The Personal Finance Podcast - We Are Officially in a Bear Market. Here's Why You Shouldn't Panic!

Starting point is 00:00:03 What's up, everybody, and welcome to another episode of Money Q&A. And today, we have a bunch of great questions for you. If you want to send me a question, hit me up on Instagram or TikTok at MasterMoney Co. And follow us on Spotify, Apple Podcast, or whatever podcast player, you love listening to this podcast soon. If you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. So today we have a bunch of great content for you. The first thing we're going to be talking about is why it is important to not panic in a bear market. And I'm going to give you a bunch of really good information because we just hit a bear market

Starting point is 00:00:40 on why you shouldn't panic and why it actually might be a good thing for your portfolio. Then we're going to discuss what is the diversified portfolio when you invest in ETFs? How do you build up a diversified portfolio within ETFs? And then lastly, we're going to be talking about how to keep track of your expenses when you have an HSA, your mileage, all those other things as well. So if that's something you're into, let's get into it. All right, so we have officially entered a bear market. And what I'm going to do today is I'm going to talk about why this may not actually be a bad thing and why you need to get an understanding of why this may not be a bad thing. And this is something that we may do from time to time on the

Starting point is 00:01:22 Q&A episodes is we'll talk about some things that are happening right here and now. Because usually on our normal podcast episodes that we have every single Wednesday, those episodes are meant to be evergreen, meaning those episodes are meant to be things that you can use forever and ever and ever. It's timeless financial information. So what we're going to do today is we're going to talk a little bit about bear markets, how they work, and why it's not that bad of a thing, and why you should definitely not be panicking because we are in a bear market. And I'm going to explain the difference between a bear and a bull market as well. And then we'll jump into some of your questions as we go on here. So we have officially entered a bear market. So what does that

Starting point is 00:02:00 mean? So you're officially in a bear market when stock prices drop at least 20%. But here's a really cool fact about bear markets. The average bear market is about 289 days. But the average bull market is well over 990 days. It's actually 991 days to be exact. Now, why is this incredibly reassuring because the average bear market is much shorter than the average bull market. What does that mean? That means that stocks go up more than they go down. Now, if you don't know what a bear market is, it means that when the market goes down, they call it a bear market, 20% or more, it's a bear market. And when the market is going up, it's called a bull market. That's why on Wall Street there's the bull statue on Wall Street, because most people who are

Starting point is 00:02:43 investing want the market to go up so that you can make more money. But here's the thing to understand about the bear market, is that is a much shorter time frame, historically. than is what bull markets are. So this is something that's really reassuring because the market goes up more than it goes down. Now we heard this in our episode with Brian Faraldi where he talked about this. He said the market goes up more than it goes down.

Starting point is 00:03:05 And this just helps reassure that fact. Now here's another really, really cool stat about bear markets because stocks lose about 36% in bear markets, but they gain 114% in bull markets. Now, if this doesn't make you want to invest, I don't know what will. Because in bear markets, when the market goes down, it goes down about 36%. But when the market goes up, it goes up 114%.

Starting point is 00:03:31 This is just another indicator that stocks go up more than they go down. So when a bear market comes around, it's a very normal event. This is going to happen. This is going to happen very frequently in your life. In fact, over the course of a 50-year investment time horizon, you should expect to see about 14 bear markets within your investing career. This is something that is so incredibly normal. And you have to anticipate bear markets.

Starting point is 00:03:58 You have to know that they're coming and you have to train your brain to understand when the market goes down. When the market takes a dip, I know that stocks are actually on sale. Good companies are on sale. And that's a time where I need to look at continuing my investment plan. And if I have extra cash, maybe I want to even invest that extra cash when I'm in a bear market. because you want to buy low and sell high. The problem is most people do the opposite.

Starting point is 00:04:24 Warren Buffett said, be fearful when others are greedy and greedy when others are fearful. So if you're going to be greedy when others are fearful, meaning you're taking advantage of when the market is in mass fear, when the stock market is going down. Now this is easier said to done. I'm saying this like it's an easy thing to do. It's not because your emotions get involved

Starting point is 00:04:42 when you start investing. But if you can learn to train your brain to do this, that when bare markets are in play, we know the stats here. Bear markets go down on average, 36%, and bull markets go up 114%. That's a winning formula for you. That's a winning formula for me.

