116: Long-Term Investing: COVID-19 Changes Nothing with Jim Collins from JLCollinsNH.com

Automatic TRANSCRIPT

So the market clearly clearly as searching for a direction that doesn't quite know what to do and nobody in certain released to all may knows what is going to do on Monday. Mean this could be you know today could have marked the beginning of the turnaround where it begins to just go up again or it could be is chairman. They called dead cat bounce. Swear Monday will open up. And we'll be down even further. I mean nobody nobody really knows. And and that's kind of the. The most salient point is because we don't know there is nothing to be done. There is nothing to be gained by trying to dance in and out of the market is as Warren Buffett. One said you you buy the mark old and you're investing for the long term and this volatility is to be expected every night again the market plunges every now and again there are Bir markets. Hello Hello Hello and welcome to the bigger pockets money podcast. My name is Mindy Johnson and with me as always is my steady stay the course co host. Scott Trench Scott and I are here to make financial independence less scary less just for somebody else and show you that. By following the proven steps you can put yourself on the road to early financial freedom and get money out of the way so you can leave your best life right whether you want to retire early and travel the world. Avoid panic selling in a recession. Go on to make big time investments in assets like real estate or start your own business will help you financial position capable of launching yourself towards injuries. This is episode number one hundred sixteen featuring Jim Collins from jail collins and H DOT com. You may know him. Better as a previous guest on our show number twenty. He's also the author of the famed Stock Series and even more well known book called the simple path to wealth. Jim is here today to talk to us. About the stock market The state of the stock market specifically. Today Jim is going to talk about how to navigate the financial crash in his philosophy about long-term investing with the by staying the Course Index Fund. Investing so spoiler there. He's got great rationale for that and I think it's really important point. That's why we have really changed our podcast scheduled to accommodate him and have him come on and give that advice to everybody and then after gym is done. If you want to stick around you own real estate mindy and I will talk about how to think about your long term real estate holdings in the context of this market this correction. Whatever you WANNA call it. The Corona virus caused market panic right. So we're GonNa talk about that stuff and then we'll invite if you have any questions to join us on facebook email. Us reach out. We know that we're giving advice. Stay the course. Invest for the long term. We know that's difficult. We know that that's going to be a challenge for a lot of you but we want to be there and help you and make sure that we're open you move toward your long term goals. Yep We really want to help you out okay. Before we bring in Jim. Let's hear note from today's show sponsor whether you already have an established rental business or analyzing your first rental deal than you know the getting the rent right is absolutely crucial to lowering investment risk and optimizing your rental income. That's why the go to source for rental. Data is renovator. Property owners and investors rely on rent because it is the fastest and easiest way to access quality rental data anywhere in the United States. But don't take our word for it rent processes over three hundred thousand rent reports per month and gets rave reviews from their customers. Many of them fellow bigger pockets members. And if you aren't already rental customer they make it really easy for you to test them out with a free trial. 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And it's not even Wednesday if you want to save more than ever before you've got to check out the empower APP download empower that's emp w. e. r. in the APP store or playstore and over six hundred fifty thousand other people have to and for listeners of this show get five dollars when you use offer code money and reach your savings goal visit empower dot me slash money for more details okay. Huge thanks to the sponsor of today's show Jim Collins. Welcome to the bigger pockets money. Podcast I am very excited to have you back. You were here on episode twenty way back a couple of weeks ago. This is now episode one hundred sixteen and I know you are a retired person and you've been retired for quite a while. I'm not sure if you've noticed because you've been traveling around the world and you know you are retired. The stock market has had a bit of action. The last couple of days. Have you heard about this? And what are your thoughts on? This actually actually even even uses reached even me. Yeah I've heard about it is it is Been a volatile couple of weeks. Volatile is a really great way to describe this market. This was the worst stock crash since October of nineteen eighty seven. Do you remember October of nineteen eighty seven? I do Scott was negative three but you and I were around then. I was a sophomore in high school and I still remember that day because the next day in the economics class they talked about what a huge thing it was and it was five hundred eight points and it was a twenty two percent drop and that's enormous and all my God. This guy is falling so this stock market has actually not crashed five hundred points. It's crashed more like two thousand points but because we have grown so much since nineteen eighty seven this was only a seven percent crash as opposed to the twenty two percent crash in one thousand nine hundred seven. So why are people freaking out about this? Well people freak out whenever the market does something unexpected whenever drops. But your your points for tank at actually. Nineteen eighty-seven was a much bigger. Drop than than anything we've seen in this one. So for instance today the market was up about nine percent. Yesterday was down about nine percent but as you correctly point out when the market dropped those five hundred points which seems kind of quaint. Today ever presented a drop of twenty three percent. I think the total market decline has of Thursday's drop came to twenty six or twenty seven percent over a couple weeks by the way in eighty seven. That one day drop was not. The only dropped continued to to edge down for the next. I don't know three or four months before before it turned around and began its relentless climb once again upwards as the market always does again this time yes so Scott an I have a document that we chat back and forth with and he said wait. There's like a ten thousand point crash over the past two ish weeks and he's right. I was talking about on Monday. To about five hundred. I'm talking about on Monday. They had actually halt trading. And which is not something that they did back in nineteen eighty-seven and they had to hold it again. What Thursday and we're recording this after the market has closed on Friday. But the last couple of weeks have been quite crazy. However as you just said the market dropped in eighty seven and then began its relentless. Climb as it always does which. I am quoting Jim Collins. I am not stating that officially. But he's right and so. I am one hundred percent agreeing with with Jim. If you sold on Monday your holdings would have dropped so. The market opened very poorly on Monday. You sold on Monday. You would have realized losses at some point from your high at the very most or at the very least And by holding onto them on Friday you would have recouped a lot of those losses. Most market recoveries are not that fast but today we were up quite a bit. We were up almost two thousand points. Mark Monday. They were down two thousand points. I think in