Once I Show Retirees This Data They No Longer Worry About Investing

Summary

In this video, financial planner Julia emphasizes why retirees and investors shouldn't worry excessively about inevitable market crashes. She explains the importance of being prepared for market downturns, why investing at all-time highs isn't as risky as perceived, and why emotional reactions lead to financial losses. By showcasing data and historical patterns of the S&P 500, she highlights that market pullbacks are normal and offers strategies like Roth conversions during downturns to benefit financially. Julia also warns against market timing based on emotions and emphasizes having a long-term, balanced investment approach to enjoy a stress-free retirement.

Highlights

• Julia emphasizes that market crashes are inevitable and discusses why they shouldn’t be feared. 📉
• Investing at all-time highs isn't as risky as perceived, with historical data supporting positive long-term returns. 🚀
• Emotional reactions to market downturns often lead to financial losses. 😬
• Between 1928-2024, the market was down 16.4% intra-year on average but still finished positively 75% of the time. ⏳
• Roth conversions during market downturns can be financially savvy, allowing for tax-free growth later. 🧾
• Peter Lynch's Fidelity Magellan Fund case illustrates how investor emotions can lead to losses despite high fund performance. 😮
• Avoid making emotional investing decisions; instead, have a disciplined, long-term strategy. 🕰️

Key Takeaways

• Market crashes are inevitable but not a cause for panic. 📉
• Investing at all-time highs isn't as risky as it seems. 🚀
• Emotional reactions often lead to financial losses. 😬
• Historically, markets recover over time, with many pullbacks being normal. ⏳
• Roth conversions during downturns can provide tax benefits. 🧾
• Avoid timing the market based on emotions; stay disciplined. 🕰️
• Have a long-term investment strategy to enjoy a stress-free retirement. 🌅

Overview

In a calm, soothing manner, Julia dives into the often overwhelming topic of market crashes, asserting that while they're inevitable, they shouldn’t be a cause for panic. She shares how historical data shows that despite past economic downturns, markets have rebounded significantly over time. This highlights the importance of being prepared rather than fearful, and urges viewers to plan for these downturns instead of reacting emotionally.

Julia then unravels the myth that investing at all-time highs is inherently risky. She provides data-backed examples to reinforce that long-term positive returns often follow such investments. Emphasizing the emotional aspects of investing, she explains how decisions made out of fear most often result in financial setbacks, citing historical patterns and individual investor stories, including the case of famed investor Peter Lynch.

To maximize financial health, Julia suggests strategies like Roth conversions during market downturns, which can offer future tax benefits. The core message she delivers is clear: avoid timing the market based on emotion, maintain a diversified portfolio, and focus on a long-term strategy, especially for those nearing or in retirement. This way, she assures, retirement can be enjoyed with minimal financial stress.

