Welcome to Make Your Money Matter, the show that aims to change the way we think about financial advice so you can make better financial decisions. Brad Barrett is a managing director and partner at One Capital Management, a wealth management firm serving nearly 1,500 clients nationwide, with over $2.5 billion in assets. They are a group of advisors dedicated to ensuring their clients achieve their investment and retirement goals. And now, here's your host, Brad Barrett.
(00:21): Welcome to Make Your Money Matter, the show dedicated to helping you create a better relationship with your money. I'm your host, Brad Barrett. And it's my goal to help distill the best ideas when it comes to your finances so you can make more confident money moves. Here at One Capital Management, our mission is simple, to help our clients and you listeners take control of your finances and build the life you deserve. Friends, today the challenge is no longer the access to information, but rather it's finding the right information, and more importantly, how that information applies to you. And that's my commitment to you here today on the Make your Money Matter podcast, because after all your money matters. And before we get started on this week's episode, to find out more about me or my team here at One Capital Management, you can go to our website at onecapitalmanagement.com or give us a call (805) 409-8150. And if you are on the website at onecapitalmanagement.com, you can click on the media tab and there you can download and subscribe to the Make Your Money Matter podcast. You can also download the podcast on any other platform that you would otherwise download a podcast, whether that's the apple app on your phone, Google podcast or Spotify, and leave us a comment. Let us know how we're doing, it's always good to get feedback. And as I say each and every week, if you like the show, share with someone you like, and if you don't like the show, I guess, share with someone you don't like.
Today, I wanna talk about what we saw last week, what we are seeing right now with the Russia Ukraine situation. It's obviously on every news channel you look at, and it has a lot to do with what we deal with when it comes to money management, everything from oil to I, to interest rates, to overall supply chain issues and disruption, all items we've talked about here on the show.
(01:31): But I want to go into a little bit more in depth. And for many of you listening right now, many of the clients we've talked to this will likely be something you've heard from us, but if not, I wanted to use this platform to be able to talk, talk about this subject because it's obviously very topical and I wanna relate it to something that we deal with often. And in economics, we call things that come out of nowhere or things that we did not plan for black Swan events. I spoke about this before, but it's interesting when we think about it, because no matter what it is, whether it's a war in Eastern Europe, whether say oil disruption in the far east or middle east, or it's something happening domestically, either way, it disrupts us and there's studies that has shown that there's around 200 or so random black Swan quote, unquote events every year, let's treat that as such.
(02:22): Let's discuss this disruption no different than we discussed the disruption from the pandemic starting in 2020, as it relates to your portfolio. Now I want to clearly state one thing in the onset here. What is going on there to me personally, and I think to many Americans and many people around the world listening is nothing short of pride. And if you really look at the Russian history and as a Reagan fan myself, and looking back into the eighties and his relationship with Goche and all that stuff that happened around the cold war and the fall of the Soviet union, Mr. Goche teared down this wall, all that good stuff that was happening there is still an underbelly of the motherland in that environment and what the west is consistently, I think with a MIS impression is that other countries think like we do. And I think we get trapped into that sometimes.
(03:17): And I saw this on Ben Shapiro and he talked about it a lot, the editor for the daily wire. And he mentioned it's because we have become materialists if we think about it above all else. So these sanctions that president Biden is talking about and other things may have little damage because they don't think like we do now to some of us that may be good or bad, or who knows. But what I'm trying to say is that there is a very large underbelly there of the motherland and there's pride going on in that country for what's going on. There's a reason why believe it or not, this is crazy. Stalin is still the highest polling leader in all of Russia. They're a dictatorship. They act differently than we do. And they are doing something that I think many of us would disagree with. This is basically out of pride.
(04:04): I'll get off my soapbox here. Cause I think many of us agree with that, but I wanna relate it to something we talk about and how it relates to you, your portfolio and what we're seeing, cuz there's a moral thing going on that we just humanly probably don't agree with what we're seeing, how we're gonna have death and destruction for really no provocation that has happened from Ukraine. It's really hard to fathom. And I think a lot of us are just scratching our heads going why? And it's really a so far what seems to be an answer of just pride in wanting to expand and take back what they think is theirs sounds familiar right to a lot of men in history, but I wanna talk about some reasons to stay invested. I wanna talk about some reasons to focus on the bigger picture financial markets.
