Jason and Emilia discuss preparing for a bear market.
Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. Now here is your host Jason Parker.
Jason: America, welcome back to another round of Sound Retirement Radio. We’re so glad to have you tuning in this morning in this sunny Seattle area. It’s amazing weather we’re having right now. It’s my good fortune to have Emilia Bernal joining me again this morning. Emilia, welcome back.
Emilia: Thank you. Good to be back.
Jason: Yeah, it’s great to have you. We had a listener that I had a chance to speak with recently comment on how nice of a voice you have. What a compliment.
Emilia: That is very sweet because I don’t know what I sound like unless it’s on the phone. My voice is just kind of different. I think everybody has that little ‘I don’t like the way my voice sounds’ kind of thing, but that’s a great compliment. Thank you.
Jason: My wife tells me I sound like Kermit the frog. I don’t know.
Jason: Oh, okay.
Emilia: I never would have thought that one.
Jason: This is episode 182. The title is Worried About A Bear. Before we get started there’s two ways we like to start the morning. The first is by renewing our mind and the second is with a joke. We’ll start out here with a quick verse. This one comes to us from John 15:18. This is Jesus speaking. He says, “If the world hates you, keep in mind that it hated me first.”
Emilia: That’s deep. Very simple but wow.
Jason: It’s kind of interesting. Jesus he came and did all kinds of good stuff: healed people, brought them back from the dead, and then the way that they showed their gratitude for him was pretty brutal. He’s just saying don’t be surprised if you’re out there sharing the good news. There’s a spiritual battle going on that I’m reminded of. That’s the reason that verse came up. All right, so now how about a fun joke-
Emilia: Fun joke.
Jason: … for us.
Emilia: All right. The topic of our show today is Worried About A Bear, so I figured maybe we will do a little something with that and animals. If you’re worried about a rhino, I have a joke for you.
Emilia: How do you stop a rhino from charging?
Jason: I don’t know.
Emilia: Take away its credit card. I don’t know if that would work with a bear.
Jason: Did you see that Christopher Robin movie speaking of A Bear?
Emilia: No, I haven’t.
Jason: Oh, it was really good. I really enjoyed it. It’s probably not out in theaters anymore, but my kids wanted to go see it. My daughter wanted to go see it. I really enjoyed it. I thought it was a fun movie. It had me laughing out loud in the theater.
Emilia: Oh, that’s good.
Jason: It will be out on video soon. I’m sure.
Emilia: I’ll check it out then. Thank you. Let’s go ahead and let’s talk about Worried About A Bear. Tell us Jason about your recent backpacking trip. I’m thinking this is going to be fun.
Jason: Well, I know. I just want our listeners to know we are going to tie this back into investing. Let me set the stage. About a year ago I had taken my son to this boy scout camp. As we were standing around the fire with a bunch of other dads, they were talking about this big boy scout trip that they were getting ready to take a bunch of the kids on. They were sharing about how they had been some bear attacks in the past. Not with this particular troop, but just some of these stories that get passed down over the years. It had to do with a boy and his tent. He forgot to take all the food out of the tent and ended up with a pretty serious bear attack.
A couple of months later I’m driving home. We live in a beautiful part of the country where we actually see bears out and about occasionally. I was driving home in the summer and all of a sudden this black bear goes running out right across the street in front of my car as we were driving home. My whole family saw this thing. I’ll tell you what, you don’t realize how big those bears are until you are face-to-face with them. That thing is massive. It’s huge. My daughter she’s 10. I took my son on his first backpacking trip when he was 10.
Before summer was over I wanted to get my kids out for a backpacking trip. I had never my daughter out on a backpacking trip. Well, we had all these forest fires going this year, so I couldn’t take my kids where I usually take them for their first backpacking trip. I asked Greg one of the guys that we work with because he’s a hunter and he’s out all the time backpacking and fishing. I asked him, I said, “Hey, do you know of any good places to go backpacking?” He said, “Oh, I just went on this hike, and it was amazing.” He said, “It’s kind of a long ways to get out there,” but he said, “It’s one of my favorites.” I asked him, I said, “Well, do you think this hike would be appropriate for a 10-year-old, her very first backpacking trip ever?” “Oh yeah, I’m sure. There’ll be no problem at all.”
