Category Archives: Coach’s Corner

This Coach’s Corner segment covers rebalancing. What is it, how do you do it, and what reservations investors typically have when it’s suggested. You can listen to the segment here or the entire Untucked episode here.

Meghan Tait: [00:00:00] All right, we want to get into coach’s corner. Yeah, let’s do it. Um, so today we are going to talk about rebalancing. We came across a tweet from Charlie Bilello. Um, and his tweet reads, if you held a 60 40 U S stock bond portfolio five years ago, that portfolio is now 75 percent stock, 25 percent bond due to the 100 percent gain in stocks while bonds have been flat is now a good time to rebalance is the way he Positions the the question Um, I think for us what we wanted to discuss today is what is rebalancing?

How does it work? Why do we do it and then because we’ve been having these conversations with clients based on what charlie just shared Um, what are some of the reasons people are struggling with it?

Jeff Mastronardo: Yeah

Meghan Tait: Um, mike, do you maybe want to just? Describe what rebalancing is?

Mike Traynor: Yeah, I mean basically it’s the mix of stocks to bonds The percentages that have, that are set [00:01:00] at, let’s say 60, 40, like you say, um, and the rebalancing takes place when that mix gets out of whack because stocks go up, bonds don’t or vice versa.

And the point of doing it is to, um, in theory you are targeting a specific mix, um, and you want to get back to it because, um, if nothing has changed in your goals, objectives are what you’re trying to accomplish. You should try to keep it as close to that target allocation as, as you can. Um, if you have a balanced portfolio, like you’re, you’re kind of like, you’re not trying to like shoot the lights out with returns.

Like that’s not what you’re doing by setting up like a diversified account.

Jeff Mastronardo: What are you, what are you doing it for?

Mike Traynor: You’re doing it to mitigate, smooth out the ride. Be diversified take advantage of uh, certain asset classes do well others [00:02:00] don’t you want exposure to all of that, um you know a good example, I think is when kovid hit Stocks were down like 30 like immediately.

Yep. Bonds were kind of up a little bit. So everybody’s Everybody’s accounts were instantly out of balance. Let’s say So the rebalance trade there would be to go in and buy stocks Sell bonds, get back to 60, 40 in this example, that was a good thing to do because quickly stocks rebounded. You were, you know, effectively buying stocks cheaply and selling bonds that were expensive.

And that activity over time generally adds value to somebody’s portfolio. And with the added benefit of you’re keeping your, uh, keeping the volatility at a, at a, at a minimum, a lot people let it ride. You know going to 80 20 all of a sudden they go stocks are doing great and Why wouldn’t I just keep it and let it go?

Well, that’s fine [00:03:00] But it’s now a riskier portfolio. It’s a riskier account that you have because stocks are more volatile than bonds and You know when things go south you’re gonna end up getting hurt More so than if you were to rebalance what do you got jeff?

Jeff Mastronardo: I don’t know I mean if you if you have a balanced portfolio, let’s say say 50 50 is that type of portfolio you’re going to need more attention More rebalancing than like a 80 20 80 stock 20 bond

Mike Traynor: What do you mean attention?

Jeff Mastronardo: Like will that get out of whack more frequently because it’s more balanced

Mike Traynor: No, I think I mean the the if you just take stocks to bonds and ignore the underlying like asset classes, right The The getting out of whack is the same because the percentage is the percentage. And

Jeff Mastronardo: what’s the most appropriate time to rebalance?

Like what, right? So if I have a 60 40 portfolio, do I wait till it gets to 70 [00:04:00] 30? Do I wait till it gets to 62 38? Like when do you rebalance? What’s the best time to do that?

Mike Traynor: I think if 5 percent you start to look at it, 10 percent you definitely do. Um, the difference between 60 and 62 is really like nothing.

So, um, and really the difference between 60 and 70 is not enormous, but it starts to get to 75 or 80 or something like that. Then. You just have a totally different portfolio than you started with. And that’s generally not what you’re trying to accomplish. You know, you set it at a certain, uh, percentage for, for specific reasons on how much volatility you’re comfortable with, what you’re trying to achieve.

And if that hasn’t changed, then you have to get back to that. Or you should, you should.

Meghan Tait: And that, that justification, meaning agreed upon, allocation also can apply to that 5 percent deviation rule, agreeing upon a percentage in which we want to evaluate whether or not we should rebalance. [00:05:00] So if things continue to go, you know, positively, we’re not speculating as to whether or not that’s going to continue, or we’re not forecasting or predicting whether it’s not.

