Winds of Change

02 better than last year. Investors afford to be the worst is the volatility worsening on Wall Street.

As we are for their market will talk about the first of it with investing expert work bill or your calls. 55 7000 jotted down 525-7000. This is moneywise live well. Her friend Mark and mind investing where they've been warning politically about certain market indicators. Mark welcome back to the program. Thanks Rob, thanks for having me back.

I was delighted to see you were coming today because this is the last two days the incredible volatility of the reversals Mark what in the world is going on. Has been wild and really this home month has been kinda crazy reset a new all-time high. Right out of the gate. January 4 and then since then the other S&P 500 index is down about 10%. Some of these smaller indexes like the small-cap index, the Russell 2000 technology indexes there down even more so in a way that S&P 500 which is of course dominated by the very largest companies are Microsoft and Apple's in those types.

They've kind of been holding up pretty well so far relative to everything else which looks even a little bit more shaky. So yeah it's been a wild month, that's for sure. Well I would say Marco based on your January newsletter article that will be talking about today, you're not entirely surprised though at this market action are you yeah were not. I mean, in fairness, the speed of this decline coming right out of the gate here in January. I think that's been a little surprising to everybody. But you're right, you know, right before Christmas we published our outlook for 2022 and it was a pretty blunt warning that we saw trouble ahead. Now, to be clear, SMI doesn't usually make big market calls. That's not really what were all about. But in that that article that really talking about. I outlined what I thought the market was likely to shift from this long-term bullish trend that we've had for at least the last 18 to 20 months and then cut a shift towards a more bearish tilt this year and why that might warrant additional caution on the part of some investors.

Well, it certainly turned out to be a timely warnings before we dig into the specific reasons that had you concerned in the article wanted to give us the big picture context of this market. Yeah, sure.

So you know, one of the most important factors to the market these days is the Federal Reserve which is kind of unfortunate but it's really true, you know, the Fed has taken on an increasingly active role in markets since the financial crisis about a dozen years ago and it's gotten to the point where a lot of investors just think the feds gonna rescue them. Any time the financial markets slide enough, the federal come riding to the rescue and they think that because we've seen the feds step and over and over again cutting interest rates purchasing assets and really doing whatever they can to support the stock and bond markets so as a result of that rubbing on every market downturn that we've had over the past dozen years has been pretty short-lived and relatively shallow.

We haven't had to deal with a sustained bear market since 2008 and that has really created a whole generation of by the depth investors because the Fed just won't let markets fall, nothings shifted a little bit and from our point of view a couple years ago and COBIT hit because that's on the federal the federal government sent out these massive stimulus payments directly to individuals and businesses. We kinda think that's a game changer because we've seen inflation really pick up sense that so for the first time a few decades now the Fed has to weigh whether to rush in and save markets or stoke inflation and that puts them in a tough spot. No doubt it will continue to talk about the implications of that today with Mark Miller investing expert from sound mind investing the article were talking about today.

Winds of change are blowing casting a wary eye on 2022 can read the entire article of sound mind investing.org we come back much more of this market and what you your portfolio then questions remarks. If you have investing market or economic related question 525 joining us today in my life. Live on the western coast delighted to have you along with this particular calls and questions today. In this segment your investing related questions are good friend Mark Dillard, editor at sound mind investing is here today with his thoughts. In particular, were unpacking an article that Mark wrote late last year about warnings related to certain market indicators and those warnings certainly turned out to be timely, given what we've experienced this first month of the year and especially we've seen it on full display. The last couple of days. Mark you mentioned the Federal Reserve before we dive back into this line of thinking, let's add to the phones because Jason has a question in Nevada specifically about the Fed Jason the redhead yeah hi guys, love your work. By the way, thank you so yeah but it all over the Internet and only thing talk about it. A great reset and it starts I guess tomorrow with this big meeting about their current default on their loans and if they didn't course, the Internet, you know, you never know what going on with them and you how accurate that information is going to get you guys opinion on this loan. Loans were in default on any thoughts on that Mark. I'm not familiar with what he may be hearing. I think that's a great question, Jason, and thankfully on this one. I think we can probably put your mind to rest a little bit because I believe that what those stories are been referring to was some testimony maybe about one of the Fed officials. I can't remember who it was that was talking about this, but that this is in the context of the importance of the US raising the debt ceiling so this debt ceiling drama is something that that comes around every year or two.

