A hearty welcome to Grandma’s Wealth Wisdom with your hospitable hosts, Brandon and Amanda Neely. This is the only podcast for strategies to grow your wealth simply and sustainably like grandma used to. Without further ado here are your hosts.
Brandon: Hey, I'm Brandon, and welcome to Grandma's Wealth Wisdom, where we work with you to build wealth Grandma would be proud of.
Amanda: And hey, I'm Amanda. Thanks for joining us for Episode 38. We're going to be talking today about some reflection we had while road tripping with our 15-month-old. This summer, we discovered just how difficult it is and different it is than road tripping with just the two of us grown adults.
Brandon: It was difficult and different, both.
Amanda: Yeah. It turns out this road trip metaphor is a great way to highlight both the difficulty of and the strategies that you might want to use when managing your money, especially if you have a growing family or life changes and you experience those changes over time. [0:01:16.8]
Brandon: Now before those of you without young kids stop listening, we want you to know there are some great lessons in here for you too. You don’t have to have young kids or kids at all for life to throw you some difficulties figuring out how to manage your money. Maybe for you the young kids are a sick parent or a significant other with a critical illness. Who knows? You do. If you have or could have someone in your life that depends on you like a young child would, this episode is for you, and I might say that might be every one of us.
Amanda: Yeah. If you feel like, "Oh, that's not me," we would say, still continue to listen because there's some great wisdom from grandma in this episode for anyone who is investing in the stock market, no matter your age and how you're investing or what other life circumstances you have. So we're going to get to that at the very end, just to give you a little teaser there. [0:02:15.7]
Brandon: First, let's talk about this road trip we went on. This summer, we drove from Chicago, down through Texas and then over to Louisiana into New Orleans.
Amanda: And back again.
Brandon: Then back again. New Orleans is almost like its own state, it feels like. We have done this drive before when we were just married. This time though we were doing it with two extra passengers - our 15-month-old and Amanda's mom, who was sitting in the backseat…
Brandon: … taking care of our son.
Amanda: Yeah, and so to appreciate the difference, you have to understand a little bit about infant car seats and how they work. There are lots of rules to follow including how much time a child spends in the car seat at any given time, and there's kind of different people, different philosophies on how much time is the right amount of time, but we have always tried to limit it to two hours at most with rare occasions where we'll go to two and a half to three hours, where our son is in the car seat for one stretch. [0:03:16.6]
Brandon: Plus another thing is car seats are very comfortable. So our son loves it, but he falls asleep super easy in the car because it's comfortable. Now, if we let him sleep too much, he's not going to sleep that night, which sucks for us, which means we don’t sleep at night either. So we have to keep him awake as much as possible during the road trip, which can be challenging.
Amanda: Yeah. So our strategy for this is that we're stopping every two hours, you know, stretch out, make him run around a little bit. We try to refill the gas tank, maybe eat some food while we're stopped, and we can't hurry these stops because our son gets frustrated if we try to put him back into the car too early. So we have to take a nice long break before we get back on the road again. [0:04:09.6]
Brandon: Yeah, we got to walk through stores and make sure that he doesn’t grab stuff, but we're just kind of roaming around the gas station. Of course, when we were by ourselves many years ago, we could drive and drive. We did this trip all at once from early in the morning to late that night, and when we stopped for gas, we were in and out in a flash.
Amanda: Yeah. But this time, it took two days to get to Texas and we had to stay overnight in Missouri along the way.
Brandon: So we talked about road tripping because it's a helpful analogy for what it looks like to manage your money when you have to cover the costs of caring for someone, inefficiencies and unexpected surprises and expenses are added. They add up. For example, we were in the middle of nowhere in Texas when the cars on the highway came to a complete stop. [0:05:07.6]
So this literally happened. We thought we were making good time. We were almost to our destination. It was at that two hour mark, so we were going to be taking a break soon, and lo and behold, we're on this two-lane highway and it dead… it's like gridlocked. I remember, I'm driving, I wanted to be done driving. I remember like actually at one point turning off the car because I was wasting gas and seeing people getting out of their cars to look and see what's going on too. It was nuts.
Amanda: Yeah, and we still don’t know why like all these cars were stopped. I was trying to like look on Twitter, see if anybody had posted anything, and you know, as we then got moving again, I tried to look and see was there an accident. We have no idea why the cars were stopped, but they were stopped and we ended up having to delay our next stop that we were going to make to grab some food. Our son started crying. He was getting irritable. It was horrible. [0:06:09.2]
Brandon: And we stopped in this little town for dinner and ended up in an interesting restaurant, which, it was good but the point is, I mean, we were out in the middle of nowhere. We couldn’t even… we had no way out really, it seemed.