Starting point is 00:04:59 That's a winning formula for anybody who's looking to build generational wealth and create wealth for their family. So this is something that is going to change your life if you can get this down and you can understand this. Now here's another incredible stat. This is one where you need to keep your dollars invested if you're investing during a bear market.

Starting point is 00:05:18 A lot of people get scared. They want to pull their money out when a bear market comes along. Here's why you don't want to do that. Because in the last 20 years, the S&P 500 has had its best performance 50% of the time in bear markets. This is an indicator why you absolutely must keep your dollars invested.

Starting point is 00:05:39 Because if the S&P 500's strongest days are 50% of the time in a bear market and you don't have your dollars invested during that time, you're going to be missing out on a lot of gains. When we talk about those 10% rate of return, you have to keep your dollars invested to get that 10% rate of return. Otherwise, you're not going to get that rate of return. If you get scared and you pull your money out or you let your emotions get involved,

Starting point is 00:06:01 you're not going to get that 10% rate of return. You're going to get a very different return. It's going to absolutely change the trajectory of your wealth building formula if you do it that way. But if you just train your brain to keep your dollars invested within a bear market and know, hey, there's good things. along the way. Historically, it has shown that good things are coming. Now, a lot of things change all the time. Obviously, history can't indicate the future, but since 1928, these are the stats that have

Starting point is 00:06:26 happened. Almost 100 years of historical data is what we have on this stuff. So you have to be able to trust historical data. Now, here's another really cool step, that bear markets do not automatically indicate a recession. Since 1928, 14 bear markets happened right before recession happened. Okay, So that may be somewhat of an indicator that the recession is coming. But 11 bear markets happen and no recession happened whatsoever. There was just a slight pullback. And then we were back in business again. So a bear market does not indicate that a recession is coming.

Starting point is 00:06:57 So we have a bear market right now. It does not indicate that a recession is coming. We had one in 2020 during COVID. It does not indicate that a recession is coming. Now, what was the worst bear market of all time? The worst bear market of all time was in 1929 is when the Great Depression started where the S&P 500 lost 86%. during that time.

Starting point is 00:07:16 Now listen, I know this is something that doesn't sound good to lose 86% of your money, but guess what? It didn't go to zero and look where the market is now. So even in the worst of times keeping your money invested over time is something that can really benefit you when you look at the historical data.

Starting point is 00:07:33 Now listen, these stats should be giving you peace of mind. They should be helping you understand that bare markets are a very normal thing. And if you're an investor, if you're a long-term investor and you're going to invest your money, 50 years or longer, you're going to expect to see bear markets. Specifically, historically, we've seen 14 of them, like we said.

Starting point is 00:07:51 So you need to expect to see these bear markets coming up as an investor. And you need to make sure that you're not reacting to bear markets, that you're continuing to invest, you're sticking to your investment plan, and you're making sure that you are brick by brick building wealth for yourself, your family, and whoever else that you do this for. So listen, I hope this is reassuring for you, because a lot of people are messaging me saying,

Starting point is 00:08:15 should I stop investing? Should I not invest my money anymore? You absolutely should continue your investing plan so that you can create financial independence for yourself because nobody has a crystal ball. Nobody knows when a recession is coming. You don't know when a recession's coming. I don't know when a recession's coming.

Starting point is 00:08:31 No financial guru knows when a recession's coming. So the only thing that you can do is focus on the things that you can control and continue your investing plan over time. This is the most important thing that you can do with your money is to stay focused, stay grounded, and make sure you just continuously put that money into your investment plan. So if you're investing in index funds, you're just continuously putting $500,000, $600,000 a month into your index funds and you don't stop your plan just because there's economic indicators that indicate, oh, maybe a recession is coming. Maybe it is, maybe it isn't.