There are some some Congressional limits on the amount of debt that the US is allowed to borrow and almost inevitably, when we bump up against those limits. The political parties kinda jockey back-and-forth in and try to use that issue to either cut spending or cut, pushed through some other political goals, and I would just say that you know we have seen this drama play out many many times in the past because it's something that Congress has to reauthorize a hired debt limit debt ceiling every so often so this is just the latest in a string of many similar episodes in the past and I would just say Jason, probably that's not a huge concern simply because both parties and all of the politicians know how devastating it would be to actually let the US default on any of its debt, and there's no reason why they would need to allow that to happen.

So that's not one that I'm specifically real worried about even though it does create a lot of smoke and a lot of rhetoric whenever it comes up now as we were going to be talking about here.

The rest of this program. There are some other things that I'm kinda concerned about but that one that the threat of us actually defaulting on US debt is not high on my worry list Mark what about the said action that's expected to be taken and the suspect will hear about rate hikes. Many folks expecting several rate hikes this year.

What is that mean for us here in the US and developing countries, which obviously could put some additional strain on them. Yeah, absolutely.

Now that rate hike expectation which is going to be a huge amount of drama and focus on this Fed meeting tomorrow and and Sherman Powell's testimony tomorrow afternoon when we really cannot peel back the layers here on what's been going on with the stock market so far this year it's directly related to the Fed and the Fed has explicitly been warning investors that it is going to take away a lot of the liquidity that has been the backdrop of this really 12 year bull market that we've had in stocks and certainly since the 2020 decline. The Fed has been just pumping liquidity into this market at a an incredible rate in the Fed it really since last June has been saying look guys were going to be pairing this back were going to be taking the punch bowl away and investors don't want to hear that they hate that idea and so they kind of been ignoring the Fed and only recently have they really started to believe that the Fed is serious about taking these steps and the reason that I say that is we we can can gauge what investors are expecting in terms of future rate hikes through some some various market indicators and over the last month or so investors as a group have gone from pricing in very little expectation of future rate hikes and they've adjusted those expectations to where they are now pricing and for Fed rate hikes in 2022. Well that's a huge adjustment for such a short period of time, and I would argue that that's the direct and immediate catalysts for what we've seen in the stock market so far since the beginning of the year, stock market investors have been adjusting their expectations for stocks based on these higher interest rates that seem to be inevitably coming down the pike. So, tomorrow afternoon is going be the first time since the stock market shakeup and correction has happened that Chairman Powell is going to address the investing community and basically say either yes were going to stay on track with our plans to continue to tighten conditions in these rate hikes are still on schedule or potentially back off and what we were talking about right before the break, Rob is for the last 20 to 30 years.

The Fed has been able to basically just address the financial markets in isolation. When we have these periods where the market is wobbling. They can come in and just address the financial markets because inflation hasn't been a problem.

But today, we obviously have this runaway inflation released higher inflation and on the overly dramatic about it, but we have this high inflation and that for the first time in and truly at least 25 years is kind of putting a counterweight to what the Fed would likely want to do.

They they probably would love to come in and reassure investors and reassure the markets say were knocking to move too fast. It's not going be too severe, but they know full well that if they do that that that's going to be interpreted as we are not going to take the actions that are necessary to stop this rising inflation, so there really caught between a rock and a hard place.

In this meeting tomorrow to try to thread the needle of saying were going to do enough that you can count on us bringing this inflation down but were knocking to do so much that were going to disrupt the financial markets and cause a bear market in stocks and that's a really narrow window for them to try to thread the needle so it's going be interesting and this is this is all exactly why were seeing the stock market correcting the way we have in recent weeks really interesting. Well we come back from this break will talk about the mark.

