111 – Questions For Down Markets

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Questions For Down Markets

Ask yourself these 7 questions when a down market hits.

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The only guarantee we have in the stock market is that it will have ups and downs. This is also true of anything with a value like real estate, bonds, precious metals like gold and silver, commodities, collectibles, etc, not just the stock market.

However, when the market starts going down, even the best of us start to question our decisions. Instead of questioning all of our choices, Bob and Shawn pose 7 questions we should be asking ourselves in order to try and remain confident. So, what questions should you ask yourself when the stock markets are in a downward trend? Find out by listening!

Mentioned In This Episode

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[INTRODUCTION]

Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber.

[EPISODE]

Bob:
Hi Shawn!

Shawn:
Morning, Bob. Well, depending on when someone’s listening.

Bob:
It could be nighttime, right? We have had a real bear market this year. It dropped the most in the first three weeks of January. If you look at the average, like, if you look at a growth or a moderate portfolio, it dropped about 7% in the first three weeks, and then it’s dropped another six, 5 or 6%. most of your indexes or moderate indexes since then, of course, if you’re in growth or aggressive growth, you’ve dropped a lot more. And today we’re going to continue in our series about how to handle these bear markets. The last few episodes that we did, we talked about a Christian’s response, how Christian should respond and then investing during turbulent times.

Shawn:
And so for today, we’ve got questions for a down market or down markets.

Bob:
These are really good questions you need to ask yourself during a down market like this, because you don’t wanna let your emotions get involved. Emotions should not be a part of investing. At all.

Shawn:
And that is hard. I mean, we wanna make sure people, either watching or listening, don’t think we just look at it as, “Well. Just remove emotions.” Obviously, we know as human beings, we’re emotional creatures. We have emotions, but in the interest of what we’re talking about, you’re right. You’ve got to do your best to set your emotions aside and look at the facts.

Bob:
So today, we’re gonna have a discussion about questions asked during a down market. We had this in our last special bear market newsletter, which is on our website at christianfinancialadvisors.com. That’s all you gotta do. Christian financial advisors. If you want to abbreviate the financial advisors, you can go Christianfa.com and go to the newsletter area, the educational area under articles. And that will get you to the part that we’re gonna cover today. But it really is good to hear it through video because we’re gonna be discussing these questions.

Shawn:
Right. Right. What’s interesting too, Bob, is obviously, there’s a lot of signs that you can look at to see if we’re in a bear market, such as are the market down, but what, what I always find interesting is we know we’re definitely getting into a bear market when all of a sudden our clients start contacting us without us having to reach out to them.

Bob:
That’s the truth, isn’t it? During the up market, we’re reaching out for account reviews and updates.

Shawn:
And if we get a response, people are like, I’m good.

Bob:
I’m good. I don’t need to talk to you. Well, today they want to talk with us.

Shawn:
Yeah. That’s our first sign.

Bob:
One of the things I wanna say, before we get to these questions, is the only guarantee in the stop market. There is a guarantee.

Shawn:
That you will have ups and downs.

Bob:
You’ll have ups and downs. Exactly.

Shawn:
And sometimes sideways.

Bob:
I remember when we had Sal that worked for us many, many years ago, and you would ask him, so what’s the stop market gonna do? He’d always say where it’s gonna go up and it’s gonna go down. And I like that. He always had a real dry sense of humor that I loved. And this is true with anything that has a value. I mean, you look at real estate, bonds, precious metals like gold, silver commodities, any kind of collectible.

Shawn:
It’s not just the stock market.

Bob:
But the one thing about the stock market is you’re getting an appraisal every second of the day. You think about real estate, unless you go get an appraisal every single day or every week, which you couldn’t do, you really don’t understand when the value of that real estate is dropping, which right now people don’t understand it is dropping because of the interest rate increases. I would invite you to go back and listen to the program we made. Gosh, was it last year we made that?

Shawn:
I think…

Bob:
It was about we’re investing in real estate right now and should you, cause we covered the interest rates.

Shawn:
It’s been within the last six months.