Chapters

• 00:00 - 00:30: Introduction to Market Fears and Investment Mindset In the Introduction to Market Fears and Investment Mindset, Julia, a certified financial planner, discusses the inevitability of market crashes and the importance of not worrying about them. She emphasizes the need for preparation for market downturns and challenges the perception that investing at all-time highs is risky. Julia highlights the common mistakes that lead to losses for most investors, setting the stage for a deeper understanding of investment strategies.
• 00:30 - 01:00: Understanding Market Pullbacks and Historical Data This chapter discusses the concept of market pullbacks and historical data, providing insights to view the market from a different perspective. It reviews strategies to leverage a declining market, emphasizing the importance of sticking to an investment plan amidst growing economic fears and investor anxiety.
• 01:00 - 01:30: Significance of Intra-year Market Declines The chapter titled 'Significance of Intra-year Market Declines' addresses the emotional and financial challenges faced by investors when experiencing declines in market indices like the S&P 500, which is noted to be down 5% from its February peak. It highlights the universal challenge of blind spots affecting both pre-retirees and retirees, despite their experience levels. The chapter emphasizes understanding and managing the emotional distress of watching investments decrease in value, while acknowledging that no immediate remedy can entirely remove these anxieties.
• 01:30 - 02:00: Historical Market Performance and Volatility The chapter begins with an exploration of historical market performance and volatility, focusing on the importance of understanding past market pullbacks and what typically follows such events. This understanding is vital for safeguarding retirement plans. The discussion includes stories of two significant market crashes, emphasizing lessons learned from these experiences. The chapter notes that, historically, since 1928, the US stock market, particularly the S&P 500 index, has consistently delivered an annualized return of nearly 10.5%. This statistic illustrates the long-term positive trend of the market, emphasizing the potential for growth and the importance of patience and strategy in investment.
• 02:00 - 02:30: Case Study: The 2023 Market Fluctuations The chapter discusses the impressive compounded growth of markets at nearly 15% per year since 2009, reaching $18,643 by the end of 2024. However, this growth came with high volatility, causing many sharp declines that tested investors' patience and discipline. Emotional reactions to these downturns often resulted in financial losses for many investors.
• 02:30 - 03:00: Frequency and Impact of Major Market Declines The chapter titled 'Frequency and Impact of Major Market Declines' explores the dichotomy between the overall market growth and the annual downturns it experiences. Despite the markets being up nearly 75% over the past century, significant declines within individual years are common. The chapter encourages a closer look at these fluctuations, emphasizing their importance in understanding investment beyond mere headline figures. It introduces the reader to the concept of large drawdowns as a frequent occurrence, even in years that end positively for the market.
• 03:00 - 03:30: Lessons from Historical Market Performance The chapter 'Lessons from Historical Market Performance' analyzes the historical trends of market performance from 1928 to 2024. It highlights that despite an average annual decline of 16.4%, the market closed positively around 75% of the time each year. The data shows that while the market often drops significantly, it tends to recover by year-end, with a median positive annual return of 21%.
• 03:30 - 04:00: Impact of Emotional Investing on Returns The chapter discusses the effects of emotional investing on financial returns, highlighting the market's volatility. Since 1980, on average, there has been a 14.2% intra-year drawdown, illustrating frequent significant dips in the market. Moreover, in over 50% of the years since 1980, the market has experienced a downturn of at least 10%, suggesting the influence emotions may have as investors react to these fluctuations. The chapter uses historical data starting from 1928 but focuses more on the period from 1980 to 2024 for better relevance to current investors, emphasizing the need for rational decision-making amidst market turmoils.
• 04:00 - 04:30: Strategies to Manage Market Downturns This chapter discusses the frequency and impact of market downturns, specifically focusing on the past 44 years where the market declined by 10% or more in 23 instances. It emphasizes the emotional and financial challenges faced by investors during these downturns and highlights the importance of strategic management in navigating such periods. The chapter also notes the consistent occurrence of 10% declines from 2000 to 2023, illustrating the need for resilience and informed decision-making in investment practices.
• 04:30 - 05:00: Insights from Investor Behavior Studies The chapter examines investor behavior in response to market volatility, highlighting that over 24 years, there were 14 instances where the market experienced a 10% or greater drop. This includes 2023, a year in which overall market performance was strong, gaining 24.23%, but was marked by two significant pullbacks that unsettled investors. Through this analysis of 2023, where the market faced notable declines between February and mid-March, the text explores how such fluctuations impact investor sentiment.
• 05:00 - 05:30: Challenges in Timing the Market The chapter discusses the challenges and unpredictability of timing the market, illustrating with the market fluctuations that occurred around the 2023 banking crisis. This was triggered by the failures of significant banks including Silicon Valley Bank, Signature Bank, and First Republic Bank. Despite these failures, the S&P 500 experienced a notable rebound of almost 17% from March to August 2023. Nonetheless, the period from August to October 2023 saw a market decline of over 10%, reflecting the volatile and unpredictable nature of market movements. The chapter also promises to explore common misconceptions and errors in market timing later in the video.
• 05:30 - 06:00: Role of All-Time Highs in Investment Strategy The chapter discusses the significance of all-time highs in forming investment strategies, particularly during market downturns. It draws on historical data, noting that between 2000 and 2023, markets experienced significant declines of 19% or more in a third of those years, illustrating the commonality of market fluctuations. The narrative also highlights a significant market recovery, with a 14% rise within a couple of months, emphasizing the cyclical and often unpredictable nature of markets. This perspective encourages investors to consider historical patterns when planning their strategies.
• 06:00 - 06:30: Conclusion: Building a Resilient Investment Portfolio In the concluding chapter titled 'Building a Resilient Investment Portfolio', the discussion revolves around the historical performance of the S&P 500 index from 1954 to 2024, highlighting that significant declines of 20% or more have occurred approximately every six years, with the most recent one taking place in January 2022. It emphasizes the importance of understanding these market cycles as averages, noting that such declines are more frequent than most might realize. The chapter concludes by touching on the technical definition of a bear market, which is characterized by a 20% or greater decline.

