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can I let you know a secret while I do
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not have a crystal fall I do know that
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the stock market's going to crash how do
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I know that the stock market's going a
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crash because it's a feature of the
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stock market the the stock market goes
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in Cycles there's periods of time it's
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undervalued there's periods of time that
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it's overvalued and unfortunately when
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it comes to the
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overvaluation the stock market tends to
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take the escalator up but the elevator
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down and actually the term is it jumps
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out the window so it goes down very
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quickly so we have to be careful so is
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the stock market going to crash yes
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unfortunately it is it's just what
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happens with the stock market now the
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question I don't know is when is the
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stock market going to crash is it going
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to crash in 12 months 24 months 5 years
00:00:55
10 years that I don't know but in any
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given year it's very Commons for the
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stock market to have a 10% correction
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and even a 20% correction from top to
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bottom during these Cycles so we want to
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be cautious and right now candidly the
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stock markets pretty fairly valued they
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pretty highly valued there's two
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indicators that I like to look at one um
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is famously called uh the buffet
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indicator which looks at the value of
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the US Stock Market the whole stock
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market divided by uh the our country's
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gross domestic product GDP and we are
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two standard
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deviations above the norm for that the
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other indicator that I like to look at
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for valuation um is is called the cape
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ratio stick with me it sounds
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complicated but it's not it's just a
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10year average of how much people are
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willing to pay for $1 of earning so many
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of us have refer to the PE Ratio the
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price of earning ratio that is just how
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much people are willing to pay for $1 of
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earnings today but if you take that over
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a 10-year period to kind of get out the
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noise uh it was developed by a professor
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uh from Yale called Robert Schiller and
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it's it's called the cape racial cly
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adjusted PE ratio and that too is St two
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standard deviations above its Norm so
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the market is definitely not cheap is it
00:02:31
overvalued I don't know historically it
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sure isn't cheap though so what do we do
00:02:36
what does this mean given that we know
00:02:39
at some point the stock market's going
00:02:41
to crash given that we know historically
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the stock market at least is not
00:02:46
inexpensive so what do we do you know
00:02:49
how do we make sure that we we save our
00:02:51
money so we can do trips like this that
00:02:54
our money is working harder for us you
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know the reality is most of us this is
00:02:59
not fight Financial advice I don't know
00:03:01
your situation but for most of us we
00:03:03
need to have some exposure to the stock
00:03:06
market in order to have our money
00:03:09
growing at a rate at least equal to
00:03:12
inflation so our purchasing power
00:03:14
tomorrow is at least as strong as what
00:03:17
it is today so how do we protect
00:03:20
ourselves well one of the things we want
00:03:22
to avoid doing is being what I call a
00:03:25
forced seller in a down Mark and having
00:03:29
Ben a financial adviser for over 20
00:03:31
years my experience is there's two
00:03:33
common ways that people become forc
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sellers in a down
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Market one is they need the money to