Starting point is 00:09:03 But I don't know that. You don't know that. And anybody who tells you they know that, write them off immediately because guess what? Nobody knows that answer. So keep investing, keep doing your thing. Don't panic. Don't worry about what's happening right now. We're in a bare market. So what? And because you guys are wealth creators, because you're people who want to build wealth, you know that keeping your dollars invested is the best thing for your financial freedom. All right, so let's jump into some of your questions. Do you have a percentage breakdown of ETFs to invest in to have a diversified portfolio? So what this question is asking is how do you set up your asset allocation?

Starting point is 00:09:42 And what asset allocation means is how much of each type of stock or ETF that you have in place so that you can have a really diversified portfolio. Now, the cool thing about ETFs and the cool thing about index funds is that when you invest in index funds and you invest in ETFs, you're already getting really diversified just by investing in those funds. So if you want extreme diversity, meaning maybe you want to add some international stocks, maybe you want to add some tech stocks, maybe you want to add some bonds if you're risk averse, then you've got to figure out a couple of things first. First is, what is your

Starting point is 00:10:14 risk tolerance? Meaning, if the market goes down, do you start to panic? Do you start to freak out every single time the market goes down? If that's the case, then maybe you want to add some bonds because they're less volatile, meaning they less frequently go up and down when the market has some of these corrections. Or are you willing to deal with that volatility so that you can have the highest returns? Well, maybe you want to have more stocks over time than bonds if you want the highest returns because this is the thing to understand. Stocks outperform bonds historically over time significantly, but stocks are more volatile, meaning they go up more and they go down more. Now, there's all different kinds of ETFs. There's ETFs that follow the S&P 500, which are some

Starting point is 00:10:55 of my favorite. There's some that follow the total stock market. There's some that just follow tech socks. There's some that just follow specific sectors. There's all different sorts of ETFs that are out there. And so understanding which ones that you want to invest in and having that asset allocation in place so that you can be diversified is a very important thing. But a lot of people actually overthink this. So I'm going to give you a couple of different portfolios so that you can think through your options. And in our new course Index Fund Pro, we actually go through a bunch of different asset allocations and kind of teach you how to actually figure out what the best asset allocation is for you. So make sure you're staying too, because that's coming out in the next

Starting point is 00:11:30 couple of months. We're going to go through exactly how to do that in that course as well. So I'm to talk about some of that here, and I'm going to show you some portfolios that are great options for you to think through. So the first one is what I call the simple path to wealth portfolio. So in the simple path to wealth, the book, The Simple Path to Wealth, J.L. Collins lays out the case that really all you need is a total stock market, ETF, or index fund. Now, why is this the case? Because when you own that, you literally own a small piece of every single stock within the U.S. stock market. So this is something where you have extreme diversification just by owning a total stock market index fund. An example of this would be VTI, which is Vanguard's total stock market

Starting point is 00:12:11 indexed ETF. And this is one where you're owning a small piece of everything from every type of sector to some of the big companies to the small companies. You're all over the place when you own a total stock market index fund. So the case can be made here. Well, what if I want international exposure. Well, in that portfolio, in that total stock market index fund, a lot of those companies, and most companies in the U.S. also deal with international companies and they deal with international customers. So you have a lot of international exposure just by doing that, by buying the total stock market index fund. The same can be argued just for the S&P 500 because all those big companies, you can think of those large companies that are in the S&P 500, from Google to Apple,

Starting point is 00:12:51 to Amazon, to Alphabet. There's so many different companies that are within the S&P 500. You can think of P 500 that deal internationally. But let's say, for example, you don't want to just be in stocks. You want to have a little bond exposure. Well, another portfolio is called the Warren Buffett portfolio. This is one where Warren Buffett puts all of his family's money in this exact portfolio. Now, he uses index funds, but you can also use it with ETS because they have very similar returns and are almost exactly the same like we talked about. If you haven't heard our episode on the difference between index funds and ETFs, I would definitely check that out. And I'll link it down the show notes below so that you can check it out.