Once I Show Retirees This Data They No Longer Worry About Investing Transcription

• 00:00 - 00:30 Today, I want to talk about why another market crash is inevitable, but more importantly, why you shouldn't be worried about it. In the next few minutes, I'm going to break down why you should always be prepared for market downturns, why investing at all-time highs isn't as risky as it seems, and the key reason most investors lose money. If you're new here, I'm Julia, certified financial planner and the managing director of URS Advisory. And to be perfectly clear, this is not investment advice. This is just data and
• 00:30 - 01:00 insights to help you think differently about the market. I'm also going to review a couple of ways to take advantage of a down market or a pullback. If this video can help even one person stick to their investment plan, then I've done my job. So, let's get into it. Every so often, I make a video specifically on the stock markets. And I think that now is an ideal time to make another. Lately, there's been a lot of fear around the economy and the condition of the world in general, and investor anxiety is growing to a fever
• 01:00 - 01:30 pitch. Most recently, the S&P 500 is down 5% off of its peak in February. And no matter how experienced you are as an investor, there are certain blind spots that are costly, both for pre-retirees and retirees alike. I want to be clear that this video is not meant to minimize your anxiety around losing money in your portfolio. Of course, you're going to feel anxious and mad and worried when you're, you know, watch your investments go down. And unfortunately, there's nothing that I can say that's going to take that away. However, you do need to
• 01:30 - 02:00 understand how market pullbacks have worked historically and what follows. So, I'm going to start by sharing the story of two major market crashes. Lessons that could be the key to protecting your retirement plan. Please note that I will be referring to the market as the S&P 500 index throughout this video. Since 1928, the US stock market has delivered an annualized return of nearly 10.5%. That means if you had invested just $1 back then and left it alone, by
• 02:00 - 02:30 the end of 2024, it would have grown to over $18,643. But it gets even better. Since 2009, markets have compounded at nearly 15% per year, a rate almost no one on Wall Street could have predicted. Of course, those impressive returns didn't come without a lot of volatility along the way. There have been plenty of sharp declines and moments that tested investors patience and discipline. And it's those emotional reactions to market downturns that cause many investors to lose money. Today, I want to go beyond
• 02:30 - 03:00 the headlines and dive into the actual numbers, giving you concrete data that could change the way you think about investing. Now, we know that over time markets go up, right? In fact, over the past 100 years, the markets are up nearly 75% of the time. What we don't think about is that markets are often down a significant amount on an in-ear basis. So even if the market is up for the year, it's very likely that there was a large draw down at some point during that year. Here's an eyeopening statistic.
• 03:00 - 03:30 From 1928 to 2024, the market experienced an average in-ear decline of 16.4%. In other words, at some point each year, the market was down by more than 16% on average. Yet despite these pullbacks, the market still finished the year in positive territory nearly 75% of the time. Here in this chart, we can see that the median positive return per year is 21%. And the median negative return
• 03:30 - 04:00 is.95%. But let's make these numbers a little more relevant to our lifetime since none of us were investing in 1928. So, if we look at the data from 1980, right, all the way up to 2024, the average intra-ear draw down is only 14.2%. But that's still means that at some point during the year, the market was down off of its high 14.2%. Since 1980, so 44 or 45 years ago, the market has been down 10% or more in over 50% of those years. That
• 04:00 - 04:30 means that out of the past 44 years, the market was down by 10% or more intrayear in 23 of those years. So if you were investing and watching the market every day, at some point during 23 of those 44 years, the market experienced a draw down of 10% or more. And while a 10% decline feels and is significant, it doesn't stop there. From 2000 to 2023, so the past 24 or that 24 year time frame, the market was down by 10% or
• 04:30 - 05:00 more entry year in 58% of those years. So meaning that in 14 of the 24 years, the market saw a 10% or greater drop at some point. The most recent example of this is 2023. So in 2023, the market was up 24.23%. So that is a, you know, stellar year. However, there were two pullbacks that year that spooked a lot of investors. one just under 10% and one just over 10%. So if we look at that chart between February and mid-March 2023, the market on a closing basis was
• 05:00 - 05:30 down almost 8%. This was just around or or before the 2023 banking crisis, right? Triggered by the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank. It's worth noting that the day after the failures, the S&P 500 rose almost 17% between March and August of that year. We'll get into common beliefs and mistakes a little later in the video, but okay. Later that year, between August and the end of October, the market declined just over 10%. And many were sure that the market