Amanda: Yeah. And this is a helpful analogy for how the stock market works and how that impacts your money, but also you might be cruising along with your money and then all of a sudden an emergency pops up. You have to figure out what to do. In a lot of ways, going back to the stock market, which we're going to finish with today, but it's like a toddler playing with your money in terms of what can happen with it.
Brandon: Wait - you want a toddler playing with your money? Who would do that?
Amanda: No, no, no.
Brandon: I'm just kidding.
Amanda: We're jumping ahead of ourselves.
Brandon: But let's explore the road trip analogy for a little further before we start applying it to our own money. [0:07:00.7]
Amanda: Okay. So here we go - pretend you're in New York City and you're driving across the country to Los Angeles. You could use an online map to calculate the mileage and the time that it would take to drive. We went onto one of those maps and we found that it's 2800 miles if you go the non-toll route so that you avoid having to bring a lot of loose change to pay those tolls, and it's going to take you 43 hours.
Brandon: Can I stop you here? One thing I think that you said was very important is you looked at a map before you went on your destination. One thing, another thing I think about with money is how many of us actually look at a map or have a roadmap when it comes to our destination and where we want our money to go, and that's a huge difference right from the beginning, before you even get into the car.
Amanda: Right. So, we made the plan, what our road trip was going to look like. Then we can also calculate how many gallons of gas we think we're going to buy, maybe we say that our car is going to get 30 gallons per mile and so we take the miles that we're going to travel and we find out we need 95 gallons, and if it's roughly $3/gallon as we're going across the country, that's $285. [0:08:17.0]
So you've got your budget for gas and then you can calculate a little bit like here's how much I want to spend on food. Here's how many hotel stays I'm going to have as I go across, and you've got your full budget for the trip. So not only do you have the map of here's where you're going, but you also have here's the dollars that I'm going to use along the way.
Brandon: So you've got the map. You've got 285 for gas plus the additional money for food and lodging and you're off. The question is will you make it?
Amanda: Let's find out. Right out of the gate, you hit some traffic, the tunnel to New Jersey and idling in that bumper to bumper traffic brings your miles per gallon down and you waste an extra gallon, plus you're already an hour behind schedule.
Brandon: That sounds like us. That sounded like us in the end. [0:09:03.8]
Amanda: You get to Pennsylvania and there's some big mountains to cross. Going up takes more energy from your car and you might be able to make up for it by coasting down the other side, but you get stuck behind a big truck and you have to use your brakes. There goes an additional two gallons of gas. Crossing into Ohio, the great state of Ohio, you're relieved that Ohio does not have any mountains, but when you stop for gas and then get back into your car to continue driving, the flat tire light comes on. Luckily, there's a tire place one mile away, so you head there to get your tires checked and it's an easy repair, in and out - it costs $25, but it does take four hours for them to complete it.
Brandon: And I think luckily you were an hour or a mile away from the tire place. I mean, again, being out in the middle of nowhere could be even worse.
Amanda: Yep. Thankfully, you hit Chicago at a great time and are able to zip right through, but trouble strikes again in Iowa. [0:10:05.0]
Some guy was trying to get ahead, like we talked about in our last episode and he's swerving in and out of traffic and driving way too fast. When he went to pass you, he nicked your bumper but because you were driving fast, that made a big difference to your car. So you both pull over…
Brandon: Big, big difference.
Amanda: … you both pull over and you wait for the police. After you have the insurance information, the police report, you call a tow truck to be safe and you have the car repaired. It's an additional night in a hotel and because you have to wait 18 hours for them to get the parts and do all the fixing and all that, plus this guy's insurance does not cover the cost of the tow truck, so you're $300 out of pocket.
Brandon: That's a bummer.
Amanda: Yeah. Back on the road the next day, you make great time in Nebraska, but Colorado has a detour due to construction and that detour puts you in on these side roads that go around curves and all that kind of stuff, which slows you down and limits your miles per gallon. [0:11:06.8 ]
The detour costs an extra hour and an extra gallon of gas. You make it through Utah without any mishaps, but you're starting to get lazy when you get into Nevada. You weren’t watching your speed as closely and end up getting pulled over, your second run in with the police. The speeding ticket is $100 and the police officer takes his time giving you that ticket, so you're set back half an hour. Just a little bit further into Los Angeles, you grab your last meal, you have some extra coffee to make sure you make it the rest of the way, but when you get off the interstate and you're almost to your destination, what do you know - the road you need to take is blocked due to a parade. You circle around and around trying to find your way and it costs you an hour, but this time, it's two gallons of gas because there's so much city traffic and all that stopping and starting, plus because you had the extra coffee, you really need a bathroom.
