Here We Go Again – Surviving Volatility
Volatility in the markets can lead to many doubts when it comes to financial decisions. Is my money in the right place? Should I keep it in the market? Should I take it out? As experienced advisors who have seen many market downturns as well as many periods of strong market growth, Bob and Mary Jo have established some best practices, which they share on this episode.
At CIS Wealth, we believe in using best practices and educating our clients about volatility. When the markets get rattled, we know not to react emotionally since we are already well positioned to withstand it. As Phillipians 4:6-7 states:
“Don’t worry about anything; instead, pray about everything. Tell God what you need, and thank him for all he has done. Then you will experience God’s peace, which exceeds anything we can understand. His peace will guard your hearts and minds as you live in Christ Jesus.”
We know in this life we will have trouble but God’s Word serves as a lifeline that comforts, sustains and transforms us.
HOSTED BY: Bob Barber, CWS®, CKA® and Mary Jo Lyons, CFP®, CKA®
Mentioned In This Episode
CIS Wealth Management Group
Bob Barber, CWS®, CKA®
Mary Jo Lyons, CFP®, CKA®
Welcome to Christian Financial Perspectives, a weekly program where we talk about ways to integrate your faith with your finances. This is Bob Barber.
This is Mary Jo Lyons.
Are you ready to learn the truth about money from a biblical perspective?
Join us as we discuss what God’s Word says about money and integrating your faith with your finances… If it’s your first time listening, welcome to the program. If you’re a returning listener, welcome back.
Bob: So on today’s podcast we’re going to be talking about, here we go again, surviving volatility, and we thought about some different scriptures to use, and Mary Jo and I came up with this one from Philippians 4:6-7, “Don’t worry about anything. Instead, pray about everything. Tell God what you need and thank him for all he has done. Then you will experience God’s peace, which exceeds anything we can understand. His peace will guard your hearts and minds as you live in Christ Jesus.” So in preparing for this episode of Christian Financial Perspectives, we are reminded that the Christian life is about God holding us in his grip and us trusting him and that he’s not going to let go of us. And we know in this life we’re going to have trouble. We’re going to have those worries. But God’s word serves as the basis and the lifeline that comfort sustains and transforms us.
Mary Jo: Bob, as we were talking earlier, we talked about how we just want our clients and people that are concerned about the market to not worry so much and just find a sense of peace. That’s our intention for today’s message and just to remind some basic principles that should help bring peace as we think about the markets and the impact that it has on our retirement savings and income that can last a lifetime – two really important principles. Since our podcast is about what the Bible says about money, we’d be missing out if we didn’t talk about the current volatility we’ve been seeing in the markets the last few weeks. So here at CIS Wealth, one of the things that’s really interesting is we don’t seem to get as many calls from clients during seasons of volatility. In my previous lives, I’m used to getting much more nervous clients calling all the time about what’s going on? What’s your perspective? What do you think should we make changes? And in other firms that I worked at in the past, that was more the norm when the waters got rough. They’re always looking for us to throw them a lifesaver, so to speak.
Bob: Well, you know Mary Jo, I hope that’s because, and I believe that is the reason, that we don’t get those as many of those calls is they really realize God’s in control and he owns it all. We’ve seen these rough seas before and we know the only approach is to have an ongoing approach, if that makes sense. If we use best practices and educate our clients and our friends like we do through this podcast, we don’t need to react emotionally when these markets get crazy like they’ve been getting because we’re already well positioned to withstand it. There is no guarantee of the future because none of us know what the future holds, but we do know that God holds the future in his hands. So as experienced Christian advisers, we’ve seen many market turn downs as well as periods of strong market growth and we try to establish some really good, best practices that we’re going to share in our podcast today.
Mary Jo: So, we also do have some best practices and some guiding principles that we want to share. The first one to start off with is to do a risk assessment, a true risk assessment and that will measure your risk tolerance. So do this every couple of years as your situation changes. We have a different risk tolerance in our 20s than we do in our forties and as we get in our sixties and closer to the point where we’re going to step away from our job, we won’t have the opportunity to replace that. So we want to do another risk assessment, and determine what’s appropriate at that life stage. I also want to say that if you can’t sleep at night, that tells me that you’re not investing according to your true risk tolerance, and you might want to consider a more overall conservative approach to your investment portfolio. What do you think about that?