Bob:
It was amazing to me that, the things we were predicting are now happening with the interest rates going up

Shawn:
The craziest part was you had talked about the math of what if interest rates go from an average of 3% to 4% and yet we’ve gone from 3% to almost 6. And now, the analysts are predicting. I mean, we’re within the next year or two, I mean, we’re talking about easily being at 7% – as a norm.

Bob:
You think the stock market is dropping, and you look at the purchasing power of the average person that buys a home, which I looked at. The national association of realtors just came out with an article about two weeks ago that said that 87% of the buyers in the last two years have financed. 87%. So that’s 87% of your market now has purchasing power that’s half of what it was. So, let’s get into the questions. We’ve got seven questions that we’re gonna be talking about. I think this first question is really important when you’re thinking about when you’re in a bear market and how you’re invested.

Shawn:
When you’re in that downward trend.

Bob:
Right. And I believe that everybody should have a diversified portfolio. So the question you gotta ask yourself is if you have a diversified portfolio, are you gonna need all of it in the next one to three years? And why do I say one to three years?

Shawn:
So what you’re saying is, are you going to need to, effectively, withdraw and actually actually spend all of that money in the portfolio over the next one to three years.

Bob:
Exactly.

Shawn:
Okay. So I’m assuming you’re saying that one to three years because of the time that typically it takes for us to get through a bear market since average bear market has been, over the last 73 years, about 11 to 12 months?

Bob:
11 to 13 months to be exact. Okay. So people get panicky when the markets drop over a four or five or six month period, but if they have a diversified portfolio and what I mean by diversified, if they’ve got bonds and then they’ve got stocks and then they’ve got cash and then they’ve got real estate, and they’re diversified over a lot of different things. Unless you need all of that in the next average bear market of 11 to 13 months, and sometimes bear markets can go two or three years, but unless you need all of that, there’s really no reason to panic because you can pull from – usually there’s a side that you can pull from that is not down while you’re waiting for the other side to come up. So, if you have your bonds and then you have your cash and you have your stocks, just don’t touch the stock part of the diversified portfolio. Now, if you’re in 100% stocks and the stock market’s down and you’re needing money that’s, you’re diversified wrong.

Shawn:
That is absolutely correct.

Bob:
That is not a good plan, but that’s a strong first question. I’m at peace about this cause I’m very diversified. I’ve got enough easily to last one to three years.

Shawn:
As far as your income needs.

Bob:
Right. Exactly.

Shawn:
So, you practice with your preach, Bob.

Bob:
I do. And that takes us just to the second question, do you have enough in cash and bonds to live on while waiting for the rebound portion of your stock portfolio to come back?

Shawn:
Gotcha.

Bob:
And it helps with some, like, if you have a balanced portfolio, you’ll see that whole thing down. Sometimes, it helps and you’ve seen me do this, is that we will separate that portfolio.

Shawn:
Create a second account if there isn’t already an account that we move it to, but create a separate account that is the same kind. So if you have an IRA, we have another IRA, and that way our clients can easily see Account number 1, 2, 3, 4 is our stock portion and account number 1, 2, 3, 5 is our bonds and our cash.

Bob:
So, you separate it completely out because within a balanced or a moderate portfolio, you’ve got a part of it that is stocks and a part of it that is bonds and fixed income. So, when you see it going down, you’re thinking it’s all going down.

Shawn:
It’s a little harder to separate that out and see, okay, well, how have the bonds, the fixed income, the cash, how have they been doing versus the stock portion when it’s in that one account.

Bob:
And while interest rates have risen, while we’ve had some downturn in bonds, it’s been nothing like stocks.

Shawn:
Oh yeah.

Bob:
Yeah, yeah. 3 or 4%, nothing like the 15-20%. I mean, you’ll see some of these stocks come out and they’ll be down 25% in one day. A lot of that has happened.

Shawn:
There is that streaming service that has a red letter and a black background. I’m not gonna mention any names that has dropped a little bit over the last six months like 50%.

Bob:
A lot. A whole lot. As we’re coming out of the pandemic and people are not gonna sit around and watch TV anymore. Thank goodness.

Shawn:
And there’s a lot more competition, but anyway, that’s a different topic.

Bob:
So first question, you have a diversified portfolio. Second, do you have enough in cash in bonds? Third question.