We drive out there. Let me tell you Emilia, the drive was 20 miles of dirt for service roads. Now, 20 miles doesn’t sound like a long way, but until you’ve been out on for service roads that are not very well-marked and you’re driving, and driving and driving and you don’t see anybody else out there, and you’ve got this steep cliff on one side that you’re looking down. My daughter keeps saying, “Dad, you’re driving too close to the edge,” and I’m like, “I’ve got nowhere to go.” We’re driving way out there 20 miles. We finally get to where the trail-head starts. By the way, this trail-head is not very well-marked, so it’s pretty rural. You really have to know where you’re going in order to find it.
I was starting to get worried. I was thinking, “Man, we made a wrong turn somewhere.” But we had another friend that was with us, and he was bringing his son and daughter as well, so it was me and my buddy Gabe and his two kids and my two kids. Anyways, we get to the trail-head and we start hiking. 10 minutes into this thing it is so steep, and it is not very well-traveled. The wild flowers that were growing up were taller than my daughter. I mean, you could just kind of see her head poking through the flowers as she’s going along.
We had gotten a little bit of a late start. It was probably about three o’clock by the time we got to the trail-head, but it’s only a 3.6 mile hike, so I was thinking, “Probably even if we’re going really slow do about a mile in 30 minutes.” An hour into the hike we look down and we had only gone one mile. People were falling and tripping. My daughter had never worn a backpack before. She’s a little kid, but she was carrying about 20 pounds of weight which is-
Emilia: That’s a lot.
Jason: … pretty good considering that it’s like a third of her body weight. Poor kid. Next time I won’t-
Emilia: Note to self: do not take hiking tips from Greg.
Jason: Exactly. That’s exactly what I was thinking the whole time. I was like, “This guy he’s done. He’s out of here as soon as I get back.” I thought he was trying to kill me or something. We get a mile in one hour. By about two miles or right before we got two miles my daughter was really complaining, “This backpack’s heavy dad and my neck’s hurting real bad.” Before you know it, I’m carrying my 60 pound backpack on my back and now I’m carrying her backpack on the front of myself as I’m hiking to give a little a bit of a break.
The kids are saying, “Can we stop at two miles instead of going all the way to the lake?” Because we were trying to get to a lake. We end up putting up camp at about two miles. It’s right on a creek, and we’re all by ourselves. It was a beautiful camp spot. I’m really glad that we ended up staying there because the next morning we woke up and we ended up hiking up to the lake. That night we had prepared dinner. We had our little camp stoves out. We were getting ready for bed and all of a sudden in my mind I start thinking about this boy scout troop telling me about a bear attack because somebody went to bed with food in their tent. I’m talking to the kids, I’m like, “You guys, make sure you get everything out of your pockets and everything out of your bag. Let’s put it all in this sack.”
We take all the food and we put it in the sack. It’s getting darker, and darker and darker, so I said, “Well, we got to tie this thing up,” because we live in bear country, and so I was like, “We got to get this food tied up.” I’m out there in the middle of the night with the headlamp on throwing this rope over a branch and the branches are breaking and things are falling. We’re hoisting this bag up over the tree. Total amateurs. We really don’t know what we’re doing. I just keep having this really nagging sensation that, “Boy, what are we going to do if a bear comes? Boy, if my kids got hurt out there, my wife she would not be a happy lady.”
Emilia: She wouldn’t want you to come home.
Jason: No, don’t come home-
Emilia: Don’t come home.
