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Jeremy: Hello everyone! This is Jeremy Finger with Riverbend Wealth Management. What you’re about to see is one of the start of one of many different educational webinars that we’re going to be able to provide to the public and with the highest amount of technology, timely information that previously really hasn’t been available to people until now and so what I’ve got prepared for you today is a wonderful, wonderful person, John Diehl, who’s a certified financial planner, who works with the Hartford Funds and has worked closely with the Massachusetts Institute of Technology, MIT for short and their AgeLab and also studying of how people make decisions in times of stress and so there’s multiple pieces of information that we can use in this presentation that you’re gonna be able to use from here going forward now. It’s not gonna be perfect but if you can, email or click on the Ask Question, send me questions, send me emails and we’ll stop and we’ll pause but we’re very, very fortunate to have John Diehl to be able to give us this talk here and this is going to be recorded, okay? So to those of you who have to drop off or interrupt it for whatever reason, let me know, send me an email or text message. My telephone number is 843-222-6602, just send me a text message or send me an email and I will send you this presentation and it is an entirety. So with that being said, John, thank you for joining and I’ll let you take it away.
John: Well, Jeremy, thank you and thanks for having me in your session today. I compliment you, Jeremy, because you’re acting so quickly and using technology in this odd period of our lives where, you know, it’s funny Jeremy, I talk to people all the time and I say this technology has been available for quite some time but my thought is, it’s largely been underutilized until a time when we all need to utilize it. So, compliments on you and I think, when we look at any crises, there are always lessons that are learned. I mean, if you think about it, what good is it going through a really challenging period of your life. If there are no lessons that we can take from it and I think our country, I think our industry and I think our relationships will all benefit on the other side of the trying times that we’re in but by way of introduction, let me just introduce myself and a little bit about the MIT AgeLab that you mentioned and the work that we do together. So my name is John Diehl, I’ve been with Hartford Funds now for about almost 33 years but the last 20 years, I’ve been studying aging, demographic change, decision making, behavioral changes in terms of how we make decisions at different points of our lives and what are those crucial demographic issues that may change overtime given this new age of longevity that we exist in that they cause us to ask different questions, but today’s presentation is titled Media Replay and it really is based on a lot of the research that we’ve done over the years with the MIT AgeLab, around the study of stress, anxiety, fear and decision making. Now, the MIT AgeLab itself just so you all know, is located on MIT’s campus in Cambridge, Massachusetts. Of course, now, they are all working remotely but the lab continues to function even through this current crisis and the lab is made up of about 40 researchers not all engineers, there’s sociologists and psychologists and physiologists, all really focused on studying that the impact of demographic change, the impact of technology and kind of decision making and lifestyle change. So if you think about this current crisis that we’re in, Jeremy, I was just talking to someone the other day and said imagine if something like this had happened 20 years ago, before people had enhanced means of communication and even the ability to work from home in some cases. I mean, it’s just if you pause to think for a second about how far we’ve come, even though these capabilities may not have really been put to the test yet, it’s quite amazing because if we look back over time, it seems that you know, we’ve always been passing through crisis of one kind or another you’ll see on the slide on the screen, there’s all kinds of crisis out there. We have financial crisis, we have economic crisis, we have fear of conflict in the world war, right? We have, you know, could be a commodity demand something going on with oil like is going on right now we all remember the days of waiting in hot and even lines and of course now, we have a new threat. The threat of the coronavirus threatening global supply chains, so on so forth, let alone its impact on how we’re living our everyday lives right now. So as we think about all these different crises, it’s true that no crisis is exactly the same but there are some common traits to crisis as they relate to how we make decisions that I hope to talk about on today’s call and before we begin that I just do want to make sure and point out I’m certainly not a health care expert and therefore the first thing I want to say is that the current crisis that we’re in, obviously, is just a heartbreaking saga for the families and individuals who are involved in it and I hope and pray that all of our families and our communities and our country and really all those around the world can maybe insulate themselves as best they can from this current threat as we look forward to the scientists and the epidemiologists and everyone else kind of working out what a best possible solution may be and we’ll talk about that in terms of this current crisis because what I’m going to challenge you to do for a second or more than a second for the time that we’re sharing together today is take a step back from the minute by minute, hour by hour, news cycle that we’re currently involved in take a step back and try and gain a wider perspective on what’s going on. When we talk about wider perspective, I’ll take a step back from this slide that you’re looking at for a second to just describe what we call the Issue Life Cycle because as I mentioned many crises kind of have similar common traits so think about this for a second, in any crisis in the initial phase of the crisis, if we were to map a crisis, in terms of time and attention, so think of a think of a graph with attention on the y-axis and time on the x-axis you know we’re riding to work or we’re coming home from work or we’re coming home from a leisure activity and all of a sudden we see a report on the news or report on the radio something has happened that has kind of shaken things up in this case, it was a virus that started in China that made its way over to the United States first starting in Washington state before long you hear about it popping up here, there and everywhere. Well in that initial phase of any crisis there’s something really important I want to point out. In the initial phase attention ramps up at an alarming rate but if we look at what people actually know about the actual underlying causes of the crisis, it’s the point in the crisis where actually there’s as little knowledge as at any point in the process, in the issue life cycle, so what this means is you’re likely to turn on the radio, the TV, look at the headlines on your smartphone and you’ll have no shortage of opinions on what’s going on even though there’s not a whole lot of knowledge at that point about what’s going on and I think we noticed that in this most recent crisis.
