Power Up Wealth podcast – Winning Reactions – Episode 21 transcript:
Sharla Jessop 0:00
Recessions and bear markets can be emotionally trying. The way we react can be vital to our financial success. I’m Sharla Jessop. Today, my guest and colleague, Jordan Hadfield, will provide winning reactions to recessions and bear markets.
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.
Jordan, thank you for joining me today.
Jordan Hadfield 0:49
I’m glad to be here.
Sharla Jessop 0:50
Jordan is a wealth management advisor at Smedley Financial Services. He has a Certified Financial Planning designation and also a BFA behavioral financial advisor designation.
Jordan Hadfield 1:01
That’s right.
Sharla Jessop 1:01
Jordan, this has been a challenging year for investors to say the least. Markets have been volatile. The Fed has been raising rates, and there’s a fear of recession. What do people need to know?
Jordan Hadfield 1:13
Yeah, it has been a challenging year. And it doesn’t seem like there’s been a lot of safe places to hide. Whether you’re in stocks. Whether you’re in bonds. Whether you’re in cash, there’s there’s risk. And it’s been it’s been troubling to say to say the least for many investors. I have a lot of questions coming through from clients and non clients as well saying, What do I do? How do I prepare for a recession or for this bear market? What are things that I should be doing. And I’m gonna make a baseball analogy here. I played baseball when I was younger. And I like to say my heart is still at first base. First base was was the highlight of my youth. And I’ve I don’t follow baseball anymore, but I love making baseball analogies. So I’ll try and make them whenever I can. Let’s say you’re playing outfield, and a batter hits a pop fly, you know that pop flies coming at some point in the game. And so you need to be prepared for it. But you don’t know when it’s coming. When a batter hits a pop fly, there’s a lot of things that you need to take into consideration, right? As far as how hard was the ball hit? How high did the ball go? What’s the wind resistance of the ball? You need to know these things to figure out where the ball is going to land so you can position yourself to catch it right? No! Not really, we don’t think about these things right? When we’re playing outfield, if the balls hit, we reactively respond to the situation in a way that’s going to set us up for success. And I think that analogy is very insightful when it comes to bear markets and recessions. Because these two events, a bear market and a recession, relative to a pop fly to an outfielder are unavoidable, they happen we know they’re going to happen. And so we need to be prepared for them. And how we react in these certain situations are important. Just like an outfielder isn’t going to sit in the outfield and calculate, you know, quadratic functions to figure out where the ball is going to land, he’s going to react. There are certain things that investors should be doing in response to bear markets and recessions without all the calculations. To be obvious, okay, that the economy is slowing down. What do I need to do? And let’s do it. And anytime spent contemplating this is a waste of time and waste of energy and can be emotionally draining?
Sharla Jessop 3:32
And, you know, interestingly, I think that a lot of people when we think talk about bear markets in the recession, immediately, they think about investing, what do I need to do in my investments? What do I need to change? But really, there’s other behaviors that are more important than deciding what you need to change in your investments?
Jordan Hadfield 3:50
Yeah, in most cases, no change at all in your investments is often the best path forward. You know, I’ve heard it said, If you don’t know what to do in investing, don’t do anything. In other words, if you’re invested, and the market changes, and you don’t know how to react to it, your best course of action is not to react to it. Don’t make any changes if you don’t know exactly what changes need to be made. So yeah, absolutely.
Sharla Jessop 4:18
So you had some winning ideas, some things that you tell us what, what some of these items are, or things that people can do that should be just no brainers?
Jordan Hadfield 4:27
Yeah, yeah. Again, kind of these, these five reactions that I that I want to put forward are general reactions, and they’re things that everyone should be thinking about, and everyone should be doing without a lot of stress involved. Whenever we’re heading into a bear market, or a recession. It’s a great time to look at our spending and to reduce excess spending, particularly now with interest rates rising with inflation going crazy. It’s a great time to review where’s our money going? Sharla, I remember, a couple of months ago and forgive me, I don’t remember what Money Moxie it was, but you talked about subscription services. And all the different money that that we spend on these subscription services. And oftentimes, we lose track of them. And we’re paying for, you know, TV channels that we don’t watch anymore. It’s a great time to review that kind of stuff, review our budgets, and cut back spending where we can. So that’s my first one.