What you're expecting. Moving forward will also look at a few more of the things you unpack as to potential catalysts for declining market in 2022 and then what we can do about it with our portfolios that push your questions on investing in markets for Mark Miller today 800-525-7000 a lot more to come. Don't go anywhere. This is moneywise live moneywise live biblical wisdom for your financial decisions. Part of the moneywise live family listen with regularity on our website or using the moneywise app. All of that comes as a result of our faithful supporters and listeners and if you'd like to be a financial partner of ours would certainly appreciate it.

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That's all it moneywise.org just click the donate button. Thanks in advance by joining us this segment of the broadcast is Mark Miller good friend and investing expert with sound mind investing.org were talking about a recent article that was published in the soundbite investing newsletter that you really need to check out it's called winds of change are blowing casting a wary eye on 2022. Again, you'll find that article sound mind investing.org Mark will get back to that in just a moment. Let's take a call Ashley's in Spokane, Washington been holding very patiently Ashley Goretti and like nice cash and and we are just can't try to make it efficient to pay the least amount on the mortgage on the next house and the down payment and the rest of the money and and that the market right now and just the train we really know you feel good about making any decisions.

So I hope you let me ask a couple of phone questions.

What is this is a good marriage is a right and what are your and your husband's ages 36 okay grades and usage of 175,000 in net proceeds.

How quickly do you think you would buy your next don't you think it's in the next two years year okay and you think you might be spending you been looking at houses recently are any good air jumbo loan and like five so purchase price of 550 the right okay and then separate from the 175. You pulled out of the last home.

Tell me what you're doing in terms of just systematic contributions for the long term like through a retirement plan worker Roth IRA something like that. Cut retirement account and that another planner cannot stand you know what percent of your income is going in the debt each month and I know that a lot and everything you a check and very good zoom marked their young. Obviously have some systematic contributions toward retirement try to figure out how much of this one. 75 to put toward the next home purchase that could happen here in the next year versus a smaller down payment and perhaps investing some of it how much or how would you help someone process that will first of all Ashley, these are all wonderful problems to have in there. You're operating from a really good position here, so that's great. Regarding the home purchase. One thing that you would probably want keep an eye on is that normally if you are putting down less than 20% of the purchase price of the home, you can end up paying some extra expenses.

The PMI insurance on the mortgage usually kicks in at that 20% level so if you are looking at around $550,000 home.

That could mean that you're going to need roughly 110,000 of this proceeds in order to avoid that PMI payment so I will if it was me. That would probably be kind of the first step in this evaluation as I would want to avoid that expense because that is your really ensuring the bank yet it provides no benefit to you at all. It's all for the bank.

The mortgage owners benefit. So with that in mind, that amount to invest may come down to look a little bit from what you're thinking. I love that you're doing systematic investing through your employer plans and United is a great question Ashley for this point in this particular program because it it's an opportunity to just reiterate to the younger folks who've got a long runway ahead of them that the type of market volatility that were talking about today. That's not a reason to stop investing systematically through your 401(k) contributions or whatever you, the people who really need to be concerned about these short-term market variations are folks who are much closer to retirement or in retirement. So I would just kinda set some of those concerns aside. Now that doesn't mean you want to throw everything you have at the market today, but in terms of investing whatever portion you have left after you set aside money for your down payment and I would say maybe you invest that over a series of six months or something divided into pieces but I would be pretty comfortable getting that back to work for you great advice doing the thing I would offer is just consider plowing 100% of this back in as an option alongside with Mark is saying because if the goal is ultimately to be debt free. Want to keep moving in that direction, but I would say let's be sure to limit your lifestyle spending so that you can get that systematic mission to your husband's retirement plan to attend 15% of your take-home pay. If you do all of that. You guys are really set things just around the corner still with us moneywise live around West coast joining me today.

Mark Miller, executive editor of sound mind investing late at the end of the year Tina sound mind testing was pointing out some warning signs as to essential volatility. This year we keep certainly seen our share of the market as we think about the correction of the past few weeks you think we're likely to see more market weakness ahead. That's really the million dollar question right you know right now, put it in context.

The S&P 500 index is down about 10% from its high. And that's really not an unusual drop it all. We've had about 14 of those types of market corrections in the last dozen years. They averaged about a 12 to 15% drop so very much right in line with what were experiencing right now so in a way that said, unfortunately I be a little surprised if we see in the end of it and that's simply because the factors that had me concerned. Coming into this year really haven't changed at all, and the historically high market valuations have only had this very small adjustment.

