Power Up Wealth podcast – Is Now the Best Time to Invest? – Episode 20 transcript:
James Derrick 0:00
The market has experienced a roller coaster trend this year. Just when you think it’s headed up. It begins another downward trend. Is this a good time to invest? I’m James Derrick. Today we will find out as I interview my guest, Sharla Jessop.
Sharla Jessop 0:25
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James Derrick 0:48
Sharla, thank you for joining me today.
Sharla Jessop 0:50
Thank you for having me.
James Derrick 0:51
It’s fun to have you on that side of the table. Sharla is the president of Smedley Financial Services. She holds a CFP designation and behavioral financial advisor designation as well. The market is nearly impossible to predict. And yet downturns are just part of investing.
Sharla Jessop 1:08
That’s true, James. Downturns happen. Thankfully, they don’t last forever. When looking at the S&P 500. And you go back to from 1952 through 2021. We have some interesting information regarding downturns in the market. Because we all focus on declines. How much money is how far are we down? How much have I lost? But a decline of 5%, believe it or not, happens about three times a year. And it typically lasts about 43 days from the top of the market to the bottom, which that’s just a normal market activity. That happens, and we don’t even think about it.
James Derrick 1:39
43 days kind of sounds like a long time.
Sharla Jessop 1:42
It feels like a long time sometimes. But you know, compare that with 10%, which happens about once a year. And everybody’s aware when the 10% hits, maybe not so much at 5%. But a 10% we’re aware. And from top to bottom, it’s about 110 days. That’s a long time, you get to declines of 15% or more, or even up to 20%. At 20%, they happen about every six years. They can last about 370 days. Well, think about that. That’s an entire year. So as investors are looking at the market right now, and they’re thinking, okay, we’re down over 10%, less than 20. When you look at the S&P 500, where do we fall? Well, you know, this could continue for a while. We’re not out of the woods. But I think what’s important to realize when we look at that is it doesn’t last forever. And emotionally, sometimes we get caught up in what’s happening in the timeframe. And we think it’s going to continue, but we never know when that’s going to end.
James Derrick 2:36
Yeah, well, I consider myself a pretty patient investor. But I have to admit, some of those timeframes are long. 251 days, 370 days, that’s a long time. You think you’re patient and then, boy, 370 days will wear on you. All of a sudden, you might become a little discouraged. And you might do something you shouldn’t do.
Sharla Jessop 2:56
You can see why so many investors when we get to that 20% mark, throw in the towel. You know, somewhere between 15 and 20%. It hits them at an emotional spot where they don’t have the ability to manage that emotion and stick with it. It overcomes them, and they make changes and choices that maybe are not in their best interest long term.
James Derrick 3:16
I feel like there’s probably a deep, deep desire to do something. And the problem is that that something is oftentimes the wrong thing to do.
Sharla Jessop 3:25
It is. It is. You know, people think that if I make a change, I’m protecting myself. If it continues down, I’m going to protect myself. But what we know is when markets turn around, they turn around fast. And a lot of that volatility and market loss is recouped in a very short period of time, right as the market turns around. And so if you miss those days, it’s extremely costly to investors to miss the best days. And why that’s so important to stay invested. So let’s take, for example, an investment of $1,000 in the S&P 500, just back in 2012. So let’s say we make it at the beginning of 2012. At the end of 2021, that $1,000 in the S&P 500 would have become $3,790. That’s a pretty good growth rate. But if you are trying to time the market, and you pull out just the 10 best days, your investment drops to $2108. That’s a 44% loss in value just by missing the 10 best days. Well, who can pick the 10 best days over the past 10 years?
James Derrick 4:33
Nobody is that lucky.
Sharla Jessop 4:35
Exactly.
James Derrick 4:36
Like you said a lot of those come right near the bottom when things turn around. So you can’t think to yourself, I will get in before those great days happen.
Sharla Jessop 4:49
That’s true.
James Derrick 4:50
You don’t know when they’re going to be, and they often come right there when you least expect it.
Sharla Jessop 4:55
And often when someone’s going to get back into the market. They wait until the market has turned around, and they’re feeling good about it again. Well, you don’t feel good about the market at the bottom, especially if you’ve, if you’ve gotten out. You wait for it to recoup some, and then you get in. That’s why people miss that initial investment pop.
James Derrick 5:14
You only feel good about it when it’s basically too late. Because the 10 days have already happened, let’s dive deeper into that. So that’s 10 days, and it wipes out a big chunk of the return. But what if you miss more days than that?
Sharla Jessop 5:28
Well, if you miss 20 days, believe it or not, it drops your value to about half. So you would have only grown to $1,575 just by missing 20 days. If you go to 40 days. If you missed the 40 best days out of the 10 years, your investment value would have only been $1,005. Now, remember, you invested $1,000, so over 10 years by missing the 40 best days you made $5.
James Derrick 5:55
That’s incredible. And there’s how many market days in a year, maybe 250? Give or take. So over a 10-year period of time, that’s 2000, let’s let’s call it 2500 days. You’re only missing 40 of those, right? I mean, you’re you are invested almost the whole time, but you’re missing the best days, and you’re making $5. Almost nothing.
Sharla Jessop 6:19
Right?