Jeremy: Yeah, People want to talk about it even though there’s not really a lot of function in the conversation.
John: Right, and that ignites our fear response right and in a fierce situation our brains are wired to do one of two things, Jeremy, which I’m sure you’re pretty familiar with, right? It’s the old fight-or-flight response, right? It’s so you know, we’re now alerted but it’s not really rational thought that’s setting in at that point now what I would say is if you look at what’s going on now in terms of this crisis, you’re seeing the scientists are starting to learn a little bit more and you’re starting to get some guidelines that are beginning to come out and clear guidelines about social distancing and about you know, how you can best avoid not only catching the virus yourself but continuing to pass it on to others so knowledge is beginning to grow and that will continue to grow until at some point in the crisis will reach the pinnacle of this crisis mentality and at that point it’s usually where the researchers at MIT say we reach one of two points called the preliminary assessment of blame so let’s say in the course of economic corruption, political corruption that’s the point where we start to see the bad guys are getting it, right? You’ll see the orange jumpsuits and the handcuffs come out. Somebody is assessing preliminary blame in a crisis like this, it might be that someone provides a solution that society begins to deem acceptable, right? A new normal is becoming established and we begin to watch as attention now isn’t on that rapid extent anymore, it kind of levels off and that’s where we would say the peak of the crisis is now the sad part is by the way, during all of this knowledge continues to grow and then Jeremy, I usually joke and say if you ever really want to kill interest in a topic you know what, the best thing to do is form a congressional subcommittee to study it because as soon as we get the study groups around it, attention begins to wane and actually by the time all the reports are issued and the new therapies are developed, we’ve kind of changed the channel because we feel like the issue is being properly dealt with, does that make sense?
Jeremy: Yeah, it makes sense, John and one thing I also wanted to want to point out behavioral decisions, they’ve been doing this for 23 years or is the number one killer of financial well-being and investment performance in many different ways and just real quick, I’m going to give you an example just two particular clients they were roughly the same age and both retired in ’97 back when I started and then come 2003, well one of the guys was complaining that he did wasn’t doing that well and I looked back through the notes and I then, I looked at the other client and he did quite well and but I go, the first client you know and I’m like why didn’t he do well well what happened was he sold all of his you know bonds and value companies and bought all these tech stocks in the year 2000, that went and plummeted so his behavior really was a detriment to his investment performance just like many people their invested performance is you know is can be drastically compromised by making decisions when they’re fearful or angry or scared.