Sharla Jessop 5:23
I think that’s a great one. And it’s oftentimes people don’t think about that, we just we start spending, like you said, we get subscriptions and things that come maybe automatically on our credit card, and then we just pay our credit card off. We don’t really think about that, or go back and, you know, take into account our spending. And sometimes we wait until we feel like we’re at a critical change moment before we actually do something. And really the time to start doing that is, you know, when something’s on the horizon?
Jordan Hadfield 5:49
Absolutely, absolutely. It’s a great time to, to figure out how to better allocate the money that we’re making, so that it can go to work for us.
Sharla Jessop 5:58
What about interest rates? You know, the Fed has been raising interest rates, that’s scary to people. And a lot of people think about mortgage interest rates, but there’s a lot of other high interest debt.
Jordan Hadfield 6:09
Yeah, yeah. And that is my next one is minimize high interest rate debt. There’s good debt, and there’s bad debt. And I speak about this often. Bad debt is credit card debt. You know, personal loans. These kinds of things with a high interest rate. A mortgage is usually considered good debt. Student loans can be considered good debt, you know. A high interest rate loan on a car, it could be that bad debt. So any interest, high interest debt that we have, should become of greater importance of greater focus, when we know we’re heading into a bear market or recession. So again, just a winning reaction, let’s reduce our spending where we can and let’s take that excess money, and let’s pay off high interest rate debt. It can be crippling in a financial plan during an economic crisis.
Sharla Jessop 6:59
Right. It’s a silent killer in a way, because it takes so much money to pay off high interest debt. But you know, also we’ve come out of a really low interest rate environment, you know, interest rates for well over 10 years have been extremely low. And now they’re starting to go up. And a lot of people had been using variable interest loans, because they were lower than fixed interest loans. And when interest rates were low, it seemed like a great idea. But now those interest rates are increasing. Why should people be thinking about?
Jordan Hadfield 7:26
Yeah, Sharla, that’s actually a really good point. There was a time when variable loans on a home mortgage made a lot of sense, right, it was a lower loan, lower rate. Those are changing. And, you know, if you find yourself in a situation where you’ve got a variable loan, on a mortgage, and it’s starting to increase, you might want to consider locking that in, which means, you know, speaking to a lender, and trying to convert that to a fixed rate loan.
Sharla Jessop 7:53
I’ve even seen variable rates on automobiles and other things. So I think anytime you have a variable interest rate might make sense to really focus in on that.
Jordan Hadfield 8:03
Yeah. And another thing is often you’re not, you’re not clearly notified that your rates changing, I’m sure there’s notices somewhere, but they’re not notices that we often see, right? So a lot of times our interest rate could be sneaking up on these variable loans, and we don’t even know it. And pretty soon we’re paying a much higher interest rate than we thought we were.
Sharla Jessop 8:18
Paying double for something.
Jordan Hadfield 8:20
Yeah, right.
Sharla Jessop 8:21
We originally purchased. You know a lot of this can be when we talk about interest rate debt. And getting into debt, especially in periods of time when things get tight, and our budgets get tight. Oftentimes, people rely on credit cards when there’s an issue because they haven’t built up emergency savings. What would you say about emergency savings?