Jason: … if the kids get hurt. You just have this incredible sense of responsibility when you’re caring for somebody else. My kids are out there. I’m worried about this bear. We finally got the food tied up and we start heading back to the tent, and I said to my friend Gabe, I said, “Hey, what if a bear does come up in the middle of the night?” He had his tent set up down the way. The other piece of the story is Gabe is also a hunter, and Gabe had his rifle with us. He said, “Jason, I have my bear tags.” He said, “IF a bear comes into camp, I’m going to take it and I’m going to bring it home.” In that moment I thought, “Huh, I’m not as worried about this now. I’m with a guy that has gone bear hunting. He has a rifle with him and he has the licensing to be able to shoot a bear if need be.” And so all of a sudden the worry started to reside.
I’ll never forget one of my favorite memories from that experience. That night we’re getting ready to go to sleep and my son and daughter they were delirious just because of the workout we had just had. They were just laughing, and laughing and laughing. We were sitting in this tent and they were just cracking up. Anyways, that was the bear story and now.
Emilia: This is the big question I think everyone’s been waiting for. Tell us how does your story about the hiking trip relate to retirement and investing? Where did your mind go with that?
Jason: It’s because we’ve been seeing a lot of volatility in the stock market recently. One of the questions that we like to ask people is what do you think the chances are of experiencing a bear market in the next three years? And just let them answer that. You see, what we want to do is when we’re creating a retirement plan we want to create a plan that is bear resistant. There’s a couple of things I learned from going on that backpacking trip. The first one is worry is a funny thing and it can rob you of your joy. Had I carried that worry inside of me and not said anything about it or not done anything to deal with it then that could have ruined the whole trip.
In fact, had I been so worried because of some of the stories I had heard or the bear that I had seen crossing the street maybe I would have decided not to go backpacking at all and I wouldn’t have had that experience. I wouldn’t have had the joy of hearing my kids laughing themselves to sleep at night. And so we don’t want to worry about something like a bear market to rob the people that we serve from having an amazing retirement, and I think that’s one of the things that can happen. But we want to understand that a bear market really could ruin somebody’s retirement if they don’t have a plan to deal with market volatility.
Once you realize that fear is this thing that doesn’t really exist. I mean, we can sit here and worry about things until we’re blue in the face, but until something has actually happened … You know that saying “Nothing to fear but fear itself.” I had the opportunity to visit Washington, D.C. recently and just be reminded of these great leaders that we’ve had. Franklin Delano Roosevelt said there’s nothing to fear but fear itself. I’m just reminded that we can waste a lot of our life worrying about things that may or may not ever happen and we let our imaginations get carried away.
As it relates to retirement planning, what we want to do is we want to have a good plan. We want a bear resistant plan. Understanding that retirement really is an exercise in cash flow. It’s all about your income. If you create a structure in such a way that you know where your income’s coming from and it’s not at risk positions and then you diversify across time, that’s the equivalent of finding out that you’ve gone backpacking with a guy that has a rifle and he’s prepared for a bear if a bear were to come into our camp. That’s what a plan is I think. It’s just being prepared ahead of time, being with the right people and having a plan for how to deal with volatility.
Volatility is a normal part of the stock market. People that are young that are driving down the road in Seattle this morning listening to this show they don’t have to worry about volatility. They just need to keep investing. When you become an investor, you become an optimist because what it says is that you believe the future is going to be better than the present, and you believe that companies are out there and they’re making goods and services that are making our lives better, and we buy those goods and services. That world is going to continue. That’s not a very risky proposition as long as you have enough time on your side.
One of the things we talked about on one of the last shows, Emilia, was that the Fed is increasing interest rates right now, and they’re doing that because they see the strength of the economy. But just because the economy is strong, just because corporate profits are high, just because unemployment’s low, that’s not a guarantee that the stock market’s going to go up. It’s a good sign for the economy, but good signs for the economy don’t always translate to good news for the stock market, and we’re experiencing that right now. I just want to encourage our listeners if they don’t have confidence then what they are probably lacking is a really good plan.