We take the, the guessing game out of that decision and just say at X, right, at X percent of deviation we evaluate. So it’s not an end of the year task that we, right, just address in the fourth quarter. It’s as markets move over the course of the year and we get to a point based on an agreed upon threshold, that’s what allows us to make a more of a rules based and less of a feeling based.

I

Mike Traynor: mean, forcing that discipline is important because it’s way harder. To rebalance when stocks go south, right? If all of a sudden you’re you’re you’re 50 50 turns into 35 65 because stocks have cratered most people aren’t like Jumping up and down to buy stocks. They don’t want to do

Jeff Mastronardo: it Yeah that we we’ve received tons of [00:06:00] pushback from clients when those bad markets happen They’re like why would I even think about buying more of that stuff that just went down?

Mike Traynor: Yeah

Jeff Mastronardo: It’s, it’s, it’s amazing because that’s like the basic fundamental rule, right? You want to buy stocks when they’re cheaper and people don’t want to do

Mike Traynor: it. Yeah. And on the reverse, on the other side, stocks are ripping. Why would I sell them? Yeah. Right. It’s the same thing. So, um, but again, like we’re huge believers of forcing, having rules based, um, thresholds so that we’re not trying to look at the.

Political wins or what’s going on in the markets or the, or in, in business or pot, whatever. And. Confusing yourself,

Jeff Mastronardo: thresholds are the, is the only way to do it by setting up target percentages. And when you deviate from that target, that’s when you rebalance, that’s the purest and the best way to do it. A lot of 401k companies will allow people to automatic, like their accounts automatically rebalance either on a [00:07:00] quarterly or semi annually or an annual basis.

But if you’re rebalancing, I guess if you’re not. If you’re going to set it up systematically, that’s better than not doing it. But if it’s an annual rebalance in December and we’re that COVID year, you miss the rebalance in March, right? The market got destroyed in March. You rebalance at the end of March, early April, and then it skyrocketed back up.

And you, you’re rewarded for that. That tactic whereas if you’re doing it based on time whether it be semi annual you’re gonna miss moments where you should be rebalancing

Meghan Tait: so right now We’re experiencing like out performance in equities or in stocks and We’re having these conversations with clients about All of this, why we do it, reinforcing the rules and the discipline that we’ve applied to it, but we’re still kind of met with pushback occasionally.

And some of it we’ve already touched on [00:08:00] specifically things are going well. Why would we deviate from that? Um, but the other one is the tax component. Yep. So when we’re rebalancing, especially when we’re selling assets that are about perform, we’re looking at realizing capital gains and I’m, I guess, specifically talking about Non ira accounts.

Um, how are we navigating these conversations when we believe it’s important for it to be done, but we have to Understand that there’s a a real cost to it.

Jeff Mastronardo: Yeah I mean I have the conversations every day with clients and I mean we just dealt with it and we’re emailing back and forth met with a client last week and Yeah, you’re out of whack and there’s a forty thousand dollar capital gain because we went from like 62 percent stock to 70.

Um, and I’m, I said to the client, look, I recommend you do it. Luckily he had some carry forward losses that can offset some of the gain, but even if he didn’t, like it’s, and I said to him, [00:09:00] cause I didn’t, I forgot that he had the carry forwards. Like if it’s 40, 000 of gain now, and you don’t act on it, then what are you going to do?

You’re going to wait until this account’s 80 20, and the problem’s bigger? So just take little chunks and little bits as, as things go forward. Otherwise you’re going to throw your hands up and say, okay, I’m no longer a 60 40 investor and I’m just going to let this thing rip until it’s almost a hundred percent stock.

And that’s going to be painful.

Meghan Tait: Yeah.

Mike Traynor: Yeah. And then the other piece of it is 2022 when everything was down, we were selling stuff to realize losses, not to change the allocation necessarily, but to bank losses so that. You use those to help rebalance two years later when stuff is, um, when it’s, when it’s in need.

And those are so valuable to have cause then you don’t have to worry about, Oh, I have a 40, 000 capital game. Well, I have 80 grand in losses that I’m going to use to offset and [00:10:00] you know, good to go.

Jeff Mastronardo: Yeah. I mean, I think, um, I think about clients that have, like, some holdover assets that they had, like, before they met us.