Brandon: There you go. [0:12:03.4]
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Brandon: So how did you do with your gas budget and your timing?
Amanda: Yeah. So remember we budgeted 95 gallons of gas at roughly $3/gallon for $285 for gas. You actually used 6 gallons more, which adds $18 to your budget.
Brandon: That's not too bad.
Amanda: But you also had the tire repair, the tow truck and the speeding ticket, which added $425 to your expenses.
Brandon: That's more than double your gas budget already, just with that. [0:13:10.6]
Amanda: Yeah. Ouch. And it doesn’t even account for that extra hotel stay that you had because of the car repair taking 18 hours.
Brandon: So the time driving was supposed to be about 43 hours. What was the actual time delay with traffic and the unexpected stops now, Amanda?
Amanda: Yeah - it was an additional 25-1/2 hours, a whole extra day to get to Los Angeles. If you had to be there for a new job or something, you're a day late.
Brandon: Or if it was a vacation, you lost a day of your vacation because of traveling. So does this analogy surprise you? I mean, if you're a parent, it probably doesn’t. Things like this come up in our everyday lives all the time - a diaper leaks, requiring a new set of clothes and throwing off the laundry schedule and running to Target for that stuff if you're out in the middle of nowhere. [0:14:05.9]
A meal that only gets half eaten while other food is devoured more quickly than we expected, having to throw away stuff.
Amanda: Yeah. This doesn’t seem like much. It seems like all kinds of little things, but if you're a parent, you know these little things add up and they keep you in paycheck to paycheck cycle and dipping into your emergency fund more than you want to and all kinds of things like that.
Brandon: But Amanda, what does this have to do with the stock market? What does this road trip and baby stuff, what does it have to do with the stock market?
Amanda: Everything. So, so far, you might guess you know, money management - you have to actually manage your money, create a plan, budget, those kind of things and be still remain flexible because of what unexpectedly comes up. But when it comes to the stock market, this road trip analogy makes even more sense. [0:15:02.4]
The ups and downs of the market make the entire system less efficient and because of the downs, that's like having to stop on a road trip. They slow down your progress. They slow down the growth of your money. Compound interest is broken. The rate of your return is sabotaged.
Brandon: In technical language, this is called volatility. So the definition of volatility is a tendency to change quickly and unpredictably. That's volatility.
Amanda: In the road trip example, you can recover from traffic in the tunnel and sharp inclines in Pennsylvania. You might even be able to handle the tire repair and the tow truck expense. You know, a day late and $443 short is not too bad, but can you handle all the repeated downs of the stock market and more importantly, can the funds you're counting on to eventually use from the market handle all those repeated downs? [0:16:05.0]
Brandon: Ask yourself how many times have you heard someone in their 50s or 60s say, "What I thought I'd have and what I actually have are very different." This comes up all the time for us. The road trip analogy we're using today is a big reason why they don’t have what they expected. They were on the road and they didn't…things came up.
Amanda: Yeah. We have got statistics to back this up. So if you draw out, you know, we did the research. We found the info. If you draw out a perspective of the stock market from 1945 to today, so you'd start just after World War II and you go all the way to today, the statistics show a 5% or more decline is likely to happen two times per year and a 10% decline is likely to happen once per year.
Brandon: Wait - you're saying like 10% a year and 5% two times per year? [0:17:03.9]
Amanda: That's what's likely to happen. Yep. And some years, it can happen more often.
Brandon: And the sharper the decline, the longer the recovery - a 5%-10% dip takes 1 month to recover whereas a 20%-40% dip takes an average of 15 months, higher than 40%.
Amanda: Like in the great recession, you know this has happened where you get a 40% dip. That does happen. Right? So how long does it take to recover?
Brandon: The higher than 40% have an average recovery time of almost 5 years.
Amanda: So that means practically if you're planning to retire and the next recession hits, you might have to work another 5 years, waiting for the recovery of your 401K. Do you really want to do that?