John: That’s right, Jeremy, and that’s why I do want to center the primary context of our conversation today really on those mistakes that people make because we make mistakes when we make decisions in the moment of crisis. In fact today, we’re going to talk a little bit about anxiety and its impact what it is as opposed to fear we’re going to talk about the mistakes that anxiety may cause us to make and then how can we maybe prevent ourselves in some cases from making mistakes that are made in the kind of the flash of judgment in the moment versus taking more of that rational approach to saying you know what really is the best approach given the long-term goals that I’m trying to achieve and so one thing we should understand is that our systems were never really built for the amount of media that we now consume on a daily basis so as much as I talked about the benefits of new technology solutions that are making things possible that wouldn’t have existed 10, 15, 20 years ago there’s also a downside of that and that is on a daily basis we are constantly barraged from a variety of sources it used to be just newspapers that came once a day. Now that it migrated into television, then it was 24/7 news coverage on television where you see a new crisis or breaking news like four times an hour, but now it’s not just on the television the radio anymore, now it’s in your pocket, it’s on your desktop, it’s at the gas pump, it’s everywhere you go. We’re constantly being barraged and you can see on my slide about 30,000 minutes of news a year that’s being consumed by adults age 38 and older. When we think about you know about the news that we’re consuming often times a lot of the news that we’re consuming and I’d ask you to think about it right now, look we’re looking at a market that has suffered all kinds of volatility over the past three or four weeks and Jeremy, you can comment on this but the old adage is the market hates uncertainty right and boy we couldn’t have been in a more uncertain situation than we have in the past couple of weeks, right?
Jeremy: That’s right, that’s right and people just don’t know and no one really knows for sure but what I try to teach clients or help clients do is okay, what do you know? Alright, you have an idea on how much you live off on a monthly basis, do you have guaranteed income sources coming in? Do you know generally when you would like to retire? And once there is some certainty around that information and then you know, around that then a plan can be designed in such a way to be able to generate income for that retirement or for that child’s education or for whatever vacation home that might be when and that can be done once the other things are known okay and so when I design a plan for somebody, John, market is designed with market downturns happen on a periodic basis, 30% decline happens about every you know seven to eight years and that’s what we’ve experiencing now about 10% decline happens about once every you know 12 to 14 months so it is designed that way and so there’s certainly some things that we can do to help mitigate some of that downside or the clients need to take the money out during the times like this
John: And Jeremy, it’s interesting if you look at the impact of media and news where we’re getting the news is changing so if you look at the graph on the bottom of the screen you’ll see that Americans are getting more and more of their news from social media sites, right? So essentially sometimes we’re getting news from really a biased viewpoint if you will and usually that’s a viewpoint where I’m seeking news that it kind of it’s like confirmation bias it’s called it kind of agrees with my viewpoint it reinforces what I believe because a lot of us don’t trust different news sources anymore. We think that they’re presented with a bias and in many cases they may well be and so we tend then to place our trust in other people like me, right? What are they saying because that’s the news that I’ll trust and there’s a little bit of danger in that because when we talk about anxiety and its impact on how we make decisions I should point out, Jeremy, there is a difference between fear and anxiety, right? So fear, I’ll use a simple example, fear is a reaction to a clear and present danger. There’s a snake under the table in your living room, right? Well fight or flight kicks in, you’re either gonna run or you’re gonna fight it. If it’s me I’m running out of room. Anxiety, however is quite different, anxiety is a fear of something that may or may not exist. Anxiety says last time I was in that room, there was a snake in that room I don’t even think I’m going to go in there again and I think all of us would agree we’re in a period of somewhere trying to figure out where we are in terms of fear and anxiety you know I think we’re all pretty well convinced the current threat that we’re in is a fear-based threat that’s
why we’re fighting or fleeing, we’re sheltering we’re trying to be careful hopefully of dealing with this current crisis but I do want to take you back to a different crisis back in 2009 at the point of the at the depths of some of the financial crises that our country was passing through, it’s a very unique graph that I put on your screen it’s one of my favorites actually we’ve graphed CNBC viewership versus the S&P 500 index. So the red line is CNBC viewership, the blue line is the S&P 500 index so I want to talk to you here about the impact of crises grabbing our attention. Evolutionary psychologists do say that fear is a natural response, it’s evolved over time and fear works really well because it really galvanizes our attention. It’s an early warning signal. Back in the days when we were hunters and gatherers on the plane fear said hey, there’s a rustle in the bushes that could be an animal that’s waiting to eat me. Today fear comes packaged in all kinds of talking heads that tell me you know hey, the markets may never come back this you know, has never happened again so on so forth. Those are real emotional things and you’ll see from my graph that CNBC viewership back in 2009 peaked when the S&P 500 was absolutely near its bottoms. In fact you’ll see if you remember in March 9th, we just passed that date March 9th of 2009 was the current market low in the midst of the great recession or the great recession back in those times when we were wondering whether we were going to have a U.S. automaker when we were wondering whether there was going to be a bank that wasn’t going to be nationalized right and I would you know I would ask you to think back then how many people, Jeremy, were lining up at your office to invest incrementally more money in march of 2009 when we were right in the midst of a lot of those things that we talked about.