Specifically, like, sector funds. Like, the Vanguard Healthcare. It’s like when everything else in the market is doing poorly, and the Vanguard Healthcare fund is doing well. Like, I remember, like, discussions with clients, like, with clients, like, we, we need to, like, we need to sell some of this and carve off some of the gain and and buy some of this other stuff that hasn’t done well.

And they look at me like I’m absolutely crazy. Like everything else is doing terrible. This is doing awesome. Why would I sell this? It just blows my mind how they can’t like it. What is doing awesome right now isn’t going to do awesome forever. Every year it doesn’t work that way, but they don’t remember that.

They don’t remember when the healthcare fund lost [00:11:00] 15 to 20%. Because they’re just thinking about what’s happening right now.

Mike Traynor: Yeah, you’re right. I mean, so many, so many people go through their holdings and they’re like, okay, that’s down, that’s down, sell that, sell that, sell that. And it’s the opposite of what you should be doing.

Unless they’re individual stocks that are, that’s a whole different story. If they’re, if they’re like a legit asset class that you want to own all the time, like you, you do the opposite.

Jeff Mastronardo: Yeah, you just have it gets back to everything that we always talk about with financial planning and investing. I mean, it’s emotional And people are very emotional about their own money if they’re even If they’re even doing this exercise I don’t even know how many individual investors who manage their own money are even doing this looking at assets uh accounts at an asset level and rebalancing to targets, I mean It’s almost impossible to do at vanguard Like their, their trading system is, doesn’t make it easy.

Like it’s [00:12:00] damn near impossible. So I’m curious how people, how like the individual investor does this kind of rebalancing.

Mike Traynor: Most of them that we see just don’t. Yeah.

Jeff Mastronardo: Not to like, I want 20 percent of my portfolio to be in large cap growth. I want 5 percent in small cap and then setting deviations around those.

I mean, I don’t know how you would do that. Is there software that handles that for you? Like a trading software? At like Vanguard or Fidelity?

Mike Traynor: No,

Jeff Mastronardo: no. So you’re just like pen and paper, like figuring out the math.

Meghan Tait: Well, and then to your point, like having to do it by yourself, you’re so less likely to actually pull the trigger.

Yeah. I mean, the conversations we’re having, we’re encouraging people, we’re explaining very thoroughly the tax implications and other implications that may exist. So we’re making the decisions knowing pretty much all of the factors to be able to predict a pretty reasonable outcome. Thank you. Investors on their own do it [00:13:00] yourselfers You think they’re evaluating whether or not the capital gains are going to increase their medicare premiums.

No, like absolutely not. I

Jeff Mastronardo: don’t I I’m, like as we’re talking i’m like thinking like i’m I had this conversation with this client last week and he’s like You email me back. Yeah, like do it rebalance That’s all you had to do. All he had to say was yes or no And then I like email you After I had already figured out like the tax component of it and then Your computer software is going to rebalance this guy’s account perfectly.

He doesn’t have to do anything.

Meghan Tait: Yeah.

Jeff Mastronardo: Like when I help my parents, I go to Vanguard and it takes me like five hours to do the math and do the trading. It’s brutal. Yeah. It’s pretty sweet. All you have to do is say, yeah, go ahead, do it. And then it’s done

Mike Traynor: perfectly. So like market timing is a kind of like a negative.

Phrase in the sense that, you know, market time, you shouldn’t try to time the market. Lots of people do try to time the market, which really means to them, I’m trying to catch this stock or this, you [00:14:00] know, fund at the bottom and sell the top, like all that. And, and it’s typically like they’re looking at economic data or earnings reports or whatever it is.

If you think about it, like rebalancing is actual market timing done, right? Yeah, you can say it that way. Yep.

Meghan Tait: Cool.

On this episode of Untucked, the team discusses the things you shouldn’t focus on when making financial decisions. The Coach’s Corner clip can be listed to here or you can listen to the entire episode here.

Meghan Tait: [00:00:00] Um, today we are going to talk about a tweet from Thomas Kopelman. Um, he tweeted a thread that he titled six things you should not focus on financially. Um, and we wanted to, to maybe react to it or, or add to it because a lot of the things we discuss are things you should do. So we thought this was maybe a good, a good topic to think through some of the things Maybe that aren’t worth your time, energy, or efforts.

Um, I’ll just run through the seven he listed and then we can talk about them individually or anything we want to add. Um, so he talked about moving high yield savings accounts for a slightly higher yield, trying to create multiple streams of income, um, best credit card strategies, complex investment products, leveraging 0 percent interest, timing the market, and cutting out the small things you enjoy.

