0:00 – Introduction to Jeremy Finger of Riverbend Wealth Management
1:09 – Introduction to John Diehl of Hartford Funds
2:20 – Maintaining Perspective in a Crisis
3:50 – Who is MIT Age Lab
6:28 – Relationship between Stress, Anxiety, and Crises
11:07 – Crises/Issue Lifecycle
21:40 – Impact of Anxiety on Investor Perception
23:00 – Be Constructive, Not Destructive
25:09 – Investing Attention in the Negative
27:13 – It’s Always Something
28:58 – Ambiguity Is Seen as Negative
31:56 – Loss Aversion
35:01 – Panic Markets & Price of Panic
38:35 – What can you do to check Yourself?
50:00 – Contact Us
Jeremy: Welcome! This is Jeremy Finger with Riverbend Wealth Management. Welcome to the webinar today. We’re gonna go over a lot of things that are very helpful. A little bit about me, I’ve been in business for over 23 years, working with some wire house as well as Fargo Advisors Merrill Lynch. I started my own firm, Riverbend Wealth Management that uses fidelity investments and independent meaning that I’m a fiduciary. I can use about any product or service with no conflicts of interest at all. I know proprietary products or anything and my intention for you today is to get some good information that you can take home and think about and do some actionable steps for you to help improve your financial life, okay? I have with me today John Diehl who is with the Hartford, he works with the MIT Age Lab that studies aging and retirees and the Asian process and so, John, I’m gonna hand it off to you and take a look a little bit about yourself and all some of the things we’re gonna be going over.
John: Great! Thanks Jeremy. Thanks for having me on today and by way, a background, as Jeremy said, my name is John Diehl. I’ve worked with Hartford funds now for just shy of 32 years, but the last 20 years, I’ve spent studying consumer behavior, the influence of technology changing lifestyles, decision making, all in conjunction with our research partners at the Massachusetts Institute of Technology Age Lab and I head up a team now of six folks who take the learnings from the projects that we helped develop at MIT and we share those with financial advisors and more importantly with their clients and so I’ve really enjoyed working with you, Jeremy, over the past couple of years and really appreciate the opportunity to join with your clients today.
Jeremy: Absolutely! And a little bit of housekeeping, you are welcome to ask questions, hit the Q&A at the bottom of the screen or the chat and I’ll try to monitor that as we go on, but yeah, thank you very much John. I appreciate all your help and take it away.
John: Absolutely! So, Jeremy, today’s presentation we’re going to be talking about, actually, a field of study that I worked on with MIT beginning back in 2008 but it’s very pertinent to where we find ourselves today in the midst of the covid19 crisis. The name of the presentation is Maintaining Perspective in a Crisis, because as we start to think about what’s going on, the influence of, and the first thing I’ll say, Jeremy, is certainly this virus is a real thing, right? and I don’t mean to minimize the impact of the virus in terms of perhaps even within our neighborhoods, within our families and maybe even we ourselves have had interaction with this virus but my hope is that everybody is staying safe and healthy but what I do want to share with you is from the research perspective. Maintaining perspective in the midst of a crisis is very important especially when it comes to your financial plans and your long-term objectives because we know and we’ll talk about through this presentation today, how people, who are in the midst of a crisis under great anxiety tend to react emotionally and most of us probably understand it’s easy to say when we’re not in crisis but when we make emotional decisions, we’re very apt to make mistakes and so let me see, let me just explain a little bit first about who the MIT Age Lab is and what they do. So the MIT Age Lab is actually an MIT School of Engineering. It’s about 40 researchers, not all engineers, there are sociologists, psychologists, you name it. A whole host of ologist really studying what it means that Americans today are very likely to live in their 80s, 90s and beyond. They’re looking at consumer behavior and decision making and how those things are influenced by changing demographics. The impact of technology and a shift of lifestyles and so the MIT Age Lab is actually working with industries and companies not just in the United States, but around the world. Helping to think about how all these things come together to create new demand, new needs for systems, and maybe new ways of thinking. I’ll just give you a brief example, Jeremy, for your clients, you’ll see on my slide the researchers, they are leaning up against a Volkswagen Beetle. The Auto Industry is one of the leading clients of the MIT Age Lab, that Volkswagen Beetle is the only $2,000,000 Beetle you’re ever going to find because that car is ticked out with all kinds of technology meant to measure driver acceptance of new technologies in the car. Maybe some of you today drive automobiles that are equipped with Blind Spot Warning Systems, Safe Cruise Control System, Smart Headlights Reverse Monitoring Systems. Many of those systems were developed with the aging driver in mind, because as we age, reflexes slow muscle atrophy sets and even neck rotation becomes more limited. By incorporating technologies into the automobile we’ve actually made it safer for older drivers. You may be wondering about the funny suits that those folks are wearing, the researchers are wearing, they’re actually wearing