James Derrick 6:20
That’s, that just blows my mind.
Sharla Jessop 6:21
I would have to say that would be the one time you’d probably be better off in a savings account.
James Derrick 6:25
Well, fortunately, nobody is that bad of an investor. Right?
Sharla Jessop 6:29
Right.
James Derrick 6:30
But it’s certainly not inconceivable to think, though that behaving poorly in the marketplace is going to cost you we see that all the time.
Sharla Jessop 6:39
Exactly! We do, and we see people who emotionally want to get out and can’t see into the future. They can’t remember that, you know, things recuperate. Every S&P decline of 15% and or more since 1929 through 2020 has been followed by a recovery. Let me say that again. Every decline of 15% or more since 1929 has been followed by a recovery. Why wouldn’t we believe that that would be an opportunity in the future as well?
James Derrick 7:11
I mean, it makes perfect sense to me. Let’s talk about why this is so hard then. We know the numbers. Many of us have heard them before. And yet we still have a hard time disconnecting emotion from our decisions. Why is it so difficult?
Sharla Jessop 7:27
Because emotion is inescapable. We all have it. Every one of us is hardwired with emotional responses. Emotions drive everything we do every day, and generally in a good way, and for good things. But when it comes to investing, it’s very hard to disconnect what’s happening in the market from the way it makes you feel emotionally. And when we feel like things are not doing well or like they’re imploding. It takes over, we start making poor decisions.
James Derrick 7:59
So what kind of advice do you give to people then to counteract the different biases that they might have? I mean, do you tell people just bury your head in the sand, or you stop looking? Because that doesn’t necessarily sound like the best advice. But what do you tell people?
Sharla Jessop 8:15
I think people need to understand what those biases are and be able to recognize when they’re feeling those biases. One of them is a recency bias, which makes us feel like Henny Penny, the sky is falling, you know, things are bad, look how bad they are. And in our mind, we’re thinking it’s going to get worse, it’s going to get worse, it’s going to get worse. Well, at some point in time, it’s not going to continue to get worse, it’s going to change, and it’s going to get better. But we have a hard time reminding ourselves or seeing that that could be the future. We focus just on tunnel vision, what’s happening right now. That’s one of the things that we as advisors have to do with clients all the time is walk them through that scenario where we’re talking longer term. We’re helping them see beyond the next three months, six months, year into years into the future. Where planning is really what we’re focusing on is in years, not just you know, for six months. We’re planning for the next 20 or maybe even 30 years into retirement. Other biases that they have to recognize are anchoring or confirmation bias. A lot of times confirmation bias plays, you know, the market goes down, and we tell we think the markets gonna go down and then it goes down. We’re like, yeah, I was right. Look at that. The market went down.
James Derrick 9:29
I knew it. I should have done something.
Sharla Jessop 9:31
I’m so glad I got out because look at all the money I saved, but not looking at the future long term. And then obviously, what I just said recency bias, understanding our emotions, and taking a step back when we feel overwhelmed by what we see happening with our account balances or in the news gives us an opportunity to think logically. I think one of the things we face right now in our world is being able to have information at our fingertips. Sometimes that’s good. But a lot of times, it’s bad. Because we are so tied up emotionally in what we hear somebody say, you know, they’re on, they’re on the media to sell something or, and a lot of times, it’s to sell an emotional response. And they want us to respond, and they found ways to make us respond. And so being able to turn that off, and I’m not saying don’t watch your accounts, or, or, you know, be disconnected from what’s happening in the world, but recognize when you are feeding that emotion by watching those programs.
James Derrick 10:31
That’s great advice. And it probably takes a bit of practice, I have to admit. Let’s talk about how you build that into a plan that both the bumpy rides and the emotion side of things. What do you do from a planning point of view to help with those?
Sharla Jessop 10:48
When when the road gets bumpy, we say rely on your plan or lean into your plan. The plan was designed knowing that we have market volatility to deal with not just in the short-term, but long-term. And so we’ve built that long-term market volatility in your plan. We’ve also not just focused on that, but inflation and the impact it’s going to have long-term in your plan. Longevity risk, you know, which sometimes we’re thinking, I don’t have a long time for investing, I’m almost at retirement. Well, longevity tells us you’re going to be in retirement for quite some time.
James Derrick 11:19
That’s the kind of risk most people want.
Sharla Jessop 11:21
It is, but it costs. It’s costly. And people forget that you know there’s some expense there. Taxes, you know, how are you going to be impacted taxes? Sequence of returns? What’s going to happen if you’re taking your money out and the markets dropping? How are you impacted that way? And then just your personal tolerance for risk. Each one of us is built from a different cloth. We’re not all the same. We don’t all think the same, and we don’t all respond emotionally to risk the same. So each plan ties that in, and we do the plan, not during the worst times. But we plan for the worst times in hopes that the plan will help keep people invested.
James Derrick 12:01
Well, I know you’ve been at this a long time. Sharla. So when you say that long-term that it’s built for the long-term, I believe you believe you know exactly what you’re talking about. Thank you for joining me today.
Sharla Jessop 12:11
Thank you, James.
Shane Thomas 12:17
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn.
The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Lorayne B. Taylor, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