Jordan Hadfield 8:40
Yeah, and it’s interesting, you know, we’re already seeing consumer debt increase. We’re already seeing I don’t remember the figure, I wish I had it on me, I apologize. But the number of Americans that applied for credit cards just in the last six months have skyrocketed, which is a from a financial professional standpoint, that makes you nervous. That’s, that’s scary. If people are relying on credit on debt, to get them through a difficult time. And what they should be relying on is their income and their savings. This is a very important time to look at your emergency fund. We often talk about having an emergency fund of three to six months of non discretionary spending, right? So whatever your expenses are, to cover the needs that you have per month times that by three to six, and that’s that’s a healthy emergency fund. But when we head into a recession, unemployment often increases. The point of the emergency fund is to get us through periods, like a recession, particularly if there’s a possibility that that we’re going to lose our job. So it’s a great time heading into bear markets and recessions to review your emergency fund. Determine maybe you need to save a little more there. Maybe six months isn’t enough. Maybe it should be closer to eight. Throw some additional spending into an emergency fund. Very, very important heading into a recession. Nothing can derail a financial plan faster than the lack of an emergency fund when you need it. Like I can’t overstate that. It doesn’t matter how wealthy you are, to have an emergency fund in place to get you through a period of tough economic times is so important. So great time to review that.
Sharla Jessop 10:16
Now, we’ve seen many people who’ve had to use their emergency funds, totally, completely unexpected. You know, that’s the whole idea of emergency fund, we don’t really know what the event is going to be.
Jordan Hadfield 10:25
Yeah. And it could be anything, it could be a tax bill that you weren’t expecting, it could be a furnace goes out, it can be. I mean, there’s, there’s a number of things that can come up, that are completely off your radar. And if they catch you at a bad time financially, it can be very problematic.
Sharla Jessop 10:40
I’m sure you’ve received a lot of calls with people asking questions such as boy, it’s really volatile, do you think I should stop putting money in my 401k? Or maybe I should stop my systematic investment going in to my account? What are you telling these people?
Jordan Hadfield 10:53
Yes, I have received a lot of calls. And I’ve received a lot of emails, and I want to say thank you for reaching out to me, right? If you’ve got a question, even something simple like that, reach out to a financial advisor to help you. So although it’s been a busy time, I appreciate it. Because people really need advice on what to do here. Emotionally, it’s very difficult to be contributing to a 401k when you know the market is just going to go down further. Right? This is the best time to be contributing to your 401 K. You know there is a there’s many advantages of a 401k, or any retirement account. But specifically with the 401 K. You can implement a purchasing strategy called dollar cost averaging. This is a highly effective strategy. And what it does is completely eliminates the need for trying to time the market, we purchase an amount of stocks or bonds in our account, using the same dollar amount every single month, regardless of the price. And what happens is over the long term, our average purchase price is less than the average cost. So dollar cost averaging is fantastic. And it works through volatility. So when markets become volatile, when we head into down markets, when we head into recession, these times we’re purchasing assets at a lower price. So assets are on sale. And that helps the dollar cost averaging strategy. We need that right in order to reduce the average cost. So please keep contributing to your 401 K, just like you were. Don’t, don’t change the amounts unless you’re looking to increase it do not decrease the amounts continue to invest. If you’re contributing to IRAs annually continue to do that. Very, very important. You know, we talk about this all the time, volatility is emotionally difficult. But great volatility creates great opportunity. It’s in the volatile times that we have the best opportunity. I’ve heard, it said that more wealth is created in the market immediately after a recession than any other time in the market. Like that is the time where we should be investing. So if we can reduce our spending, and we have paid off our high interest rate debt, and we have a healthy emergency fund, the next thing we should be doing is taking advantage of the opportunity that a bear market recession gives us, which is invest. The markets on sale. Everything right now it’s 20% off. Let’s buy. If we’ve got the money, if we can afford it. If these other things are in place, and our and our financial situation is stable, let’s take advantage of this opportunity, it will pay off.
Sharla Jessop 13:33
And I think also people forget that you cannot make up the last compounding interest that you gain. When you’re investing. Even if you add more money in the future, it’s very difficult to make up all the value of that compounding
Jordan Hadfield 13:46
Yeah, and trying to time the market in recessions and bear markets is so difficult. You’ve got to be paying very, very close attention to what’s happening in the market, you’ve got to have a very deep understanding and knowledge of how markets work, how investors work, and even then you need luck on your side. So don’t try to time the market. If you’re a long term investor, consider an opportunity. As we look back through through history, every downturn that we had was an opportunity. Every current downturn feels like a risk. So in hindsight, all the recessions have passed feel like man, if I just had more money to throw in the market at that time, I would have made so much money. But now it’s uh oh, markets are down. What do I do? It’s the same thing. You know, 5, 10 years from now we’re gonna look back and say, there was a real opportunity in 2022 to make some money. Let’s take advantage of it.