an aging suit. That suit looks like coveralls, but has belts and straps, a collar, helmet, and goggles. It’s meant to calibrate what it would feel like for anyone to be 80, 85, 90 years old, so as we think about limited mobility in the limbs or impaired vision neuropathy and the feet are in or decreased neck rotation by putting people into that suit which was designed by students at Hartford Med along with the engineers at MIT, we can begin to gain some empathy and think about it, when it comes time for a product designer to design a new product or a new service, what better way than for them to experience it themselves as one of their clients may in the future. So, just a little background here to orient you with kind of who this group is, we’re focused on their research today, because in today’s presentation we really want to talk about the relationship between stress, anxiety and crisis. We’ll talk about the instinctual behaviors that we may have to check ourselves in our own behaviors. It’s not really our fault, it often happens unconsciously, but if we’re aware of what some of the behaviors are maybe we can take steps towards maintaining perspective and making better decisions especially during times of crisis and anxiety. So let’s start by talking about stress, anxiety and crisis. The first thing I want to stress, no pun intended is what stress actually is. See, stress is really the disruption of any kind of normalcy, think of throwing the pebble into a pool, the pebble is the stress or the stress or the waves that result from it. You can have good stress or bad stress. An example of good stress would be you didn’t expect a surprise birthday party when you walked into your home but surprise well, we like that kind of stress. We don’t like distress, distress is the negative stress, the upsetting stress, the thing that really serves, it starts to kick up our emotions and especially our fear emotion. Let me just touch on the difference between fear and anxiety. Fear is an emotional response to a clear and present danger so when I walked into the room today, let’s say there was a snake under my desk. We all know what would happen, right? We’ve heard it time and time again we’re either gonna run like heck or we’re gonna fight that thing. Fight-or-flight response is the human reaction to fear. Fear is an emotion that presents itself in light of a clear and present danger but that’s different from anxiety. Anxiety is actually, if you think about it, the fear of a fear. Anxiety is the anticipation of a clear present danger whether it’s real or not and in our current crisis this is where we’re kind of stuck between our art. Is it a real fear or is it anxiety, right? We know that the virus is you know, it showed up in Washington State, it’s in New York, now, it’s in my state, my County, my neighborhood. Perhaps I know someone who got it, our actions being driven by fear or anxiety and I will tell you what we feel as human beings is also being felt in the financial markets. When you see great volatility, it’s oftentimes because there’s a lot of emotion, there’s known outcomes, nobody’s quite sure of what’s going on and that emotion seems to grab the moment resulting in wild swings in all kinds of different markets and so you know understand the difference between fear and anxiety, and lastly the word crisis. Crisis is, I think it’s the most overused word in the media today, right? but what a crisis really is, it’s when you get to a stage in a sequence of events where from here on out, nothing else is going to be the same I think it’s fair to say the Covid19 has caused a crisis, Jeremy, and I were just talking that I was in conversation with Dr. Joe Coughlin who heads the Age Lab yesterday and Dr. Coughlin said what this crisis is doing is accelerating a lot of things that might have actually occurred over the next five to ten years take what we’re doing right now, virtual conferencing, right? Being able to talk to one another virtually no matter where in the country we are. We might have casually tried it a couple of times but most think that on the other side of this crisis we’ll be using these kind of technologies to speak not only from a business or an education standpoint and I don’t even want to get into the implications for educational institutions. We may use it to talk to family members and friends much more than we did prior to the crisis so that’s just one simple example of what a crisis really is. So I really want to talk to you and you’ll notice on this screen that says crisis we put a bunch of different headlines up, right? which go back to the Great Depression in some cases but you might realize you know what some of these things were and you’ll see the Flattening the Curve crisis over on the right side of the screen. My point in the next few slides to share with you, is that although every crisis is unique in certain aspects, it’s usually called a crisis because we’ve never dealt with it before, we don’t know what to expect we don’t know what’s going to happen but the fact of the matter is beyond their unique characteristics. Crisis actually does share things in common let me explain, the graph that I have in front of you is called the Issue Life Cycle or the Crisis Life Cycle. You’ll see a tension on one axis and time on the other, most crisis today in the United States stick in public perception on an average of about 30 days. It’s usually like 30 to 45 days, not that those crises can’t spin out other sub crisis, we can talk about that a little bit but let me just explain and I want you, as you think about this graph in front of you. I want you not just to think about