Any of [00:01:00] them stand out to you guys?

Jeff Mastronardo: The last one stood out to me, and I actually just came across an article maybe yesterday or today about that. Uh, not about cutting out the small things. Like this person was advocating to be mindful of like the Starbucks coffee. And so I guess disagreeing with Thomas.

And I read the article, and I just. I kind of like scoffed at it because the guy, I think the example he said was, you know, spending money on like useless things, call it 26 a week on useless things. It’s like 1, 300 a year. And I just don’t think 1, 300 a year is going to change anyone’s life. And the amount of time and the amount of dissatisfaction and, and, and disenjoyment.

If that’s even a word that, that [00:02:00] you have to experience because you spend time and energy to try to save 13 or 25 a week, it seems absolutely useless to me. So I a hundred percent agree with that.

Mike Traynor: I do too, but I’ll asterisk is that there are people who love that. Meaning like there are people who. will drive the extra five minutes to their destination on a non toll road to avoid paying the 3.

40 toll and they feel a big win from doing that. So, I just, the caveat to me is that there are people who just love cutting out the little nickels and dimes because it’s just a big part of their, who they are.

Jeff Mastronardo: I don’t think it’s a love for them, I think it’s a disease.

Mike Traynor: I mean, I know

Jeff Mastronardo: people that won’t do that.

raise and lower their garage door more than they should because of the energy [00:03:00] it, it, it, it, it, it spends, which is wild to me. Uh, my dad will drive to whatever different gas station to save 10 cents a gallon. What does 10 cents a gallon actually even work out to over 20 gallons, 2 that just does, it seems so insignificant.

I find it like very, you know, I’d rather sit in my house at 84 degrees than to put on the air conditioner because it’s gonna cost an extra, I don’t even know. Hey, let’s close the lights because it’s gonna save us.

Meghan Tait: Cents.

Jeff Mastronardo: It’s like literally cents. That, that whole, um, mindset. I’m not saying be wasteful. But our garage door goes up and down 50 times during the course of a day like at least

Mike Traynor: yeah

Jeff Mastronardo: And I can’t even imagine, like, telling my kids, Whoa, whoa, whoa!

Don’t open the garage, walk in through the [00:04:00] front door. It doesn’t cost us any money if you go in through the front door. Yeah. Like, that’s just wild to me.

Meghan Tait: Well, it’s similar to the first one he says, moving high yield savings accounts for slightly higher yield. So thinking about, you know, your Capital One account that’s paying you 4.

25, and then Ally has, you know, It’s a high yield savings account that’s paying you 4. 5, right? And you’re opening a new account, you’re moving money, um, for what is in the grand scheme of things, very, very little return. Um, so I think the, the, the mindset is one of, um, disease feels strong, but in the examples that we’re describing, maybe that is what it is.

Mike Traynor: But on number one, I would say not to. You know, uh, Confused people but If you’re getting 1 percent at your bank and it’s 5 percent at [00:05:00] Capital one. That’s that’s a different story. Sure. So like the his point is for one tenth of one percent Well, don’t don’t bother. Yes, which we agree with. Yes

Jeff Mastronardo: Let’s spend some time on the seven streams of income because I think that’s a very popular mindset in today’s world with influencers and, um, social media and the internet and, and these like entrepreneurial people that are like, you, you need to just, you need to develop different forms of income and passive income versus, uh, like when I hear that, it’s like, okay, so you want seven streams of income, which means you’re going to be crappy at seven different things.

Like who is an expert and just dialed in as a landlord, as a financial planner, as a, as a, as a real estate, like as an influencer on, on social media, like who’s doing [00:06:00] four different things exceptionally well and generating income from it. You’re not optimizing your time. If you’re really good at something, do that.

Expand there. Find different sources of income there, not from a completely different activity. Like that’s just, that’s just crazy to me.

Mike Traynor: Yeah, I agree. I mean, it’s like, I don’t even know. I’ve never even heard of this seven streams thing, but I know what it’s about. It’s like, you should have three side hustles and a W2 job.

And then you should also own property in which you get that passive income. What? I mean, no, I agree with you. Like, it’s just, Somebody has to work three jobs to make ends meet. That’s different. But deliberately creating, I guess, diversification of your income and your cashflow, that’s great in theory, but

Jeff Mastronardo: what?

I’m sure this is this opinion that I have and that Mike has [00:07:00] is very like people would disagree with this very strongly.