the middle there was some more down. Will Thurs Thursday was was down so today say I think as I say today was a baiter nine percent but it was roughly up today? The same amount was down yesterday so the market clearly clearly as searching for a direction doesn't quite know what to do and nobody can certainly least of all me knows what is going to do on Monday. Mean this could be you know today could have marked the beginning of the turnaround where it begins to just go up again or it could be. What is charming? They called a dead cat bounce. Swear Monday will open up. And we'll be down even further. I mean nobody nobody really knows. And and that's kind of the. The most salient point is because we don't know there is nothing to be done. There is nothing to be gained by trying to dance in and out of the market is as Warren Buffett. One said you know you you buy the market new world. You're investing for the long term and this volatility is to be expected every now and again the market plunges every now and again there are bear markets. They are healthy things actually and their midst. It's like getting getting all of sudden panicked about is Mike living in in Minnesota and being surprised that you get blizzards. I mean it's part a winner in no. It's just. It's a natural part of the process now every time what triggers. The drop is different. And what's triggering? This drop is is a disease and of course that scary on a whole different level but if it wasn't that eventually would have been something else surprises me is that this is really the first brock we've had since the big crash in seven eight in December of eighteen right around Christmas. The market dropped twenty percent but it turned around so quickly then the most of us don't even remember it was it was such a quick blip on the radar but this one looks like it was extended a few weeks and my guess is it'll extended humour but that's only guess so let let me ask you this. I think I think one of the you know for for maybe the three of us right. We likely have a financial position that has some cash on hand is very conservative. Were we've self educated quite a bit on this topic? We're very comfortable. I think with the realities of the market amnesty. The Courses Continue Index Fund. Investing as I've always done and keep it in there and keep it in there for the very very very long term but suppose that we're putting ourselves in the shoes of somebody who does not have a big emergency reserve right or as very little cash and is afraid of losing their job right. What does that person need to be thinking about here in terms of their long term investing approach or maybe needing to access that money. How do we frame that as a problem for them? Well the first thing is that the those are considerations of that person should have been thinking about before now now in the Middle Vora. Crashes is not the time to try to to try to sort through though whether you should have an emergency fund for instance or how much you should have allocated to stocks. That's something best done when the waters are calm and the markets are peaceful not in the middle turbulence storm. So that's a whole different question. I would say to anybody regardless of that situation that that you need to buckle down and stay the course for now and then if you found yourself in the position you described when things calmed down. You probably want to reconsider in reality. If you're in a situation where you have to have money to live on because you lost your job. Well then obviously you're going to end your fully invested in the stock mark. First of all. You shouldn't be but secondly you're just going to have to draw down on those stocks when they are down and obviously you WanNa draw as little as possible made the most basic needs and your portfolio chance to recover. Got It okay. So what does Jim Collins considerate? Good Emergency Fund. That's so variable Mindy That it's almost hard to our dancer. Tha depends on your situation. So for instance. I don't own a house. I don't even rent an apartment at this point. We are completely nomadic. So you know. There's very little variation in our life had suddenly GonNa come up but we just bought a new car so I don't have to worry about all repairs so my emergency fair you know fund is almost nothing. I can tell you especially you know a new car but I can't believe you bought a new car the worst thing you could possibly do. You'RE GONNA ruin your financial future Britain three posts on it. So you can. You can check out why why I'm not worried about running financial future but in any event is so for us. I mean a Emergency Fund is twenty bucks in my wallet. If you own a house and the furnace might go out. Will you have a very different need or you might need a new roof for if you're driving. An older are an maintenance new transmission. So those are all the kind of variables. Ironically the less money you have less wealth you have the poor. You are the more you need that Emergency Fund. I I love that so if I'm listening and I am on my way but not quite there. Maybe not even halfway to financial independence. I like to think that you that listener are actually have been preparing for a recession pretty aggressively over the past several years. Right you've got an emergency fund you've been ingress investing for the long term most likely and preparing for early retirement. I think in a lot of ways is just like preparing for recession and to your point about it emerges you reserve your right the war wealth. You have more stocks that you owed the less you have to have in cash because you can liquidate or us or you're going to have higher dividend payments or whatever and so there's less need for that more cash flow you know the higher your cash flow the less you need and in emergencies and you know the simpler your life. The less things are potentially to go wrong so yeah so anyway. The point. Is that the more you're living. Ironically enough. The more you're living paycheck to paycheck the less resources. You have the more things you own be houses our cars or whatever the bigger your emergency fund needs to be. Let's say you know I I I love how simple and easy messages here right. Everyone is panicking. The Sky is falling around. But it's like it's like if you're getting sick right or join about your health right. You need to have a good diet exercise sleep. You need to do all those all all these things and your risk of getting sick as low and risk of having serious health complications even lower. If you track your spending spend very little control your big fixed expenses in particular by not buying the doodads that you just mentioned ready like a new car and just kidding so I do. This is the woman who used to drive it. Then then your risk of having financial consequences because of a recession are very low and your risk of bankruptcy or anything to draw down meaningfully on your long term. Portfolio is even lower the same and gets the same analogy. There I'm David Green for the day and the people when when the market drops is as it done recently in and dependent on it they Fair takes over and you lose sight of a couple of key things. Appoint MR MONEY. Moustache made to me years ago which I never occurred to me. The Total Stock Market Index Fund. Which is what I favor. A dividend of about two percent. If you're living on your portfolio and you're using the four percent guideline near pulling four percent of your portfolio. You don't even nationally when the market goes down. Do not have to sell all your stocks that have big loss. You don't even have to sell four percent of the year because two percent of that Funded by the dividends who just have to sell two percent of your old links each year and it's a very rare market decline that doesn't resolve itself within say five years. Most of them resolve themselves. Within a year sometimes considerably less. So it's not the fluctuation in