Help Me Retire Podcast - Episode 19
- Mike Brown
- May 8
- 10 min read
What to do when the market drops
Show notes:
This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…
Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…
He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…
And now… here’s Mike…
We certainly live in some interesting times... wouldn’t you say? There’s a lot of uncertainty out there... and the financial markets are reflecting all that uncertainty... up one day... down the next...
As an investor... whether you’re saving for retirement... trying to grow your wealth... or you’re already retired... and trying to make your money last... all this volatility can be unsettling...
You know what? I think... if you’re not a little scared with what’s been going on... you’re probably not paying attention...
It’s completely natural to feel that way... but if you want to reach your investment goals... you’ve got to train yourself... not to act on those feelings...
It’s not easy... but in today’s episode of the Help Me Retire podcast... I’ll share some ideas to keep you from making what could turn out to be... a huge mistake...
Let’s talk about what’s going on right now... how the markets are responding to it... and how you... as an equity investor...
We’ve been here before... and if history is any guide, we’ll be here again one day soon...
Market drops of 10-percent or more... what we call ‘corrections’... tend to happen every year or two...
And every five or six years or so... history tells us to expect something more severe... like a bear market... when stocks decline in price by 20-percent or more...
Every big market downturn has its unique causes... this time it was President Trump’s across-the-board tariff hikes... next time, it’ll be something else...
We know that these things happen once in a while... stock prices get a little ahead of themselves... people start to feel like they can never go down...
And then something comes along... a big news event... some big change... and that’s the catalyst for the pullback...
Investors get emotional... I mean, we’re all human... but this time... the emotions are negative... and they sell stocks... for one primary reason... they’re scared...
Well, let’s get one thing straight right from the start...
It’s natural to feel scared...
Research has shown that losing a lot of money... even temporarily... feels roughly twice as bad... as making that same amount of money feels good... did you know that?
It’s true... so accept the fact that you might be feeling a little scared lately... it’s human nature... and you are a human being...
The mistake people make in times like these... is acting on that natural feeling of being concerned or afraid...
Falling markets create losses... but history tells us those declines... even though they’re painful... are temporary...
If you panic, though... if you sell stocks... trying to avoid that pain... you’re actually turning short-term volatility... into permanent losses...
That’s the Big Mistake... and I want to help you avoid that...
Now, in the financial services industry... we have to constantly remind people that whatever has happened in the past... is no guarantee of future results...
History doesn’t repeat itself, the saying goes... but a lot of times it does rhyme...
So... we go back and look at downturns from the past... and we try to learn something for them...
If history is any guide, here’s what we might expect...
I can’t accurately predict when this downturn will end... or where the S&P 500 will be when it does... or why stocks will stop going down and start going up when they do... and neither can you...
And if it makes you feel any better... neither can any of those people screaming at you on CNBC right now...
If they could predict the future... do you think they’d be on TV giving away their secrets?
No... they’re guessing... because human beings have an insatiable appetite to believe that somebody has to know the future... even if they don’t...
If people didn’t believe that somebody has the answers... CNBC and other financial channels wouldn’t exist...
The only thing I can tell you from past experience... is that at some point... the downturn will end...
And that will happen when enough people decide that stock prices are far enough below the actual value of the companies they represent... to represent good value...
History teaches us that it’s always been a mistake... a huge mistake... for long-term, goal-focused investors to sell their stocks... just because it seems like everybody else is selling...
Or put it another way... selling anything... investments included... just because they’ve gone down in price... makes just about as much sense as buying something because the price is going up...
Buy high... sell low...
Does that sound like a smart way to make money to you?
Here’s how I’d like you to think about this...
If your financial goals haven’t changed... and you believe your portfolio is allocated properly based which investments are best suited to those goals...
Then don’t change the portfolio just because you don’t like what’s going on right now...
Make some adjustments, sure... a little fine-tuning might even help you take advantage of the market downturn...
But if your goals haven’t changed... and your plan hasn’t changed... neither should your investment portfolio...
Now... in just a second... we’re going to explore some things you should be thinking about doing during a big market sell-off... some adjustments you might want to make in your own portfolio...
To possibly take advantage of falling stock prices... and get you set up for better times to come...
So, when big things happen to investors... market selloffs... corrections... bear markets... human instinct tells us we should do something in response...
You know... don’t just sit there... DO SOMETHING!
Often... doing something is the wrong response... sometimes it’s just better to sit through the tough times... especially if you’ve got a good plan in place... and you’re still on track with it...
So, maybe it’s best to say... don’t just do something... SIT THERE!
That doesn’t mean, though... that you shouldn’t consider making an adjustment or two... that might help you once the chaos has passed...
So today, I’m going to give you a checklist... with just five items on it... five things to think about anytime there’s a big pullback in the market...
The first thing to do... is to make sure you’ve got the right mindset... and to do that... you’ve got to keep your focus on things you can actually control...
For example... you can’t control the stock market... you can’t control interest rates... or inflation... of the economy... or tax rates... or tariffs...
And while you can vote... you can’t really control who’s running the country... and what their policies might do to the markets and your own investments...
But you can control how much money you’re saving out of each paycheck for retirement...
If you’re retired... you can control how much money you’re spending on non-essentials... and to some extent... how much income your investments are producing to help pay those expenses...