Brandon: So, I talked at a conference recently and a lot of young, to a lot of younger people. I hear them say all the time, I have time to wait for my funds to recover. My question is - is that really true? And my question to them often is - did you learn anything from your parents' misfortune? Like, hello. But we did the math and hopefully they hear this math. [0:18:18.4]
Amanda: So younger people, listen up - you may or may not have heard somebody in their 50s and 60s say, "What I thought I would have had, I don’t have." But you're hearing it now, and we have got the math behind it to show you why that happens so that you can make the best choice for you. And let me just warn you, this math is going to blow your mind, and we took a really conservative estimate with this math, but it shows what really happens with this volatility in the market. So let's say you save $1000 per year and that $1000 earns a 7% annual return every year on your money. If you start when you're 25, you diligently put that $1000 and it's diligently earning 7%, by the time you're 65, you'll have $229,000 - $229,632 to be exact. [0:19:15.3 ]
If just three times during those 40 years the market goes down 10% instead of up 7%, what do you think happens? So to do this math, we used age 30, age 40 and age 50 - just those three years that market goes down 10% instead of up 7%. Now remember, if it was going up 7% every single year, you had $229,000 and some change. With just those three 10% downs, you end up with only $166,592. That's over $63,000 less because of a little volatility, you know, three years where the market goes down 10%. Now, we have got a graph in the show notes to show you this example in visual form so you can see how it really works, but remember, 10% negative happens at least once a year in most years and the actual volatility of the actual market, not just looking at fun math like we like to do - the actual volatility can totally eat away at your growth no matter how long you have to wait for it to recover. You know, that last 10% down was when you were 50 and you still have 15 years for it to recover and it didn't happen. [0:20:29.6]
Brandon: Yeah and with these people that I have talked to and I ask them, "Do you think a recession or any of that could happen in the near future?" and everybody says, "Yes." They all say that it's going to happen. So then that's another thing of saying well then, why would you do the other way if you know that it's going to happen.
Amanda: Because yeah, we just use negative 10%. It could totally be negative 40%.
Brandon: Or longer than one year.
Amanda: Right. Right.
Brandon: It could go for a longer period.
Amanda: That's true.
Brandon: So, we're starting to get into the weeds a little here. So let's back up and recap the major lessons of today's episode. [0:21:05.4]
Amanda: Great idea. So major lesson number one is that life happens and it makes managing your money complicated. You've got to make a plan. You've got to budget, but you also have to roll with how things change in your life. Be flexible and make changes as needed.
Brandon: And another lesson is investing in the stock market makes managing your money even more complicated because it adds a whole bunch of more variables outside of your control. We should all want control of our own financial destiny.
Amanda: And we should be anti volatility to use the technical term. Now, you might find yourself asking is there an alternative. Of course, for life there isn't. Life is still going to happen. Unexpected things are going to always come up that create inefficiencies, especially if you're caring for someone else, like a child or an aging parent. But for the stock market, there are alternatives. I know it's kind of sacrilegious for us to say that, but it's true. There are alternatives …[0:22:09.9]
Brandon: Yeah, there is.
Amanda: … to the stock market. Since around 1980, there have been lots of people spending lots of money trying to tell Americans that the stock market is the only option if you want your money to grow.
Brandon: And you have to ask yourself - those people that are saying that, how much money are they making? Just a question.
Amanda: But Grandma knows this isn't true. In fact, she's got a long term perspective that goes back before the stock market even existed and that perspective brings lots of financial security and certainty in our uncertain world.
Brandon: So to explore alternatives outside the stock market and how they might work for you, schedule a call with us at GrandmasWeatlhWisdom.com. So just do that. Schedule a call at GrandmasWealthWisdom.com/requestameeting and fun fact - even if we wanted to, we can't tell you what stocks to buy or sell. We're not those kind of financial professionals. So to learn more about how we work, schedule an exploratory call and we'll share more. [0:23:16.9]
Amanda: So Brandon said the URL differently. I'll recap. It's GrandmasWealthWisdom.com/call where you can go to schedule that meeting. So that's it for today. In the next episode, we're going to be talking about making the world better and a lot of ways our generations have been handed a world that's pretty messed up. We're going to get more optimistic. We're going to be exploring the question - can we give what we have not received. We'll be talking about money, but the principals can apply to environmental stewardship and social justice too. Be sure you hit that subscribe button so you won't miss this impactful episode coming next.
Brandon: Until next time, keep building your wealth simply and sustainably for your own future and the future of our grandchildren's generation.
The topics presented in this podcast are the general information only and not for the purposes of providing legal, accounting, or investment advice. On such matters place consult a professional who knows your specific situation.
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