true, not just at this time, but at all times. I have always, in bull markets and in bear markets, always said, I'm not a fan of individual stock picking, yet I recognize that it's often too tempting to pass up. And so if you're going to do it, keep it to definitely less than 5% of your portfolio, ideally between 1 to 3%. And think of it as your dumpster fire money. So I'll just tell you personally, two stocks. that I have held for for many, many years. One is Tesla and the other is Marathon Oil. So Tesla,

my average cost of purchase was $225 per share, and last month it was up to $960 per share, right? So like the gains on that were massive. Compare that to Marathon Oil that used to trade for $15 to $19 a share and now is down to $350 a share, the losses on that are massive. So you look at, you want to talk about standard deviation, right? You look at the both like outsized gains and outsized losses that I've seen just on those two stocks alone, that says something about volatility. And the thing is when it comes to individual stocks, it's not like volatility in a broad market index, because a broad market index, as J.L. Collins describes, is self-cleaning,

which means that if you have a basket of 500 companies or 3,000 companies, there are going to be some weak links in there, and over time those weak links will be cast out and new companies will come in. Because of the fact, and the mechanism by that is, remember, guys, these are the companies with the biggest valuation. So once a company is hurting really bad, the value that company goes down, and they immediately then get swept out of the index. Exactly. And so because of that, broad market index funds are far more reliable for, you know, even though there might be drops, there will historically, at least what we've seen, is that those drops will then over the long run be replaced by new gains and over the long term

will grow higher than ever. You look at a chart. of stock market history from 1896 through 2020, it has consistently gone up over the long term. That's true in a broad market index because of the fact that individual companies might be weak, but collectively, collectively all of those companies together are strong. When it comes to buying an individual stock, that is not the case. If Marathon Oil goes out of business and the value of that stock, drops to zero, well, guess what? I'm done. Every single penny that I've put in there is now gone forever. And that, who knows? Who knows? I'm not saying that that's going to happen, but anything

can happen with an individual stock. Well, that's the worry that I had because this, an individual on Twitter that I was talking to about Delta Airlines made the comment that airline travel is essential and the government will not let them go bankrupt. And I reminded them of two things. Lehman Brothers are essential. I'm from Detroit. There we go. And I kept hearing that that would never happen to General Motors,

never happened to Delphi, Chrysler, a big part of this town. And at the same time, Paula, to your point, the day before Lehman Brothers went bankrupt, the biggest analyst following Lehman Brothers, The number one analyst following it said the government will not let Lehman Brothers go bankrupt because it's essential to the economy. And you know what happened? Lehman Brothers went bankrupt. Never ever, ever, ever think that bankruptcy can't happen to these companies.

And especially when you're looking at an airline or a cruise ship right now, restaurant chains, just these people, these companies that are really hard hit. don't expect government intervention. I think it's incredibly dangerous to make that type of bet, especially. And I like, you know, I mean, if you're going to bet a little bit on Delta Airlines, I'm not going to do it. I like Delta Airlines. I ride their airline all the time. Good airline. That's fine as a customer as a passenger, but as a shareholder.

I think Paula, that bankruptcy could very well happen. It's certainly possible. And that's the risk with investing in individual companies. And that's the risk with investing in individual stocks. That's the reason that investing in broad market index funds over the long term, it's a much safer bet. And again, I will repeat, the money that you put in equities should be money that's invested for the long term, meaning that your timeline to withdrawal should be at least 15 years, minimum. If you want to be a little bit more conservative than that, 20 years. But between 15 to 20 years is the timeline to withdrawal for money that you have in equities.

The reason that I've lost so much on paper is because I have an all-equities portfolio. Those of us with all equities portfolios are the hardest hit right now. That's life. That's just like, in fact, my Robin Hood app, I just deleted it from my phone. The best thing to do right now is just to delete that app from your phone. I deleted it a few days ago. And I'm not going to reinstall it for another six months. We'll return to the show in just a moment.

This is the point, Paula, when pros have said, pros, and I'm going to issue this as a challenge to everybody. Pros have said that this thing happening right now is when the fire movement blows itself up. And I will caution you. to not do that. Prove them wrong and show them that the idea of investing in an all equity portfolio like Paula has, that you can get, because frankly, you will get there.