I had a gentleman call in recently and he said, “Yeah, I have got a plan Jason.” I said, “Well, tell me about it. What’s it look like?” He said, “Well, I have this mutual fund for large cap growth, and this mutual fund for large cap value, and this mutual fund for small cap and this mutual fund for some fixed income.” That is not a plan. That is an investment strategy. The reason that people are worried is because they don’t understand how all the pieces of the puzzle are going to work. Again, we want a bear resistant retirement plan.
Emilia: Great. That was a great story and the way you brought it all around. I think a lot of our listeners are going to really make that connection. You know, that worry, that stress. Some people think of investing as gambling. Why do you think that is Jason?
Jason: I just think its bad information. I think people are listening to the wrong people. They’re trying to time the market. Get in and get out. That’s not to say that you can’t have a tactical component to your portfolio, and so one of the things I teach people about is both strategic and tactical investing. We’ve got a webinar coming up that we can share some more information on what that looks like. Investing is not gambling. You are looking at, again, companies that produce goods and services that make our lives better. These companies we can look at their price divided by their earnings. That’s called a price to earnings ratio, and we can say, “Hey, is this a good company? Are we willing to pay a dollar for this much of earnings?”
I would agree that stocks are expensive on a historical basis right now for sure as we look at cyclically adjusted price to earnings, but the reality is it’s not a gamble because it’s possible that the company could go under. They may be gone, but if you’re diversifying using tools like mutual funds and ETFs where you don’t have to worry about one company failing then it’s really not gambling. Again, you’re just saying you’re an optimist. You’re purchasing a business that produces goods and services that makes our lives better and you expect that company to continue to innovate, continue to produce goods and services, continue to produce profits. You know what, if they don’t, they’re not rewarded by shareholders.
Part of the problem too, Emilia, is people hear about things like gold, or precious metals or if you want to get really radical, something like bitcoin which is totally speculation. That is not an investment because there’s no underlying value associated with it. People are just betting on the price movement of it. That is gambling. Going to the casino is gambling. Buying a lottery ticket is gambling. Investing is not gambling. It’s just betting on America. It’s saying that America is going to continue to grow. We’re going to continue to thrive. We’re going to continue to run profitable companies. There’s a lot of really smart people out there to make sure that that’s going to happen.
Emilia: Yeah. Jason, should our listeners be worried about a bear market?
Jason: The thing I will always want to come back to is time, so again, if you’re young and you’ve got long time horizon. Time is the cure to the volatility of the stock market. All this up and down movement in the market: up 500 points, down 800 points. That is all just noise. Really what it does is if you’re saving, if you’re investing in the 401(k), it gives you the opportunity to dollar-cost average and buy more shares when the market’s getting wobbly like that.
if you are just about to retire, that’s where people start to worry because the risk becomes real. It’s noise and it’s worry until you have to start drawing money out of that portfolio. And then if you’re drawing money out of the portfolio at the same time the market’s declining that could hurt to be bit by a bear and something like that.
Emilia: Then I’d be worried about the bear.
Jason: Yeah, the bear market could hurt. But again, that’s why I believe so strongly that what we want to do is diversify our money across time, use the best financial tool based on the time horizon that we have available to us. When you do that, what you’re doing is you’re buying time. And so we know the market’s going to have dips in the short-run, but if we’re looking at 10, 15, 20 years, then we can have a greater sense of confidence that the market’s probably going to be higher.
Now, there are some arguments to be made that we could look at some other stock indexes around the world even in our own country and see that there had been long periods of time where the market trades sideways. For example, the Dow Jones Industrial Average from 1929 to 1954. It took 25 years from the peak in 1929 until 1954 before the market fully covered. Lots of ups and downs in between them, but that was a long period of time. The Nikkei 225. Boy, it’s been 30 years and that has not fully recovered. You could look at something like the Nasdaq. That’s a basket of technology companies from the dot-com bubble until 2015. There was a 15-year period of time where the market traded sideways.
There’s definitely some concern, and there is some historical evidence that it’s possible that the stock market can trade sideways for a long period of time. If we end up in a position where everybody is flat for the next 25 years, well, that is going to hurt a lot of people because typically what we’re doing is diversifying in maybe five-year segments. Maybe the first bucket for five years and then the second bucket for five years. In most instances when you look back … We had Dr. Cloonan on the show some time ago and he had talked about the research that their firm had done.