the paper value of your holdings only matters if you have the need to sell it all at once or if you're silly enough to be driven by Anna Gonzaga once and then you lock in that loss. But if you're just a little bit you need to live on it's probably not. GonNa Affect you very much and you just let the rest ride for when the market Turns wait I'm hearing you say that you don't sell when the market drops significantly. No you need the course you course you hold on river forever. My holding period mindy for SAS is literally forever forever. And when I'm dead it Myers will old it forever. And when they're dead there's will old it forever over buffet. Selling that's ever done is if you need to live on the portfolio you'll take the two percent dividend soaring off and then you'll go another two percent sale of shares and and all day and that adds allows you to ride out all of this volatility in the market theory adequately throws that just to keep us on our does okay so. I'm seeing a lot of advice on the Internet. Which is you know. I love the Atlanta. Got Either Dance Troupe. Mindy the quote from Abraham Lincoln. Follow at all. I'm here I'm seeing things like I'm selling covered calls and I'm like why. Why would you do that? Unless you're a stockbroker and then even then maybe that's not the best time to be doing that or maybe it is the best time I don't know I. I like to consider myself fairly well versed in money and I don't. I'm trying to think what does covered call. I don't know enough to do that so I'm not GonNa do that. I'm buying inverse. Etf's what are you doing? Jim I'm just holding my total stock market fund. That I own the one the one thing I did and I this is i. I described us in my most recent boast tripled put up a few days ago. His I noticed that has the market was dropping. It was dropping the value of the shares that I was holding in my taxable account to the break to break even point and that was interesting to me because sometime in the next five years. There's a possibility we might give up our nomadic life. Buy a house settled down and I looked at that chunk of money as the Source of cash for that transaction. If in one at and I was also looking at the fact that the I had a capital gain in it that I was going to have to give twenty percent of the government in the capital gains tax but when it came down to to where that capital game went away which is a bad thing of course. Because it's money but graded the opportunity to sell at a break even point so there was no capital gain and then I just took the equivalent amount of bonds in an IRA and switch them over. Davita Zach so my allocation did change at all and that now freed up the capital in the taxable accounts to you know where I won't have to pay capital game when it comes time to to spend time comes if that time comes and that is detailed in your article taking advantage of Mr Bear which we will include linked to and our show notes which are at bigger pockets dot com slash money. Show one one six. We have a lot of things in there. That we're linking to today a guided meditation for when the Stock Market is dropping. Yeah so that's a say a guided meditation. I record it at the suggestion of one of our Chautauqua. Ten days last year and I recorded last summer and You know it got a modest number of us when I first put it up a few more weeks. Yeah and we will also link to that in our show notes to other things you might link to a in the show notes is. I Have Post A. Y. You should not be in the stock market and I wrote that those two years ago in two thousand eighteen when things were calm because not everybody should be in the stock market and right now. This volatility is a test of whether you should be in the stock market. If if it's keeping you up if you're worried if you're thinking man I need to sell before I get out. You should never been in the market. To Begin. With so that's opposed. That might help people that get through the other. One is a time machine in the future of of stocks and that basically is interesting in this context because it looks back at the period between nineteen seventy five when I first began investing until Donald. Seventeen eighteen when I wrote that post and looks at all the traumatic things that happened in the world into the market in that forty plus area of time. Lot of them very much more dramatic than what's going on now and yet over that forty years the market `hostages shy of a twelve percent. Return the point of that owes his. The market does not require perfect conditions to give great returns. But you do have to be willing to put up with the volatility. All that means. Is You ignore when it happens. Stay the course. Keep investing if if you're in the wealth accumulation stage and if you're the wealth preservation stage you have bonds you might gesture allocation take advantage of the the lower of the sale on stars. I think it's fantastic. I have a couple of things to go back a couple of minutes ago right. You mentioned something called V. T. S. A. X. Right V. Tsa X. For those of you listening not familiar with with our our terminology. Here is an index fund from vanguard it's passively managed index funds the Total Stock Market Index Fund. And it's Mr Collins Favourite Fund. If I'm if I'm if I'm remembering correctly right and then this you know the only difference between me and and Jim here is that I use V. O which is a vanguard. Sap Five hundred US based index fund. So little terminology thing. There second thing you mentioned is you're only going to lose in this market downturn if you have to sell your holdings and only only people who should be selling their holdings are people who are already retired who are selling two percent of their portfolio under the four percent. Which we've talked about in previous PODCASTS. As well and that's the only people who are going to experience a loss of economic power over the very long term from this market crash all the rest of us who are still working still contributing still investing over the long term are GonNa see no long-term dramatic impact from this drop off. All we have to do is keep staying the course for me. That's v O over USB. Tsa X. for Listener Whichever Long-term Index Fund a strategy. You choose is that. Is that a good synopsis there. Genetic is very good synopsis. I'd had a couple of things got one is that your show is a is an ETF and the version of TSA XS V. Ti. Same question. Gang is you know. Wow I V. TI should I switch to GSA actual no you on the same thing? It's in fact. Vdi The ATF is a slightly better choice. These days simply because the expense ratio is slightly lower now in terms of the difference between a V. TSA ex and the S. and P. Five Hundred Fund you own. That's another question. I get a lot you know as I all my 401k. O.