00:03:41
live off of in
00:03:42
retirements and so they have to sell
00:03:45
stocks in order to get money to to live
00:03:47
on um and and the other one and we'll
00:03:50
talk about each well let me talk about
00:03:52
the first one so how do you protect
00:03:54
yourself from that well asset allocation
00:03:58
is a great way to protect yourself from
00:04:00
that what percent of your portfolio is
00:04:02
in stocks and what percent of your
00:04:05
portfolio is in
00:04:06
bonds but instead of thinking
00:04:09
percentages like 60% stocks 40% bonds
00:04:13
5050 whatever the number is I want you
00:04:17
to think how many years worth of living
00:04:20
expenses do you have in stable high
00:04:23
quality short duration bonds high
00:04:26
quality companies good credit rating
00:04:29
bonds that are going to mature in one
00:04:31
two three four maybe five years how many
00:04:35
years worth of living expenses do you
00:04:37
have in that so instead of being 5050
00:04:40
let's say you have a million doll
00:04:42
portfolio and and you've got 500,000 in
00:04:45
the stock market or 500,000 in bonds I
00:04:48
want you to think how many years could I
00:04:51
live off of in this example the 500,000
00:04:53
in bonds so if you're spending $50,000 a
00:04:57
year if you need that from your bond
00:04:59
portfolio or from your portfolio and on
00:05:03
top of that you've got Social Security
00:05:05
maybe you've got a pension coming in
00:05:06
from a previous job so you know in
00:05:09
aggregate maybe you're spending 80,000 a
00:05:11
year I don't know I'm just making up
00:05:13
numbers but you need the important thing
00:05:15
is you need $50,000 Year from your bond
00:05:18
portfolio well in this case if you got
00:05:21
$100,000 worth of bonds you have at
00:05:24
least 10 years worth of living expenses
00:05:28
that you can fund with without having to
00:05:30
sell stocks if they go down and I think
00:05:33
having at least five years wor the
00:05:36
living expenses in retirement makes
00:05:38
sense I think more is better if you know
00:05:42
again this isn't financial advice if you
00:05:44
can meet your financial goals one of the
00:05:47
tenants is take no more risk than what
00:05:50
you need to to achieve your goals and
00:05:53
the nice thing about becoming
00:05:55
financially independent the nice thing
00:05:57
about saving up enough money to re is
00:05:59
you only need to do that once and once
00:06:03
you've done that then J become protect
00:06:07
that Nest don't lose that Nest you've
00:06:10
you've already won and don't don't
00:06:13
change a winning situation into a losing
00:06:16
situation don't get up something that
00:06:19
matters your financial Independence to
00:06:22
gain something that doesn't M okay so
00:06:25
that's the first way people become
00:06:27
forced sellers in a down Market what's
00:06:29
the other way the other way is frankly
00:06:33
just the pain that is caused
00:06:37
psychologically by seeing your account
00:06:39
go down when the market has a major
00:06:42
correction again if you have a million
00:06:45
dooll portfolio let just for easy Mass
00:06:47
say 500,000 bats and stocks and the
00:06:50
stock markets down 20 uh% you just lost
00:06:56
$100,000 and it's just human nature to
00:06:58
think about how long did it take you to
00:07:01
save a100 thou your first
00:07:03
$100,000 for most of us it took a long
00:07:06
long time back if you save $10,000 a
00:07:10
year and you get 7% on that in your
00:07:13
Investment Portfolio you're not going to
00:07:14
get that in the bank account $10,000 a
00:07:17
year it's going to take you 7.8
00:07:21
years to saved your first $100,000
00:07:26
almost eight years it's just human
00:07:28
nature if you you were to lose $100,000
00:07:31
in the stock market you would say that
00:07:33
took eight years of sacrifice that took
00:07:36
eight years of of pain and getting up
00:07:39
early every morning and commuting in
00:07:42
order to save that and that can that can
00:07:44
take you from feeling uncomfortable to
00:07:47
having angst and the difference between
00:07:50
being uncomfortable being worried and
00:07:52
angst is angst is a powerful word angst
00:07:56
is something that you know you can't
00:07:58
sleep you get a sick feeling in your
00:08:01
stomach and and you want the pain to
00:08:03
stop so unfortunately that is often
00:08:06
times what dries people to sell their
00:08:09
stocks unfortunately often times near
00:08:12
the bottom and then lock in those losses
00:08:15
and a word of
00:08:16
caution unfortunately once we retire
00:08:19
once we're no longer getting that
00:08:21
monthly paycheck the pain of loss
00:08:25
increases in my experience having been a
00:08:28
financial advisor and work with hundreds
00:08:30
of people the painal loss increases a
00:08:34
lot not just 10 or 20% but maybe 10
00:08:38
times as much so how do you protect
00:08:40
yourself again it gets back to that
00:08:42
asset allocation when the Market's high
00:08:46
like it is now when the market has done
00:08:47
well for the last 2 and a half years
00:08:50
this is a great time to look at your
00:08:52
asset allocation say is this asset
00:08:55
allocation right for and if I lost 20%
00:08:59
in My Equity positions do the map he got
00:09:03
500,000 in the stock market that's a
00:09:05
$100,000 loss got a million dollars
00:09:08
that's
00:09:09
$200,000 loss you really think about
00:09:12
how's that going to feel if and when
00:09:14
that happens and the time to adjust your
00:09:18
asset allocation is before the market
00:09:21
corrects because unfortunately the
00:09:23
market has a tendency to correct very
00:09:25
quickly a lot of people say well if the
00:09:27
market starts going down I'll
00:09:30
that'd be nice it'd be great if we could
00:09:32
do it but the reality is few of us are
00:09:34
going to be able to do it so it's
00:09:36
important to make it good decisions on
00:09:38
things like this and it's also important
00:09:40
to make good decision on when you retire
00:09:43
which is why I made this video here why
00:09:45
waiting the 65 to retire might be a big
00:09:48
mistake I'll see you in that video
00:09:50
thanks for watching this one byebye