Starting point is 00:13:26 because we explain the differences, but they're very minor and the returns are almost the same. I like ETFs only because they are very liquid and you can liquidate them quickly and they're just a little more flexible for most people, especially beginning investors. So the Warren Buffett portfolio is that you have 90% of your money in stocks and then you have 10% of your money in bond ETFs. So this works really well because you have the bond exposure in case you don't want extreme volatility, but 90% of his portfolio is in the S&P 500. So he invests in the S&P 500 for 90%, and then the 10% is in the total bond market fund. Now, this is a great portfolio as well, and this is one that I carried within my 401K for a very long time because it makes a lot of sense for most people, especially if you have a longer time horizon.

Starting point is 00:14:12 Now, I will say this. If you're in your 20s or 30s and I was in your position, I would have the majority, if not all of my portfolio into stocks because the fact is you have a very long time horizon and allowing your money to compound over time is something that you definitely. want to be doing. You can take on more risk because you have more time. The market going up and down doesn't really matter. But as you approach retirement age or if you're going to retire early, then maybe you want to start adding bonds if that's something that's within your risk tolerance profile. For me, I'm going to have stocks forever. I'm not going to have much bonds

Starting point is 00:14:44 in my portfolio only because I've learned to tailor my emotions. I've trained my brain to not really worry about market fluctuations. So for me personally, I'm going to have a lot less bond exposure than the average person. But if you're risk-averse and as you approach retirement, you want to start adding bonds into your portfolio for a number of reasons. But one of the main ones is so you have less volatility, meaning the market going up and down. So you could do something like a traditional portfolio, which is 70% stocks and 30% bonds. Now this stocks can be broken out into, say, 50% U.S. or the S&P 500, 20% international ETFs, and then 30% bond ETFs. You could do it that way, where it's 50, 20, 30.

Starting point is 00:15:26 And you can do any variation of this as you want. But this is called a three fund portfolio. And with a three fund portfolio, what you have is you have U.S.-based stocks, you have international-based stocks, and then you have bonds. And you can adjust this as time goes on. Now, this is why I love Target, Date, Retirement Index funds because they do this for you. So you don't have to change your asset allocation as time goes on.

Starting point is 00:15:51 Target-date retirement funds actually change it for you. Now, you got to make sure that you have the low cost ones because there are some really high cost target date retirement funds within 401ks and things like that. So you got to look at, hey, how can this be adjusted automatically? And if they're index funds, usually their costs are lower. So you got to make sure you look at the expense ratio to make sure those costs are low enough. But these are something. If you have access to target date retirement index funds, you want to set it and forget it and not think about your investments again. Those are absolutely amazing for that situation.

Starting point is 00:16:22 And they do a three fund portfolio automatically for you. But if you want to do it yourself and you wouldn't adjust it over time, you can look at a three fund portfolio, which is stocks, international stocks, and bonds. And then the last thing that you can consider is if you want to add more tech exposure, maybe you think that tech is the future, which most people do, then you can add funds like QQQ and all these other ones that are coming out now that have more tech stocks within their portfolio.

Starting point is 00:16:46 You know that the S&P 500 has a ton of international exposure, but maybe you want to add more tech stocks. You can do something like that as well. where you have the S&P 500 ETF, you have a tech ETF, and then you have bonds in place as well. So you can kind of adjust your portfolio based on your risk tolerance,

Starting point is 00:17:02 but you've got to figure out what your risk tolerance is. Do I panic when the market goes down? Well, I need to add more bonds if that's the case. Or am I okay with getting higher returns, but the market moving up and down much faster, my portfolio may be losing 20 to 30% within a bear market. Am I okay with that?

Starting point is 00:17:18 If I'm okay with that, then you can go ahead and have a lot more stocks if you want to because you're going to have a higher return doing that. Now obviously always do your own research in doing this. So look at some of these portfolios. Do your own research so that you can figure out what is best for your own personal situation. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor

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Starting point is 00:20:38 Find your advisor at IGPrivatewealth.com. The next one. How are you tracking HSA expenses for non-doctor expenses and mileage to appointments, sunscreen, medications, et cetera. Okay, so I have a very simple system when you want to track your HSA expenses. And the way that you want to do this is you want to save your receipts in something like a Google Drive. You can use Dropbox. You can use any of these options, but some sort of online file saving system.