Bob: I absolutely agree with you there, Mary Jo, and you know we did that podcast a couple months back on measuring your risk and using technology using that Riskalyze program that we have. And I will tell you, Mary Jo, as many clients as we have here at CIS Wealth, you will have occasionally one that does get a little concerned when the markets do have their downturn. The majority don’t, because like I said, they know that we know that God owns it all. But as an example, I just did that risk tolerance questionnaire and went through that risk assessment online using Riskalyze just a couple of days ago. And you remember me telling you they really got it after that. I mean they really understood, okay I understand volatility and how the markets are gonna go up and down. Does that make sense? So the main thing is that you invest in a well diversified, what we call, risk appropriate portfolio. Preferably that’s using a biblically responsible investment strategy as well. Keep the funds that you’re going to need for the short term in cash or low risk investments that are not so tied to the markets.
Mary Jo: You know, if you’re relying on your portfolio for current income, then you should have three years worth of cash flow needs in cash or a low risk portfolio of short term bonds, treasury, CDs, and other types of investments like that. This is what we would consider an ultra conservative portfolio with zero equity exposure. Or, you know, you can take on a little bit more risk, maybe a more moderately conservative allocation that has minimal equity exposure.
Bob: I’m going to repeat what you just said there because – three years, most people would never think that – three years. Yes, three years because then when that market volatility’s happening, you’re not worried about it because you’ve gotten enough that you’re not going to have to touch growth investments for a long, long time. So, the next layer after you get that three years worth is a, like we said, the first is ultra conservative, then you go to a conservative, then you could start considering what we call a moderate allocation and that’s where you’re increasing your equity exposure slightly for income needs in the next five to seven years. This really allows for the part of your portfolio that may be growth or aggressive growth to rebound. And we refer to this as a bucket strategy around here. So just think of it, and if you can put this word picture in your head while you’re either driving – I was just talking to a person yesterday from out of state – they said, hey, I found you on iTunes and I really love how you use word pictures and things like that. So, think about this bucket strategy. Think here that you’re going to have five different buckets. So, you’re going to have these buckets full of water, but think of that as investments. So one bucket’s gonna be ultra conservative or just very little stocks or equities at all. It’s just mostly cash and CDs like you said, Mary Jo.
Mary Jo: That’s your three year bucket.
Bob: That’s your three year bucket. Then you got your next bucket and that’s going to be your four to five or six year bucket and that’s going to be your conservative and then you got your bucket kind of in the middle. That’s your moderate bucket. Then you’ve got these two buckets on the right and that’s gonna be your growth bucket. That’s going to have more growth types of equities in them. And we’re talking a diversified basket of them. And then you’ve got your bucket off here to the far right and that’s going to be your aggressive growth bucket and can be referred to as a bucket strategy. So you can think about dividing your money up between the buckets. It doesn’t have to all be in growth, it doesn’t have to all be in conservative, but we’re trying to say have enough in conservative and ultra conservative. Those buckets where when the growth’s acting like it is, which is a lot of risk and a lot of volatility, it’s not going to bother you and keep you up at night.
Mary Jo: I can’t think of a better visual than the bucket strategy. So, another best practice, we want to keep your eye on your longterm objectives. That’s what’s important. So what do you want to achieve over the long haul and stay focused on that. Remember that retirement can be a 30 year timeframe. So, you retire at 65 if you’ve got a fairly decent life expectancy, you’re going to have to make it till 95 so most investors need growth to sustain income over that lifespan. Also, you’re concerned about market volatility. Another great strategy, whether you’re investing or pulling money out is utilize dollar cost averaging – invest or withdraw a little at a time, especially if you got a large sum you’re working at. So you’re going to buy low and buy high. Buy low and buy high. Same principle when you’re investing in your 401k. You’re doing it on consistent calendar days and you don’t pay attention to what the market is doing. It’s a much more disciplined approach.
Bob: Yeah, like you say, that is a discipline strategy that forces you into staying the course, and that’s so important as we know when we have these high times of volatility,.
Mary Jo: Stay the course, not worry, and just do what you said you’re going to do and stay focused on that.