Jeremy: Only a few and they were very, very smart ones.
John: Yeah and so most people actually forget what happened on a day like september 29th of 2008, the markets on that day hit at the time their worst single session point drop since the flash crash of 1987, in fact it was like the worst day ever point wise and that’s what the headlines said that day Dow has worst day ever nobody ever remembers what happens the very next day right by the time by the way I think with 777 points at that point well it actually was the biggest point loss but not the biggest percentage loss but the very next day. I think the Dow had its third best day ever up until that point in time but you really didn’t read that in the headlines the next day, right? Because it wasn’t grabbing that attention so what I also want you to see is that as the S&P, after that blue line there as the S&P 500 began to recover from its low point in March of 2009 what did we do to CNBC? We changed the channel because nothing anymore was posed as a crisis it started getting back to normal things started moving in a positive direction and because it wasn’t framed in this crisis kind of mentality we moved on most likely to the next crisis and so just a very interesting look at how crisis and attention relating to markets are really related.
Jeremy: Hang on for a second John, I asked the poll of how many of you know somebody who sold their stocks and just whoever on the phone here just takes time to answer that and I’ll get back to you on the results there so go ahead and continue, John.
John: Yeah, I’m interested to hear what your results are.
Jeremy: Well, you and I both know but based on our experience here probably it’s probably been overwhelming and one would yes to that answer but we’ll see.
John: Oh yeah, yeah. Hey it’s hard to resist the emotional call right but again that’s where hopefully especially working with an advisor like Jeremy have the conversation, right? It’s one thing to vent the emotion, it’s another to act kind of spontaneously on that emotion because there certainly are situations where it can make it where we can make investing mistakes interestingly on this on this slide that I have on the screen right now to act kind of spontaneously on that emotion because there certainly are situations where we can make investing mistakes. Interestingly on this slide that I have on the screen right now, you’ll see some insights on the right-hand side from Dr. Joe Coughlin, who’s the founder and the director of the MIT AgeLab and basically what he’ll say is that, in a crisis situation you’re more likely to invest your attention in the negative, right? So when faced with a choice between information that could potentially inspire optimism versus data that paints a dismal future the anxious client anxiety causes us to focus on the latter. Again, that’s our fear instinct. Secondly, if it’s not clear it must be bad, right? Again, I mentioned before that the markets don’t like uncertainty and the markets typically interpret uncertainty as bad but the thing to keep in mind over the long term it’s oftentimes the challenges that we face necessity is the mother of invention that inspire innovation within the economy. Who knows when we come out of this thing maybe medical science will be more adept at tracking and addressing some of these outbreaks for when they happen in the future, maybe there are new technologies or new approaches to disease management that will be found during this time that will make us stronger moving forward and lastly, those who are in anxious situations usually take a risk-averse attitude just don’t lose it totally understandable, but where that comes into play in terms of making mistakes is if it causes us to vacillate between you know, one type of investment versus another so some of you over the last five years may have looked at your portfolios and say why in the world do I even own fixed income? and during times like this, you say, why in the world would I ever own an equity? Well you know, look I’ll just share with you my own viewpoint having been in this industry for over 30 years is that when you’re when you’re dealing with uncertainty no one has a crystal ball, right? The best approach to deal with an uncertain situation is to make sure that you’re diversified and Jeremy, any comments on that point?
Jeremy: Well, yeah. So there’s so much of this world that we don’t know, right? And it’s so very very little that we do and when it comes to really making smart decisions with your money is having a plan, okay? How old are you? When is this money going to be used? And when it’s going to be used how much do you need? And making sure that the client has a realistic expectation. Sometimes people may be off in that regard, but you know that is an educational conversation that I have and then once how uncertainty can be combated is through a bit of knowledge, not knowledge of the future, but knowledge of what they do know, they do know they need this amount of money to live off of. They do know that this is the likelihood of how much they can save on a monthly basis, they do know that diversifying having you know, balanced investments is the way to go and not try to sell the ones that are doing the worse and buy the ones that are doing the best on a monthly basis and if they are living within their means that’s a big one okay? That most of the people who make the biggest mistakes are the ones that are you know they spend you know a dollar and one cent for every dollar they make and the ones that are that are living you know 80 cents on every dollar and saving 20 cent, they typically are in fantastic shape and things like this do not bother them as much because you know they they have a bit more security of their situation.