Sharla Jessop 14:43
You know, you’re talking about winning reactions. And I think sometimes we react when we’re in a volatile period of time and things are disconcerting, and people don’t know what to expect. We’ve become very myopic. You know, I think that what’s happening now is going to continue on. And every time we’ve had a more correction, there’s been a recovery. Every single time there has been a market correction, we’ve had a recovery. How do you help people keep that in perspective?
Jordan Hadfield 15:09
Well, I remind them that what we’re facing now is difficult. But if you look back through history, some of the economic challenges that we faced, it puts this one in perspective, as you look back through the different wars that we’ve gone through as a country, and the sacrifice that is needed to be made by citizens of this country, and what that’s done to the, to the economic system, it’s crazy. And yet the market recovered every single time. And so I try and remind them of that. Another thing that’s that I try to remind people of is, it’s our nature to attach to bad news, right? For example, if I give you good news, if I come to Sharla, and I say, I’ve got an investment opportunity for you, and it’s fantastic, and you’ve got the ability to make a ton of money. It sounds like I’m selling you something. But if I come to you, and I say Sharla, avoid this investment, it is bad, I’ve got information, I know that things are gonna go south, this is dangerous. It feels like I’m looking out for you. I’m no longer trying to sell you something. I’m now watching out for you. That’s how it’s perceived. Right? negative messages are perceived in that kind of way. And there’s so much negativity. You turn on Yahoo, you turn on CNN, Fox News, MSNBC, jump on Facebook or Twitter, any social media platform, talk to your neighbors, everyone is saying, this is bad. Markets are bad. Market is gonna get worse. End of the world. Make sure you’ve got a bunch of gold. Hide it under your bed. You know, I mean, that’s just kind of the way that that we respond to these, these events, because that’s how they feel. And so it’s rational to think that way, right? Emotionally, it makes sense to think that way. But that doesn’t mean that it’s the right thing to do the right way to think. And if we base our our actions off these emotional times, it’ll often put us in a bad place, relatively speaking.
Sharla Jessop 17:03
We take our eye off the ball to speak. We’re not looking at the big picture anymore.
Jordan Hadfield 17:08
Yeah, yeah, another baseball analogy. Boom! Someone hits a pop fly. I’m in outfield, and I start hearing the crowd yelling, watch out for that divot! Watch out for the fence! Watch out for the other, you know, outfielder who’s running at you. And all of a sudden, I’m distracted. And I’m not going to I’m not going to make it a good play on the ball. Right? I need to focus on what do I need to do to catch the ball? And in terms of investing, the focus should be what do I need to do to set myself up for success tomorrow for long term investors? Right? What do I need to do to make sure that in 10, 20, 30 years from now, my money has grown. My money has kept up with inflation, and I’m in the best place for success.
Sharla Jessop 17:45
So you’re saying focus on the big picture?
Jordan Hadfield 17:47
Exactly! And that’s my fifth point, focus on the big picture. Don’t let short-term volatility keep you from making wise long-term decisions. If you’re a long-term investor, view this is an opportunity. So absolutely big picture is very, very important. And so to review, these are the five winning reactions I would give to any investor or or any individual who’s looking for how to prepare for a bear market recession. The first would be reduced excess spending. The second would be minimize high interest rate debt. The third is evaluate your emergency fund. The fourth is continue to invest. And the fifth, don’t let short term volatility worry you. Focus on the big picture.
Sharla Jessop 18:33
Jordan, good advice. Thank you so much for joining us.
Jordan Hadfield 18:37
Thank you so much for having me. I’m glad to be here. I look forward to joining you again.
Shane Thomas 18:44
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.
