Stocks Lead, Don't Follow - REMIX | Series 10.2

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Welcome to the Enjoy More 30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

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Hello, and welcome to the next series here on the

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Enjoy More 30s Family Finance podcast, REMIX for Rising Rates.

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In 2022, there have been significant declines across

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pretty much every major asset class through October. With

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rates rising significantly for the first time in a long time,

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it can be a very unnerving experience. This series is going

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to attempt to help you with that going back and re-mixing a

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number of past episodes to help you emotionally navigate what

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have been very turbulent times. Each week, I'll be re mixing a

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different episode bringing what I would say is a timeless

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concept into the focus of this present day situation. As

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always, before I begin, please share in like please leave

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reviews. I'd love to reach and help as many young families out

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there just like you.

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Today's episode is the Stocks Lead, Don't Follow REMIX,

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building off of our Unknowns are Scary REMIX from last week,

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where we touched on how these words inflation and interest

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rates could actually connect to influence your portfolio in the

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way that they may have so far this year. Now, when I was a

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kid, I really looked up to my older cousins, they would teach

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us a lot of really cool interesting things. And some of

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those were great; family, unconditional love and support

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and then you know others let's say not so much. For example, if

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you break the glass in mom's fancy shelf clock, what do you

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do? Well, you just take out the glass and you throw it away. Now

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it just looks like a really clean clock. You don't get into

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trouble. Really excellent advice. We avoided problems from

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my mom when we broke her clock for I think it was around 15

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years. So anybody out there take that glass out just looks

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crystal clean, you just keep going on. However, we also

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learned some other tricks from my cousin's like Saran wrap on

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the toilet seat as a really funny haha prank. Not funny at

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all. Really just a horrible, horrible piece of advice. Pee

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all over the floor is not funny. So some well deserved

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punishments off of that one.

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So circling back around when it comes to stocks, it can be much

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the same way, especially during emotional times, like what we're

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dealing with right now. There are a lot of saran wrap ideas

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out there that could potentially get you into trouble. The stock

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market, if you remember is what they call a leading indicator.

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Basically, what that means is that it acts in advance of what

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people think is going to happen. So if Apple earns say 100

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billion in revenue, instead of the expected 110 billion, the

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price of the stock subsequently goes down. The company still

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made money, so it's not about making money or not making

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money, it was already higher than it was because it was

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expecting 110 billion of revenue, not 100 billion. That

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was that leading indicator, that leading piece of information

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that was already baked in. And as you can probably then guess

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when they feel like they have no idea what's going to happen

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next, so extreme uncertainty, the market tends to drop

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dramatically. Think the 2008 mortgage crisis or 2020 COVID.

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There was very little clarity at the time on what was going to

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happen next. And that uncertainty is what drove the

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volatility. Once more clarity returned, who's getting bailed

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out, vaccine timelines, what have you for each situation?

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That is when it started to reverse course. So how does that

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apply to the current situation of 2022? Here we have inflation

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and the Fed's reaction to it, which is rising interest rates.

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If you want to know why that is the reaction to trying to

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control inflation go back into the last episode 10.1 where I

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more fully explained it. The "we don't know what's going to

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happen next" this time is we don't know when interest rates

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will rise enough to bring down inflation to a satisfactory

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level according to the Fed.

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When the market went down in January to start this year, it

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wasn't because companies were now earning less profit, it was

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because they said we're raising interest rates and the market

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said we think as a leading indicator, where this is

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probably going to lead is to less in profits overall. So

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again, that leading indicator status. Now if you look in July

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what happened, there was some perceived good inflation news.

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July 2022, the market went up over 9%. The leading indicator

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again in the stock market was saying "hey, we just got some

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what we think is pretty good inflation news. We may be over

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the hump here" and stocks were bought up again leading what we

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think is going to happen in the market. However, in August and

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September those sentiments changed course quite a bit and

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the market went down over 13% during those two months. So it's

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really a great example of how the stock market is trying to

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take the current information and projects what that current

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information means going forward. Again, that leading indicator

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status. So what you can do is really the hardest thing

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sometimes and that's just not touching it. You are probably

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reacting off of past information. "Hey, everything

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just went down, or hey, it all went up." If you react after

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hearing this, then you most times are trying to catch the

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wave that's already past you towards the shore. If you heard,

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for example, that the market went up 9% in July, and then

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invested more, well, you would have been greeted with a 13%

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loss on that new addition by the end of September.

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If you are maintaining a well diversified account, you can

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listen to episode 1.6, Investments Should Be Boring if

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you need a refresher, then you should be positioned

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appropriately for you for the long term. If you have an

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advisor using a diversified managed account model like we do

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for our clients, they are likely rebalancing through these times

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to potentially take advantage of the ups and downs along the way.

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So if we accept that things are going to move ahead of time,

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that leading indicator before we will have a chance to generally

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react, then we can potentially avoid some of the big mistakes

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that too many investors make by pulling out when things are

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already low, and generally not adding money back in until

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things have significantly rebounded, leaving them with

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much less than they ought to have had, if they just not

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touched it throughout the ride. Again, is seeing your account go

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down fun? Absolutely not. It sucks to be quite honest. At the

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same time, you want to be making the best decision we can now at

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this point in time going forward. So reminding ourselves

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how the stock market tends to work, how it is a leading

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indicator, can be a really helpful emotional refresher

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course. And if we assume that inflation does level out at some

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point, that it doesn't just keep going forever that it does have

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a stopping point. And at that point, raising interest rates

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further wouldn't be necessary. Asking yourself what you think

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this leading indicator the stock market may do could very well be

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a fair questioning to consider.

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And next week's REMIX, You May Already Be a Future Millionaire,

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we're going to step back and remember to look at the long

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term path we are on. Okay, our counts may be down. But what

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does that really mean for us long term? Are we still on track

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for our goals? If we're still on track for our goals, shouldn't

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we be factoring that into our perspective, so our accounts are

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down, but does that mean our goals are no longer attainable?

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Or maybe we're still in a very good path to still reach them.

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As always, please remember to review and share for others. And

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if you need any help, don't hesitate and reaching out. I

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probably have helped someone just like you until next week.

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Thanks for joining me today and I look forward to connecting

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with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor Member FINRA/SIPC.