John: Well, Jeremy, I think you brought up a good point. I mentioned earlier in the crisis when we were talking about the Issue Life Cycle, that as knowledge grows typically when knowledge grows we approach the peak of that crisis if you will and I’ll just use a really simple analogy if you remember back to when you were a young child maybe you got stuck somewhere in your first thunderstorm right and it was pretty scary right because it’s a lot of flashes and loud noises and you knew not to run under trees but you weren’t really sure where to go. What was causing it? But as you mature hopefully, you learn a little bit more about what causes thunder and lightning and what are the proper ways to take shelter if you know a storm is approaching and so that’s all part of gaining knowledge and how that knowledge helps to give you perspective on how to handle things. So on the slide that I put up on the screen in front of you, it’s called the urged panic and what I want you to notice we put in different crises that have occurred over over time that I’m sure many of you will remember the automotive industry bailout, pick any of them there, 80,000 people riot as Greece signs austerity measures, right? Detroit files for the nation’s largest public sector bankruptcy it seems like there’s always something and that red line that you see where all those crises are kind of going along is over the past really 10-12 years that’s domestic equity mutual fund flows right where are people putting money or were they putting money into stocks or were they pulling it out well actually they were pulling it out but what I want you to look at is the mountain chart kind of is the backdrop for this all the while where all these things bad things were going on and people were pulling out over the course of time the market was actually making people money so we tend to oftentimes if we only act on our emotions oftentimes we’ll make decisions that are not in accordance with rational measurements of what’s actually happening in the world.
Jeremy: I heard a stat, John, that even in good times about 80% of the news that you hear is a negative, right? There is a gargantuan, there’s always something that someone can bring up to be negative, right? And truthfully as long as there’s some negativity out there and people are a little bit fearful then there then all the money is not in the market okay so I typically get concerned when I hear everybody needs to do this everybody by real estate. When real estate was in 2004 or 2005, everybody needed to buy dot-com stock in 1999, and that was typically the top of it, but as long as I hear some uncertainty and some fear that’s probably meaning there might be some value there but to take the poll, John, I kind of asked this in a very loaded question, how many of you know somebody who sold their stocks, again, this is an anonymous poll 100% of the people knew somebody who sold out.
John: Yeah, it’s understandable. It is the emotional response and so if you look and say well, where did those assets go over that time that the equity markets were performing really well? Well, they went into those bond markets if you will, which you know during that period again there’s there in fact asset allocation is the place to go or they went into cash. The problem is not having fixed income or cash as part of your portfolio, it’s trying to time exactly when this stuff will come into vogue and I would argue that even today, Jeremy, at some point as we mentioned earlier we’ll get to the point in the crisis life cycle and again, I’m talking merely from an investment standpoint not from a personal health standpoint or anything like that, but in times of this kind of the economic dimension of this thing, there will be a point where the thing starts to turn and everybody thinks well, they’ll just sit in cash or they’ll just sit on the sidelines until that time happens. The problem is it usually doesn’t come with a parade and a lot of fanfare right it kind of comes in if a client is not properly allocated and positioned in order to be able to catch some of that rebound it costs enormous amounts of dollars.
Jeremy: Real story, John, I always want to give you and the listeners some real information here. The market went down 20% at the end of 2018 from October to right around Christmas time. This one person had a $500,000 account and she sold out pretty much at the dead bottom. Absolutely the dead bottom, and I convinced her where the market rallied in January and I think she was truly out of the market probably 45 days. Those 45 days that she was out cost her $60,000 on a $500,000 account. So you know, it costs real money when bad decisions are made and well “I’ll sell out and then get back in when it goes lower” no one ever does that and if they do that, let’s just say they got lucky then they think they could do it again and then they miss out, I know I personally know of somebody who sold out of the Dow Jones Industrial Average stock when it was at 12,000 thinking it was gonna go to 10,000 and here we are 30% off the high at twenty thousand it’s equivalent to John, like okay, I go and play a slot machine and I win a few bucks, oh great! The slot machine is a great investment, it’s not, it’s not. So just because you get it right doesn’t mean that this is the right decision.