(04:51): They often go through phases. They go through phases of relative, calm, followed by sometimes abrupt and often again, unanticipated spikes and volatility. And it's important. And for investors, everyone under out there, myself included to understand that volatility is normal, but it's also out of our control. Now, many of you've heard the first part, okay. Volatility is normal. We hear that from a lot of portfolio managers and we heard that from our advisor and it's true, but that last part there, I, think's a really truthful statement that I wanna say it is beyond our control. However we can control how we react. Control is an interesting thing. When you talk about money management, you talk about portfolio theory is we control the risks, but we can't control the outcome of the risks or what happens to instill those risks. We can control how we react. And generally I'm gonna say a big aha moment here for a second, but generally the best reaction is no reaction at all.
(05:48): Sound familiar. Let's dissect that a little bit. And there was a really great piece written about a year ago from Russell investments that I'm using, cuz it has a lot to do with some of the things that we're gonna be talking about. So I'm gonna use some data points that they mentioned, but I wanna talk about six good reasons why staying invested for the long term is always the best way to navigate market turmoil. Number one, this is a big one market timing. That's why have it right on the onset here? Market timing is difficult and it's important to note that it's not market timing, but time in the market, you ask most experienced investors, myself included, who's been in this business 20 years are chief investment officer, Steve Callie and our entire investment team go back 25 years. And many will tell you that drastic allocation shifts in an effort to time, the ups and downs of the market is immensely challenging.
(06:46): It's just a fact because we don't have a crystal ball by the way, you hear me say this before. Look, if someone has a crystal ball and they're telling you what's gonna happen tomorrow, I suggest you run please because no one does as much as any investor would like to avoid market downturns and take advantage of rallies to do so actually means getting out at the right time and knowing exactly when to get back in. If that's you go for it. But again, without a crystal ball, those are pretty difficult calls to make with potentially adverse X on your portfolio. Since there no market cycle is the same. What we're seeing right now in this disruption, this is not that similar exactly to what we saw maybe in the spring of 2020 or what we saw maybe in the volatility of the election of 16 and 17 or 13 government shutdown or Syria in 13 or 2008.
(07:37): I mean I can go back and be on and on here. What I'm trying to say is there's no market cycles the same and it isn't easy to anticipate market movements. So all sorts of factors come into play politics, geopolitics, monetary policy, business activities, everything from mergers and acquisitions and ultimately sudden international shocks. We saw this in 2020 with a global pandemic or back in the seventies, the oil price shock, maybe the tech bubble in the early two thousands. These can all spark a market reaction, no different than what we're seeing right now. So if your timing isn't perfectly accurate, you can miss out on potential rallies. Number two, it's selling during a correction is betting against the odds. Now I don't like to speak like that sometimes because it sounds like what many people call the stock market as a big casino, which I Hently disagree with, but let's use this for a second.
(08:35): Selling during a correction is betting against the odds history. If you look back suggest that period of sharp declines have often been followed by periods of some of the most favorable returns. Now again, I should very clearly state that past performance does not reflect future gains, but history is a good depiction of what we see. Now there's a couple of time periods that I think are important when we talk about this. And one of them is around us markets during the 12 and 24 month periods, following some of the sharpest declines of the past. Let's just say 40 years, the strong historical tendency of markets to rebound provide some well evidence that fear induced dramatic alterations to asset allocation or changes are unnecessary for investors who simply stay the course. Now this isn't a set it and forget it environment. We hear it. One capital management for our clients and our portfolios are actively man managing and rebalancing portfolios.
(09:36): So it's not like we're sitting on our hands here, but we also wanna stay the course we set out on the course and we don't want to deviate just because of something happening and a couple of things that I wanna bring up around equities. Having bounced back from market shocks. Let's talk about a few. Let's go back to the seventies. The oil shock specifically between November of 1973 and September of 1974, the market decline of the S and P 500 index went down about 42%. Right then 12 months after that, it was up 38.1%. And the 24 months thereafter was up 80%.
(10:13): Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options, looking at entering or about to exit the drop program, go to www dot Make Your Money Matter to find out how we can help.