Meghan Tait: I think there’s a, there’s a camp of people who would disagree with it, and I think you’re right in that a lot of it is, is kind of social media influenced, um, because you see people who Have done all of the things you’re describing, right? Whether it’s like they call it house hacking, right? Um, for the real estate piece of it, or they have a side hustle beyond their, their W 2 income.

So I think when those people have a platform that reaches other people, um, and they try to come off as like, if I could do it, anybody could do it kind of thing. Yeah. I think there’s a camp of people who would see that and say, Well, why can’t I make that work? But when you frame it about your time, which is what you’re describing, Jeff, and your [00:08:00] ability to maybe not be as good at all of those things as you could or should be, or your ability to be a partner, a father, a mother, a friend, like have a life outside of, of these streams of income.

Like there’s only so much time in a day. So I think that the vision of it and the reality of it are very disconnected and the people who appear to make it work Do so behind a screen that no one actually knows the success they may or may not be having. Um, and I feel like that’s, that’s a lot of what these, these things, how, how a lot of these things you shouldn’t focus on get, um, kind of forced onto us is, is through that microphone of social media.

You hear one, two or three people, um, right? Well, you have to move your savings account for a slightly higher yield. It’s like a no brainer. You’re going to get more money over here. Like there’s, there’s very few [00:09:00] people who are just being real about these things and saying it’s not a sustainable way to exist by trying to maximize all of these different areas of your life.

Um, For what?

Mike Traynor: I

Meghan Tait: mean, like the credit card strategy one, it’s another one. You could go onto Instagram or Tik TOK, or you could Google it. Like how to best use my credit card, how to pick the credit card. That’s going to give me the most X. Like how many people do I, do I feel like I probably misuse some of my credit card points?

Sure. Do I do that to the extent that it’s going to keep me up at night or force me to spend time figuring out a better way to, no, it’s just not worth my time. Um, but it’s, there’s no shortage of people telling you that any of these things are worth the time and effort without [00:10:00] truly knowing if they’ve had any success in any of them.

Mike Traynor: Yep. Yep. I agree. I agree. I mean, uh, I’m sure that if you spent a lot of time You could open up multiple, you could have a strategy to open up multiple credit cards, transfer balances, get points for the initial sign up, and then, you know, spend that money, right. For the rewards or whatever, and continue to do that and come out ahead.

You would totally, but is it worth it? Hell no. No.

Jeff Mastronardo: If my wife wants to do that, like spend hours upon hours doing that, that means I have to go pick up the kids from school. I have to make them dinner. I have to do the laundry, which means I can’t be here working. So you’re getting a benefit from it, but it’s, it’s detracting from, it has to detract from something else because it’s all time related.

We don’t have to spend any money on timing the market. We’ve beat that to death. If you’re spending time trying to time the market, you’re wasting your time because you’re [00:11:00] eventually going to not do as well as the market. So don’t even bother. Um, I agree a hundred percent with his complex investment products.

Like there’s so many things that are complex out there and God, I want to say like 99 out of a hundred of them are not advisable for most people to own. I can’t think of a complex investment product or something like that. That is in someone’s best interest.

Mike Traynor: I can’t think of a single one. Either.

Jeff Mastronardo: No,

Mike Traynor: not a one.

Jeff Mastronardo: I mean, aren’t hedge funds like really good.

Mike Traynor: Yeah. For the people who sell them and run them. Don’t they like beat the market? Yeah.

Jeff Mastronardo: Isn’t that why all rich people put all their money in hedge funds? Cause they’re like, the people are so smart and like, you don’t even know what they’re doing, but you’re just making like, they make a lot of money.[00:12:00]

I’m kind of poking the bear

Mike Traynor: the only The ones that are consistently killing it don’t want or even will take your money It’s all their own money, right? So I mean, it’s all of them are just They’re sold on the same basis, which is that this is something for the Well, whether it’s the rich people or the, or the exclusive investors who have it, it’s all, it’s all bullshit.

And it’s every one of the examples here, private equity, real estate syndications, permanent insurance, or complex insurance products. They’re all designed to pay the producers.

Jeff Mastronardo: They’re almost like, they’re almost like directly correlated. Like the more complicated a product is, the more expensive it is. The more costly it is and the less value the bottom line investor receives from it.

And [00:13:00] people just don’t want to believe that.

Meghan Tait: Yeah. Simple. Doesn’t sell.