`Neil only offers five hundred son. I don't get I can't buy the total stock market. You know what do I do well? They're so close that it doesn't matter both of those funds whether it's an S. and P. Five hundred hundred the total stock market son overtime. We'll track very closely. The both serve you very well. At the end of the day one will be higher than the others simply. Because that's the way of the world but there's no predicting which that will be. So you're avenger. In an anybody who's owning similar find? That's just fine. People obsess over things they don't need to obsess over it or need to obsess over whether you're in the SBA by one hundred fun. As opposed to the stock market fun you don't have to obsess over. Whether you're in the fun version of the Egypt version of those you do have to obsess over whether you're an actively managed funds bang exorbitant fees for lower performance or index funds and low fees and better performance. As for you WANNA spend your day. My husband that you both know comes to me the other day. And he's like. Did you see the market? Unlike know what happened. I don't WanNa be sitting here saying what I'm doing is right but what I'm doing is right. I don't pay attention to the market. I you know I. I don't WanNa be Bussey but I'm bossy so be like mindy and don't pay attention to the market. He will ask me all the time whenever. There's a big swing. Oh my God. Did you see the market today? I'm like no what did it do. It was up so much it was down so much. He is obsessed kind of a little too much with where the market isn't what it's doing. I don't care it is what it is and me looking at. It is not going to change the direction of the market. Jim here's a little bit of Trivia for you. You probably already know who owns the best. Portfolios the best performing portfolios over the very very very long term. I think you're referring to dead people rate. Don't touch their portfolios. Have the best returns because they set it and forget it Jim. When was the last time outside of this? I read your article so outside of this selling because you might buy a house and taking your bonds at doing that. When was last time you sold a like a significant portion? Not The whole. I'm living on it stuff. Never Jim Collins. The master of the Stock Market says he never sells anything ever. Do you have a positive or negative? Networth Jim so so far so far as positive. Let's let's remember the krona mirus takes a burden though many I I wanna I wanna say that I agree with your approach in fact of ignoring the market and I will I will I characterize and I have in the past. That's a superpower so I put it usually in context. I didn't realize that that that was your approach but my daughter who is the sole reason. I wrote the Blogger. The booker any of that stuff is zero interest in in this stuff other than she recognizes. It's important and she needs to get a couple of things right and that lack of interest means that she's not going to bang to attention the market. That means she's not going to be freaked out when it goes down. That means he's not gonna be tempted into doing something stupid. Like annex selling or tinkering with a and she that's a super she will do better than the vast majority of my readers. I have readers who are like you and we're like my daughter Jessica and I have readers who are read my stuff because they're just really into the market and there forever saying well. What if you did this? What have we did this? What are we adjusted here? And those are the people who can't resist tinkering and the Aiken almost guaranteed the UN Jessica will outperform them over time through your benign neglect. I love it all right. Hope you're enjoying the show. We'll be right back. 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Eighty percent show by events businesses that events being canceled those people are wondering can I take some of my excess cash invested appropriately? What's the advice for someone in that situation as well? I'm not a I'm not a stock picker and I believe that stock picking is a sub standard way to approach in restaurants over overall. Now I say that by the way has somebody who achieved financial independence picking individual stocks and picking actively managed funds that were run by people picking stocks so to be clear. It doesn't mean that you can't make money doing it. It just means that you're going to spend a whole lot. More time and effort can probably not do as well. As the index researches categorically shows the next performed toxic. Now having said that I I would say if you have extra money. Now by would be putting it into the market. But I'd be in those broad based index. We talked about and they will include the cruise ships in the airlines although solve those others but if somebody can resist picking stocks than picking deeply out of favour Atta Gorey's when As the saying goes blood is in the street. Is there were things to do it? I recently got this question from somebody and in my answer was let's say ten thousand dollars right. Excess cash sitting around your. You've been waiting for this moment. You're ready to play it. But eighty five hundred of it into an index fund. You can put it in all at once today. You dollar cost average it but in a couple of hundred bucks every day for the next month. You're worried and then take the last fifteen hundred bucks and go have fun. It's gambling you're at the casino. That's we'll keep you interested. Enjoy what do you think about that am I? Am I wrong with that or disagree entirely all right perfect? You know. I've always got A. I always had a cringed. It this idea you just described which is basically put the bulk of your money in good investments index funds. Then take something to play with. Investing is not play money. At least not my world I mean investing is is serious money so I don't play with any of my investment money if if I wanna play then I have. I have money for recreation. And what have you? I'm not a gambler but if I was so inclined and won six months ago Las Vegas and and and blow it which I have done that you know so I mean that's that's fine but in terms of your investment should be here investments. And you shouldn't look for entertainment and fund from your investments. You should look for wealth-building investment you look for your entertainment elsewhere. I like your advice better than mine. Okay so I want to ask Scott. I went to answer your question. Scott and say yes. You should invest in the cruise ships and the the airplanes. And all of that. And you do that. By buying an index fund. You take all that money and put it in the index fund. But Jim said it before I could say it. Advantage of all those okay so on that same line because I have also been getting lots of e mails. I'm seeing people that are freaking out like Scotches said. My accounts are down. I was planning on retiring next year or in two years. What do I do I would say? Stay the course but what is Jim say? Why would say the same thing I'd say? Stay the course you know. It's it's interesting the the post that I put up most recently About taking advantage of the bear which was actually a simple little post just about this particular tax love the the declining market afforded me but in the comments there there's a variety there's people who sorta get it and who obviously obeyed attention to my writings in the past and then there are other people who are are well. The market's declining and I think it's going to go down further so should I cash out now and save my principal and first of all you have no clue as to whether the market's GonNa go down further but he knows what is going to do. It might might not but that's market timing and if you re and these are usually coming to the preface by the way Jim I've read all your stuff and I'm actually absolutely on board. Okay right one. But the market's going down. I think it's going to go down for the early either. Haven't read my stuff. You haven't understood it or whatever the market timing if you really think the market is going down further and then yes. Obviously you saw your stuff. If I was convinced that America was going down further from now. They're obviously I would sell all my stuff and then if I was convinced I knew when it was finally hitting the bottom. I would put all my money back in. Oh tell me when it's hitting the bottom and the other problem is nobody can do that now. The question becomes. How do I know that nobody on the planet can do that? I mean how does Jim Collins know that all of the people all the seven plus billion people and all those people that nobody can time the market the wages described. Here's how is anybody who had that ability would be ten times or MORE RICHARD THAN Warren Buffett. And far more lionized name that person for me there would be no power investing power more powerful than actually being able time. Merck not the phony claims that you see on the TV shows people who tell you they can do if somebody could actually do that. They they rapidly own. All the money in the world is a real piece of work on