The correction so my guess is that we haven't seen the end of that.

But in fairness, it's always really hard to say for sure whether a 10% drop like we've just seen is just you know a typical correction or if it's the start of something more serious and that's really where we can any dependent back to the article that we wrote last month on what we thought the market set up for the whole year was likely to be more so you mentioned for potential catalysts, pointing to a declining market in 2022, quickly walk us through those yet. So the first one was just slowing economic growth.

We've had some some really above trend growth the last couple years due to all the stimulus in the system and I think that were probably can see that decline as the year goes along so that was the first thing we're pointing out the second one's kind of weird one, but it has to do with where we are in the political calendar and to really briefly some that up the six months leading up to the midterm elections tend to be the worst six months on average of the four-year political cycle. So that's what were looking at. From May to October of this year and we wouldn't normally put a lot of emphasis on that, but because it corresponds exactly with the other negative catalysts. You know that something were looking at so interesting that forces the trust of the markets. So what other potential threats are we facing this year yet so the third one is we got this looming fiscal cliff, which is the other side of all of this federal government stimulus so they can pumping money into the system through the stimulus payments and now the amount of federal government spending is forecast to decline by about 4% of the entire country's GDP. It's just a huge amount. When I look around the world. Other governments are also cutting back. So this headwind or I should say what's been a tailwind for financial markets is about to turn into a headwind and then the last one is simply the thing we've been talking about with the fat and this is the one that I'm the most concerned about and that is this tightening policy is is really the thing that has been the most typical catalyst for killing bull markets in the past.

Every time the Fed has tried to cut that liquidity back stock market has stumbled and it's really hard for me to see why that's going to be different this time. Interesting start. So let's talk about where we go from here how investors should respond how to they prepare for any further weakness coming in 2022 yeah you know something that's going to depend on what their investment posture looks like. Already you know on with our SMI members. We already have some defensive capabilities built into our strategies and we've been taking some small incremental steps to get a little more defensive.

So for our our members. A lot of them didn't really need to change a whole lot.

And if if a listener is hearing that summarily have a fairly defensive portfolio with a lot of bonds, less risky stocks. They may not need to change much either, but I would just caution. Anybody who has an aggressive portfolio lots are growth stocks.

Maybe some crypto other riskier assets. I would not assume that this is over and done and we go back to racing higher and item minimum I would say you should be thinking about what would the implications to my portfolio be if we go down for another 20% from here and you know maybe consider making your portfolio a little bit more conservative as part of that process now.

It's great advice. Not somebody has a long-range investment horizon, say 10 years or more and consistently contributes the same amount each month, dollar cost averaging, should they be concerned. Yeah, you know the length of that runway like we were talking about with Ashley earlier that's really so important. If you've got that that multi-decade investing horizon.

How do you have really covers a lot of the concerns here so it's really more folks who are getting closer to retirement. Maybe there in retirement that that really need to think about this because they may not have a lot of time to recover. If we do see a full-blown bear market in another piece of this rob is really what type of investor are you you know if you're kind of, I make changes in my 401(k) once a year kind of thing then you know you're probably not going take a real active approach year, whereas, like our SMI members. You know, there tend to be more active and that's what were helping them navigate through at SMI so you know because I don't think this is necessarily over. I am inclined to caution people to to move to their most conservative posture, but that doesn't mean sell everything get out of the markets you now throw up your hands and panic.

It just means that whatever your normal ranges are your normal posture as you want to lean more conservatively again. That usually means possibly going a little heavier and bonds and lesson stocks and certainly I would consider if you're heavy and like growth stocks, aggressive names like that that it might be time to maybe lean a little more towards the value side value stocks over growth stocks.

Larger companies over small, perhaps because small company stocks tend to be a lot more volatile.

So I'm not encouraging folks Rob to go out and make massive adjustments but I would think through.

If there is more downside ahead, you know, do I have an appropriate mix for my age and my risk tolerance well in the key. I think Mark is that whatever portion is that the risk of stocks especially more growth oriented stocks go ahead and anticipate that downside now and think about the psychological response. You might have.