Jeff Mastronardo: It does not. Yeah. Um, what was he talking about with leveraging 0 percent interest?

Meghan Tait: So the example he gave was, um, when you’re on Nordstrom and you get to check out and your cart is 450 bucks and you can pay it off in, incremental payments with, I think it’s like Klarna is one of the, the, um, platforms you can use.

Um, and his point was, you know, if you can’t afford to buy, something like that, that you need to split up over a couple of payments, then you shouldn’t be buying it. The opposite of that would be, I think Mike used this as an example when we were prepping, like getting a car loan at 0 percent interest is in fact a good opportunity.

Um, so larger purpose purchases using [00:14:00] 0 percent interest, um, pretty much a no brainer, but leveraging it in, in what, I mean, I guess there may be less consequential in terms of the purchase amount, um, is just not really very responsible. So good job, Thomas. Are there any things that maybe he didn’t list that come to mind?

To you guys that like shouldn’t be the focus of people’s financial priorities, maybe social media because of comparison and how you’re going to look at your friends Instagram feeds and see them going and doing and because of slight jealousy or FOMO, um, maybe committing to financially things that you just can’t afford and it being difficult to say no.

But. Avoiding social media, or at least the lens of I want to be able to do everything everyone else is doing just might not be [00:15:00] feasible. I think you took it as all of the different information on

Jeff Mastronardo: social media. Yeah, and I think I would add to that. Like I had a meeting yesterday with a client trying to explain to her why I think doing a Roth conversion for some of her IRA each year is probably a good thing for her in the long run, probably a good thing for her, her daughter in the long run.

Um, and at the end of it, like she got it, understood it, understood there was no like giant benefit to her immediately. And she’s like, yep, let me think about it. I’m like, yeah, no problem. Do it. Don’t do it. Your life isn’t going to change one way or the other. What I will say is everyone you talk to is going to tell you you’re crazy for doing it.

Your CPA, your friend, because everybody has there in the back of their mind, why would you pay taxes when you don’t have to pay taxes? So I would, I would throw that in the [00:16:00] category of, Stop taking advice or asking advice from people who know nothing about you. And I, I don’t mean like they know your name and they know how many kids you have, unless that person that you’re asking for advice from has your tax return, has your goal list, has like your entire financial plan in front of them to, to like delve through.

Don’t listen to anything they have to say. And so many people do that. They listen to, like, they have a conversation with someone and then they bring that back into our office and they’re like, none of my friends are doing this. They told me not to do this. Do your friends, have they seen your budget? Do they know where your investments are?

Do they know your effective and marginal tax bracket? Like, No. So why? Like, it drives me crazy.

Meghan Tait: I think that’s a good one.

Mike Traynor: Me [00:17:00] too, Meg. So just real quick before we move, um, avoiding social media for financial information at all, obviously, but I would, I would say media period, like all media, you know, I have friends who watch CNBC all the time, like every day they watch Kramer or Josh Brown on there talking about stocks and talking about markets and.

Maybe not aware what the business of media is, right? And falling into the trap of it. Cause that, that gets into your psyche. If you’re, if you’re listening to that stuff and we’re paying attention to it and maybe thinking, huh, this guy seems smart. He’s calling for a 25 percent correction by year. Like all that stuff is so poison to you.

The right things to do as from an investing standpoint, so I would just say never ever ever watch That stuff [00:18:00] Don’t read the magazines if they still are out there. I’m not sure. Do they have magazines anymore? I think they do like it’s all the same poison. So

Meghan Tait: So don’t watch tv. Don’t look at your phone and don’t talk to your friends

Mike Traynor: about financial stuff

Jeff Mastronardo: and invest right like well, it’s it’s the same in the medical field, but Right.

Like if there was something wrong with you physically, would you like go on a social media or like the Mayo clinic. com to diagnose yourself or would you go see a fricking doctor and have them take your blood pressure and do blood work, right? Like hook you up to an EKG.

Mike Traynor: Yeah.

Jeff Mastronardo: Yes. You’re having a heart attack.

Oh, well the Mayo clinic. com said I have high cholesterol.

Meghan Tait: Like my neighbor told me it’s

Jeff Mastronardo: the same damn thing, dude. Yeah. Yeah. Yeah. All right. That was good. Well, Mike, I appreciate that. Thank you for sharing.

Untucked Episode 99 – Investing at all time highs

Listen to the team discuss investing at all time high’s here or the full episode here.