Historically, you've gotten there. As J.L. Collins said, it is a bumpy ride getting there. But pros have said over and over that without a pro in your corner, you are going to blow yourself up with that. If you have a pro in your corner,

I hope you're latching onto them and they're helping out, because this is when they earn their money. This is when they earn their money. Not during the good times. During these times is when they do it. But don't blow up your own strategy, guys. Yeah. You know, the thing about the fire movement, a lot of people, especially people in their 20s, have never experienced a bare market before.

Like for a lot of people who were too young to be invested during the 2008 Great Recession, their entire experience as an investor has been nothing but this 11-year bull. run. And so this is your first. Congratulations. In fact, that's what, congratulations, because this is a right of passage. This is a right of passage for every investor. As investors, this is what we do. We experience bare markets. We experience severe pullbacks. This is your freshman frat house hazing. So congratulations if you're making it through this hazing period. Because this is what you need to do to get membership in the long-term investor club. And I should say, not that I'm like that old, I'm 36, but I think that one advantage that I have, and I think one advantage that people who are about my age have, people who are in their mid-30s have,

is that we came of age during the Great Recession. I graduated from college in 2005. After graduating from college, I had two or three years of a pretty good market, which didn't really matter much to me because I was a brand new college grad making a salary of $21,000 a year. You know, so it was nice that like the broader economy was doing well. And I was contributing 15% of my income into a 401k, but 15% of a $21,000 annual salary is as a raw number, not very much. As a percentage of my income, it was still significant, particularly because such a big portion of my income had to go to necessities. So emotionally, it was still very, very painful having made so many sacrifices to be able to make those 15% contributions to a 401k on a $21,000 salary. And then after three years of that sacrifice, watch it all disappear in the 2008 crash. When you are living on so little and you're living on so little. you think that you're making the financially smart choice by investing in a 401k and then it all comes crashing down on you, that's effing tough.

But what did I do? I doubled down. I took on as many freelance articles as I could. I mean, I wrote stupid articles. Like, I wrote this article once on like the different flavors of smoothies and how, like, strawberry banana is more. more popular than like Kiwi Raspberry. Like I just, I took any gig I could. I wrote an article once on Weasel Poop Coffee.

High-end coffee. Yeah, so that coffee, it is. It's actually, it's a delicacy. But I took as many gigs as I could. I lived very frugally, more frugally than I think most people would be comfortable living. And I knew as we were going through the recession, I knew that we were in a rare moment to be able to buy low. And that's exactly what happened. And the fact that my net worth exceeded a million dollars by the time I was 31 was a direct result of the fact that I invested so

much between the years, specifically between the years like 2011 to 2014, was really like my prime investing years. And that wasn't because I was deliberately trying to not invest in 08-09, I would have gotten even further if I had invested more in 09. I just didn't have the money for it. Well, and I think an important thing, Paula, for you now is that now you know you've had this feeling before. Oh, yeah. Oh, it was a lot worse before. Yeah. And I remember, you know, I was finishing my career as a financial planner then. And I remember talking to other financial planners. We didn't know where to go. We didn't know what to do. We had, you know, I had been through a couple of sharp dips, but also the two-year giant sucking sound that was. 2000 to 2002 as well. But that feeling that you get of uncertainty, like realizing that it is uncertain and you don't know what's going to happen tomorrow.

And there's going to be a ton of news and there's going to be a lot of people flailing and feeling that and learning to live with it and realize that it's okay to be afraid. Like it is okay to be afraid. But to act on it is something totally different. I think is something that hopefully, if this is your first downturn, that's going to be the big takeaway here. Because your second downturn, you'll realize, yes, I'm afraid. Yes, I don't know what's happening tomorrow.

But this is when I take the stuff that I can control. And man, if I control it, this is where I mold a better tomorrow. Yeah, I would agree with that. Fear is a valid emotion. You know, fear, anxiety, worry, like, I don't want to invalidate those feelings. right, you're right to feel that way. Just don't act on it. Yeah.