John: Well, and that’s why I put up the slide on the screen now, Jeremy, that we talked about there’s always a reason to panic so I want you to forget about the cause of the crisis. We’re just looking at the numbers and you’ll see over time there’s a satin here that says during a 40-year career and a 30-year retirement you can expect to experience 14 bear markets right and a bear market is typically defined as a downturn of 20% or more in the stock market during a two-month period, so you’re going to see here from 1973 through 2009 and onwards there’s these different markets where there we call them panic markets right anytime you get down up. I’ll further define the bear market, I’ll say anytime, you’re down at least 30%, that’s a panic market, right? That’s when you want to hit the panic button and say just get me out and I want you to see how this acts over the course of time or the impact of making mistakes over the course of time so we’ve got a couple of different investors on the slide that you see here. We have the one investor who invested $10,000 back in 1907 that can’t quite make out that date there looks like it’s 1969. They put $10,000 in the market and they put it 100% in equities right and they just wrote out every crisis that occurred during that time that $10,000 as of the end of 2019 would be worth about $1.464 million by the way, you’d probably find that guy in on a silly farm somewhere because riding all of those ups and downs and all those crises ups and downs the anxiety would have driven you crazy, right? On the opposite end of the scale we have the investor which is the the kind of the beige line, the yellowish line down towards the bottom who said I’m gonna take this $10,000 I’m gonna put it in cash I’m not gonna do a darn thing with it i’m just gonna let it sit in cash that investor would have amount would have accumulated about $136,000 over the same period. Now, I would ask you in considering what interest rates were in the early 1980s, so if you’re thinking that you may be able to repeat that and the direction of interest rates over that time, that might be a challenge. A couple other investors we have the bond investor that’s the green line above that cash investor who said just put it in fixed income, well, they made out okay. Their 10 grand moved to about $351,000, right? And then we have what we call the reactionary investor, so the reactionary investor, every time we hit one of those panic markets and there’s that I have those highlighted on the graph by the little panic buttons, they said get me out let move me into treasury bills each time the market drops 30% just get me out put me on the sideline and then we’ll get back in when things are a little bit better so we moved them a 100% back into stocks just two years after that panic market, right? So look at the impact on their investment return you had the person who is in all equities during that whole time is $1.5 million and then what do we have one, two, three, four, five, six or so panic markets during those times just missing about 12 years during that time knocked that return in half, to your point earlier right about the investor who just missed a little time in the market but now I want to show you the last investor who we call the balanced investor and to be put it quite simply this is the investor who put 50% in equities 50% in fixed income as as represented by the indices and they just let it ride over time they didn’t panic and sell out sit back on the sidelines try to get back in notice where their return is, 50/50 as compared to the other types of investors. This is what we call the price of panic, right? This is the price, the difference between that balanced investor and some of the other investors making choices in a panic situation from an economic standpoint. So it makes sense Jeremy, I think it illustrates the point that you just made a moment ago.
Jeremy: Yeah, it does and depending on you know I know we sometimes we use a little bit of terms, T-bills is another word for cash cash-like increments, allocation is how diversified your investments are. So again, depending on who you are and what the money’s for determines how your money should be invested, how it should be spread out, okay? And so and so there’s a number of things that I do as a financial advisor to help people make good decisions and protect them from this type of panic. Having emergency cash on the sidelines is one of the many things that can be done so with that being said just remember if anybody has any questions at all just hit the Q & A button at the bottom of your screen, I think it’s at the bottom of your screen. I’ll just move your cursor down there and ask any question you want but yeah, it’s the volatility in the market where people get there’s so much news of uncertainty that people just want to alleviate that and make a very rash decision and so even with that being said, John, is that you don’t have to be all in or all out, okay?
John: Definitely not.
Jeremy: Yeah, you don’t. So the times like this I mean you can be very strategic on things that are down in value. Let’s just say you have a tax loss maybe you take some tax losses and move it over into a different area still maintaining diversification or increasing your diversification, it saved a little bit of money on taxes and when things rebound maybe you’ll do better so there’s some things that you can in different times of the markets you know, certain areas may do better some certain areas is better for financials or dividend paying stocks in certain areas of the market it’s time for growth stocks and and things like that so when you talk to someone like myself and take a look at your situation hey you can reduce your risk greatly by doing this or this and save money on taxes and not derail your whole overall financial plan that’s you know, just a few things that people can do.