Meghan Tait: [00:00:00] All right. Um, so today for Coach’s Corner, we are going to Um, refer to an article written by Ben Carlson called What if you only invested at market peaks? A common question we get from clients is when is the best time to invest? When things are going well and markets are hitting all time highs, there’s often apprehension of putting money into the market because of the possibility it goes down, um, shortly thereafter.

There’s been a lot of work done to support the fact that investing when they have the money regardless of market environments is the best time to do so. But as humans, our emotions don’t always adhere to those facts.

Jeff Mastronardo: Yeah, I think that we have just been hearing this a lot lately, talking to clients, talking to prospective clients about like investing money if they have money and they’re just super, everyone seems to be apprehensive about why would I do it now?

Like it’s at an all time high and it just seems like such a goofy comment or, or thing for them to say [00:01:00] when dollar cost averaging is not. the preferred method, like from a mathematical standpoint from a history standpoint. Now you might get lucky, but like if you have money, 100, 000 that you want to invest nine times out of 10 is not in your favor to dollar cost average 10 grand in over the next 10 months.

You’re better off investing it right away. All of it because we know the longer your money’s invested. the better chance it has to do. And people just don’t wrap their brain around that for some reason. And this is the same thing. It’s like, if I have money and I, and I have a long term perspective, it doesn’t matter where the market is right now.

Because if I’m investing for the next 10, 15, 20, 30 years, you’re better off investing now. So it doesn’t matter where it is, unless. [00:02:00] There’s like a, like a, um, a short timeframe for when that money’s needed.

Meghan Tait: Right.

Jeff Mastronardo: And that’s what I don’t think people get. Like, if you have the 100, 000 or 10, 000, is that earmarked for something?

No, it’s earmarked for my retirement. Well, then it should go in right now. I don’t care if the S& P is at 5, 200 because 10 years from now it’s going to be higher than that. 15 years is gonna be higher than that. 20 years is gonna be higher than that. I mean, the number that he references in his article, let me find it.

Like it’s just wild. And it’s the one that really stuck with me on this chart. Like, cause I can remember very vividly. I can’t remember 1987. I wasn’t investing in 1987, but I can certainly remember March of 2000. And I can certainly remember October of 2007. And if you invested in March of 2000, you immediately lost 50 percent [00:03:00] of your money.

But now 20 years later, your money’s 220 percent more like, that’s just crazy. Like I bet nobody would believe that.

Meghan Tait: Assuming you stayed invested over that whole time. Assuming you stayed

Jeff Mastronardo: invested and didn’t freak out over that 20 year period. Yeah. 23 year period at any point, right. Cause then all, all bets are off.

But even 07, like if you invested in October of 07, you immediately lost 57%. That’s crazy. But 10 years later you have 105 percent more money than you did when you started.

Meghan Tait: And that’s, that’s the concern people have, right? When they, when they are making these decisions is that at all time highs immediately there becomes right.

A new, data point on this chart. Um, and that’s kind of the emotional obstacle you have to get around, which is what you’re describing. The reality [00:04:00] of the time frame in front of you is going to benefit you more by getting the money invested. But looking at this data, there’s going to be a lot of people who say, well, I’d rather have less on the, you know, at the long, at the end of that than see my money cut in half immediately.

Jeff Mastronardo: Yeah, and I think my comment about dollar cost averaging is probably got a lot of people saying like I’m wrong and I’m an idiot, but Most Time frames the market is up If you just happen to decide not to dollar cost average in one of those rare instances When the market goes down Yes, you would have been better off dollar cost average, but most times you won’t be.

You will be better off getting it invested now. And like, don’t even look at who cares if you don’t need it right now, you don’t need a five years from now. You don’t need a 10 years now. Then don’t even look at it and don’t even try to go back and calculate which scenario would have made you [00:05:00] better off.

Mike Traynor: Yeah. So, um, the recent one that that’s kind of. Within memory for a lot of people is that is the two thousands, right? So you had the, the internet and tech thing, which kind of peaked in March of 2000. And then there was a subsequent basically cut in half. Um, I’m talking about the S and P 500 in this case.

And then remember, so 2000 and 2001, 2002 were all down years. Um, and then if you held on, You clawed your way back, but then you had to deal with 2007 and 2008, which was another, you know, 50 plus percent decline. So by the time you get to 2010, that decade, you’re not even, you’re barely underwater, but you’re, you’re, you’re not quite back to where you started.