And the most important thing you can control in turbulent times... 100-percent... is how you choose to interpret big, negative events... and how you decide to respond... or not respond to them...
So, step one... focus on what you control... and stop fretting about what you can’t...
Step two on our checklist... something a little more specific...
During and after a big downturn in the markets... check your portfolio... see how much you have invested in stocks... fixed-income... and cash... and see how far the markets have pushed you away from your original percentages... the allocation you and your financial advisor decided was appropriate for your goals... time horizon... and tolerance for risk...
When stock prices are down a lot... and your equity percentage is way below where it started... consider shifting assets from cash and fixed-income... into stocks... to take advantage of lower prices...
That’s called re-balancing... and it works equally well when stock prices get way ahead of themselves...
Third item on the checklist...
Look in your taxable investment accounts... the ones that aren’t tax-deferred... like traditional and Roth IRAs...
If you’ve got big losses... consider capturing some of those capital losses... to offset the capital gains you realized when times were better...
That could save you money at tax time...
And as long as you wait at least 30-days... you can even buy back that stock if you want... without violating the so-called “wash sale” rule...
You don’t have to buy back the same security, or course... which leads us to Step 4 on the checklist...
When the market is down... and your portfolio has fallen... take a hard look at what specific investments you own...
Market pullbacks can provide you an excellent opportunity to upgrade the quality of what you’re investing in...
Some great companies, it seems... never go on sale... but when markets are down big... and people are panicking and selling stocks across the board... sometimes you can find some high-quality bargains for your portfolio...
And one more idea for you when markets tank... and remember we get corrections every couple of years, on average... and bear markets tend to come along every five or six...
The final item on our checklist... think about converting some of your traditional IRA... into a Roth IRA...
When the value of your IRA is down significantly... you’ll be able to convert a bigger percentage of it... for the same tax dollars...
Of course, run this idea by your tax advisor... and make sure you’re comfortable with how the extra taxable income might affect other things... like the taxability of your Social Security benefits, for example... or push you into a higher tax bracket... or trigger the IRMAA Medicare surcharge...
There you go... five things to consider doing in response to this... or any other market selloff...
Some of them might not apply to you... but they’re worth thinking about anytime the market starts acting up...
I want to leave you this episode... with a not-so-fond memory of mine that’s right in line with what I’ve been talking about today...
Years ago... Tammy and I were on a 7-day ocean cruise through New England and Canada...
We’d had a great time... walking the Freedom Trail in Boston... touring the Newport, Rhode Island mansions of the so-called robber barons... visiting quaint little Peggy’s Cove in Nova Scotia... and walking through the narrow cobblestone streets of old town Quebec City...
We were really looking forward to our last scheduled stop on the way back to our home port... Bar Harbor, Maine... to maybe do some whale-watching... and eat some lobster...
But the night before we were going to put into port in Bar Harbor... something started happening...
The wind picked up...
So did the waves...
And that big cruise ship... started rocking and rolling like you wouldn’t believe...
My bride and I were about to experience our first... and hopefully last... nor’easter storm...
Over the next couple of hours... it got so bad... that the captain came on the P-A system... and told us all to come inside... off the deck...
He said folks... we’re not going to make it into Bar Harbor tomorrow after all...
Once we came inside... they locked all the doors behind us...
Served us a quick dinner... and sent us to our cabins...
Trying to sleep that night... well that wasn’t going to happen...
We heard doors slamming closed... dishes crashing... even some poor folks screaming somewhere down the hall...
And if you were lucky enough not to get seasick...
It was like trying to sleep on a see-saw with a rowdy kid on each end of it...
By the next morning... things started to get a little bit better...
They still wouldn’t let us on the deck, though... because the ocean swells were still about 30-feet high...
I can remember sitting in a chair next to an outside window... and looking 30-feet down at the bottom of a wave...
And then watching that wave come up... almost TO the window a few seconds later...
It was probably sometime that afternoon before the storm finally passed...
The captain came back on the P-A and gave the all-clear...
And then, he said something that has stuck with me ever since...
I’m sorry we didn’t make it into Bar Harbor, he said...
But these storms blow up without notice from time to time... and it’s dangerous to try to outrun them...
You never want to try to dock a ship during a storm... there are too many things to run into... too many hazards...
Oddly enough, he told us... the safest place you can be during a big storm at sea... is actually AT SEA...
While you’ve been trying to sleep... we’ve been on the bridge... keeping your ship on course...
And as a result... we will arrive... safely... and on time...
We appreciate your patience...
If you’re going to own stocks...
You’re going to run into storms once in a while... they’re unavoidable...
I hope you have an experienced captain to steer you through them... and I hope your captain is smart enough not to try and out-run them...
hope whoever is steering your financial ship... whether it’s you... your financial advisor... or in the case of our clients... our family... is able to keep you on course when these storms happen... and that they get you to your home port... safe and on time...
My family and I love the ocean... but Tammy and I certainly didn’t enjoy getting tossed around for 24-hours in a nor’easter...
But we realized something really important about investing from that New England cruise...
When you’re on a good ship in the middle of a bad storm... the last thing in the world you want to do... is jump off it...
See you next time...
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Past performance is not indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.
Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
