The stock market is off to a shaky start in 2022. Many are asking: What should I do with my portfolio? It’s important to have a plan for when the market goes up or goes down.

A client recently asked, “What should we do with my portfolio and when will we do it?” Remember that market declines are normal: it goes down 10% every 2 years, on average. So it’s important to plan ahead and understand what to do and when to do it.

Options for your plan include:

  1. Do Nothing. You can let your portfolio decline and ride the return on the other side. That’s a viable plan, as long as it’s an actual plan (not sticking your head in the sand!)
  2. Rebalance. You can purchase more stocks while they are on sale.
  3. Tax Loss Harvest. You can sell stocks or funds that have lost value to make lemonade out of lemons.

The important thing is to have a plan, write it down and stick to it.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Are you ready to create your ideal lifestyle? Let’s Connect.

Transcript
Matt:

Welcome to real financial planning, broadcast on WK XL, and available wherever you get your podcasts.

Matt:

I'm Matt Robinson joined as always by Mike Morton.

Matt:

The owner of Morton financial advice.

Matt:

The host of a podcast that for now is called financial planning for entrepreneurs, that may change Mike, is that going to change?.

Mike:

It may or may not change.

Mike:

We will say, yeah, it's definitely going to change.

Mike:

We're rebranding the podcast, but for now that's where you can find it.

Mike:

And that's the name on the cover art.

Matt:

Hey, listen for all of you, people who kind of fancy yourselves marketing gurus out there, everyone.

Matt:

I, there are definitely

Mike:

That's 89% of our listeners.

Matt:

Well, there are people out there who actually have a talent for this it's they just, they come up with a perfect name for something.

Matt:

And then there are people who think that they have that talent, and then there are people like me who know they do not have the talent, you know what lightning struck once I have an uncle, I had an uncle he's passed away.

Matt:

I had an uncle who was a world renowned biochemist.

Matt:

He is, was the world's leading expert on the effects of electric fields on the cells in our body.

Matt:

And he was writing a book about that topic and what, all of the things that run on electricity all around us are doing to us health-wise and he sat down with me and he's like, Matt, you might be good at this.

Matt:

What should I call this book?

Matt:

And I had my one moment, my whole lifetime.

Matt:

I said, you should call the book Overpowered.

Matt:

It's like how much we're running everything around us too much power around us in the world.

Matt:

And he was like that's it.

Matt:

That's the title.

Matt:

That was it other than that, I can't come up with titles so I don't know maybe we'll crowdsource this whole thing.

Matt:

Meanwhile, I have another problem for you to solve.

Matt:

So we've been asking listeners in recent shows to come up with.

Matt:

Questions things that they want Mike to delve into and you got one and it's super timely.

Matt:

And who knows how long this will be timely.

Matt:

Like our shows have a long shelf life, this is going to keep coming up.

Matt:t may really come up a lot in:Matt:

What's the question of the week?

Mike:

Yeah so we do get questions from listeners.

Mike:

So please feel free to send those in this one came directly from one of my clients because we've had the markets going up and down , particularly down over the last few weeks, we're recording this right at the start of May.

Mike:

And so the question is, you know, the market's going down, what do we do?

Mike:

Should we be doing something, on the portfolio side or the investment side?

Mike:

What should we do and when should we do it?

Mike:

So that's the question we'll try to dive into today.

Mike:

The market is going down, when do you pay attention?

Mike:

Of course, you're probably already paying attention, but when do you actually get in there and do something, you know, create some change, do some action.

Matt:

This reminds me of the moment on the Simpsons where the host Kent Brockman turns to the expert and says, would you say that it's time to panic?

Matt:

And the expert says, yes.

Matt:pandemic, this was February,:Matt:

And he's like, hold on a second I need to go take a call from my broker.

Matt:

And if you're listening friend of mine who will remain unnamed, sorry, I'm calling you out.

Matt:

And then he stepped out from my weightlifting session to go have a call with his broker.

Matt:

So I guess, and what he was doing was he was trying to find safe harbor.

Matt:

And what was interesting about that is I didn't I tried to take a super long-term view.

Matt:

The market was tanking.

Matt:

I did not mess with anything.

Matt:

He put everything into kind of safe harbor investments, more bonds, more commodities, et cetera.

Matt:

And then of course, people might remember it.

Matt:d went up through the bulk of:Matt:

And we ended up at about the same place I did well, he did well.

Matt:

It's, it really is hard to know what do you do?