my facebook feed. Who CLAIMS THAT? He saw this coming in the early part of the corona virus thing. And if you just listen to me and Solo Ukulele position that person that that trumpeter of that there's always one of them at every crash and they're always parenting a crash. That's a few months a few quarters or twelve to eighteen months favorite timeline. The crash has always twelve to eighteen months away. According to the pundits no matter what of the market that you're in and you're right nobody can time the market there. Will you know Scott if I can jump in on that there? There's a there's in the going back to one thousand nine hundred seven which we talked about earlier in the interview. There was a woman at the crash in eighty seven happened in October. As I recall there was a woman by the name of Elaine Garzarelli who was a stock analyst on Wall Street Young Woman and she predicted the crash almost to the day. Like in August and she was lionized for that I mean and it was documented in. She was on record as having having said this so it was verifiable that she wasn't doing it after the fact by some people try to do and she was lionized and she rapidly had her own firm and she could never repeat the performance because she got lucky when people need to understand. Is that any given time. There are so many people in the in the stock market in Wall Street and they're predicting anything the market can possibly do. Somebody is predicting it. And therefore somebody maybe a collection of somebody's is going to be right. Does that mean they have predictive powers? No that just means if there's somebody predicting everything somebody has to be raid it's like the lottery when you see somebody when powerball you don't sit back and say wow Scott one powerball. He must know how to pick winning. Numbers no recognize. The Reality Scott won the ball. He just got really lucky. That's all it is. It's not seeing the future. Show me the person who can do it repeatedly and now attention and unfortunately for Elaine got lucky one time and couldn't do it repeatedly okay. I predict on Monday. The market is going to go up and I predict on Monday. The market is GONNA go down. One of those is going to be. It's possible both could be wrong. It could play into it. Could just okay. I predict the market is going to be flat on Monday covered on the basis. Jim I got. I got a question for you free of us. We could each take one of those predictions moments. We'll be right and then we could say see. See this jail house guide to know what he's talking about. It's not that hard to predict the market. I digital right. I got a question for you too so you know our audience people. Listen to the show. I think are typically in their twenties thirties and forties and they're either working towards early retirement. Maybe a couple of them have cross the hurdle and our earlier tired but I think most people are still working towards that end in for the long run. But suppose that you're in your late fifties or early sixties you've got a billion dollars in the portfolio and you're planning to retire in a couple of years but now the market and you're worried you'RE GONNA lose your job and the market's down twenty five percent. How should that person be thinking about their overall financial position and navigating the challenges that may come with with the recession with the market going forward? We'll so first of all the first group person talk about them. Noah tarbuck second group so for those younger people out there who are still working still building their wealth. This drop in any drop is a gift. Because if you're following my plan might have basically have a high savings rate and you are putting as much as you can whenever you can into a broad based stock index fund like Bedia Say X. Market drops are your friend. Is that amount of you put in every week or month? Or whatever is now buying more shares. The best thing that can happen to you as you're accumulating. Your wealth is for the markets. Take a nice big plunged. Stay down for a long time. So you can buy those shares at a discount because that cash flow from your income is what smooths out. The ride allows you to take advantage of Mr Market. When he goes down now for that older person you were talking about and that by the way includes me when you don't have earned income anymore then you need something else to smooth the ride and that's something else bonds so you don't protect yourself from market volatility by trying to figure out how to time at which so many people seem to think they need to. Do you protect it either. Having that cash flow from your earned income or by your allegation which includes bonds and then when the market drops in your stock value of your status. Go down the percentage they represent will also go down and you'll be shifting money from the bonds to bring it back up your set allegation and that's how you take advantage of of then in terms of me worried about losing their job. That's kind of a whole different question. So if you're worried about losing your job in your near retirement you should be more conservative with your investing. You probably should be adding those ONS now. If you feel secure in your job until the moment you retired than I was I was one hundred percent personally one hundred percent stocks right into the moment I pulled the trigger and what my job and that and only then did I at bonds but again that's a matter of personal preference to I have a pretty high risk tolerance a lot of people even if they're secure in their jobs say I want to begin transitioning to bonds five years out or whatever and that's that's fine fantastic response thank you. Yeah I was GONNA ask you to explain bonds but then you just did so never mind but I am not super excited about bonds. Because they don't have an aggressive growth rate. Typically they have a non aggressive lose money rate which is really nice on a day like Thursday but again I can't time the market I would love to know when the market's going to crash so if anybody wants to pull that one thousand nine hundred seven lady and tell me when the market's going to crash and guarantee it you gotta guarantee it. I would like to put my money out the day before and then buy it back again the next day. So if anybody steps forward tells you think they could do that for you. Mendy would I would. I would shut down the microphone in. Close my ears. Yeah Yeah I don't know what I'm just not selling and I'm also not paying attention to it. And maybe if you're freaking out about the stock market maybe you just close up the browsers and look at things that aren't talking about the stock market. Look at Pinterest. Pinterest will give you lots of great recipes and funny things that you don't have to worry about stock market not a lot of stock market conversation on Pinterest which is Kinda Nice before we get too far away from talking about the market and quoting Jim. The market always goes up. Eventually I would like to point out. There is A. There's a website it's macro trends dot net. I will include a link to this particular chart in our show notes. It's a really helpful chart to see the historical annual data on the stock market. There are one hundred and five years and I was thinking about this. Do you know when the stock market started because this this chart starts in Nineteen fifteen while the very the very first stock market was in In the Netherlands in Holland in like the fifteen hundreds of small. But you're talking about the Dow if you're talking about the Dow Jones Industrial Average. I I WANNA say it was eighteen ninety something eighteen stocks that began. I actually I actually talk about that in the style. One of the early Boatswain's DOC series. I actually have the actual numbers but yeah we've got a pretty long history of it. We have a long recorded history of it. Starting in Nineteen fifteen on this link that I will share in the show notes