Shawn:
Are you smart enough to perfectly time the market by getting out at the perfect time and getting back in at the perfect time?

Bob:
How many times do I say perfect in there?

Shawn:
I think you’re trying to drive a point. Yeah.

Bob:
If you look at the charts and we have a chart that we need to put up here.

Shawn:
Yeah. We’ll include the chart. If you’re listening, you’ll have to go to our website to check it out. But if you’re watching it, we’ll pull it up on screen. But you’re talking about the chart over the last 70 plus years.

Bob:
Well, I’m talking about the one that’s in the last 15 to 20 years of where if you just miss the 3-5 days in how the returns – in an all stock portfolio, right? How the returns in an all stock portfolio go from like an average of 10% down to 5% by missing just 5 to 10 of the updates. Cause the updates, you never know when they’re gonna hit. And then missing the next 5 to 10 of the updates, your return goes from 10 down to 1%. So, it’s really important that you’re there because markets move fast and what people will do is the markets will be down and they’ll say, I want to get out. And then they’ll say, well, I wanna get back in after it’s recovered and you’ve missed those days.

Shawn:
Yeah. You’ve missed a huge percentage of the potential comeback.

Bob:
Next question is if you have a well diversified portfolio. Do you believe that people are gonna quit using things like technology, healthcare, medicine, utilities, gas, transportation, food, shelter, clothing? No, I don’t. I mean, I’m still putting gas in my car as expensive as it is right now.

Shawn:
Yeah. Cause we have to.

Bob:
We’re using technology right now to record, and we’ve got our Google apps here to stay with our outline. We’re using utilities. We’ve got the lights on, got our clothes on. Thank goodness. We’ve got our drinks. I had a good breakfast this morning. That’s the normal thing. The things that we use. If you are invested in those companies, do you believe they’re just gonna completely go away because it’s a bear market?

Shawn:
No. I guess another way to look at that. Yes, the price, the stock price, of those companies may have fluctuated, but are they gonna go to zero? Are they gonna completely go outta business? Like for these like critical industries? No. It’s a bear. You look at the bear market, you look at the bull markets, your bull market lasts multiple years on average, typically, and your bear market lasts about a year. It’s just math.

Bob:
We’ve said that one before.

Shawn:
We have.

Bob:
This is so important to know in a down market like we’re in and in this bear market. Question number five, go ahead, Shawn.

Shawn:
Will I allow short term thinking to get in the way of long term success? That’s a good one.

Bob:
Need I say more?

Shawn:
Well, you can. I mean, we are describing the questions right now.

Bob:
Well, it is. People get caught up in just the time, and for some reason…

Shawn:
The last six months – what’s been going on.

Bob:
Or the last three months. And they think it’s different this time, and we talked about that a little bit on the last podcast video that we did. It’s not different this time.

Shawn:
But yet everybody thinks that. Every single time there’s been a downturn, people think it’s different this time. And yet, so far a hundred percent of the time, it’s not been different this time.

Bob:
I like that. 100% of the time.

Shawn:
It’s been a few years since Solomon said it originally. Yeah. But he did say at one point in the Bible that there’s nothing new under the sun, so if he said it however many thousands of years ago, it’s still true.

Bob:
One of our clients, they listened to the podcast, because they said that yesterday. There’s nothing new under the sun. I’m not worried about it right now. And also they said, I’m not watching the news all day long. I’m living life.

Shawn:
Well, especially most of your major news. It’s not news. Like, I mean, they have they have the word news in it. But if you look at them, they’re entertainment companies. Their goal isn’t to accurately portray what’s going on or what you should or shouldn’t be scared about. It’s they want to get you to come back after the commercial break. They wanna get you to tune in and freak out and buy the supplements.

Bob:
I’ve noticed another thing from watching the entertainment channels for so long. The new entertainment news channels. Especially, I’m not gonna name the channel, but just the major financial channel. They have this little bank of bear advisors and bull advisors, and when the bear market’s happening, they go get all their guys. It’s doomsday. It’s the end of times, and they play on those emotions. And then when the market starts to turn back, they’ll go get their bull advisors. Their advisors that are positive. So they have their negative and positive, and it’s amazing how they play that game. They do it over and over again.

