BiggerPockets Money Podcast - The “Silver Lining” for Investors After a Historic Week for Stocks| Life After FIRE

Starting point is 00:00:00 Hello, hello, my dear listeners, as you may or may not know, my husband Carl and I have a YouTube series on the Bigger Pockets Money YouTube channel called Life After Fire. As a very special bonus, we are going to be airing episodes here on Wednesdays. Without further ado, let's get into it. Hi there, I'm Mindy Jensen. And I'm Carl Jensen. And this is the Mindy. And Carl.

Starting point is 00:00:21 On Life After Fire Show, where we talk about what happens after you reach financial independence. Why do we call this show Life After Fire? Because we're talking about and talking to people who are living. their best life after reaching financial independence. Today we are speaking with Emma von Wisey, who is a CFP, but not your CFP. However, we can still ask her questions because she has a lot of knowledge. I am so happy to welcome back Emma to the Life After Fire podcast. Emma, thanks for joining us. Thank you on this very, very fun market volatility week. Yeah, so tell me about this. It's been a fun couple of days at the office thing. Yeah, I mean, it's really just we're taking it

Starting point is 00:01:00 one day at a time, I don't really check the markets, but at the bottom of my computer, and I can't get it to go away. It always kind of tells me what's happening. And so, I mean, it's been going down for the past couple days, and then we're now recording this on April 10th. Yesterday, President Trump announced that he's pausing the tariffs for 90 days. And I saw my computer. It shot up, like, five, six percent. We were all like, what the heck is happening? Check the news. Okay, more volatility. Yeah, it is crazy. And now today we're recording this, what I say, Thursday. It is back down. To use a professional market term, yesterday was a dead cat bounce, and the cat is falling back down today. Have you not heard that term before? I have it. Every time I hear it, it's such a gross term.

Starting point is 00:01:56 I don't know if it's really a dead cat bounce. This is all short-term thinking, which is not the right way to think about any of this. But I'm curious, I always think of people like you when these things happen. I see you. I'm picturing you in your office and the phones are ringing off the hook like you're grabbing 10 phones. And you become a psychotherapist at that time because everyone's freaking out. Is that what actually happens or tell me what actually goes on at your office when these market fluctuations at dead cat bounces happen? Yeah, I think for some advisors, that's definitely what's happening. But for us, we have really close personal relationships with our clients and we keep them very well trained. So like every time someone comes in and at the end of their meeting, we show them their statements real quick. And we point to the number and we say, hey, at any given point, this number could fall in half. Your $4 million could be two. And you just have to sit there and shrug your shoulders and say, you don't care. Because that's what investing is. There is always volatility. And

Starting point is 00:02:56 For our clients, I think the last time I was on, we talked about our cash buckets. And so for each client that's in distribution mode, we have about two years of cash or cash equivalence for them. And so we can weather any down market for at least two years, if not more, just by using those buckets. And so if we see a sharp correction or the market goes down for a while, we're just turning off their distributions. We're not selling.

Starting point is 00:03:23 And we're taking their distributions from cash. And so they're all okay. Maybe a couple panicked emails here and there, but most people just want to know that it's okay. And they know what we're going to say, but they just, they send us a message anyway just to hear it again. One comment and then one follow-up question. I love your 50% drop. Charlie Munger was probably my favorite money person of all time. And he has some quote that said, if you can't sustain a 50% drop in your portfolio, you're probably going to lose a lot of money over the long term.

Starting point is 00:03:55 And I love that because that's just how the markets work. Things go up most of the time, but they also go down too. And I think there perhaps there's data to back this up that you can comment on. I have a feeling that the way app is probably gradual. And then when we have drops, sometimes they're violent like we've seen lately. So they don't, things don't go up in the same way. They don't go down. But the thing I was going to ask you about it is I really like the two years of cash and distribution mode.

Starting point is 00:04:23 Because if you've got two years cash, the market drops 50%. Who cares? You're living off your cash that mitigates the risk for at least two years. Do you find that works for most people? Like what percentage of clients in distribution mode are on that two years cash plan? Almost all of them. And if we don't have the cash outside of their portfolio, we have it in, like within their IRA.