in one thousand nine hundred fifteen. The stock market closed up eighty one percent. It started off at seventy four percent and went to ninety. Nine percent percentage wise. That was great. That's like twenty five dollars so that in one thousand nine hundred dollars. That's a lot but if you scroll through this I was writing an article for the bigger pockets blog and I was scrolling through this and like a positive year is a green number. A negative year is a red number and I'm scrolling through like there's a lot of green. Oh there's a red lights green red lots of green red. There's a lot of up years and only a few down years and I looked. There's in one hundred and five years. There's thirty five. Years and a lot of those years are single digit downs. Like two thousand fifteen was down two point two percent. There's some down years I don't really want to on average the you know. The market goes down one out of every four years. So twenty five percent of the time roughly and that of course means seventy five percent of the time. It's is going up so the winning bad is that is going to go. And there's lots of reasons for that not the least of which is that. The market is not little bits of paper. Bits of data that are traded although it is that when you own the total stock market index fund you own a piece of every publicly traded company United States you own the economic power of the United States and everybody in those companies from the factory Florida the CEO is working to make you richer and to beat the competition. And you don't have to worry about which ones are gonNA fail. Some of them will because you own them all in the ones that fail just fall off the index and the most they can possibly lose. Zainab sent one succeed. There's no limit to how high they can go. So it is a winning formula. The market the index funds. That we describe our what I'VE A- term that I'm very proud of that. I coined ourself cleansing because losers fall off the new companies that that get started and build up her get at it and the companies that that succeed are are left to run as far as they can possibly run. I really can't top that I can't top that at all. You know I'm thinking about a couple of different different last things that I wanNA make If you'll indulge me of course we've talked a couple of times about my now somewhat famous line that the market always goes up and that of everything I've written I think that's got the most pushback and you know I've had people say things like well you know at some point. The Sun's going to expand into a red giant Gulf theater and burn to a cinder. How will the market do that well? Then the market's not going to recover their there. You have to understand their what I said. The market's always going to go up contingent on the United States continuing as a viable economic country. And if something were to happen the derail that yes. The market's not going to recover so let's take a look at corona virus as an example the only thing the only way the market's not gonna go up at some point after this is run. Its course is if in fact the krona virus turns out to be the next plague the next black death until sixty percent of humanity. Now if you think that's going to happen then invest. The market's not going to recover is not going to go back up again and bution be invested in the market. Now I can't think of any investment. Your House isn't going to be worth anything. Then your investment properties are GonNa be worth anything. Nobody's GONNA care about gold in deeper yet. They take guns and ammunition and I know people. I have friends by the way who believe that. Civilization is going to end and and they are building off the grid houses in in in remote areas. And so if that's your belief system you certainly don't want to follow the path that I outlined but if you don't believe that if you believe that the. Us is going to continue as a viable country viable economy than the market will always go up if you believe that this disease will. This corona virus will be solved and controlled at some point in the market will go back up man. I think before we scare everybody with my black deaf analogy. It's important to realize that back in thirteen fourteen. Hundreds they had no concept of the germ theory of disease. They had very little concept of medical attention. where even basic sanitation? So the idea that something of that nature happening or a whole lot more remote than they are. They were back then. When did they discover you had to wash their hands between patients like that right? There saved a lot of Transmission and that was like what the twenties or the thirties and that was a mendy but but disturbingly recent they used a certain is to cut people open without bothering to clean their hands between surgeries in. Oh yeah that's gross. Just they didn't know yet. You had a tweet. The other day that I thought was just so brilliant and then I read your Mr thing and I realized that it was straight from the article. You said this time is different right. This market crashes different and you know every market crash feels like this time is different and someday if it truly is the nothing will matter and that is so true. This market crash is not any different. Just like you said it. Well I mean it might be like maybe in all the rest of the country the co- vid nineteen mortality rate is between two to four percent. Ish which is what they are currently quoting but maybe in America it's going to be eighty percents. Probably NOT. What are the odds? That every other country in the world is going to be more immune than America is one and if it is eighty percent than in won't matter whether you're invested in stocks are not invested in Stocks. Gets it just is so the other performing portfolio? Because you'll be dead yeah the other illustration they use is in new guys and most of your listeners are way too young to remember this other than district books. But I'm old enough that I was. I was very young but I was alive in nineteen sixty three during the Cuban missile crisis. And that's when we came right to the brink Gupta all out nuclear war the US and the and the Soviet Union hurling nuclear missiles in each other that certainly would have been the end of both those countries. There is an argument with the fallout. It would have been the end of civilizations across the planet. What a wonderful time to buy stocks because if the nuclear war happened it doesn't matter if the nuclear war doesn't happen and of course we know from history it didn't then you have this growth of of stocks from nineteen sixty three until now may just incredible wealth created over that period of time. So it's the same thing now. If if the krona virus kills eighty percent of us doesn't matter what you're invested but doesn't than stocks are going to continue to do very well and every time to buy a what a great time to buy and twenty years from now it'll it'll be worth far more than it is today. I love the way your mind works on this stuff. Not everybody not everybody agrees with these guys talking about Scott. I love the way your mind works. Don't ever sell now. I know Jim to be a very very intelligent man. But that is not one of those. Oh it took me a lot of time to come up with this idea. Don't sell the end but the the arguments the amount of the arguments pushbacks and the models that you've developed. Jim took combat all of those arguments against it. I think is what really makes us such a special contributor to the financial independence community with your with your book the simple past a wells those. That's that's what I think is really the unique about you and your perspective y. Or so grateful to have you on the show today here in the state when everyone's freaking out about the market or the other advantage that has got is that if I'm wrong we'll all be dead and nobody can hold me. I and if we're not all dead I will have been right. I think all