Episode 8 - Market update
In this episode of Blue Money, Jim & Kevin are giving an update on the current market.
Listen to find out what a “bear market” is and what it means to be in a bear market. Kevin is offering up relevant historical data to
give context to the current market and make predictions based on past experience.
The guys discuss stable value funds and the pros and cons of moving to that type of account.
They’re giving their recommendations and reasoning for different scenarios. Listen through to the end for valuable advice you can use in your investment strategy.
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Episode 8 – Market update
Announcer: This is Blue Money. A finance podcast made for cops by cops. With us you know your money safe. Lieutenant Jim Donnelley of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.
Jim Donnelley: I want to welcome everyone back to the Blue Money podcast. This is Jim Donnelley. I’m a financial advisor at Valley Financial. I’m also a police Lieutenant at the Bensalem Township police department. I’m here at my cohost, Kevin McGarry. He’s the management partner of Valley Financial.
Kevin McGarry: What’s up Jim?
Jim Donnelley: And this podcast today, we’re going to hit the topic right now of what’s going on. The market is getting crushed. Everyone’s portfolio is down. There’s nobody up. And Kevin phones are blowing up. I got a lot of police officers, a lot of colleagues worrying about the portfolio, asking for guidance, asking for advice. So, okay. First started off what’s going on with the market right now?
Kevin McGarry: Yeah, I mean, first of all, people are a little nervous right now and you got the SAP to sell at 23%. You got the Dow Jones down around 18. You got the NASDAQ down over 30%. You got the bond indexes down over 10%. There’s a lot of unhappy investors out there for the moment. But I think the big thing here is Jim is why is that occurring? If you turn the on TV, you know why it’s occurring? You got high inflation of 40 year highs. You got the fed increasing rates faster than they ever have. You have high energy and gas prices. You got to war in Ukraine. So, there’s a lot of negative news out there. And there’s a lot of bad things occur right now.
Jim Donnelly: And the one term we’re constantly hearing right now, and the news in the media is bear market. And I think it’s important for everyone to understand what a bear market is. And basically that’s just a term we use when equity markets are down 20% or more for their most recent all time high. And we’re in that territory right now, Kev. So, can you explain how long using a bear market lasts?
Kevin McGarry: Yeah, sure. I mean, a bear market historically lasts one year, two months. That’s typically how long they last, they’re typically down on average historically around 36%. So, if the index is down somewhere around 23%, on historical averages, we have another 13% to go.
Jim Donnelley: What about the other thing, if I always see my portfolio is down 20%, but I’m going to have to gain 25% back to get my breakeven point. Can you explain it a little bit more to everyone?
Kevin McGarry: I think there’s two ways to look at this. You look at the first way, it’s like, well, my 100,000 down to 80,000. And I’m down 20%. I need to make that 20% back to get the whole, well, it’s not the case because 20% of 80,000 is 16 grand. So, your account value’s looking at 96,000 to get back to whole you need more. And the clients are like, wow, I need 25% to get back? You do. To get back to a hundred, but that should tell you, to get back to your whole, from peak the value to peak, there’s opportunity there to just to get back to where you were. And on top of that historically, to get back to whole since 1928, it’s taken you 26 months to get from peak to value to peak. So, there’s huge opportunity moving forward here.
Jim Donnelley: And then one thing we’re constantly going to ask by all my colleagues now even our clients here at Valley cab, or this is a good time to go to a stable value fund. And obviously right now, they already took the law and this ain’t for everyone. Everyone has different needs but for the standard client out there at Kev, you think it’s a smart move to go to stable value fund right now after they just took the loss. Can you give the recommendations what we would tell everyone out there?
Kevin McGarry: Listen, I mean, if you’re going to a stable value fund or money market because you need short term cash or capital, or you want two, one to two years of income makes total sense. But if you’re making that move now because your portfolio is down 12, 15, 20% to us and you’re invested in a long term investment, we don’t think that makes sense at all. And it’s just based off of what I just spoke to you about, Jim. Like we know that going from top to bottom back to top takes 26 months. We also know that the returns are strong over those time historically. And we also know that stable value funds over the last 15 years have averaged a little over, almost two and a half percent. If inflation’s over eight and a half percent, you’re safely losing money. You’re losing purchasing you’re losing purchasing power.
Jim Donnelley: And I think it’s important for everyone to understand that every time we had a bear market, it always bounces back and we always do set a new high. Let’s look at the last two bear markets that we had in 2008. That’s when the housing bubble popped the SAP 500 lost nearly half its value. And it took two years to recover but we ended up hitting an old time high. The last one we just had was 2020. That was the COVID 19 when it spread globally in February, 2020, the market fell by over 30% and a little over a month. However, by August, 2020, the market had already bounced back. It took six months to recover. But after that we hit an all time high. So, what’s that shown us once again, this is not a sprint, it’s a marathon. You got to stay in the game. You got to stay invested. So, Kevin, what would you sum up? How would you wrap up this podcast with some important points? People are looking to portfolios? What recommendations would you give them?
Kevin McGarry: Well, the first thing I would recommend patience. As I mentioned right now we’re probably 164 days in this decline in the index, in the markets. And we could still have some more downside here, but the second thing is, look at this opportunity. If you’re in a diversified portfolio in your retirement plan and it’s long term money, stay the course, that’s the first thing you do. Don’t bail and get in stable value fund. The second thing I, we would recommend here is, hey, prices are a lot lower than they were a year ago, some value out there. So, you maybe increase your stock exposure in your retirement plan which we would recommend. And the third thing, if you have cash in the sideline, it’s probably not a bad opportunity to start dollar cost averaging into the market right now. We’re down 23% of the index or almost 20% of the over 30% of the index. Bonds are down. Indexes are down over time. You’re buying things at discount right now.
Jim Donnelley: Kev, great points. I think if everyone should take your advice there. But I don’t want everyone else to forget guys, if you are at Vanguard or ICMA, mission square, get a second opinion. Don’t do anything, irrational decisions just because you portfolio phone. Talk to an expert, talk to someone who knows what they’re doing. Know what’s in your portfolio. It’s important to understand your investments and understand what your long term goal is. So, when you do see a setback, you don’t get all disgruntled and just want to pull out.
Kevin McGarry: Yeah, because what these calls we’re getting right now, Jim, people know what’s going on in the market more than they ever have. The news is on 24/7. There’s a lot of headline risk. A lot of times you read that you want to make a rash decision, pick up the phone and call someone before you make that decision.
Jim Donnelley: That’s correct. So, if you have no one to dial and know a call, please call me and Kev. our contact information is in the show notes. We’ll be happy to help anyone get on the direction or just talk them off the ledge. So, with that Kev, that’s going to wrap up the Blue Money podcast. I want to thank the audience for listening today. If anyone has any questions out there, any concerns about the market, their portfolios, please reach out to me and Kev directly or contact. Information’s going to be to show notes. If you have any questions in the financial industry, please don’t hesitate to call me and Kev. So, thank you for listening, stay safe and catch you next time.
Kevin McGarry: Have a great day.
Announcer: Thanks for listening to Blue Money, to learn more about Jim and Kevin or for a free financial assessment, visit valleyfinancial.com or click on the link in the podcast description or show notes. Until next time safe investing.
This material is intended to be educational in nature and not as a recommendation for any particular strategy approach, product or concept for any particular advisor or client. These materials are not intended for any form of substitute for individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset class security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment clients as well as all other readers are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley Financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.