Yeah. The fact that there's all this volume right now is just flipping nuts. Yeah. A lot of people can't control acting. Yeah. Well, and that's why sometimes you have to put environmental measures in place. Like delete the Robin Hood app off your phone. Or some of the advice that I've given to people in the last few days is change all of the

passwords. If you think that there is any risk that you might panic sell, change the passwords to your financial accounts. change it to something that's super complicated and random that you're never going to remember, write it down on a piece of paper, and either hide it somewhere super inconvenient, or give it to a friend or a family member that someone you trust, and instruct them not to give you the passwords to your own accounts for the next six months. Those are some of the environmental measures that you can put in place to save yourself from yourself.

think there's any risk that you might panic sell. Because like I said, this is the time in which you're getting tested. The decision that I made in 2008, despite the fact that it sucked losing all of that money, right, it sucked losing three years' worth of sacrifice. But the decision that I made in 2008, that rather than cower, I was going to double down, that with zero exaggeration, radically changed the course of my life in massive, massive ways. It's that single decision to double down rather than bow out. My net worth today is probably an order of magnitude greater than it might have been. It's that time.

Yeah. It is that time. This is the make or break time. Yeah. It's funny. There's so many things in my life right now that are like that. If we go back to things that we can control, I decided that. because of the fact that I thought I was going on a trip to Japan for two weeks.

And so I was way ahead of the game. But also, you know, I'm at home and we joked about being quarantined before. But we could out we get out some and do stuff. But I'm not going anywhere now. And I'm using that extra time to do what Stephen Covey talked about in seven habits of highly affected people and sharpen the saw. I'm learning about better storytelling and learning about better comedy, which is what we try to do on my show.

and learning about restructuring behind the scenes and writing better newsletters and doing all these. I mean, because I know as well as you do, Paula, this is the time. I mean, this is. If you have this extra time, it's fantastic to do this stuff that's going to make you long-term have a better foundation and be able to confront whatever comes next even better. Wow. I've watched three seasons of What's New Scooby-Doo on Netflix. Well, I've done that too. I'm just about done catching up with Schitt's Creek, which I think is just a brilliant show, such a well-written show. And I'm also into the expanse, which is this sci-fi nerddom show, which has been great doing some of that too. So it's not all, not all work, but still. I saw this meme where this person was like, day one of quarantine, I'm going to use this opportunity to take care of my health.

Day two of quarantine. Due to personal reasons, I am now eating lasagna in the shower. Oh, you have to laugh, don't you? So, Joe, what are, in your view, what are the major things other than don't panic cell, which I hope we've emphasized enough? What are the major financial practices and actions and takeaways that a person should have right now? Yeah, and I think not only don't panic sell, but I'll have one more to the don't do list before you get to the do list, which is also don't try to be overly optimistic where you look at a single company like a Delta Airlines or a cruise line or whatever. Or a marathon oil. Yeah, without knowing what you're getting into, you know, I mean, think about with some of these companies, the threat of bankruptcy right now, it's always present.

But as you know, Paula, it's really, really, really real right now. It is super real. But I think the big takeaway is look at the, I. that you can control and focus squarely on those. The government has given us some opportunities. They don't want us to use those the way that we're going to propose using them, but use the fact that interest rates are lower to look at a car loan that you might have to get your debt in order with consolidating or balance transfer cards, square up your budget, and maybe refinance your house, which will also help you square up your budget.

You might have to get in line for some of those, but I would begin that moving. And then look at things like you and I talked about also, your subscriptions and your budget and see if there's any way to save more money. Use that to pay off debt and have a good debt strategy. Focus on your emergency fund. And then when you invest, take advantage of the fact that these stocks are down, full well knowing that you're going to probably take it on the chin over the short run. Yeah.

Catch a falling knife is a common expression that a lot. a lot of investors use. And I mean, I have caught so many falling knives over the span of the last few weeks that my hands are metaphorically bloody. All I'm doing is juggling knives right now. And I'm going to keep doing that because I did that during the last recession and it got me to where I am today. And then my last thing, I think, is be comfortable with fear and don't feel like it's not okay to be fearful. It is okay to be fearful. Everybody's fearful and get comfortable with being okay with that fear. Yeah.

Those are mine. I think mine would be first and foremost make sure that you have a solid emergency fund. And again, that is true in any market. That's especially true right now. Make sure that you have an emergency fund that is minimum three to six months of living expenses. And if you want to take that further, take it further. But minimum three to six months plus annual out-of-pocket maximum for your health insurance. So secure that first.