Starting point is 00:04:48 We'll like set a cash limit to we want at least $100,000 of cash. if that's their expenses for the year. So even if they don't have it outside the portfolio, we've created it inside. And it works really, really well, if anything, from a behavioral standpoint. Like, it's probably not going to make them the most money over time. It does help with that sequence of return risk where if you're pulling money out and down markets, that just kind of compounds and impacts you much longer down the road. I mean, and we talked about this on the last episode, it's so behavioral. They just feel so much safer when the market goes down. And then they're not, I hear all the time, the market goes down, you tighten your belt and you spend less money.

Starting point is 00:05:33 Well, I don't want people to spend less money, especially if they're in distribution mode, they're probably the healthiest they're ever going to be. I want you to go take that trip to Portugal. I want you to help your kids with what they need. And it just really helps that mental barrier of now they don't have to sell when they're down. They have the money available and they can do with it what they want. Emma, do your clients ever push back on having so much in cash? Every once in a while, yes, they do because they're like, well, it's especially the past couple of years when the market's been doing really well. A lot of them have, I mean, they have recency bias. I feel like we all do to an extent. When the market's been doing really well, you get a little greedy. You want your money to be doing that

Starting point is 00:06:19 well. Why would I have my money, especially now that high yield savings account rates are going down a little bit, you have your 4% in your high yield savings account. But if the market did 20% last year, I mean, you're like, well, why am I getting four? But then things like this come around and they're like, oh yeah, that's why we have the cash. And then they're happy again. Do you park this cash someplace? You mentioned a high yield savings account. Is it literally just cash in a savings account or is it in some sort of like money market or something that yields a little bit higher? So one year we do in cash and like that would be we all make sure it's all in a high yield savings account. So that's getting about 4%. And then the other year we will do some kind of bonds where our goal there is to just slightly beat inflation. I mean bonds over time they do a little bit better than the cash does. And so we just pick up a little bit there. So it's not all in cash, but a good chunk of it is. Emma, that's really interesting that you bring up the B word bonds.

Starting point is 00:07:23 I saw an article this morning that said bond yields are spiking. And Carl, you were trying to talk to me a little bit about this. Yields going up sounds like a good thing. So why is this bad? We don't own any bonds, but bonds behave in an inverse way where the more demand there is for bonds, the lower the yield is. So if yields are going up, that means people are selling off bonds, which is pretty weird because usually if people are selling off the stock market, people are buying bonds or vice versa.

Starting point is 00:07:56 So yields going up and stocks going down doesn't seem like a good thing. So then the question becomes who is selling these bonds. And in tough times you want yields to be low because that's going to determine interest rates, right? So the more people who buy bonds, I think the 10 years most closely tied to mortgage rates. Emma, please step in and correct me if I'm wrong about it. about any of this. I'm probably wrong about most of it, but you want yields to be down when you want interest rates to be low. I know there's various ways to do that, but it was weird that those yields spiked at the same time. We were having a sell-off, and I think people were speculating

Starting point is 00:08:31 and up in arms and going crazy about that. Have you been following any of this, Emma? I mean, a little bit. There's just so much happening, especially in the last couple of days, that it's a little hard to follow. I jokingly, I went in my trader's office earlier this morning, said, do you know what's happening with the bomb market? I was like, give it to me in five minutes or less. And he just looked at me and said, no. So again, Carl, you're saying that yields are going up because people are selling. And your explanation made sense, but that still makes it sound like getting into bonds would be a good thing right now because the yields are going up. Are they going to then turn around and go down? Or like, the fact that they work inversely is really messing me up.

Starting point is 00:09:16 This is past my circle of competence. I don't have any further information on this. Do you have anything else on our? It's so volatile right now. I would not make any decisions based off the current prices. I would, again, like we always say, you go back to your investment policy statement. What is your plan? How much bonds do you want in your portfolio?

Starting point is 00:09:38 How much stocks do you want in your portfolio? And you make sure that you're allocated to that plan based off your goals. I wouldn't make any decisions right now based off what the bond market's doing or what the stock market's doing. Yeah, I absolutely agree with that. And I want to go a little bit further and say, you know, to anybody who is really freaking out about this, the way that the market is handling itself right now, I would encourage you to write down your feelings.