(10:30): I want to use that one cause we don't talk about that a whole lot, but I think the rhetoric in the past year, maybe 12, 18 months or so though has largely been around oil and inflation and things like that. So we, we talk about the embargo from the seventies and what that did. And I think that these stats are lost down 42% at the start of the seventies oil shock. And the 12 months after it was up 38% and the 24 months after it was up 80%, we like to talk about the, the down. We don't want to talk about the rise. Now how about something more recent? The tech bubble early two thousands, specifically September of 2000 to March of 2003, the S and P 500 index during that time period went down 42 and a half percent as their market decline, 12 months after it was up 38 and a half percent, 24 months after it was up 48.2%.
(11:23): How about something even more recent? How about the subprime financial crisis? The great recession specifically June, 2008 to February of oh nine, the S and P 500 index went down about 51%. Many of us remember that 12 months after up 53.6%, 24 months after up 88.3, all of these stats by the way, are coming from BNY Mellon and Russell investments. The article I'm mentioning about staying invested and some reasons around that, you can look this up and you can Google it, but it's really important to go through again. I want to reiterate that these are historical numbers based on data driven and research doesn't mean it's gonna happen in the future. But it's interesting to note. So selling during a correction is betting against the odds, the strong historical tendency of markets to rebound provide some evidence here that I don't think. And I think I wanna share that fear induced dramatic changes are really unnecessary for investors.
(12:22): Number three, the likelihood of negative long-term returns for a balanced portfolio. Again, a balanced portfolio has historically been very low. The like again, probability predictability, the overall likelihood of negative long term returns for a well-balanced portfolio has been pretty low stocks have historically outperformed bonds. When based on average, rolling returns over 1, 3, 5, 10, and 20 years, we've all seen those stats. You can look 'em up as well, but just as telling is the traditional ability of a balanced portfolio to produce positive returns, something we preach heavily on here at one capital management. And so understanding that, although there are no guarantees that the future will resemble the past history tends to favor long-term investors. Remember that now for those listening right now, who are in their fifties or sixties, maybe, and you're going by the old adage of well, Brad, you know, I've always been told as you get older, you should, you get more conservative.
(13:26): Now, remember the adjectives of conservative and aggressive are really, in my opinion, more marketed tools to kind of put you in a box. I'm not saying wrong by any means, but it's important to dissect them and really understand that there was an old adage, right, that you used to take your age and that would be your bond exposure. So if you were 20 years old, you'd be 80% equity, 20% bonds. If you were 80 years old, you'd be reversed. You'd be 20% and 80% bonds. And that was kind of the rule of thumb. If you will. That was the whole idea of getting more conservative as you get older. And what I'm trying to say here with this is understanding long term investments when you're like 50 or 60 as an example, just because you're getting older and you're not 20 years old anymore. Doesn't mean God still has planned for you on this or earth for another 25 or 30 years.
(14:18): That's long term, frankly, anything over five or 10 years is long term. So understanding what long term means in your world matters. And really if you go through it, you wanna make sure that you have the right balance mix based on what your needs are. So just falling back on some rule of thumb doesn't mean that's the right strategy for your overall retirement and portfolio needs. Number four. And this is an interesting one. Volatility in our opinion has opportunities. Volatility is a good friend. If you know what you're looking at. So while economic uncertainty will always be a cause for investor anxiety, I'm human. I see it as well. But the resulting market volatility has historically offered most active managers in equities and bonds, the potential to better position portfolios or the long term. That is what we're seeing. That has been our philosophy for our investment management part of our company for nearly 25 years and markets sometimes get overexuberant and prices become excessive, but the opposite is also true.
(15:25): By the way, we saw that leading up to 2008, when you look at price to earnings multiples in that time period of oh 5 0 6 0 7, you started seeing high price earnings multiples, 28, 29, 30 times that's over bought that's high. It also goes the other way. We always try to look in that way, say, oh, it's over bought something's gonna happen. Right? And it did. We saw that in oh eight, but again, as much as markets get overexuberant and prices become sensitive, the opposite is also true short term periods of crisis. Like what we're seeing right now, we saw in 2020 can push prices artificially low, which really creates excellent opportunities to buy. So it's important for managers like us. And we're talking about that on our investment committee to take advantage of temporary mispricing in the market and by doing so, it's possible to plant the seeds for potential long-term profits.