• 05:30 - 06:00 didn't have any fuel left in the tank. However, between October 28th and December 31st, the market launched up 14%. And here's more interesting data. Between 2000 and 2023, the market was down by 19% or more in 33% of those years, meaning that eight of the past 24 years, the market experienced a nearly 20% or greater decline. Now, let's bring some more history into these stats. This chart here shows us how normal and frequent market declines are. Looking at
• 06:00 - 06:30 the S&P 500 from 1954 to 2024, we can see that about once every 6 years, we see a decline of 20% or more with an average length of 402 days. This last occurred in January of 2022. Of course, this doesn't mean we won't see this again until January of 2028, right? These are just averages. But I bet you didn't realize just how frequent these larger declines actually occur. Speaking of a 20% or greater decline, technically a bare market is when the market is down
• 06:30 - 07:00 20% or more. But when I ran the data, I found that the market would often decline by 19 or 19 1.5% only to reverse sharply and rally back up. So I went ahead and ran the numbers at 19%. Because whether your portfolio is down by 19 or 20%, it feels exactly the same, right? Bad. And we can see here on this chart again that declines of 15% or more occur about once every 3 years with the last one being in August of 2022. So, let's say that you retired in 2000, 25 years ago, with a million dollars in the S&P 500. That means that over the past
• 07:00 - 07:30 25 years, you would have experienced six different draw downs where your portfolio is down by at least $200,000. If you had a $2 million portfolio, at some point, it could have been down by over 400,000. And here's the thing, if you retired 25 years ago, your portfolio may have continued to grow, right? You may have started with a million, but now maybe it's 1.5 million. A 10% decline on 1.5 million is 150,000. A 20% decline is 300,000. These are
• 07:30 - 08:00 painful draw downs and yet a normal part of long-term investing. And here's why I can almost guarantee that a market crash is coming. I don't know when, right? No one knows. It could be this year. It could be a year from now. It could be 5 10 years from now. But if you have a 30 plus year retirement, it's not improbable that you will experience 8 to 10 painful market corrections where the market's down by 20% or more. And each one of those is going to feel scary. It will trigger fear, not because you're bad at investing, but because you're
• 08:00 - 08:30 human. And here's what happens. Particularly once we enter retirement, we panic. We want to stop the bleeding, so we sell at exactly the wrong time. I've seen this with my own family and with clients. Waiting on the sidelines to reenter the market is one of the hardest decisions you'll have to make if you end up making it right. Some end up sitting out for decades. Here's another noteworthy anecdote. Peter Lynch is one of the most famous and most successful active managers of all time. He managed Fidelity's Mellin fund from 1977 to
• 08:30 - 09:00 1990. And during his tenure, the fund averaged an astounding 29% return per year. That is well above the S&P 500. But here's what was really interesting about that. According to Fidelity, the average Mellin fund investor lost money during Lynch's tenure. So, how does this happen, right? You're looking at the 29% average annual return. You would expect that most people in the portfolio made money. But Lynch had years where he was up big and years where he was down,
• 09:00 - 09:30 often more than the market. For example, in 1980, Lynch's fund surged by 70%. But the very next year, he underperformed. So investors who jumped into the fund in 1980 were disappointed when they watched their investment lose money in the years following. And as human nature would have it, they jumped out of the fund looking for another market winner. And by doing so, they had locked in their losses. Had they simply save invested for another 10 years, they would have averaged more than 25% per year. Obviously, not every fund manager is Peter Lynch, but this just illustrates
• 09:30 - 10:00 the devastating effects our emotions have on our bottom line. If you're losing sleep over your portfolio during a market correction or a bigger pullback, my advice to you is to derisk a bit on the following bounce. So even in down years, there are several oversold bounces that occur for weeks, sometimes even months. And when those occur, you need to seriously consider de-risisking your portfolio. There is absolutely no reason to lose sleep and have crippling anxiety around your investments. And if you do de-risk on a bounce and then the market rallies,
• 10:00 - 10:30 right, so we don't go back down, you need to be okay with underperforming as well. You cannot have your cake and eat it too when it comes to the stock market. You cannot base your day-to-day mood or emotions on how your portfolio is doing. It is so important to have realistic expectations around investing. But what can we do during a crash while the market is pulling back or correcting? Instead of selling during or after a crash, we can actually improve our financial situation by doing Roth conversions while the market is down. If you've analyzed your tax situation and