Starting point is 00:10:08 What exactly is making you freak out? I mean, I know what's the stock market, but like, what about this? Are you afraid that you're going to lose money? Are you retired and you are afraid that you're going to have to pull money out before the stock market goes back up? Write down all your feelings because I want you to have an investment plan. And if you don't have an investment plan, now is the worst time to make it. But now is the best time to understand how you're feeling when it's dropping.

Starting point is 00:10:36 So write that down. And then when the market calms down, you can revisit this and say, wow, this really made me feel terrible, I need to adjust my asset allocation, not for the good days, but for the bad days. So that my good days, like, hey, the stock market's up. Awesome. Nobody's ever like, wow, that stinks. They're always, hooray, the market's up. But when the stock market goes down, some people are like, oh, well, you know, that's just

Starting point is 00:11:02 a normal part of the cycle. And other people are like, oh, my goodness, the sky is falling. I need to sell everything before I lose more money. You actually don't lose money until you sell. So don't sell. I mean, that's an oversimplification. No, that's exactly right. My dear listeners, we are so excited to announce that we now have a BiggerPockets Money

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Starting point is 00:14:23 Welcome back to the show. There's just so much going on. Like you said, Emma, it's hard to keep up. We keep going back to, okay, what's our worst-case scenario, right? In the history of time, the stock market has been volatile, but it's always trended up. And that doesn't mean that it's going to continue trending up, right? But what happens if it doesn't? If what's our biggest fear, a lot of people are like,

Starting point is 00:14:45 what if it goes to zero, right? Well, if it goes to zero, then targets out of business, Amazon's out of business. You don't have an iPhone anymore because Apple's out of business. And so, like, if that's the case, then it's the apocalypse. And all that matters is that you have spam and maybe you've taken some juditsu classes because that's all that's going to save you. Your gold bars aren't going to do it. The crypto means nothing. It's not going to save you. So we just have to keep invested and keep that big picture, that long view, because things are volatile right now and it always feels scary when you're in it. But then you always zoom out. And if you look at the history of time of the S&P 500, my favorite chart is where it's

Starting point is 00:15:28 plotted and it's like, here's the 2008 economic crisis. Here was the Vietnam War. And it plots all these major history events. The pandemic where we were like, we don't know what the future of the world's going look like. And those are all just blips now. And so based off that information, we have to assume that this is going to be a blip at some point in the future. Yeah, people always say scary comments when these things happen. I remember when COVID happened, someone said something to me that struck tear in my heart, aside from all the economic and the fact that there was a pandemic coming. I remember, I was talking to someone and Costco had removed samples. I don't know if you have a Costco membership amount, but they have samples there. And someone who was a,

Starting point is 00:16:10 like, yeah, samples are gone, and they might never come back. I'm like, ha, ha, ha, I don't want to live in a world with all Costco samples. But then they came back and life moved on. So I think perhaps one of the themes of this whole conversation is just to think, like you said, Emma, you can't react, you can't do things in the midst of the storm because you're going to make bad decisions and they're not going to be based on data. They're going to be based on emotion, which is never, ever, ever a good thing. I'm curious, maybe we should transition into what you should be doing, and that is having the plan or the investment policy statement. And like I just said, you don't want to create this in the middle of the storm. You want to do it when the skies are blue, when your thoughts are rational, and when things are going okay.

Starting point is 00:16:55 How would you advise someone to start thinking about creating a plan or this investment policy statement? It's going to be different for every person, but it's going to be based off your goals. We don't take market risk with short-term cash needs. So if you're going to have a big purchase coming up, that should not go in the market. I know a lot of times when the market's down, people are like, oh, I'm going to buy the dip. But if you need that cash for other things, you should not subject it to the market. And so that's step one is kind of creating your emergency funds, figuring out what expenses are coming up, and all that money is not going to be invested.