What they found was that if you had three years of cash to cover expenses that in most instances covered peak to trough, a bear market to a recovery. If you had four years, then that’s a lot of safety. If clients have saved enough money, we like to use five years for that first bucket just to know that they’re going to have enough money for the first five years. Again, nobody knows what the stock market’s going to do really. Just because it’s performed a certain way in the past, there is no guarantee that that’s what’s going to happen in the future, but we can make educated guesses about what has happened in the past. There’s a lot riding on it because we have 10,000 baby boomers every single day heading into retirement.
Emilia, one of the things that I am always trying to emphasize to people is the component that they have the most control over is the spending. It’s your expenses that are really going to drive this equation on how much you’ve saved and how much you have to withdraw from that portfolio.
Emilia: A lot of great information. Again, it all comes down to having that plan. If you have a good solid plan in place. I want to let our listeners know that we have a lot of resources. If you have any questions about where your plan is and if you even have one, we have a lot of great resources.
Jason: Yeah, take the steps that are necessary to be prudent. Hung your food from a tree. Don’t go into the tent with a bunch of food in the tent. Hung it from a tree. Go backpacking with a friend that has experience with bears and he’s got a rifle with him in the event. This is what having a plan is. It’s the equivalent of going hiking with the right people. Knowing how you’re going to respond and not react when something bad happens. I can guarantee if you’re going to be invested in the stock market something bad is going to happen. It could be a geopolitical event, it could be an act of war, it could be an act of terrorism, it could be some foreign economy that tanks. I mean, we don’t know what’s going to trigger this thing the next time around, but we know something bad is going to happen. That’s just normal.
What people need to do is have enough time on their side so that as they’re drawing money out of the portfolio they’re not having to worry about taking money out of an account that’s falling in value. I think that’s the most important piece.
Emilia: Great. Jason, is there anything else that you wanted to cover for our listeners today on this story? Or, if not, I could throw in another joke.
Jason: There’s two things. Number one, I want to remind our listeners of the retirement budget calculator. That’s a tool that we developed, and it’s getting better all the time. They can use their coupon code podcast to use that calculator. Remember it’s the most important number in this whole retirement scheme of things. It’s how much you spend. It’s not just how much you spend today, but it’s how much you spend in the future. Inflation is built in. We give people the ability to add a different inflation factor to each expense, so they can see how that’s going to change over time. Very, very, very important. I can’t overemphasize how important it is to really understand the spending.
And then the next piece is just to encourage our listeners if they haven’t been to one of our webinars to understand what a plan looks like. Some people don’t know if they have a plan because they’ve never seen what a good plan should look like. This is our area of expertise. All the time we’re helping people make this transition into retirement. We’re helping people bear proof their retirement plan. Just ask yourself the question, “Is it possible that we could see a bear market in the next three years?” Well, we’re now in the longest bull market in history, and it’s unusual. We don’t know if interest rates increasing are going to be what drives the stock market down further, but we need to be prepared for it. Being prepared is not worrying and worrying alone is destructive, and it’s-
Emilia: Stealing your happiness.
Jason: … stealing your happiness. I understand the responsibility when you have people that are depending on you to make good decisions. They’re your kids and you’re taking them out backpacking. You want to make sure they’re safe and you’re doing the best for them. It’s the same thing for these husbands and wives out there that are saying, “Jeez, I need to make sure I’m doing the right thing that we’re not going to get hurt in the next time this thing makes a turn downward,” and it’s going to. That’s just the way it works. That’s all Emilia.
Emilia: All right.
Jason: Until next week, this is Jason Parker signing out. Thanks Emilia.
Emilia: Thank you.
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Investing involves risk. Jason Parker is the president of Parker Financial, an independent, fee-based wealth management firm located at 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at soundretirementplanning.com.