Make sure you're not feeling like you're to be prompted to sell because I be the last thing you want right.

That's exactly right that a better Mark really appreciate your time today. Thanks for stopping by my thank you, Rob, always a pleasure grateful for your market was better yesterday. You can read more about his article, winds of change are blowing cast a wary eye on 2022 and sound mind investing.org are your goals are next on anything financial 800-525-7000 got a few lines of this is moneywise live biblical you've chosen it to the end of moneywise line this afternoon that you downloaded the moneywise app. If you have an I'd love for you to do that today in your app store. Just search for moneywise biblical finance. Not only can you access or moneywise community where you can post questions and get answers from our coaches. You can access our broadcast archives all of our great articles and podcasts in the learning tab but then you can take advantage of our money management system. It's three systems and one you can find the one that best meet your personality and it's simple and easy to use.

It can help you stay on top of that spending plan to be a wise steward of God's resources to learn more. You can search for moneywise biblical finance in your app store which is said to our website moneywise.org are back to the phones today. Barbara's been holding patiently in south-central Georgia W LPF Barbara, thank you for calling can help. Well, you know how backward and her parents were young, born in the depression era. They kept money somewhere stuffed mattress or under the third chicken from the right and the cave was always the third and not the same ticket you and don't grab the white agate without brown one day and Marilyn electronic world.

How much should we keep on hand. It's a great question. And as far as having cash on hand.

You'll find lots of rules of thumb me one of them that's commonly held is probably a weeks worth of living expenses is enough. Just in case of a banking network pick up you know something that would cause you to have a challenge in the short term getting access to funds. Maybe a weather event something like that. It's not likely to happen, but it's not impossible. So if we were to think in terms about a weeks worth of living expenses that may be $500 and maybe $1000 I think it anything more than that is probably not necessary and could absolutely be held in an bank account in terms of your larger emergency fund that I think would be best held not physically at home is 3 to 6 months living expenses in liquid savings. I like online savings accounts because their free and they pay a little bit interest right now about 1/2 of 1% with FDIC insurance and you can link them to your checking account.

I like Ally Bank and Marcus in capital one 360 you can get a little more for your money than a brick-and-mortar bank and without.

Again, those fees but in terms of cash on hand, I think in terms of a weeks worth of living expenses. Tell me your thoughts well on the way you're speaking with the emergencies that I had not thought of. I'm thinking probably if you can swing it. A month okay there were to come through. Like you, we think too many hurricanes. That's right yeah well I don't think that's a bad idea. I think at that point though you probably want to have a safe fireproof safe somewhere in your home to to securely store that kind of money, but I think you somewhere between a week and a month, and the high-end is probably prudent thinking anything beyond that, I would think would perhaps be just a little bit excessive. In terms what you might want to have physically in your home now do you actually have chickens in the back. On my way I was going to get one if you recommended it, but I will tell you I think it's not a bad idea. More and more of our friends. Seems like have them all the time for some great fresh eggs and Mike my little 12-year-old has been begging for a chicken but we've to this point, at least not paid the purchase. Barbara grateful for your call today. Appreciate your fun personality. All the best in the days ahead. Wooster, Ohio W CRF hi Lisa, how can help you. Talking to a friend I'm getting close to retirement age and stroke and heart issues. He thought that life insurance that he carried to work that day. They thought thought in the last month we found out that he will not have that once he and his employment there. I know that for some it's possible to rollover, but I'm not sure for everyone. Yes, well that's true in a lot of times when you separate from the company you will in fact lose your employer-sponsored life insurance. So in a minute really depending on his medical issue mean you.

Ideally he would go out and get a term policy to replace what he had at work. Make sure he has enough coverage to offset the risk that exists of the Lord, taking him home meaning smelled the dependent to her loved one, a spouse would lose his income and therefore would want to be able to make that up through life insurance war there would be an additional burden financially placed on the family with his death and that's where insurance comes in. Now depending on the health issues that may or may not be possible. There is the ability to go after something called guaranteed issue life insurance you where there's no health underwriting is a part of it. Obviously a lot more expensive so he's just not to get as much coverage and is gonna pay a bit more for it, but I think the key is to just really weigh that risk and make sure that there's something in place.