Starting point is 00:21:07 Now, I go a step further and I'll explain that here at a second. But what you want to do is each time you spend money that is qualified for an HSA, then you want to go ahead and save that receipt within that folder. So I usually do it in a yearly basis because I don't spend a ton of money on medical expenses right now. So what I do is I save the receipt, scan it in, add it to a Google Drive. I do it usually with my phone and it's very easy to do. It takes me about a minute each time I have to put a receipt in there and then I save it in there. Now you can go one step further and reconcile this in a spreadsheet or something like that

Starting point is 00:21:39 where each year you just put in, hey, here's how much money I've spent that I can use for my HSA. that you can keep track of it over time. Now, that's just an extra step. You don't absolutely have to do that, but it's much easier to keep track, and I think you're going to be happier over time when you do that. Now, some of this stuff is a little bit tedious.

Starting point is 00:21:56 So if you're going to do that, you just want to make sure that maybe you schedule a time once a month or once every other month, just to compile it all into one place, so that you can just batch this so you don't have to spend a bunch of time every single day working on this. Because it's very simple if you just batch it all at one time.

Starting point is 00:22:10 Just lock out time on your calendar, schedule it to do this, and you can keep it all organized, that way. Now, when it comes to mileage, mileage is something that's a little bit different. So I use an app for my business called Mile IQ, and I use this the same way for mileage for doctors visits. And what it does is it lets you classify each drive. So you can say, hey, this was for medical purposes. So put this in my medical drive. And all of a sudden, Mileage IQ has this folder where it builds up for the year, the amount of miles that you drove for medical purposes. And I have

Starting point is 00:22:40 a separate folder for business, and I have a separate folder for other things that I need it for as well. So this is a great app to use. Now, it's $60 a year for the pro version. So if you're not doing a ton of medical drives, then maybe you just want to do this by hand by looking at your speedometer and just saying, hey, right now, before I leave, my spadomar is at 20,000 miles.

Starting point is 00:22:59 And when I get to the doctor's office, it's at 20,050 miles. And so that's something where you could do it by hand if you go to doctor once or twice a year, or you go out and get medical supplies once or twice a year. But if you do it more frequently and maybe you're doing it monthly,

Starting point is 00:23:12 then you can reimburse yourself and it's worth the money if you can do it that way because it keeps everything organized. Now, if you have a business, Mile I-A-Q is amazing because you're going to make your money back with just a couple of drives because you can get over 50 cents per mile for business driving miles. But this is my system to keep track of it. Now, I specifically use Google Drive. I set up folders for each and every year. I upload the receipts in for that year.

Starting point is 00:23:36 And then I keep a little Google sheet just to keep track of the expenses every single month I go through and just add those expenses if I have any. Now, like I said, I don't have a ton of them, but I do have more now that I have kids, and I use it more frequently. So it's something that you definitely want to keep track of and keep the receipts in those folders. The reason why you want to do this is because if the IRS comes a knock-in and they want proof, you need to have that proof so that you can reimburse yourself. So making sure that you have this available to you, and it's in somewhere where you can access it anywhere is something that's really important

Starting point is 00:24:08 because a lot of the HSA sites do have places where you can save your receipts there, but the problem with that is if you ever leave that HSA provider, your receipts are stuck in there and then you've got to move it all around. So I just like to have it in one central place so that you can access it at any time. Then I use Mile IQ to make sure I keep track of that as well. Thank you guys so much for listening to this episode of Money Q&A. If you want to send me your questions,

Starting point is 00:24:30 hit me up on Instagram or TikTok at Master MoneyCO. And make sure you follow us on Spotify or Apple Podcast or whatever podcast player you're listening to this podcast to and if you want to help out the show and I can't thank you guys enough for doing this please leave a five-star rating and a review on Spotify or Apple Podcasts or whatever podcast player you're listening

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The Personal Finance Podcast - We Are Officially in a Bear Market. Here's Why You Shouldn't Panic!

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