these people that are arguing with you just want to argue with you on the off chance that they can prove you wrong. I prove Jim. Rong chip doesn't care no I you know I mean again untold. Go ahead and prove him wrong. You're not going to because he's not wrong. I mean I've got you know many along along those same lines. I do I used to and I got so many of these. I finally put it in this famers of how I feel about it. But here's a link to this article written by someone so and this person disagrees with you. Tell me why you're right. And they're wrong will no. I'm not GONNA do that. It could spend my time doing that. I Have I've written a book and I've written a blog in those two things. I've expressed my ideas as clearly as I know how. And I presume that this person whose you linked to as done the same presumably they have expressed there. It is as clearly as they know how you can read both and you decide. I don't care it doesn't make any difference to me if you think that person's ideas are better than mine than go for it. I am just binge. I've only ever tried to convince one person and that's my daughter and finally I succeeded. And so my mission stun Wales things would have to say as worthwhile and they WANNA come along for the ride and it and it enriches them. I think that's wonderful and I'm delighted by it but for those who don't I mean God speed. I don't care do it everyone. Do I mean if you WANNA keep buying individuals to access them by individual stocks? It did just makes a better market that in fact the fewer people who follow Mike. Pass the better off. Finding a personal of you. Want to go individual's tax. You WanNA sell your stacks panicked and dragged the breakdown so I can buy it cheaper. You go for it and it's all right with me. Okay so jim says probably you should say the course. But if you don't want to do what you want okay you do do you there you go you do you with Jim Collins from Jail College Age Okay Jim. We have a segment at the end of every show called the famous four. But it really doesn't apply because we've already heard your personal story where we ask your your favorite book and all of those things. So we're GONNA switch it up just a bit and say. What is your best piece of Advice? People who are just starting out investing. Oh I mean it's the same all the time you WanNa you WANNA spend less than you make and use that surplus to pay off debt if you have dead and get rid of the debt and if you don't have debt or once the debt's gone then use that surplus to invest and a favourite investment vehicle is Beedi SAS or be ti Through Vanguard and put as much as you can and whenever you can don't pay any don't try to time it don't try to say I'M GONNA wait till it's up lower just put as much in his as you can whenever you can and keep doing it over time and you'll take advantage of the drops from the APP. And then you'll be there for the for the rises that happens in Christie Shannon of of Millennia Revolution has a great line. That I'm probably not gonNA quote exactly but as some of the effective. It has never a good time to buy stocks either. They're too expensive. Because market's going down or the markets dropping and and they're losing value so it's never there's never ideal time buy stocks. You know. It's always before this crash. People were no I. I can't buy now because it's going up and now again by because is going down and nobody knows. Nobody knew how I was going to go before. Nobody knows. How low is they? Just keep by. Don't pay attention. Just keep buying be like mindy though like Wendy ignore it ignore it ordering the money in and then they invested forever and just dry out a little bit. You need when the time comes to Lamar job done. Well I can find this as well on on the On the show notes episode twenty at bigger pockets dot com slash. Money Show Twenty. But where can people find out more about you? Let's let's say that one more time for people who are listening to this episode worthy. I'm on twitter and on facebook but the big one is the blog of course which is jail Collins. An Age stands for New Hampshire where I was living when I started the so jail Collins h dot com and you can also find his book. The simple past the wealth on Amazon and that's constantly quoted as one of the favorite books by guests are on the bigger pockets money shows. I'm sure you've heard that mentioned if you listen to a variety of episodes but one of the premier one of the the key books to read in the financial independence fears definitely. Check that out if you haven't yet free plug for you either and I am delighted to hear that it. It gets such positive comment from your listeners. And as a forward from The the one and only Mr Money Moustache as well. I believe right. Yeah absolutely absolutely and he did a great job one I love. I love the forward erode. Okay Jim Thank you so much for taking the time today to share your groundbreaking advice of don't sell advice. I think sometimes it's really reassuring to have people hear it from somebody. Not Everybody can just send you an email or call you up and be like. Hey Jim you wanna chat for an hour about the stock market. So He's told call one number two debates just call him and debate him he thrives on that kind of stuff he really likes to. Am phone calls at one? Eight hundred call me anytime dot com. Okay I'm worried about the stock market. Where can I get more money to throw? Edited strapping okay. But no I really do appreciate this. I really think that a lot of people are going to send us emails and Youtube saying you know what it was so helpful to hear this or that you would ask to ask. It's always always fun hanging out with you guys and kicking these things around. It's I always have a good time. So thank you but great. Okay well thank you so much. Have a lovely day and we'll talk to you soon. Hopefully we'll talk to you in like six months when the stock market has just crashing through the roof. Or I'm sorry going through the roof so it's so high not not crashing. I guess that's the wrong word. I think okay okay. We'll talk to you later. Bye-bye Okay Scott. That was Jim Collins from Jail Collins. H The author of the simple paths to wealth. What did you think of today's show? You Know I. I'm glad we brought him on there instead of US talking about it because he better advice than what you're I have even though it's it's very similar right. We're all doing the same thing. All three of us were staying. The course or not selling any investments and we're continuing to put our excess cash into the stock market right magic formula there and again we're protected because we've made long-term good guy a smart financial decisions of spending less than we earn building up a reserve. That's appropriate relative positions at loved his thought process. On how you need less of that as your financial position accelerates and just continuing to do what we've always done because it's recession proof and thinking over the very long term anyways well and it'll over the very long term I think is a really great point. I am not in the stock market so that I can cash out tomorrow. I am older than you but I'm not sixty five so I don't WanNa take my stocks out until I need them. I have a job that pays my living expenses right now. I don't need to access my stock market funds so when the market goes down. I just regret that I don't have more cash on hand to throw into the market. At that time I agree completely. You know and we talked about what happens if you are closer to sixty five. And that's why you move your allocation more towards bonds as you get closer to traditional retirement age Let's talk quickly about real estate however because I know a lot of the folks that listen to the bigger pockets money podcast also own rental properties right and when I think about rental properties I try to apply exactly the same philosophy just discussed today to my rental property invest. I'm investing for