Matt:

No tongue in cheek about this, but when is the time that you should interrupt your normal activities, your weightlifting sessions, and maybe get on the phone to the Mike Morton's of the world, to your financial advisor and say, should we be doing some stuff?

Matt:

What are the warning signs that it's time to take some action?

Mike:

Yeah hopefully, ideally you've thought that through ahead of time.

Mike:

So you don't have to be in the middle of your weightlifting session and suddenly realize, oh, now I need to call my broker cause something's happening right now.

Mike:

So ideally this is what planning is all about and having a plan and therefore, you know ahead of time well, if the markets go up, we're going to do this thing.

Mike:

If the markets go down, we're going to do this thing.

Mike:

So, you know, ahead of time, how you're gonna react no matter what happens, and also not how you're going to react, but that you're going to be fine.

Mike:

No matter what happens, you've already thought through the scenario.

Mike:

If it goes down and back up what am I going to do?

Mike:

How am I going to do it?

Mike:

And will I be okay?

Mike:

Whether I'm young and in my career, middle of my career, I'm just about to retire or in retirement, you always want to have that plan because you never know what's going to happen in the stock market.

Mike:

So you need to be prepared.

Mike:

So let's talk a little bit historical context, and then I'll get into some particular actions, you know, cause I'm sure people are worried about this, but the, this kind of up and down happens all the time.

Mike:

So that's the first thing to realize, and that's why you need a plan because a bear market is when the stock market goes down 20%.

Mike:

That's the definition.

Mike:

And it happens quite frequently, every three to seven years, depending on how exactly you measure the stock market, which index you're using and all that stuff.

Mike:

Okay.

Mike:

But it goes down about 20%, every three to seven years that's pretty often it's not your day to day or week to week, but in terms of your lifetime, you're going to go through this multiple times.

Mike:

And so that's why having a plan and being ready for when this happens is really.

Matt:

Yeah, that makes sense.

Matt:

So it sounds like this might be the conversation, you've said on this show before that what you do is, with many of your clients, you'll get together once a quarter or once every six months, even once a year.

Matt:

So this might be more the kind of conversation that you have.

Matt:

It's Hey, this has been going on how are we positioned?

Matt:

What does the plan look like?

Matt:

So that you don't have that, yo, I've got to put this dumbbell down and call up Mike moment.

Matt:

So the it's much more of a, there's it sounds like there's a middle ground between the approach I took of I am going to shut my eyes and just take a 10 year view and assume I'm fine.

Matt:

And the all right, I'm going to like minute to minute, try and shift my portfolio.

Mike:

Yeah.

Mike:

So let's talk through what you can do or what you could be prepared or think ahead of time.

Mike:

So the first thing you said is you could do nothing and that's, a perfectly viable plan,

Matt:

That's great.

Matt:

I'm glad that you're endorsing that.

Matt:

Cause I'm really into that obviously.

Mike:

The do nothing plan is also great because less headache, less stress, less to do you, know, you don't have to put something on your calendar.

Mike:

You don't have to have that phone call.

Mike:

It's one of the overlooked ways of going about things, which is to eliminate stuff, subtract things, eliminate do nothing.

Mike:

That's a perfectly viable plant.

Mike:

Again, if you think about it ahead of time, and that is your plan, it's not a plan if you just put your head in the sand and do nothing, but if your plan is, oh, look, I'm younger in my career or even middle of my career I've got 10, 20, 30 years left of working.

Mike:

And I know based on historical market returns, yes, these things can go down.

Mike:

They could stay down for multiple years, but they tend to come back.

Mike:

So my plan is, stick with it for the long-term, I'm going to constantly be adding money through my 401ks and my IRA's and saving every month and investing every month.

Mike:

And I'm just doing that for the next years, five years, 10 years, 20 years.

Mike:

That's a great plan.

Mike:

And that's the do nothing.

Mike:

When the market is being volatile or going down, in fact, you should feel really good about it going down because your plan is I'm investing 200 a month, 500 a month, and stocks are now 10 or 20% on sale.

Mike:

This is great.

Mike:

I'm buying everything cheaper prices.

Mike:

And I know they're going to go up over the next 10, 20 years and I'll be in great shape.

Mike:

So the do nothing plan is a perfectly viable plan.

Mike:

As long as again, I've said that the P word many times, as long as it's your plan to do it that way.

Matt:

Isn't there some saying attributed to Warren Buffet that you should invest when others are fearful and be fearful when others are investing.

Matt:

I know there's a lot of aphorisms like that out there that it's, there's another way to look at this, which is hey, maybe , this isn't all bad.