the current crisis but I want you to think back in your life to other crisis that we’ve lived through maybe you go back to 2008, 2009 the the the Great Recession or maybe back to 9/11 of 2001 that the terrorist attack in New York City and what you’re going to find is that many crisis share a common life cycle. Let me explain and I’m gonna divide this graph into three sections, the three phases of a crisis if you will we’ll call it the initial phase, the peak phase, and then the ebb of a crisis. Let’s start in the initial phase on the left side, you’ll see two lines the arc is really your attention the the blued line running up through the middle is really important, the knowledge line, that’s how much we know at any point during the crisis so imagine this year, you’re riding to work you’re into your normal daily routine, the televisions on, the radios on and all of a sudden there’s a breaking news event. There’s an event of mobilization and immediately as human beings we begin to investigate, that’s the investigation and at no other point in the crisis will our attention be ramping up as quickly as it does in the initial phases of the crisis. Because our attention is ramping up, that is a hook for the media. The media says I got people looking for information we’re gonna cover this wall-to-wall and I want you to think about how pervasive the media is right now, not only in terms of the number of outlets but it’s not just on your evening news anymore. It’s in your pocket, it’s on your desk, it’s at the gas pump, it surrounds us. It’s ubiquitous and so the important thing you need to know about the initial phases of crisis is Dr. Coughlin at MIT says in this initial phase, the information that you’ll be receiving is going to be constant, it’s going to be conflicting and it’s going to be crushing. Why is that? Well the fact is that everyone wants to jump on this attention bandwagon. Everyone wants to kind of tell you what they think is going on about this crisis. I want you to look very closely at where we are in terms of knowledge at that point. The truth is we know very little about what’s going on but that doesn’t stop dozens of talking heads on any channel you turn to telling you exactly what’s going on even though they don’t know what’s going on, right? Everybody’s an expert, right? Well, Jeremy, I just ask you to think about the amount of information that we received in the last 30 to 45 days, let’s say that has been conflicting. How about things like, hey this virus doesn’t affect young people, well actually, it does. Well this virus is no different than the flu, well, some say it is, some say it isn’t. It appears to be extremely contagious much more so maybe than influenza but we can’t even get good mortality figures on it because we don’t have enough knowledge, right? Even simple things, Jeremy, I’ve been on God’s Green Earth here for 53 years thinking I knew all along how to wash my hands, now, I find myself singing Happy Birthday twice at the bathroom sink, right? So we’re learning new things but in the initial phases of the crisis, the important thing is that we know very little, but the information we’re getting is constant, conflicting and crushing. In the second phase of the crisis, we move to what’s called the peak and the reason why our attention will eventually peak is at the very top of that arc. You see that the title Preliminary Assessment or Preliminary Allocation of Blame. What this means, it kind of depends what kind of crisis you’re in, but eventually there will be an assessment of the situation, there may be a solution proposed that society will be acceptable. Perhaps, it’s a breakthrough in a viral drug or a vaccine breakthrough or an economic package or whatever it is that makes society kind of agree that we’re starting to get our arms around this thing and when it’s not poised in the framework of a crisis anymore, we will find that our attention begins to fade. The reason we have Allocation of Blame up there is that look, crises are different. Think about a crisis that’s caused by corruption, let’s say in the financial system or in the political system, well, in that case oftentimes we used to have a chief economist that would say, you know you’re at the peak of a crisis when you begin to see the orange jumpsuits and handcuffs come out, right? Because we want to see the bad guy get it the scary thing is that preliminary assessment or allocation to blame, it doesn’t even have to be correct, it just has to be something that makes sense to people that they begin to feel comfortable and will begin to fade in our attention now. What I will point out Jeremy, is the difficult part about this, is when we do hit that peak when that event or series of events happen, you’ll have no idea that it happened, right? You’ll be wondering, has it happened yet? Is it still going to have? It’s very difficult to pinpoint exactly when that happened so timing the peak of a crisis is as difficult as trying to time things in the markets if you will.
Jeremy: Alright, a lot of times like the dead bottom of the market in the financial crisis from, if my memory serves me right, was March 9th.
John: That’s right.
Jeremy: And the actual peak of unemployment and many other things didn’t happen again until November. Well, before on the actual peak of actual bankruptcies and unemployment so you just don’t know.
John: You don’t. You don’t and I’ll show you a graphic later in my presentation which shows you the kind of the cost of not knowing right. If we wait until we think the time is right, chances are oftentimes, the right time has already come and gone and so the timing it’s so hard.