John: Well and Jeremy, let me share with you another aspect of anxiety and fear in the market and that is that we know that the joy or that the pain of a loss is approximately two to three times as great from an emotional standpoint as the joy of the game and I want to explain this to you with another analogy. So because this is how the guys at MIT explained it to me they said Let’s assume that you’re walking down the street one day sun shining, birds are chirping and you look down and there at your feet is a $20 bill so you laying down nobody’s around you can’t there’s nobody that might might have dropped it there’s nobody to give it to so you put it in your pocket and you say well it must have been my lucky day so you’re walking on down the sidewalk and you know, you think, well there’s an ice cream parlor you’d like to get yourself an ice cream cone maybe I’ll reach into my pocket grab that $20 bill and treat myself so you go to reach for the $20 bill and it’s not there somewhere you lost that $20 bill. Did you know the fact that you lost that $20 bill will bother you twice as much as the fact that you ever found it in the first place even though from an economic standpoint, you’re in the same situation as when you started walking down the sidewalk to begin with.
Jeremy: So what people, you know, a lot of them don’t realize they look at what their account value was at the absolute peak and look at it. Look at how much I lost, not even thinking about how much money they may have gained in the past three or four years. So instead of, let’s just say incrementally increasing at a very slow steady pace they may end up at the same spot but they feel so much worse that they had this x number amount of money last month and now it’s much less
John: And to make that point I put a slide up on the screen that says this fear of a loss blinding you from growth opportunities and we’ll just take a quick test Jeremy, on this slide that you see, is there more green or more red on the slide in front of you?
John: There’s more green by a lot or a little?
Jeremy: A lot, yeah, a good decent amount, yeah.
John: So what this is year by year returns on the S&P 500 index from 1926 to 2019 there are going to be times in the market where returns move against you. In fact if you look at my stats there on the right hand side there were 69 positive years but there were 25 negative years. So that means 73% of the time markets were positive 27% of the time they were negative. The average annual return over this whole period was 10.2% and the number of years when gains were greater than 20%. Well that was if you drew a line right at 20% across my graph you’d have 35 years where the gains were greater than 35% or 35 years where they were greater than 20% and if you did the same thing and said how many times did I lose more than 20%. There would have been 6 over this time period, so it’s not that losses won’t come it’s just keeping them in perspective in terms of the long-term thinking about our long-term growth. Now in the last section- I’m sorry Jeremy, go ahead.
Jeremy: That’s okay, John. Again guys, thank you for your patience with us and using this technology you know, John makes a great, great point. It makes me think of something but where we are right now. Everything the economy and for investments and so many things were growing quite well and think of it like an automobile running fine, driving fine, everything’s fine, and all of a sudden we had a blow out I mean maybe there was a bump in the road or whatever but we had a blowout and is it one tire flat or two tired flat, I don’t know, but things happen. This is unusual, absolutely unusual, but thinking past what we’re experiencing right now and looking towards the future after this is fixed and your tires are changed. That is really how to start thinking about things, okay? Can I withstand the downturn? What can I do to maybe even take advantage of the downturn? That’s another thing and then look towards the future, making sure that you’re okay now. Making sure you’re okay through it and then maybe even taking advantage of what’s going on those are the ways to be able to think about this and move forward okay John, I appreciate that and you’re pausing there but thank you.