Starting point is 00:17:34 And then you can look at the next step, okay, what's going to be my midterm money? And then what's going to be my long-term money? And if you have a really long time horizon, then you can have more money in stocks than bonds and cash. But the shorter your time horizon is, the less time you have before you retire, your portfolio would get a little bit more conservative. And I wouldn't say completely conservative.

Starting point is 00:17:58 I think people can end up putting too much bonds in their portfolio. But it does kind of, you do want to add a little bit more in when you're in that distribution mode, but it's really just based off of where you're, at how much time you have moving forward and what your cash needs are going to be. I know someone, this is a pretty extreme situation, but he's our friend and neighbor and he retired in his, like, I think, early 50s. And he put his entire portfolio into cash. And he's smart, like, super smart guy, made a lot of money. But he's like, I just want to be ultra-conservative.

Starting point is 00:18:32 And I've adjusted for inflation. And I'm going to make sure if my wife lives to be 120, she will still have money. And the thing you have to do if you have this is to save up a whole lot more money because then you don't have that money working for you. I've thought about this a lot. And one of my favorite quotes, too, is there's a lot of risk to not taking risk because he didn't take any risk, but this particular person has left a ton of money on the table because we've just had like a spectacular bare market,

Starting point is 00:18:59 maybe one of the best of all time. And he's missed out on that whole thing. And that's what happens if you don't take any risk. keeping all in bonds or cash. We have this chart that we've been showing clients lately, and it's illustrating if you miss one of the best days of the market. And it's from 1980 to 2021. And it's if you invested $1,000 in the market, 40 years later, it'd be worth about $132,000.

Starting point is 00:19:24 And if you miss the single best day of the market in that 40-year period, one day in 40 years, you'd have, it was like $118,000. And then if you miss the five, you miss the five. best days, you'd have about $80,000, which is a little more than half of the 132 where you started. But at the end of the chart, it shows if you had everything invested in like treasuries. And that was, you would have $5,000 because it's just not growing. So we have to be subject to that market volatility to an extent. But we just have to be careful about how that volatility impacts us and making sure that we're not selling when it's down.

Starting point is 00:20:05 because then we could miss that best day. And usually that best day occurs within two weeks of the worst day. And so if you get scared and pull out, just like a lot of people probably did in the last week. They're like it's impending doom tariffs, all the prices are going up. Everyone, people are pulling out. They are getting scared. And then you would have missed yesterday where it shot back up. And then today it's back down again.

Starting point is 00:20:32 But again, we don't know when that's going to happen. and you can't guess. Yeah, and all this flies in the face of human psychology because humans want to optimize and have the best solution. So, Emma, you just said we hold our investments over the long term just to capture those few days that do really, really good. And there's another example of this, and that is holding an index fund, which is probably the best idea for most people.

Starting point is 00:20:56 I'm not at CFB. Emma is, but it probably is the best idea for most people. That's what Midi and I do. And you don't hold the index fund. fun to capture a thousand stocks that are performing, well, you hold it to capture those very few that severely outperform the rest, which is super interesting. So I'm sure there's a similar chart, Emma, where if you hold the entire stock market, but you didn't hold like Apple, Google, or whatever the top five stocks are, I think

Starting point is 00:21:23 Monster Energy Drink might be the biggest one. If you didn't hold those, you would have poor returns. So all this flies on the face of how humans want to think about life in general. Yeah, exactly. Emma, you just said a moment ago, people can end up putting too much in bonds in their portfolio. Bill Bankin recommends a 60-40 stock bond portfolio for the 4% rule and the safe withdrawal rate. What did you mean by too much bonds? I mean, I think this is really common when people are working with advisors, but also just when people are doing it themselves, you hear bonds are safety.