Bob: Just some things we want to share with you right now during this volatility that we do know. Just focus on some of the positive news out there instead of always the negative. Sometimes that negative can really get you down. Some positive news is right now consumer spending is still strong. As an example, retail sales in July were stronger than expected, and that’s three months in a row of weakening retail sales. That’s a key indicator of a recession, but we’re seeing just the opposite of that. And the consumer is responsible for two thirds of the economy. So in retail sales and it’s looking strong, that’s a good thing. That’s some positive news.
Mary Jo: Now, although consumer spending has slowed, we’re still seeing growth and we think that the market’s, they’re really being swayed by headline risk rather than actual fundamentals. In those headline risks, it’s all about the tariffs and the trade policies, about impeachment. So that is really what’s escalating the fear out there. Whereas, we want to focus on the positive as Bob said. Homebuilder’s competence is actually up as mortgage rates drop sharply. So builder confidence was 66 in August, which was slightly higher than July, wherein 50 is considered positive territory. So we’re doing well there and that’s a key indicator.
Bob: Another thing is normally a softening labor market is another key indicator, but we’re actually seeing an increase in jobs at a steady pace. Unemployment continues to remain at a 50 year low. Let me say that again. Unemployment remains at a 50 year low. I mean that’s really good news, and the Federal Reserve is poised for possibly another rate cut as they continue to take a stand toward easing some of those tariffs. So, a recession is defined as a significant decline in economic activity, which spreads across the economy lasting more than just a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales.
Mary Jo: So there are many current and variables indicate the economy is in really good shape, better than it’s been in years. However, the current global tensions and geopolitical factors such as the trade war with China, could have a negative consequence in the equity market. So we don’t want to lose sight of that. And this may mean that volatility, it will continue and a correction is likely, but many economic experts do not foresee a US recession in the coming years, so it’s not as bad as it sounds.
Bob: We do want to address some concerns in that bond yields have softened as global data weakens from China, Asia, and Europe due to a flight to safety and fear that the USA may follow this trend. And as a result, foreign investors are snapping up US bonds more so due to weakness oversees than any perceived weakness in the US markets.
Mary Jo: Factory output and industrial goods are down, and this is a result of the slow down in exports due to trade imbalances and trade war uncertainty, but manufacturing only represents 10% of the economy. China has shown some weakness, but not a sharp slow down. Reduced exports to the United States have resulted in increased exports to other areas of the globe. So some offsetting good news there.
Bob: We’ve been here before though. We’ve seen crisis after crisis that has rocked the markets in the years past, and the market has always rebounded in short order and gone on to achieve all new highs. It always has in the past. Will it always do it in the future? We hope so, but we can’t guarantee the future. Like you said, cause nobody knows the future. What information do you have that indicates this time is any different though? I don’t have any.
Mary Jo: I don’t have any. I think that we can only predict the future by what we’ve seen in the past. So, many in the financial press have shouted alarms about the recent yield curve inversion of the two year treasury rates over the 10 year treasury rates. And if you’ve been listening to the news at all, I’m sure you’ve heard something to this effect, they’re saying that this is an indicator of a recession and they believe the relationship between short term rates and long term rates offers insight upon upcoming economic condition. This was seen prior to the last five US recessions. What they fail to tell you is that over the last 40 years, the yield curve has inverted many times, and it’s taken several months and sometimes even years for a recession to materialize from the time of the first inversion. So this is anything but a clear indicator of an upcoming recession. The statistics just don’t support the narrative.
Bob: So in finishing today’s podcast, we want to encourage you to keep all this information we’ve shared with you today in perspective and our opinion, as well as that of many financial economists – the bias of the mainstream press right now is real, not imagined. Their goal seems to be to incite fear in the American consumer in order to possibly influence the upcoming elections.
Mary Jo: You know, you’re so right, Bob. Congress is also partly to blame. In anticipating the August recess, they wanted nothing more than to leave Washington with the marketing chaos in order to keep the heat on the current administration. So we think that this is what’s really fueling this storm, and we want to keep all of this, as you said, in perspective. So the best practices – set a longterm heading and stay the course.
Bob: All I can say to that is amen.
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That’s all for now, until next week!
Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Mary Jo Lyons. Bob and Mary Jo do not provide tax advice and encourage you to seek guidance from a tax professional. Investment advisory services offered through Christian Investment Advisors Inc. DBA CIS Wealth Management Group, a registered investment advisor.