John: Absolutely, Jeremy. Thanks for the insight and so folks I’ll bring us back to exactly why that generally happens is that our market is one of the most innovative in the world and so what I put on these slides is what we call headlines you’ll never see. There are good companies out there working on different types of devices and technologies and services and even existing companies look at how the tech companies right now are being enlisted to help in this fight against the virus by tracking outbreaks in different pockets of the world and helping to deliver things into homes and so on and so forth, but you know we just listed a couple of examples right of headlines you’re probably not reading about, right? A product called MedWand that puts 10 medical devices in the palm of your hands. It can take temperature, it can measure blood oxygen levels, it can listen to your heart and lungs, imagine if something like this were out there widespread today, where you’d be able to report back to your doctor exactly how you were feeling what was going on. We put some funny ones in there, A Mood Ring For Your Dog, right? What are they gonna think of next, or down below, it’s not a transformer, this is actually what’s called an Exoskeleton that helps employees who have to do manual labor lift much heavier loads that makes it easier on their bodies think of the person who’s standing on an assembly line for example helping them cope with the physical aspects of their job so that perhaps they can extend their career or save themselves from injury. My favorite one though, there’s different examples here in my slide, but check out the last one, now, you have to understand we put this presentation together, it’s probably right around the beginning of the year so it was really before the outbreak of this virus in the United States look at the last one that we have that we decided to feature in our presentation. A screen protector for your smartphone that kills germs. New screen protectors from OtterBox and Corning will have EPA registered anti-microbial technology infused into the glass that will keep you and bacteria far away from each other as you text. So see problems elicit solutions and then those solutions are the seeds of the next great investments that carry us forward and that’s what we say oftentimes, in the moments of crisis you’re not hearing about products like these or therapies like these or concepts like these until they’re well on their way but this is where again, staying staying properly diversified in your portfolio can give you exposure to companies like these before they become well known and well on their way. Does that make sense, Jeremy?
Jeremy: Yeah, it makes sense I mean most of, like Microsoft and Apple and many other fantastic companies were started during tough times. People losing jobs and then they then they start on their new idea or their idea they’ve been holding on for a very long period of time.
John: Yeah, absolutely.
Jeremy: I mean look here guys we’re having this call here in the comfort of your home or wherever you are right now and this would have never happened so there’s some advantages here. So what do you think about wrapping this thing up? What are some of the bullet points that you think that people can take away?
John: Absolutely, just in summary, Jeremy. This is what we recommend to everyone that we talk to. You’ll see a couple of points on the slide, Number one, don’t go it alone. Don’t go it alone, work with a trusted advisor so that when you get in some of these markets and by the way, we’re talking about a fear market but greed markets can be just as powerful to say well you know everybody I know is investing in stocks why aren’t I putting more money, more money, more money, and I’m screwing up my allocation or my diversification or screwing up my plan. It’s where we emphasize people should be working with financial advisors like Jeremy, who know you, know the plan, know what your concerns are, know what you’re trying to do, and that’s point number two, then start with a plan thinking about investment time horizons dollar amounts target dates and really having a plan, it covers your needs in all aspects, really important and then the last one I’ll end with, Jeremy, it’s really important is thinking about how emotional behavior actually can add or detract to your portfolio. I just want to end with this last little graph 20-year returns for the period ended 2018. The S&P 500 returned about 5.262% over that time but the average equity investor only made 3.88%. Why the difference? Why almost not maybe two-thirds of the return because they tended to do the wrong thing at the wrong time. Likewise on the other side as your fixed income investor the fixed income markets returned 4.5% but the average fixed income investor only made 0.22% for exactly the same reason emotion cause us to do things that oftentimes are made in the moment of crisis and so those three things, Jeremy, Don’t go it alone, have a plan, and be mindful of long-term impacts of making emotional decisions.
Jeremy: Yeah that’s good and the couple things that I would mention too is yes have a plan but it’s customized for you, okay? I mean there’s some people who they really don’t need to invest anymore they may need to pay their house down or pay their credit cards off. There’s some people who are actually invested properly but also need to have you know life insurance in case something happened to them, make sure their family’s taken care of. There’s hundreds and hundreds and hundreds of different ways that people can be helped and it’s customized for you. For you guys out there who have 401k allocations and you’re concerned about it, email me what you’re invested in and what your investment options are, and I’ll tell you if you got it set up right and for free, for nothing, and you can reallocate yourself at the 401k not a problem. Ask me any question at any time, call me, text me, email me, and I’m here for you. This is the first of many of these webinars that we’re going to do John. I’m going to either do it myself or have people like yourself or you know if you found this time useful we’ll come back and we’ll talk about a different topic.
John: I’d love to.
Jeremy: Yes, thank you. I really appreciate your time. And the intent of this is to share timely useful information as soon as possible to the people who need it and who are willing to listen and for nothing, for free. So if there’s anything any suggestions you have out there on what topics that you want me to talk about or concerns you may have. Call me, email me, text me, okay? And John, thank you again for your time, I really appreciate it.
John: Jeremy, it’s been my pleasure. Be safe and healthy out there and follow what all the folks are saying about how to keep yourself safe and healthy going forward.
Jeremy: Yes, definitely do that and be well everybody and take care and have a good week, bye!