Mike:

Yeah.

Mike:

exactly.

Mike:

There's a quote "the time to buy is when there's blood in the streets."

Mike:

And that's from Baron Rothschild and 18th century.

Mike:

And then Buffet has gone on to quote that as well, be greedy when others are fearful.

Mike:

So when the stock market is down by 10, 20, 30%, and everybody's running for the exits, that's the time to get in.

Mike:

And in fact, I'm glad you brought that up, Matt, because I was just reading yesterday that Berkshire Hathaway has been sitting on, roughly 150 billion of cash.

Mike:

150 billion of cash for the last four or five years.

Mike:

They just, and they haven't done anything with it.

Mike:

And people have been, geez, what are you going to do something?

Mike:

And Warren and Charlie Munger like, when there's an opportunity, , we'll do it, but there's no opportunities.

Mike:

And just in the last few months, they've actually started to get more involved.

Mike:

And so I would take that as a sign that geez, maybe in areas of the market as things are going down, they're getting more involved in purchasing things.

Mike:

And that could definitely be the next few months, few weeks, this year that things go down and there's more buying opportunities.

Mike:

So that's why, what I do with my clients is the plan is to always have something in reserve, especially when the stock market's high, or somewhat expensive or to doing really well in general, obviously it's been doing well in general last 10 years.

Mike:

So you just save some stuff in reserve for when we reach these times that it crashes by 10, 20, 30%.

Matt:

What really resonates with me, this is across all of our conversations about the approach you take is how personal it is and how much people's feelings and comfort level really matters because there are people out there, you were giving the Rothschild quote, which was a lot more violent than the one I chose, and that's on you, man, but there's something like, for example, the classic submarine, movie, Crimson Tide, Denzel Washington, Gene Hackman, right?

Matt:

And Gene Hackman is the commander of this nuclear sub, and there's a fire blow deck, which I imagine in a submarine pretty dangerous.

Matt:

There's a fire in the kitchen.

Matt:

And so there's an emergency and the commander Gene Hackman says, all right, let's do a launch drill.

Matt:

Like we have to launch the nukes right now.

Matt:

And Denzel Washington, his second in command is like, have you lost your mind?

Matt:

That's a terrible idea.

Matt:

There a fire actually happening right now.

Matt:

And Hackman's character's point is well no, I think since this is what we need to be able to do when we're in an emergency.

Matt:

That's the perfect time to do a drill like that.

Matt:

My point isn't that we all live in a nuclear sub.

Matt:

My point is that people, there are people out there and this isn't me, this isn't me personally, but there are people out there really good at this kind of thing.

Matt:

It's like, they see the market going down and they're like, oh, there's an opportunity.

Matt:

They see a problem and they're risk-taking they're entrepreneurial.

Matt:

That's just not the way I'm built.

Matt:

What you're doing is like it's yeah, it's partly financial advice, but it's largely like trying to figure out what makes people feel comfortable, happy and that also fits in with sort of their financial goals and success.

Matt:

And it's like the right answer for me is probably not run the drill while the kitchen's on fire.

Matt:

I'm probably not the kind of person who you would advise hey, Matt, let's go out and look for some stunt buying opportunities during a bear market, but you might have other clients, I'm more of the, yeah.

Matt:

I just don't want to think about this type and that's fine.

Matt:

I like that you're validating that that's fine.

Matt:

let me turn that into a question.

Matt:

Do you see that kind of variation in the people you work with?

Matt:

Some people really want to be aggressive and take advantage of situations and be entrepreneurial about it.

Matt:

And some people are like, ah, I just I don't want to think about this that much.

Mike:

You bring up a really good point, Matt, because of course it does run the gamut, but I'll say this people that tend to work with financial advisors get a lot of value from exactly what you're saying.

Mike:

There's a study from Vanguard that says people that work with financial advisors outperform the market by 3% a year.

Matt:

That's a lot.

Mike:

Now, how

Matt:

That's a lot.

Matt:

It doesn't sound like a lot.

Matt:

That's a lot compounded over time.

Mike:

Exactly right now, how is that study done?

Mike:

Some of it's the taxes and being efficient with taxes.

Mike:

That's a piece of it, but I think a big piece is that behavioral aspect and staying consistent, staying in the market and staying consistently in the market, the investments over time.

Mike:

It's that over time part, that really matters.

Mike:

Okay, it's time in market.

Mike:

Not timing the market.

Mike:

That's important.