Starting point is 00:21:59 And that's the way the media portrays it. That's the way even target date funds are. set up more and more and more in bonds as you get older. And so people kind of think, okay, well, then as I get older, I need to add in a lot more bonds. And so I think 60, 40, 70, 30, and again, it's different for every person, but in general, 6040, 70, 30 is probably the sweet spot, because any more than that, and your money's just not going to grow. And even if you're 60 years old, your time horizon could be 30 years. And also, your portfolio is probably going to be passed down to your kids. So then that turns your time horizon from 30 years to 60, 70, 80, 100 years, because that

Starting point is 00:22:49 portfolio is going to outlive you. And just having too much bonds, like Carl said, your money's just not going to grow. And so finding that balance between growth and safety. And I mean, we want to some bonds in the portfolio again because it evens that right out, especially in distribution mode, because if it's all in stocks and say the market's down for more than two years and we've run out of cash, we want to be able to have some bonds in the portfolio that are more steady that we can sell from there as well. But too much and your money's not growing and your money has to grow. Inflation is real and it impacts your living expenses. And so your living expenses, it is kind of crazy to see some people's, we're looking at their like long

Starting point is 00:23:32 term projections, their couple hundred thousand dollars of living expenses now can turn into double that or triple that in 40 to 50 years just because of inflation. And so you're going to need a larger portfolio to support those larger expenses. And so you have to have that growth. Otherwise your portfolio is just not going to keep up with inflation. Okay. I love that answer. I was Googling once like how much bonds should I have or something like that. And Kevin Lirie said the amount of bonds in your portfolio should equal your age. Like if you're 52, your portfolio should be 52% bonds. And I was like, you know, I don't think I'm going to take that advice from you. You're a billionaire and I'm not yet. But I just can't imagine that that's

Starting point is 00:24:20 the right answer. That's certainly not the right answer for me. So I'm very glad to hear you say that you do need some, but you don't need that many because, I mean, even 60, 40 seems like so much. Carl and I are currently 0% in bonds. And that is fine for you guys if that's what you want to do. I do think having a little bit in distribution mode does help smooth

Starting point is 00:24:43 the ride. And I mean, studies show you can do a slightly higher safe withdrawal rate if you have a little bit more in bonds. They're just not the safety Hail Mary that people think they are. We have one more final ad break and we'll be right back after this. Tax season is one of the

Starting point is 00:25:01 only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your

Starting point is 00:25:31 phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast?

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Starting point is 00:28:51 Chicago, all right? The best of the best stories now with even more from Hulu. Amazing. Have it all with BYU on Disney Plus. Thanks for sticking with us. Way back on episode 1. 120 of the Bigger Pockets of Money podcast, we interviewed Michael Kitsis. And we, this interview actually was recorded right as the market started to drop during COVID, right at, like in March.

Starting point is 00:29:19 And we asked him about, you know, dollar cost averaging and love some investing and all of that. And that's not relevant to this conversation. But he said, the odds on mathematical answer at the end of the day is on average, markets go up more than they go down. So if you don't actually have a functioning crystal ball, best odds are just to put the money in as soon as you can. Because it goes up more often than it goes down. And I think that's really important for people to note. I love that chart that you shared with this just a moment ago. If you zoom in on any small space on that, you know, historical returns on the S&P 500, you'll see ups and downs and ups and downs.

Starting point is 00:30:01 Like in one day, it's up and down and up and down and up and down. And at the end of the day, maybe it's started. a little bit higher than it ended up or it started a little bit lower than it ended up. And that's when the market is up or down. But if you zoom out and you've got some ups and downs in the very beginning, it goes up again until August of 1929. It goes down until June of 1932. And then it is essentially an upward trend.

Starting point is 00:30:27 Yes, there's some big humps in there. But overall, it's an upward trend. So the market does go up more than it goes down. And when you get out, like you said, that was so brilliant. You were down for three or four days in a row. If you had sold, you missed yesterday's right back up. I mean, how much did yesterday come up? Did it erase all of the losses?

Starting point is 00:30:51 Not completely. I think it was somewhere between five and seven percent up. That's not a day that I want to miss in the market. So famously, Scott Trench sold 40 percent of his index holdings. in January of this year. So he missed all of those down days, but he also missed the upday of yesterday. So he looks like a genius for selling in January now. And he did take the money and he put it into real estate. He's the head of bigger pockets. He knows real estate. He put it into cash flowing, Denver real estate, which is what he really knows well. He made an educated guess informed decision. He didn't just hear it from somebody and be like, oh, I better sell. He sold based on not wanting to, you know, he thought the P. You was too high in the market. So he sold so that he didn't have to watch his portfolio drop in half. I just, I want to encourage people to make intelligent, informed decisions, not panicked decisions. And this goes back to that investment policy strategy or investment policy statement.