• 10:30 - 11:00 know that Roth conversions up to a certain limit will benefit you, again, you need to do, you know, a full analysis on your specific situation, keeping in mind your current tax bracket, capital gains, Medicare, Irma, and more. The best time to execute these conversions is during a market downturn. This is because you'll pay conversion tax on less money. So, let's say your traditional IRA was $100,000 and dropped to $70,000 when the market fell. You'd be converting the lower amount. The reason you're converting money to a Roth IRA is to be able to withdraw it later
• 11:00 - 11:30 taxfree. Converting when the market is down allows you to convert a larger portion of your account for the same cost. And when the market bounces back, you'll get the tax-free growth on the money you converted. Okay, let's go back to emotional investing decisions. Here's another eyeopening statistic from Dalbar, an organization that studies investor behavior. From 1990 to 2019, the S&P 500 returned nearly 10% per year. But during that same time, the average investor only earned 5%
• 11:30 - 12:00 annualized. And no, this is not just because investors were diversified into international stocks or or bonds. I ran the numbers for a globally diversified 60/40 portfolio during that same period. It returned 8.72% annually with significantly less volatility than just the S&P 500 alone. Therefore, during that 30-year period, the S&P averaged nearly 10% per year. A diversified 64-year portfolio returned 8.72 and still the average investor only made 5% per year. So, why is the average
• 12:00 - 12:30 investor so bad at investing? Well, there's really only one reason, right? other than the fact that we as humans make emotional decisions and that is is that we think we can time the market. We either sell at the worst time out of fear, right? Like the Mellin fund example or we jump to the next hot thing at exactly the wrong time. For example, we see Nvidia or Tesla skyrocketing and we can't stand hearing our friends brag about their gains. So, we jump into the stock right before it starts a big pullback. So, let me use a recent example. Back in December, we had a
• 12:30 - 13:00 couple of clients call in because they were curious and and they wanted to buy Bitcoin, right? After the second call, I said to myself, "This has to be a sell signal." Like, these people, you know, that have never mentioned it in their lives are now interested in Bitcoin. And sure enough, 2 months later, Bitcoin pulled back by about 20%. As a financial adviser, I get a great read on sentiment, not just from clients, but from other adviserss that I speak to on a regular basis. If the boat is too full to one side, i.e. Everybody is starting to feel either invincible or hopeless. A
• 13:00 - 13:30 market turn is just around the corner. This chart does an excellent job of illustrating the emotional cycle that unseasoned investors follow. As the stocker index rises, we start to feel like a genius, right? Then greedy, right? Oh, it can't go down and I don't need any help and I'm just going to hold my, you know, my my positions in 100% stock. Then once it starts falling, we deny that things have changed. we ignore that price support is breaking and by the time it's hit the bottom, you feel so hopeless that you sell. Another
• 13:30 - 14:00 reason is trying to time the market based on the news or based on your feelings instead of technical market data. It's one thing to trim and buy with discipline, you know, based on a system, but it's quite another to time the market based on something you've read or just your own anxiety. This manifests as thinking the market feels like the top. So, the way I hear it is, you know, stocks are just too high. They're too overvalued. you know, maybe we should wait, you know, sell and wait for a pullback. But let's look at the data. Thanks to research from Ben Carlson, we know that over the past 10
• 14:00 - 14:30 years, the market has hit 300 all-time highs. In fact, in nine of the past 10 years, the market has made new highs. Since 1950, about 7% of all trading days have been an all-time high. That means on average, a new high happens every 14 trading days. This chart from JP Morgan shows us that between January 1st of 1988 and August 27th of 2020, so a few years old, but you know, the market's been very bullish since then. If you had invested in the S&P 500 on any given
• 14:30 - 15:00 day, your average total return a year later would have been just shy of 12%. However, if you only invested on days where the S&P 500 closed at an all-time high, your average total return would have been nearly 15%. So, believe it or not, the average returns were better from all-time highs. So, am I saying that you should go all in on the S&P 500? No. What you need to do is make sure that your investment portfolio is tested for the long term. If you're approaching retirement or just retired, you need to bucket your money so that
• 15:00 - 15:30 you avoid the sequence of returns risk. If you've been retired for years and years, you need a balanced portfolio for income and growth. The bottom line is that you need a portfolio that you can hold, one that allows you to enjoy your retirement with as little financial stress as possible. If you're interested in learning more about our process at URS, click the first link in the description below. and I'll see you next time.