Mike:

And that's what financial advisors and wealth managers, et cetera, can really help with staying the course, because like you Matt many people are just like you, they might panic there's news, there's media.

Mike:

It gets your adrenaline running.

Mike:

I got to do something and often the best course is do nothing.

Mike:

That's our point number one here is to do nothing.

Mike:

Just stay the course, so that's really important.

Mike:

And the other way to think about for listeners.

Mike:

What did you do last time this happened?

Mike:

Now the last time there was the pandemic and that was a lot of the news.

Mike:

Okay.

Mike:

So we're all feeling very stressed and uncertain and uneasy because it was brand new, we didn't know what was going on what's the protocols and all that, and the market was crashing at the same time.

Mike:

But what you need to think about is what did you do with your investments during that time.

Mike:

Did you panic and sell?

Mike:

Did you get back in?

Mike:

Did you do nothing and stay the course?

Mike:

All right.

Mike:or even:Mike:

And that will really influence, oh, this is what I did last time, this is how I felt, and this is what I actually did.

Mike:

Was that good or bad?

Mike:

Should you work with an advisor or a friend or somebody that can help you, do a better job the next time that these things come around.

Mike:

And the other point is that you're different next time.

Mike:

Maybe it was early, you know, if it was 10 years ago, you were younger and you didn't really care, but now you're about to retire, and so bring that into the thinking, what will you actually do and come up with

Matt:

that plan.

Matt:

Yeah, it's a little bit like working with a personal trainer.

Matt:

You're going to do better in your fitness goals.

Matt:

Just because you're forced to stick with a plan you're forced to think ahead about what you're going to do.

Matt:

And to some degree you're outsourcing the level of mental energy that it takes to commit to something and to stick with.

Mike:

There's no doubt, I think about this all the time, whether it's personal trainers, nutritionist, even your dentist, having to go in every six months and, just have that checkup be told, hey, work on these things.

Mike:

Having that consistency, month in and month out year in and year out really makes a massive difference over time.

Mike:

Okay.

Matt:

Well, and it, it doesn't have to be a lot either because there's a lot of studies on psychological anchoring and how powerful it is to just declare something.

Matt:

And especially if you put it in writing or you say it out loud in front of witnesses, I mean, look, you know, captured American soldiers.

Matt:

If you've ever seen I'm doing a lot of movies today, if you've ever seen the movie, Manchurian Candidate, there's actually something very real in the brainwashing scene.

Matt:

Not that that whole movie is not real, but that was an actual psychological technique apply to American prisoners of war.

Matt:

They would try to get them to just, we'll start by saying something you don't like about living in America.

Matt:

And just that declaring out loud in front of their people.

Matt:

It opens a lot of psychological doors for you and so I would think that just the act, even if it's just sitting down with someone and writing down, here's what I'm going to do here are the steps, you know, the more it's coming out of you.

Matt:

The more valuable it is.

Matt:

And that in itself is meaningful because, what you're pointing out is as long as you're sticking to something with consistency, that's reasonably well thought out.

Matt:

There are different right answers here.

Mike:

Yeah.

Mike:

That's exactly right.

Mike:

I love the way you said that too writing it down, it doesn't even have to be with somebody else or out loud.

Mike:

But I would just, I would urge your listeners to take that action away.

Mike:

Hey look, the market, as of today is down somewhere between 10 and 12 or 14% come up with a plan.

Mike:

If it hits 20%, are you going to do something?

Mike:

If it hits down 25%, are you going to do something?

Mike:

What are you going to do?

Mike:

And write that down, so this leads into my second point.

Mike:

The first was do nothing.

Mike:

Hey, the do nothing plan that can totally work.

Mike:

Make sure it works for you, make sure it's going to be good long-term solution to where you're trying And that's perfect.

Mike:

The next thing you could do to take advantages is what we call rebalance.

Mike:

All right, so when the market goes down, you've got some stocks and bonds and you've got cash, different buckets of your investments and your bank accounts, when the the stock market goes down, then it's an opportunity you might be able to use some of that cash to buy while the stocks are on sale.

Mike:

And that's just called rebalancing your portfolio.

Mike:

And that's always a good idea to do, even when the stock market is just talking along, going up hopefully you did that in the last few years.

Mike:

Oh, geez.

Mike:

I'm getting pretty heavy in stocks I'm going to get some more cash.

Mike:

I'm going to sell wallets high.

Mike:

Not many people do that because you love when things are going up.

Mike:

Ooh, this feels really good yeah that's good it's going to keep going.