(16:16): During periods of uncertainty, we did that in 2020. We've been doing that for years now, and we continue to do that. Number five market volatility, just like number four also provides an opportunity to rebalance. So when a crisis, if a crisis creates an opportunity as we judge engine, then portfolio rebalancing is perhaps the best way to take advantage of that opportunity. So when you compare assets within a portfolio, rebalancing means selling assets that have gained in value and buying assets that have fallen in value in order to maintain the overall strategic asset allocation of a diversified portfolio. So during a market correction, this should result in buying more assets that have decreased in value, looking at the opportunity something we are doing. It's an essential part of the process of buying low and selling high. The main thing I think every one of us knows it's the common denominator.
(17:08): When I speak out at speaking events or I'm at different areas where I'm talking about what we do and why we've been doing it for so long is the one thing that we all know inherently is to buy something low and sell it when it's high. That's how you make a profit. So when we are in this time period of market volatility, it allows us to rebalance. You hear me say these words, a lot of we're active managers and we also rebalance. So rebalancing has a to do with keeping the asset allocation, essentially keeping the plan in place and not deviating from it. You hear me say this a lot, but this falls into what I tell everybody and what I speak heavily on our radio program and on our podcast on the two DS of investing discipline and discernment, this falls right smack in the middle, under the discipline camp, number six, and finally is diversification can be most effective.
(18:05): Believe it or not, when markets are uncertain, right? Think about it. Why would you have diversification? You're having diversification to diversify yourself against risk against market volatility over time. Financial markets deal with numerous crises. As I just mentioned, these black Swan events. And again, just to reiterate to name a few over the last, let's say two decades, there was the tech bubble, a, a bubble us subprime debt crisis in oh eight, the sovereign debt crisis in the Euro zone. Remember that and the economic impact of the restricted measures that all the governments basically around the world took in early 20, 20, all attempting to contain the spread of COVID 19. So there's been a lot of these just in the past 20 years. So one reason to hold and maintain discipline and a multi asset portfolio is in part to spread the risk budget, essentially across multiple asset classes, in order to mitigate market volatility, having a, what I'll call a robust strategic asset allocation with regular rebalancing can potentially enhance returns, but more importantly, manage volatility.
(19:15): So for clients listening right now, when you hear us talk and, and we, and write on our perspectives and our FOLs and on our review meetings, that's why we're so dedicated to ensuring our clients achieve what it is we're trying to achieve for them with the lead east risk possible. Right now, as you're listening to this, after what we've seen in the past few days of Russia invading Ukraine, I couldn't help, but sit here and just really think through and go through some key points. As I just wanted to mention six, in fact, six key points as to why we wanna look long term. Our job as portfolio managers and financial advisors is to take all the information in run with our experience, our knowledge, our credentials, to see through the fog, if you will. A lot of these news reports have been talking about the, the fog of war and try to understand it.
(20:10): Our job is to try to see through it, see long term and keeping tight on discipline and discernment, looking at historical differences, finding the opportunities right now, cause volatility does present that. And I know it brings up fear for a lot of people. And I wanted to share that is we need to have an objective approach going into this year, 2022. We have a lot going on. We spoke about it last week, a little bit more in detail as well. Inflation interest rates. Obviously. Now we got a war in Eastern Europe. It's very interesting what we have going on. And I wanted to make sure we shared that shared some of our think tank, if you will. And if any of you're listening right now and have questions on this, about your portfolio or wanna review this, or if you're not a client and you're listening to this, and this was shared to you by a friend, give us a call 8 0 5 4 0 9 8 1 5 0.
I wanna thank you all for listening to the Make Your Money Matter. Remember before acting on anything discussed today, speak with a financial advisor and near you. And if you're not sure where to turn, you'd like our help visit us at onecapitalmanagement.com or give us a call (805) 409-8150. And until next week, remember Make Your Money Matter.
The information in this podcast is educational and general in nature and does not take into consideration the listeners' personal circumstances. Therefore, it is not intended to be a substitute for specific individualized, financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.