So like incredibly painful 10 years, it’s all said and done. And by the way, one, that’s an [00:06:00] example of, of what would happen over 10 years, maybe five out of a hundred times. I mean, they coined it like the lost decade. But if you have more than 10 years to work with at that time, let’s say you had 20 years, the numbers right here, you would have made 219 percent on your money when that next decade was said and done.

So the point about like if you have any time frame at all to work with, you shouldn’t care at all about. The level of the market and on the flip side, you know, we know people that, you know, the S and P got back to an all time high in 2013 or 14. I want to say recovering from the financial crisis and all that.

Well, it’s at an all time high and people are saying, well, it’s an all time high. I’m going to wait for it to pull back. Wait for it to pull back. Well, what’s happened from that point in time, 2014 ish. Where was it? Where was the S and P was at like [00:07:00] 2, 100 or something like that. It’s more than way more than doubled since then way more.

So it’s more than it’s psychological, but it’s also like, I think a lot of times we hear people say, well. It’s at an all time high, we’re just going to wait until it like pulls back a bit and then we’ll get it. Well, in that case, you never got in. Right. Ever. Or, yeah, you sat there for nine years, ten years, and you’re still sitting there with what you had in cash.

Yeah, and I And you will never get those returns back.

Meghan Tait: And I also challenge that because of the emotional element of it, meaning We’re going to wait till things pull back. Oh, and then we’re going to be able to convince you to get in. Right. When, when shit starts to hit the fan and there’s a, there’s some other thing, a pandemic, something, uh, an election year, whatever it is, something else that we’re dealing with in the markets or in the country or in the economy.

And at that point, [00:08:00] you’re going to say, Oh, now’s a good time. I mean, it just, it, we don’t work like that. Humans don’t operate that way. And the people who are saying, yes, that’s exactly when I would do it. The. Okay, one out of a hundred, maybe end up pulling that trigger.

Jeff Mastronardo: Yeah.

Meghan Tait: But the environment becomes scarier and you’re then going to deploy your money.

It’s just way less likely.

Mike Traynor: It’s like, I mean, maybe this is a bad analogy, but it would be like if you’re, if you’re buying a house and real estate prices are at an all time high, which they often are, I mean, you kind of don’t say. I’m assuming you can afford the house, right? You don’t, you don’t say, well, I’m going to wait for a little pullback here.

Right. You know why? Because you kind of know that over time, the price of your house is going to be higher than it is. What then now, even if the, even if it’s an all time high price, right? Maybe

Jeff Mastronardo: not a year later, but when you go to sell it 10, 15 years from [00:09:00] now or longer, it’s going to be worth more. Yeah.

Yeah. Just like investments Yeah, so if it’s not if you don’t need if you’re not buying your house now with the intent to sell it six or month six months or a year later But yeah, you’re gonna make it’s going to be worth more. I don’t want to say you’re gonna make money on right? All right more and and I’m obviously like if if the decisions are Put it all in now.

I don’t want to do that dollar cost average or never invest it Yeah, obviously dollar cost if that makes you feel better You If that will get you in the market over some time frame, absolutely do that, but certainly do not sit on the sidelines and wait until you think there’s a pullback happening.

Mike Traynor: Yeah, and, and the math behind the dollar cost averaging is pretty simple.

It’s basically if you’re buying something, if you’re buying in every month, let’s say six out of 10 months, the markets are up and I’m making that up, but it’s kind of close to that. Um, so. By that logic [00:10:00] You’re going to be paying higher prices Six out of ten times and not four out of ten times.

Jeff Mastronardo: It makes perfect sense, man, and I didn’t it I didn’t even Understand that until I was going through the cfp curriculum and they’re like, yep Dollar cost averaging is not more favorable in most cases than just investing and i’m like What are you talking about?

Like dollar we’ve been told We’ve been told All of our lives, a dollar cost averaging is the way, but it’s so simple. Like when you think about if the market’s up 13 percent this year and you’re going to invest 12, 000 in the market that year, you’re better off putting all 12 grand in, in January to get the full 13 percent return versus doing 1, 000 a month.

I was blown away, like, like totally opened my eyes. I was blown away by it.

Meghan Tait: I think your point’s a good one though. And we can probably end there that like. If it means doing nothing, then dollar cost averaging is, is, is good and, and serviceable. But if you’re debating [00:11:00] between the advantages or disadvantages of kind of a lump sum investing in an all time high market, do it.

Just get in. Yep. Yep.