Jeremy: John, it’s like, so you know, as investors out there you know, once they have their plans set up properly, right? So anybody who deals with me or wants to do with me you know, design a plan specifically for them. Throughout their lives, there will be times of uncertainty, no question, but looking past that uncertainty, the virus isn’t permanent market. Corrections aren’t permanent so looking past that valley to the other side and put yourself in that spot well, are we gonna be okay in two three years or whatever the number may be. If you do have it set up that way then the anxiety level of it drops and then when people can make much more thoughtful decisions at that point.
John: That’s right, so and you bring up a great point Jeremy, I think one of the lessons that your clients can take away from my presentation today, hopefully, is that we want to do everything we can to move the decision point away from the moment of crisis, right? If we have an opportunity to think in a rational mindset and put together a plan based on as you mentioned our long-term objectives and our risk tolerances and really the things that are good that are personal to us then being able to kind of keep that plan even during times of emotional upheaval is pretty important to making smart decisions in the long run. So let me talk about the last phase of the crisis that’s kind of where the it starts where the blue Knowledge line and the Attention line kind of intersect, it’s what we call the ebbing of the crisis and what I always joke with people, Jeremy, I’ll tell them if you ever want to kill public interest in any topic or crisis there’s one surefire way to do it. Form a Congressional subcommittee around that’s gonna study it right because as soon as they do that we begin to turn the channel and that the sad part about that is, by the time actions policy changes and reports are issued, we’re not paying attention any longer even though I want you to look where are we at the knowledge point. We have more knowledge about what happened during that crisis than at any other point but because it’s not framed as a crisis anymore, we’ve begun to move on.
Jeremy: It’s like people go to, some say, people go watch NASCAR-
John: That’s right, and really what the folks at MIT tell us is that any crisis eventually will pass for one of three reasons. One, they tell us that we can’t run on red alert for 365 days a year 24/7, eventually, we will begin to adapt our routines. We will start doing new things and adapt to the environment around us human beings are incredibly adaptive think about it for a moment, how many of us don’t even bat an eye when we’re packing our bags to take a flight that we know not to pack liquids over 4oz. in our bag you’re gonna get snagged by the TSA, that was all a result of a crisis, right? but we have adapted our behaviors because of that. So eventually, we may develop new routines that new normal if you will, the second reason I mentioned it in the peak why crises will pass is that someone will propose a solution that society deems acceptable and will move on from there, but the third and most prevalent reason is that tomorrow’s crisis will take place of today’s crisis and tomorrow’s crisis is oftentimes more personal and puts things in better perspective than what we were worried about yesterday so eventually crises will pass but the impact of anxiety on how we think as investors we have to catch ourselves in this. MIT says
we may begin to feel that the system has lost meaning. It no longer makes sense. Hey, I thought our health care system was terrific. I thought our public officials were ready for something like this but everything seems like it stood on its head. The rules are broken there are no longer any roles. Think about this current crisis, when you got sick or ill where were you supposed to go? You’re supposed to go to the hospital or to your doctor’s office but now you’re told you can’t go to the hospital or the doctor you’re gonna put other people in jeopardy and so this conflicting information, the rules are broken, there aren’t any rules anymore, and it leads to the most disarming of all these perception realities and that is, if we begin to feel powerlessness, this resignation that there’s really nothing I can do. That really is a dangerous place to be, because there is always something that you can do, there’s something that you can do that can influence your future outcome in some way and so we’ll talk about what some of those things are. So Jeremy, I want to transition before I go into the next section, Jeremy, any comments or questions that you kind of have?
Jeremy: Well, yeah, so for clients, some people may want to do is like, when things get volatile, Oh I just want to sell out that’s what I can do, and just alleviate the volatility and that can be absolutely detrimental to their financial future but there’s other things they can do that are much more constructive. Of course talking to their financial advisor, I mean certainly feel free to call me, and there may be some things they can do within times like this that can help, I mean that you get a Secure Act, you’ve got the Cares Act, you’ve got Tax Law Changes. There’s dozens of things that have changed very recently that may be able to do some things to help your individual situation in this time, that’s constructive versus destructive.
John: Absolutely! I think, Jeremy, when we’re in crisis or times of anxiety, oftentimes we as human beings feel like we have to do something, right? to do nothing just means, so we have to do something unfortunately, if people don’t know the difference between positive actions and negative actions, they’re likely to take negative actions, right? they’re actually running headlong into the storm instead of away from it.
Jeremy: That’s right. A lot of times, it’s different in look and skill and in a different way. So you know if you’re at a casino and you’re a player at a casino, the odds are stacked against you, but if somehow you looked up in 1, well, being a casino player is a good investment well, we all know that’s not the case so differentiating between what is going to increase your chances of success and decrease your chances of success. So a lot of times people may get that confused especially in times of crisis.