the long term. I believe that over. Very long period of time my rental properties are going to appreciate in value and my cash flow is going to grow as rents rise with inflation right. Expenses obviously also increase the flation but mathematically that translates to greater and greater cash flow growth over the very long term as well the difference with rental properties and stocks. In this context. Maybe there's even a difference but one of one of the potential problems that investor will have will run into is you've got capital expenditures and you've got vacancies to deal with and potentially reductions in rents so the problem. The fear that I know a lot of real estate investors will have if we are in fact entering recession. We may look silly if there's isn't even recession bounces back or look like geniuses one of those too but you know you know the fear that an investor has in that environment is Hayes. My cash flow going to evaporate in what am. I going to do to sustain this property right and that is why when we invest in real estate we invest with a reserve. Right when I buy when you buy your first property I always say the same thing. Bring your down payment. Bring your closing costs bring expected repairs and bring ten to fifteen thousand dollars in cash reserve. That you're going to set aside or more if you're buying much larger property that's larger than the average but by bringing appropriate reserve and consider that part of your investments. And for me. I only take cash out of my rental portfolio if I if I'M DUMPING MONEY INTO BANK. That's an excess that reserve so semi reserve used to be thirty five thousand dollars across my portfolio right when? I have thirty six thousand dollars in my account because my cash flow that's when I'll begin taking a distribution make sense and that allows me to stay in the market forever. I never have to sell can't sell I can refinance. I can buy more but I I. I am trying to play the exact same long long term philosophy and just like Jim said if this virus kills off so much of the population that there's a a panic you know a over supply and demand of the population. We've all got bigger fish to FRY and you shouldn't be in real estate. You're afraid of that reality but in in most I think what I'll use the word reasonable scenarios that we can come up with you know I. I believe that my approach long-term to investing in real estate in parallel with my index fund investments will will will be a strong bet and I'm going to capitalize appropriately for that. You Know Scott. I've said this before and I'm GonNa say it again. The whole reason we started this podcast is because the number one question that we would get in the forums is. How do we start? Investing in real estate with no money bad credit and the answers. You don't let's fix your no money in bad credit situations so if you have no money you should also not be in the real estate market. At this time you can be learning. You can be saving if you've got debt you shouldn't be paying that off or as we heard on. Craig CURL UP EPISODE THIRTY Five. You can use that to your advantage by saving and then investing and using that to pay it off. Craig's says it way better listen to his episode if you haven't yet but if you don't have a healthy reserve account you should not be purchasing properties where you are providing housing for other people that said there are times that you'll have to dip into your reserve and that's fine. That's what it is there for. But you need to have a healthy reserve and I love Brandon Turner but I don't agree with him with his whole how to buy real estate with no money. Well it maybe it's none of your money but you need to have something that you can pull from right now. Cove is an issue. They're closing schools. They're closing locally. They've closed the REC center and the library and all these things they closed the NBA. They Mount Everest. All these things are going to have ripple effects what happens if your otherwise great tenant loses their job they work at the NBA Arena near you and now. They can't pay their bills because they're not getting paid. Are you GONNA kick them out? Who is WHO's GonNa come and live there? I think I think what you know with this. We we Mindy Mindy and I are extremely passionate about helping you guys succeed financially over the long term and we know we we hope that through this show that you've learned some great habits and great ways to deal with money and if you're new to this show maybe you're starting off in a little bit tougher of a position. If you have worries find us on the facebook group at bigger pockets money reach out to us on bicker pockets. Email us right. We're here to help in in for. I want to make sure that if this is recession if this is a painful problem for people that we are personally privately as individuals there to help you if you have questions or the group. Is there for you? The facebook group pockets forums right. This is where we wanna be helpful and where we WANNA be useful. It's all free. We want you to succeed and have a successful financial outcome. Stay the course. Continue that journey to financial freedom so please use every all the resources we have and know that if you're starting out now in a rough position and we do go into recession you're going to be in for a slog but we're still there to help even if that's the case yet and like you said Scott you said on the facebook group that's filled with almost three thousand people who are doing it just like you. They have questions they have answers to your questions. They've been there before I can tell you what worked for them or they can even just say. Hey I hear you and I'm sorry you're going through this. It's filled with people who are on the same journey in various different spaces. And it's it's really been a great group so far in the show notes today which is bigger pockets dot com slash money. Show one six. There's links to my email mindy. A BIGGER POCKETS DOT COM and Scott's email Scott bigger pockets dot com the facebook group. All the things we talked about on the show today with Jim and I we did kind of make light of the situation. Oh just don't tell but you know I can say that because I've been through several crashes. It's Scott's first crash and he's still saying stay the course and if it was worth it to you to buy the thing at X. dollars three weeks ago it should be even more worth it to you to buy it now at its current lower price so individual stocks index funds are the preferred method for almost. Everybody we've ever talked to but even rental properties I've had lots of people sending me notes. Hey is now a good time to buy well? What is your local market? Look like we're in Denver Denver's pretty hot market. Denver has been on a tear. For what ten years? Scott Yep if I had an opportunity to buy a property. That was a good deal three weeks ago I would continue to go through the property through the process and close on the property. Because it's going to be a good deal to me is the value. GonNa go down. I don't know I don't have a crystal ball and I can't tell but in our market it's so hot. I can't imagine that it would stay down for a long time. It is now a good time to buy is now a good time to sell now is a great time to consistently but not too aggressively work towards your long term investing and financial goals. Now is a great time to not spend more than you learn to continue to take to keep control of your budget and to continue to work very hard at your job and continue to pile up that cash and invested appropriate index funds real estate. Or whatever it is that you decided to invest in it now is a great time to end because I cannot top that at all. I wish we get out of here. We should from episode one hundred sixteen of the bigger pockets. Money is Scott Tonight Johnson and we are encouraging you to stay the course.

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