Mike:

Why would I get out now?

Mike:

But on the flip side, this is why you get out, sell a little bit a few months ago while it was really high, because now it's down, 10, 20, 30% you can buy back in.

Mike:

And this gets to how often these happen.

Mike:

I told you every couple of years, every three to seven years, it goes down 20%.

Mike:

Every other year it goes down 10%.

Mike:

So there's a lot of different buying opportunities.

Mike:

And so that's something you can also do having a plan.

Mike:

It goes this amount I'm going to rebalance at this time.

Matt:

All right.

Matt:

Here's a, this is a very meta kind of question, but sometimes we go through a recession, right, which is defined as more than two quarters of negative economic growth.

Matt:

And there's a whole board of economists who have determined this it's whatever.

Matt:

And then economists like to argue about whether you're in a not.

Matt:

And you know, it's the old joke.

Matt:

If you want to get 10 different opinions, just as two economists.

Matt:

Is there a point in a bear market where you have to reevaluate.

Matt:

Your priors at, you know, you may have had a plan, but we haven't been in this situation where there's like an extended downturn or a series of serial downturns over a long time.

Matt:

But, you know, that's certainly something that's within my living memory.

Matt:

So what you've alluded to so far is, go through this every three to seven years.

Matt:

But what happens if the situation turns even further, do you then reevaluate that plan or is there a triggering point for that.

Mike:

I would hope that?

Mike:

especially if you're near retirement or in retirement, you've thought that through.

Mike:

Because that's a very real situation and Matt, we might be in that situation.

Mike:

All right, because of high inflation and low interest rates and relatively expensive stock market, that combination of those three things.

Mike:

High inflation, low interest rate, relatively expensive stock market could lead to a whole decade of pretty stagnant returns, a whole decade, 10 years.

Mike:

All right.

Mike:

This happened, in the late sixties, all the way through the seventies, to the early eighties, the Dow Jones index went basically nowhere and went way down in terms of inflation.

Mike:

For many years.

Mike:

Okay, so if you are in retirement or close to retirement, you really need a plan that can last 5 to 10 years, not just a couple of years.

Mike:

And so that's really important to have that plan.

Mike:

Where are you going to get cash to live your life over the next 2 years 5 years in 10 years, if the stock market stays flat?.

Mike:

That needs to be a plan.

Mike:

Now will you adjust your spending?

Mike:

I'm sure.

Mike:

If you can, you will adjust some of your expenses.

Mike:

Geez.

Mike:

Things are pretty bad for many years in a row.

Mike:

hopefully you have a discretionary spending that's part of your plan.

Mike:

Hey, look, we'll take a little bit less vacation.

Mike:

We'll cook at home a little bit more, we can ratchet that expenses.

Mike:

But that definitely needs to be part of the thinking because to your point, man, We've gone through these little blips, honestly Yeah, I know the stock market went down 35%, two years.

Mike:

But it came back within a few weeks I mean, Who remembers that?

Mike:

Everybody's fine, portfolios are fine.

Mike:

Just kept chugging along.

Mike:

That's not the case, historically.

Mike:

But in our lifetimes for you and me, Matt that's, it's been relatively quick, the financial crisis was a year or two relatively quick the '.com' bubble, went straight down, but then came back, relatively quickly, we haven't had a 3, 4, 8 year of high inflation eroding and the stock market really going nowhere.

Matt:

Yeah, one of the things that's, I think valuable.

Matt:

In hearing that kind of perspective from you is there's a saying in Washington, the Pentagon is always fighting the last war.

Matt:V-shaped and we went up like:Matt:

And so.

Matt:

this is really helpful because the major thing that I'm hearing from you is, you know, there can be many right answers here there are different approaches that can make sense.

Matt:

Some of it really is very personalized to what makes you comfortable, as long as you have something that's rational and write it down and try to stick to it.

Matt:

And maybe a financial advisor, like you can help with that.

Matt:

And with.

Matt:

We are going to wrap for Mike Morton.

Matt:

I'm Matt Robison.

Matt:

We'll see you next time.

Mike:

Thanks, Matt.

Mike:

Thanks for joining us on financial planning for entrepreneurs.

Mike:

If you like, what you heard, please subscribe to and rate the podcast on Apple iTunes, Google play Spotify, or wherever you get your podcasts.

Mike:

You can connect with me on linkedin or mortonfinancialadvice.com.

Mike:

I'd love to get your feedback.

Mike:

If you have a comment or question, please email me at financialplanningpod@gmail.com.

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