Shawn:
Well, if the markets are going down, let’s bring our negative nellies on. let’s bring the bear market guys on. And then vice versa. If it’s going up, oh, it’s gonna go nothing but up from here, you know?

Bob:
And it’s always the market plunged or the market skyrocketed. It plunged! It went down 4% or it went down 3% or 2%. Plunged would sound like you’re off the cliff. When the markets are down, this is question number six. And this is my number one thing. Number one. When the markets are down, I look at it as a buying opportunity instead of a selling one. Shawn, it amazes me that over and over, everybody wants to buy everything on sale. If you go to Walmart or Target or Costco or Sam’s Club, or wherever, you wanna buy when it’s on sale, right? Like the day after Thanksgiving, everybody wants to buy everything on sale.

Shawn:
Yeah. When you see all those clearance signs or 25% discount or buy three, get one free. You have all this stuff. That’s like, oh, it’s a great deal. Look at how much money I saved. But yet, I feel like with the stock market, people do the exact opposite. They want to buy low. They wanna sell high, and yet the majority of investors and consumers, they end up doing the opposite.

Bob:
They buy high and they sell low.

Shawn:
They sell low in the panic.

Bob:
Exactly the opposite. So look at this right now during a bear market, as…

Shawn:
A buying opportunity.

Bob:
A buying opportunity.

Shawn:
So if you do have capital set aside, you do have something that has been more conservative. If anything, I mean, just start dollar cost averaging into the equities, into the market, because the more you do that now, the more of a buying opportunity you have.

Bob:
And do we know we’re at a bottom? No, we don’t. No, we can’t predict anything here.

Shawn:
But it’s already, just again, just look at the last six months or so. I mean, just compared to the last six months, how much of a discount are we already at, in general?

Bob:
Everything’s at a discount.

Shawn:
Yeah. You might get a little bit more of a discount, but you don’t need to wait for the Memorial Day sale. It’s already 20% off or 30% off.

Bob:
Which takes us through our last question of the day.

Shawn:
Do great investors like Warren Buffet go with the crowd and run away from the markets when they’re correcting or buy stocks at lower prices. I guess he would be considered probably the most famous person to date as far as what’s considered a contrarian investor, which is exactly what you were talking about on question number six, where when the majority of people think it’s gonna go nowhere but up from here, that’s when a contrarian investor says, I should probably sell off some of my positions because if everybody thinks it’s going nowhere but up, up, it’s probably about to have a correction.

Bob:
But everybody wants to buy, buy, buy, sell. When everybody wants to sell, sell, sell, and buy.

Shawn:
Everybody’s panicking. You’ve got all the bear analysts that are coming onto the news channels and talking about how it’s just going to continue to plunge from here. Okay. Well, that’s a good indication that even if you don’t move everything in, maybe you should start making some purchases each month and start moving in because it’s already to discount and you go against what most people are doing.

Bob:
As we’re at the end of today’s video podcast. One of the things I like to do is we’ve been going out to eat a lot lately cause of the pent up demand from COVID. I’ve noticed every restaurant’s full to the brink. As we’re making this, it’s right before Memorial Day. And they were saying the airports are just packed. It doesn’t look like we’re in a recession.

Shawn:
No, not really.

Bob:
So, while they may say that and they love to talk about that, look around. Are people still driving their cars, or are they still going out to eat? Are they still going to the grocery store? Are they still using technology?

Shawn:
Are you getting stuck in traffic on your way to work and back or going to the movie or restaurant?

Bob:
Yeah, exactly. So, I hope this has helped you with questions to ask during a bear market. And if you have any questions, we’d love to answer.

Shawn:
Yep. The Lord doesn’t give us a spirit of fear, but he gives us one of sound mind.

Bob:
That’s right. So you can call text us at 830-609-6986 during business hours.

Shawn:
And you can check out our podcast episodes on our website www.christianfinancialpodcast.com or you can search for Christian Financial Perspectives. Thank you, and God bless.

[CONCLUSION]

That’s all for now.

We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986.

[DISCLOSURES]

Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. 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 Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.