And then if you want to buy on the dip, buy on the dip. Not for the sake of market timing, but rather for the sake of harnessing your enthusiasm about picking up a good value into making additional contributions above and beyond what you normally would have contributed. that's basically another way of saying you should be dollar cost averaging always. A fixed amount of money every single month that goes into your 401K, your IRA, keep doing that. So whether that's $1, $2,000, $500, whatever it is, whatever that fixed amount is, if you contribute a fixed amount every single month into your investment accounts, regardless of what the market is doing, then naturally that same, we'll say, $1,000, that same $1,000 is going to buy more shares when shares are cheap and fewer shares

when shares are expensive. So dollar cost averaging is an automated emotion-free way of taking advantage of market drawdowns. So keep doing that. And if you haven't set that up yet, set that up now. Make dollar cost averaging the cornerstone of your strategy. And then on top of of that if you want to put more money into the market and you have the money to do so, do it. But again, the point is not timing. The point is additional contributions. Plenty of people have asked me, is this a good time to buy rental properties? And really, the answer to that is if your emergency fund is taken care of first, like put your own oxygen mask on first. So if your emergency fund is taken care of first and you're not at a significant

risk of losing your job or having your hours reduced, then yeah, it's a freaking great time. You know, there are going to be fewer people making offers right now, most likely, which means that you'll probably be able to pick up homes at a cheaper price. And on top of that, mortgage interest rates are at a historic 50-year low. So this is a great time to pick up value deals. Plus, rental income is relatively stable and stable. steady. You know, it's a much more reliable source of income. That being said, for those of you who are currently landlords, if you're a landlord already, an act of public service that you have the

opportunity to do right now is to reach out to your tenants and say, hey, I just want to let you know, I don't want you driving for Uber with a cough in order to pay your rent. Saving lives is more important than paying rent. As your landlord, I'm telling you that saving lives is more important than paying rent. So please don't drive for Uber with a cough. If you're in a tough situation, reach out to me and we will figure something out together. You know, maybe it'll be an interest-free deferment on rent. Maybe it'll be a temporary reduction in rent. In fact, you could even, I was thinking about this this morning, you could structure it as a win-win. You could say, hey, tenant, I noticed that your lease is about to expire in August.

I don't know whether or not you're interested in renewing your lease, but I'll make you a deal. If you renew your lease for an additional year, I'll give you two months of rent free. And we can apply those two months right now. And then it becomes a win-win. You reduce your vacancies and the tenant gets two months of rent for free or forgiven right now. You know, so you can structure it as a win-win like that. That idea just occurred to me this morning. No, well, and I love that idea. And, you know, as I'm listening to you, it still reminds me, we open this up with cash reserve emergency fund.

Having a cash reserve emergency fund allows you the flexibility to do things like that. Yeah, exactly. The basics, Paula, no matter how salacious the headlines get, are still the basics. Yeah. Yeah. The rules of personal finance, the rules of long-term financial management have not changed. In fact, right now they are more important than ever. And the people in the fire community and the people in the personal finance community more broadly who are panicking are the ones who maybe in theory you've heard that this kind of stuff happens, but it's different when you experience it in your own portfolio. And especially if this is your first bare market, like, congratulations. Welcome to the club.

This is being an investor. So congratulations. Now you're a real investor. Joe, thank you for joining us for this very special episode. Where can people find you if they want to hear more of you? You can find me all over the place. Driving for Uber. Yes. Well, and I'll tell you, I have two podcasts. The Stacky Benjamin Show is every Monday, Wednesday, Friday.

If you can't get enough headlines, I will say that we look at headlines six days a week at money with friends. The difference you're going to find is we keep going back to what you and I, Paula, talked about today. We take these salacious headlines that you read. I apparently like that word today because I keep using it. But you take these headlines, these click-baity titles, and then we break down what you really need to know. So that's it, money with friends. I hope you enjoyed that episode. I will have a lot more resources for PSA Thursday.

I'll talk about my own experience. I'll talk about resources that you can access. Lots more coming up. Make sure that you're subscribed to the show so that you don't miss any of that. and I'll catch you in the next episode. Take care.