John: That’s a great segue Jeremy, into talking about some of the things or some of the actions that can decrease our chances of success, so let me talk about three of them. The first thing that the researchers at MIT tell us about people in anxious or crisis situations is that we will invest the tension than the negative. We will seek out negative information sometimes, that’s to confirm why we feel so poorly sometimes, it’s to put together theories of what’s going on but here’s what I might say, they believe it’s evolutionary in nature you know when we were hunters and gatherers out on the plain we are always scanning the horizon for the next potential risk. It used to be in the form of a bush that was shaking out in the distance because there might have been something hiding behind the bush that would jump out, need us, so we got anxious about that we’re not sure that our systems were built for the amount, the volume of negative information that now comes our way through all kinds of different mediums. So on the graph in front of you we’ve actually graphed Google searches for CNBC versus the S&P 500 Index and you’ll see that when Google searches for CNBC peak, it’s often times when the markets take a dive, right? In fact one of the highest viewership days for CNBC occurred on September 29th of 2008 and Jeremy, you may remember what happened that day the Dow Jones Industrial average fell 777 points. What was the headline that day? Dow Has Worst Day Ever, nobody remembers what happened the very next day the very next day September 30th 2008, the Dow Jones Industrial average rebounded 485 points, which at the time was the third biggest rebound of all time. Who remembers reading the headline now third biggest rebound? Nobody, it might have been there but it probably was in Section B page 7 because it didn’t satisfy our craving for negative information so the first thing I want you to understand is that, it is instinctual to crave and search and find negative information and I probably don’t have to tell you, there are plenty of outlets out there to find it and so what you’re gonna find is there’s always a reason to panic. There’s always a reason, I put on my graph here things that you may remember just since 2007 whether it was through the Great Recession or certainly when Greece was implementing their austerity measures, the US Ebola breakout, right? We remembered it was in Africa but all the sudden it was in Atlanta. It was in the heartland, right? So all these things, there’s always a reason not to invest but the blue part of my graph shows the S&P 500 index despite all these reasons, economies innovate markets traditionally, historically have continued to weather the storm over the course of time. Maybe not in the near term of a snapshot period of three months, six months or a year, but over the course of time, you can see that equity markets have have continued to grow as evidenced on my graph here so the first thing I want you to be aware of, Jeremy, is be careful over our tendency to seek out just negative information.
Jeremy: Of course, of course. You know Charlie Munger, which is Warren Buffett’s partner at Berkshire Hathaway, brilliant guy, he talked about their 24 causes for humaneness misjudgment, there’s the hurt effect doing what your neighbor does, there is confirmation bias, where okay, I feel bad therefore I’m going to look for reasons for me to feel bad and there’s many more is 22 plus more of these psychological causes of human misjudgment and so all of those play a role in us. Unfortunately, making poor decisions especially in times of crisis.
John: Yeah, so the second aspect of our behaviors is that during times of crisis anything that doesn’t have a clear outcome, a guarantee we view is bad, right? It must be bad if it’s not clear, it has to be bad. Look along the knowledge curve the way we’re gonna learn things is by discovering through our mistakes, right? Take Thomas Edison, discovering the light bulb no, he didn’t fail, he discovered 10,000 ways not to do it, right? it’s part of the process but here’s the problem Jeremy and i’m sure that you see, this is that when markets get fearful when people get fearful. Oftentimes we clamor for what is perceived as the safe investment or the guarantee and unfortunately during these times is when you’re most apt to see those asset classes overpriced, you know why? because there’s a lot of people that feel the same way that we do about wanting guarantees and certainty and they flock to those investments, which caused a distortion in the price mechanism and it’s just something we have to be aware of.
Jeremy: And it brings up another point, John, is that a lot of people, if they have their money set up properly, within their risk tolerance and their financial plan. It gives them a lot more certainty about their worst-case scenario, okay? So let me explain so I’ve met with a guy at the beginning of the year and he said he’s conservative. Well his actual 401k at the time was like 90% stock 10% bonds, which is pretty aggressive and when he did a first tolerance test he comes out too big he should be 50/50 or 60/40 which is much much more conservative. Fortunately, through our conversations and our planning he reallocated his 401k which saved him a ton of money when the market went down and so having certainty about what you can control which really is just a very small part of a picture but it’s the 80/20 principle it’s like, what you can’t control maybe a small part, but it really makes 80 percent of the difference in your financial life, therefore, when there are times a crisis you you have a comfort of knowing what your worst-case scenario is and you can say to course a lot better.