Ideally he would find a company that looks more favorably on his particular medical condition that another and allow him to buy a term life insurance policy even if he wasn't rated as highly keep he was rated a bit lower. From a health standpoint, you know, he could still perhaps get the coverage but just have to pay a bit more for it. So I would encourage them to go and start looking into that now because ideally we would want any lapse in life insurance coverage which would mean that he'd want to go and qualify for, and have a policy that's enforced prior to losing the one in his place of employment. Does that make sense and how does one know all united-keeping everything.

I don't know about the fine print. How does one know where to even start on things. Yeah I would say one of two places one would be to find an independent life insurance agent.

Perhaps you could call your church you could connect with a certified kingdom advisor there in Ohio and asked for referral. Most financial planners or investment advisors will have a life insurance agent that they recommend in an independent can go out and look across a large number of companies and I think the key, especially with medical issues is to find the company if there is one that looks more favorably on his particular medical condition from an underwriting standpoint and they all can have there certain things that they don't like or were are willing to accept. So finding that independent agent to look across a bunch of companies and then come back with some options would be key.

The other option is to take advantage of the great online tools, you know, if you just search for the life insurance coverage online and then look at some of the rating services to see which of the brokers that are online are the most highly rated and then you know they'll give you any number of options where you can input information about your health status, your age, your way to much coverage you're looking for, though, come back with a whole laundry list of the carriers to explore, so I would say one of those two options would be best and hopefully he'll find exactly what he's looking for. Appreciate your call on behalf of your friend Lisa got bless you Mindy's in Oklahoma appreciate your call today.

Mindy, how can I help her time in retirement. Turned out that you're looking it really would like not admitting that ministry very thin and fell and we had been using guide for iron and ironing, and we actually pulled out and to help with our mail at that even in light and interleaving it. The only thing that lead and be on just you know what we need to do that. We are very curious into what you just so 20,000 in retirement right now think it would be smart to pull out paid fees maybe help with networking at or I know that the thinking we get that back into guide stone and then go from there and build it up well couple thoughts of what is. I love to hear you're following the leading of the Lord of the full-time ministry.

That's great. I can't wait to see and hear how he's going to use you in that number two.

I love guide stone wonderful organization. One of the biggest Christian retirement to plan companies, primarily serving the southern Baptist, but now expanding and serving all believers in some wonderful investments and great retirement plans and insurance products. I would certainly connect with them because my preference Mindy would be that you take this retirement plan and roll it over into an IRA and allowed to stay invested so you're not paying that penalty you not paying any taxes on it. But most importantly you keep it invested for the purpose in which you have it, which is to continue to grow and compound it over the next decades ahead so that when you need it. Down the road. It's there for you to supplement Social Security and other income sources, especially going into ministry and probably being on a tight budget, you know, having that in tact and not having to use that I think is essential and then finding a way to limit your lifestyle spending so that you could continue to fund retirement account either provided through his ministry. Or if not, at the very least, through a Roth IRA for you and him your 6000 piece up to age 50 and then 7000 apiece. Based on the current contribution limits, so I would try to leave intact. Now if you were to say the only way real.

To do this is to put the move on the credit card that I'd say, well, let's talk. But as long as you can swing it with no there the reserves that you have not having to take on any debt I'd say let's try to prioritize keeping that retirement plan intact. Okay appreciate your call today. God bless you. Thanks very very much. Don is been holding very patiently in Canfield, Ohio, Madonna, we are out of time, something ask you to do this, hold the line as soon as we wrap up here today spend a few minutes with you here in the studio and see if I can get you some help.

Appreciate your call today. Also Sally called today and couldn't hold one of asked about a 401(k) moving that into an high bond.

Unfortunately, you can't find I bonds with an IRA or employee sponsored savings plan. You have to fly them with money that you didn't save these programs which means you go direct to treasury direct: Sally, this is moneywise live here, a partnership between the radio and moneywise media want to say thank you, Robert, Dan and Amy today. Thank you for being here as well