Starting point is 00:31:53 This is something that you should have written down. If you're working with a financial planner, work with them to craft this for you and revisit it on these days where you're like, wow, the market's down 6%. I don't love that. Emma, is now a good time to start looking into tax loss harvesting? Everyone's portfolio is different, but I think when the markets are down, there are things we can do to take advantage of it. I always say the markets are up. We're happy we're making money. If the market's down, things are on sale and we get to tax loss harvest.

Starting point is 00:32:24 So there is kind of a bright side on both ends. And so what tax loss harvesting is, is that if the market's down, you have your index fund, your VTSA. say VTSAX falls, you can sell it. Now, we don't sell when things are down, right? So what we're going to do is we're going to buy something that's very, very, very similar to VTSAX, but not the exact same because then you run into wash sale rules. But your index fund comes down, you sell it at the bottom, you buy something similar, and it comes back up, and then you have tax losses at the bottom that you get to write off

Starting point is 00:33:01 against gains. And so this can really be good if you are expecting really high gains. this year, say you're selling an investment property and the market falls, well, then you can capture those losses and use them against the gain of your investment property. Or if you have really highly appreciated stock in your portfolio that you want to get rid of or diversify, but it has high gains, the market falls, you can take advantage of that, you get your tax losses, and then you can sell some of the stuff with higher gains and offset that a little bit. So it is kind of a a little on the bright side of when markets are down, we do have this little thing that we can take

Starting point is 00:33:40 advantage of. I like that a lot. I think Carl and I are going to have a conversation after we stop recording. I'm so good at investing, though. I don't think we have any losses. Oh, man. Well, and it's interesting. Anytime the market's down, I know the market's down first because I'm getting emails that my traders are tax loss harvesting. I don't know it by checking the market. I know because I'm getting emails about the tax loss harvesting. But in the last couple days, I haven't gotten one email about it. But why the markets have been down, but it's because they were so up in the last couple years that very few people actually have losses in their portfolio. Because the last 2024 and 2023 were so good.

Starting point is 00:34:24 But if you invested a good chunk at the end of 23, then you probably will have some decent losses that you can look at. Yep. And that is the real reason why we don't have any losses, not much. trading expertise. Yeah, because we're long-term holders. All right, Emma, this was so much fun talking to you today. I always appreciate when you're able to come back on and chat with us. Do you have any last words of advice or soothing to people who are starting to look at the market and say, oh, my goodness, should I stay in? I love J.L. Collins' stock market crash video. I just, sometimes I'll just send that out to people. He's just super Zen and he's like, the market is falling. It's going down,

Starting point is 00:35:10 but you will be okay. It will come back up eventually. Or it's the apocalypse and you need spam and juditsu. But really, like, everybody will be okay. At some point or another, we will overcome this. Like, we always have as humans. We spend a lot of time stressing about things. And then once we're faced with the problem, another door opens and we find the way out. We're really, really good at that. And so I can't guarantee anything, but if I had to guess, we will be okay. Is this the one that's called a guided meditation for when the stock market is dropping? Yes. I love that one. And we will include that in the show notes below. All right, Emma, where can people find you online? I'm not on the internet as much as I probably should be. I'm on Facebook sometimes in a couple groups.

Starting point is 00:36:03 My LinkedIn probably is where most people would want to connect with me. But I don't have a big presence or anything. I'm not cool like you, Mindy. My kids would disagree. They think you're way cooler than me. All right. Well, if you want to get in touch with Emma, you can email Mindy at biggerpockets.com and I will forward it along. Okay, Emma, thank you so much for your time today and we'll talk to you soon.

Starting point is 00:36:23 Thank you for watching. If you like this video, please click the thumbs up. And don't forget to subscribe to this channel for more fire information just like Emma provided. This is Vindy Jensen, signing off.

BiggerPockets Money Podcast - The “Silver Lining” for Investors After a Historic Week for Stocks| Life After FIRE

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