John: In the midst of a crisis, I don’t mean to say that, you know, everything is going to be good that’s not clear, but what we need to understand is, yes, there are things on the other side that could be bad but there’s also other things that could be good, right? There may be industries and companies and products and so on so forth that stand to benefit from what we’re going through right now in that acceleration that we talked about and there may be some that are gonna be in a worse position on the other side. So keeping a balanced perspective here is pretty important and lastly, Jeremy, I want to talk about a behavior called Loss Aversion and in Loss Aversion, what we understand is people under anxiety or crisis situations will do anything to avoid losses or take any risk of any kind and it’s largely because of something that’s called the Pain of a Loss. Behavioral psychologists have ascertained that the emotional Pain of a Loss is two to three times as great as the emotional joy of a game, so, the way I explain this to people, you’re walking down the street you look down at your feet, there’s a $20 bill on the sidewalk in front of you. Nobody else is around you the birds are singing, the sun shining, you say hey it’s my lucky day. You put that 20 in your pocket, keep walking down the street, 10 minutes later you’re passing the ice cream parlor and you say, I think I’m gonna treat myself so, you got to reach into your pocket or your purse for that 20 and you can’t find it. The fact that you can’t find will bother you two to three times as much as the fact that you ever found it in the first place even though from a pure economic standpoint you are no better or worse than when you started walking down the sidewalk, right? So the reason I mentioned that, Jeremy, is that I put a graph up in front which is equity market returns since 1926 year by year and I always ask people two questions, is there more red on this graph or more green? Well there’s more green, by a lot or a little, well, actually by a lot. Why is it that we’re so fearful of any kind of equity allocations during times of crisis? It’s because if we look at that big red line back in 2008 while we still remember what that felt like even though it was what 12 years ago now or 11 years ago, we remember how it felt when we didn’t know if our employment would be stable. We didn’t know if we’d have a domestic automaker, we didn’t know kind of what the future held and Jeremy, you mentioned March of 2009, I’m sure you’ve talked to people that have said man, if only we could have invested a bunch of money back in in March of 2009, think how well we would have done. It’s easy to say in hindsight, but I want you to think about the emotion of actually investing at a time like that when things were so unclear, difficult to do, I just wanted to share the real numbers with you on that graph. In that graph I just showed you, year by year returns in the equity market, 69 years were positive, 25 were negative, that’s 73% positive years, 27% negative, and if we looked at years of great gain defined as over 20% versus great loss, the numbers are even more kind of disparate in 35 years of gains over 20% only 6 years less than 20% with an average annual return over that time of 10.2% but it’s those negatives that stick in our minds because we remember how they made us feel and so Jeremy, just to illustrate the cost of panic in a crisis situation from financial standpoint, I took a look at what I would call panic markets, right? So markets, it dropped from at least 30% from peak to trough and although people may not remember the numbers they probably remember waiting in gas lines with odd and even license plates to fill up their tank back in the early 70s where Black Monday or the dot-com bubble, I just want to share with you kind of how this illustrates, so if we look on my graph I have five different investors who each invested $10,000, approximately around the beginning in 1970, right? and we look at five different strategies: One, left all their money in equities, one took all their money and said I only want it to be in really safe cash investments, the equity investors, the kind of the navy blue, that investor made out the best of anybody. They may one point just shy of 1.5 million dollars by the end of 2019, but Jeremy, they wrote up every peak and they rode every trough. They talk about anxiety, these are the people that probably say boo and they’re stuck to the ceiling, right? because they’re living on the edge. Just have either nerves of steel or not even be kind of cognizant of what’s going on around but from an investment standpoint they did okay. Two said, just don’t invest me in cash and very safe instruments, represented by really short-term treasury securities, safe stuff. Their $10,000 grew only $236,000 which you may look at that number and say that isn’t bad, but I’ll challenge you to remember the level of interest rates back in the early 1980s. I’m not sure that they could repeat that today with interest rates where they are, then we look at the Green Line. That’s the person who said don’t forget cash just put me in bonds. I want to invest 100% in bonds. Well they did OK, they got a $351,000. The red investor is the one that I really want you to pay attention to though, there’s no difference between the red investor and the all equity investor except that when a crisis hit, when we hit one of those five panic markets, they hit the panic button and said, Jeremy, take me out of equities take me out of the market put me in cash and let’s just wait till things get better. They waited two years and then they went right back into the equity market, so when you think about it, this market that this graph runs is 50 years. They only missed 10 of those years but look what happened to their return, it almost cut it in half versus that all equity investor but the moral of the story here folks is the light blue the baby blue number there that’s what we call the balanced investor and for ease of illustration we just took an investor who said put me 50% in stocks 50% bonds and let it ride and what you’ll notice is they captured a greater part of that equity return than any of the other groups, but they didn’t nearly have the volatility in the ride that the all equity investor did. They smooth out some of those bumps so the lesson here is being able to have a strategy and sticking to it can really help pay off when we look over the long run. In fact there may be times Jeremy, you may have heard this from folks, right? we go through a good stock market run and they’ll say to you Jeremy, why don’t we even own bonds? and then we hit a market like today then why do we own stocks? or why are we on bonds? Why do we own stocks? you got to understand this is common for investing, right? Jeremy you’ve seen this over the years, haven’t you?
Jeremy: Right. Of course.
John: So, folks, I want to wrap up our discussion today by giving you a couple of things that you can do or you can make sure you’re doing to try and check yourself when you find some of these instinctual behaviors cropping up. The first thing I’m gonna challenge you to do is seek out the positive, because even though you’re surrounded by negative information there are positive things happening at the same time, but they’re often obscured by the negative information that’s out there. Some of America’s greatest companies were founded during periods of recession or even crisis in the United States. Sometimes these companies come to the forefront because they have ideas, they have concepts that actually can help us overcome some of those challenging times. When we look at today’s headlines you may have to look a little deeper but perhaps you’ll find encouraging signs in terms of vaccine development or medical therapy or perhaps preparing for the next pandemic, Jeremy, we put this together back in December of 2019 and I don’t know if you realize this but at the Consumer Electronics Show which is the largest technology show consumer technology show in the world, it was held in Las Vegas in January of 2020 Corning and OtterBox were already presenting at that show, Antimicrobial Screen Protectors. Screen Protectors that you could put on your phone or your iPad that would kill bacteria and potentially viruses on contact so when I talk about you know companies who are adapting and thinking of newer technologies or services that we might need maybe some of us throughout this crisis have used DoorDash or GrubHub or HelloFresh or any of these delivery services which have been out there for a while but now that we’re forced to use them we kind of look at them and say wow maybe there’s something to this thing but here’s the catch, is that not everybody with a good idea makes a good investment there’s this crazy thing called valuation, right? We got to make sure that the price that we pay for companies and securities and funds and those kind of things are in line with the valuation of those companies or at least there’s a rational basis for for investing.
Jeremy: Absolutely! In my career, I started in ‘97 and you know that was at the top of the dot-com boom and there was probably 90% to 95% of those companies back then that are no longer in existence but there’s a few who are. You know, of course, Google was around, it wasn’t publicly traded back then but Amazon was and I remember it went from $90 a share down to $5 back in the dot-com bust so whoever survives and has a product or service and has the capital and survives may do extremely well but it’s very difficult to choose that and who’s gonna succeed in that but as a consumer though we have a choice on what products we use and we make these decision everyday and they’re gonna be many fantastic things that do come from this and businesses that are created in this these times of crisis as well.
John: Yeah and that’s I think my point here, Jeremy, would be we’re not trying to pick the single next great product or the single next big company. I just want people to realize that as much of the negative that’s out there there are positive things that are happening and there will be positive consequences for lifestyles and for investments on the other side of this.
Jeremy: Absolutely! The red tape with getting drugs passed and there’s so many, many, many things I made the people who are watching this video now it really would not have been available maybe in a few years ago and in the format they’re watching it now. There’s many things that are gonna happen.
John: So Jeremy, the first thing is to seek out the positive try to find it, right? Put together a thesis for what might happen the second thing is to have a plan and Jeremy, we’ve talked a couple of times through this broadcast today about the importance of having a plan but I just want to demonstrate a little bit about why it’s so important, right? So if we didn’t have a plan and every year we just kind of wanted to chase the winners and shun the losers. What I put in front of you is a graph, it looks like a Periodic Table of Elements, right? but what it is, is different types of asset classes so this isn’t even individual securities these are asset classes and I want you to observe how difficult it is from year to year to pick winners and losers. Now, through the middle of this graph because we have the best performers year by year listed up top and the worst obviously down the bottom but you’ll notice running throughout this graph right about midway point to a little bit above midway point is a category called Diversified Portfolio, right? So again that’s taking a chunk of all these asset classes having them represented and what you’ll see is you may not hit homeruns but you’re certainly not going to strike out and usually that Diversified Portfolio is what you want to do to make sure that you’re earning consistent returns over time so having a plan the key thing to not making emotional decisions is having a plan when you enter into a time of upset or turmoil and I’ll just share with you if you don’t have a plan I would encourage you a hundred percent to get a hold of Jeremy and sit down and talk with him about your long-term goals about your risk tolerances a little bit about how you think about money what concerns you how opportunistic that you think markets are or opportunities are and you put together a plan around those inputs that’s personalized to you and one other thing if you already have a plan I would encourage you to be careful about making sure to revisit that plan from time to time. Sit down and have a conversation with Jeremy about you know I put this together maybe five years ago but things have changed right my kids have grown now, my job is different, I retired. It’s very important because look, it’s not a snapshot, life goes on in a continuum and that you want that plan to have the flexibility to adapt. When I say adapt, I don’t mean giant swings one way or the other but based on your life objectives and where you currently stand talking with an advisor who has experience and looking at these things to monitor that and make suggestions for you is really key and that brings me to, I’m sorry Jeremy, go ahead.
Jeremy: No, no. That’s absolutely true when you have a game plan, I mean every flight, every pilot knows a contingency plan when things happen, everything happens, there’s contingency plan of people who are professionals. Whether it be doctors, pilots, everybody. So it’s good for us or for clients who are looking to retire, stay retired, put kids through college, pay their taxes. To have contingency plans and to review those on a regular basis.
John: Yup, and that leads me into my third point which is Don’t Go It Alone. I don’t know, especially in this crisis, Jeremy, I think that one of the things we’ve all suffered from is a little bit of social isolation, right? We don’t get to see the friends and neighbors and professionals in our lives that we normally get to see so we sit in our homes, we watch TV, it scares the living daylights out of us and we’re there alone with our thoughts, right? We think, wow! maybe I should abandon that plan that I have, maybe I should sell out and by the way the same thing happens in real positive markets, right Jeremy? So the opposite of what may happen here people may say oh my gosh I’m missing it let’s pile 100%. Get the plan, let’s get in now before it’s too late, we see these emotional swings both in euphoric times and in difficult times but here’s the key, Don’t Go It Alone. One of the most underestimated aspects of working with a great competent advisor is having someone to sound your ideas off of before you press that button to take action because on the screen I put up index performance versus average investor performance and you see that the indices far outperform the investors why because investors have a tendency to do the exact wrong thing at the exact wrong time, we react with our emotions it’s the emotional part of our brain versus the rational part of our brain that takes over and I would just encourage you if you get into a kind of a situation where you’re feeling really nervous and you’re feeling like you need to do something I highly recommend that you talk to somebody like Jeremy, who might act as a circuit breaker, right? To say go oh let’s just talk about this because I know, Jeremy mentioned about how long he’s been in the business he’s seen a lot of similar cycles he’s seen a lot of mistakes that people can make and he might be able to provide you with some insight that might make you feel a little bit better by keeping things perhaps in better perspective so please don’t go it alone.
Jeremy: Absolutely, if all this in the dark, it’s not bad and there are people like myself who’ve been through things like this that they can actually see a lot better than what you may see and so having a competent experienced certified advisor, it would certainly put the odds in your favor.
John: So, Jeremy, today we talked about the relationship between stress, anxiety and crisis. I mentioned those three behaviors and these are just three. There are others but these are primary importance seeking attention than the negative ambiguity is bad and loss aversion and then we talked about three ways to begin to deal with those things seeking out positive information, making sure we have a plan and not going it alone I’m gonna end with a quote from one of my favorite authors, Michael Lewis, who wrote The Blindside, The Big Short, a couple of others. Michael Lewis says “How many times does the end of the world as we know it need to arrive before we realize that it’s not the end of the world as we know it?” again folks, I think we would be well served in times of crisis to take a deep breath maybe take a walk outside right and get some fresh air and step back from the current crisis and begin to think rationally about although we may not have seen the particulars before we have been through other crises especially from an investment standpoint the markets have been volatile in the past we have been through bare markets we’ve been through bull markets as well and realize that you know this is everything as a process and how can we best make that process work for our betterment on the far side of the current crisis that we’re in so Jeremy, I’ll turn it back over to you thank you very much John I appreciate you’re very insightful information here as always call me with any questions you may have my number is 843-222-6602 or email me at Jeremy@RiverBendWM.com. I’ve got a YouTube channel, which is where this video will be, Facebook page. So one of my intentions is to share pertinent, actionable information to help you make better decisions with your financial life and I’m also here to help you, okay? With no cost in having a conversation with me at any point in time and I hope you shoot you in the right direction thank you very much and God bless. Bye!
Jeremy Finger of Riverbend Wealth Management and John Diehl of Hartford Funds and MIT Age Lab discuss what 3 things people can do to improve their results in a crisis. For more information contact Jeremy Finger at 843-222-6602, Jeremy@RiverbendWM.com, follow him on Facebook at Facebook.com/riverbendwealthmanagement or subscribe via YouTube at
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