Retirement Answers

Jacob: 00:01

Is now a good time to buy? Even if it feels like it's not, it very well could be. Don't be reactive, be proactive. Put your plan in place, begin executing the plan, and then the results long term will be what they need to be for you to achieve your financial goals over the rest of your life and throughout your retirement. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions.

Jacob: 00:26

If If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there. My name is Jacob Duke, and each week, I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show. Hey, friends, and welcome back to another episode of Retirement Answers.

Jacob: 00:47

My name is Jacob Duke. I am your host as always. This week on the show, I wanted to talk through a question that I'm getting a lot right now, and it's, hey, Jacob, is now a good time to be buying? Is now a good time to buy stocks, or should we wait for some sort of crash to happen? Like, what's the right answer there?

Jacob: 01:03

So that's what we're going to talk through today. And I want give you some context around how to maybe think through that question or maybe a framework to use to go through that. So before we jump in, though, I wanted to say thanks so much for tuning into the podcast each week. I hope you're finding it valuable and helpful. And if you are, I'd love to hear about that on a rating or review there, either on Spotify or Apple Podcasts.

Jacob: 01:23

Helps me out, but also helps other people just like you find the show and get feedback from other listeners to know that it's worth listening to. So you if wanna take just a second to do that, that helps me out a bunch and I really appreciate it. Okay, let's go ahead and jump into this question of, hey, is now a good time to buy stocks or should we wait? And the reason this comes up is because, well, markets are at all time highs. And we're probably telling ourselves, surely it can't keep going up.

Jacob: 01:47

I'm just gonna wait until the market goes down before I keep investing or even I start investing. And so, these are some misconceptions that often come up. And I mean, the question is valid, right? We don't want to invest at the wrong time because we often hear this, you know, this adage, you know, buy low and sell high. That's maybe what's prompting this question.

Jacob: 02:05

But the hard part, admittedly, is that it's really just an impossible question to answer correctly because I have no idea what the future holds and I'm not gonna act like I do. So instead of, you know, acting like I know what this answer could be or is now a good time to buy or not, what if I give you maybe a more appropriate question to ask yourself in response to the question that you're even asking? And that question is, is when do you need to use the money? So if you're trying to invest a $100,000, when do you need that $100,000? So really it comes down to time horizon.

Jacob: 02:37

This is how I do all of my retirement planning from an income creation standpoint, whenever we're trying to figure out plan for when money's gonna get taken from different accounts in retirement, but you could really use this for any stage of life, before retirement or even in retirement, you can figure out, hey, I'm trying to make an investment decision here, but really the question is, is when do I actually need this money again instead of is this a really good time to buy or not? So, before we jump into why you should or shouldn't invest in stocks right now, let's review what has happened in the markets over the last few years. In 2024 alone, the S and P five hundred has had 47 all time highs that have been created. So 47 different times throughout 2024, and this is up until this recording. So we have some time still here in 2024, but 47, new all time highs have been created just in this year alone.

Jacob: 03:32

And since 2008, the S and P five hundred has grown by 449%, and that's a cumulative growth rate. And that also has dividends reinvested, which comes out to about 10.93 annually. Now, we've had a few different, you know, hiccups throughout that period with COVID back in 2020. And then 2022, we had a minus 20% year in the stock markets. But even with that, the market has performed really well.

Jacob: 03:59

Now, over the last couple of years, we've had some higher inflation, and maybe we felt that a little bit, but the data at least is showing that inflation is slowing down. Now, inflation doesn't mean that, you know, prices are going to come down. It just means that the prices are going up at a slower rate. So essentially, the inflation that's happened over the last couple of years has really just set a new price floor for us moving forward. So inflation rates are coming back down, which means prices are going up at a slower rate, but that does not mean that prices necessarily will go down to where they were previously.

Jacob: 04:29

It just means that they're not going up as quickly. So what are the current economic data points that are important to us? Well, as it stands today, unemployment is 4.1%, inflation is 2.4, the ten year treasury is 4.1%, and then real GDP growth is 2.8%. So by all accounts, those numbers are maybe what some would consider perfect, meaning they're right where they should be, and they actually look really healthy and really good. So we can't really ask for much better, and really what's happened over the last, you know, four to five years now is people are becoming wealthier than they ever have on average, and net worth on average for Americans is at all time highs.

Jacob: 05:09

Now, with that also comes the fact that consumer debt or mortgage debt are at all time highs as well. So we've got credit card debt at all time highs, we've got real estate or home loan debt at all time highs, car debt is at all time highs. So everything is kind of at all time highs on the wealth side, but also on the debt side. So that's the data we have right now. People are just wealthier than ever, and the economic data points are almost exactly like you would want them.

Jacob: 05:33

So why do most people feel like a big collapse is coming or a recession is coming, or some would argue has even already started? And why does real life not really line up with the data? Why people feel differently about what the data is telling us? You know, that's a hard question to answer, but there's something to kinda pay attention to there. But one thing that I would encourage you to do is really just ignore your emotions and your feelings about things when it comes to investing.

Jacob: 06:01

It's not a great idea to listen to your personal feelings or hunches or whatever you might have around investing, and here's a basic example for you. Let's take AT and T stock for example. Don't know anything about it and I'm not recommending it, but over the last five years, it's down 25% while the S and P 500 has actually gone up 98 over that same five year period. Now, why would that be? I have AT and T Internet personally at my house and I've used their phone service through AT and T and it's definitely not cheap.

Jacob: 06:30

They're charging me a bunch of money every month for that phone service. They're putting fiber everywhere. The Internet's essential to daily life, and we all use Internet every single day. So why is an Internet company, AT and T, why has it gone down in value over the last five years? Well, stock valuations and stock markets in general, they they often don't work the way that they, quote, should.

Jacob: 06:52

We can't really make sense of it logically because there's just a lot that we don't see. But a common investment approach I hear sometimes is going to be, hey, I use this product or this service all the time, so everyone else must be doing the same. Therefore, the stock price should go up. And that means I need to be investing in it. Going back to our AT and T example, if you have an AT and phone and you use their service, that would be an example of why you would buy their particular stock, right?

Jacob: 07:16

Because everybody uses it all the time, the internet's essential to life, therefore the stock price should go up, but data shows over the last five years that has not been the case. And the reality here is that stock prices don't work in a logical fashion. We cannot necessarily make sense of them majority of the time. Now, markets are efficient, but that doesn't mean that they're logical in terms of how we see it. So this is why we can't make our investment decisions based on our own experiences or even our view of the world.

Jacob: 07:44

Your feelings, whether bullish or bearish, are not good indicators of what might happen in the stock market moving forward. And what's interesting is that even active mutual fund managers underperform their benchmarks 64% of the time. So you're thinking, wait, Jacob, you mean that the people who study the companies all day, every day and know exactly what is happening in the economy, they're the ones that still can't beat the indexes? And the answer is yes, that's exactly right. Those people, as smart as they are, they cannot beat the index on a regular basis.

Jacob: 08:15

So why would you or I think that we can guess what will happen next based on our different hunches or our different feelings or emotions. I think that would be kind of a foolish thing to go on. So going back to our question, is now a good time to invest? My answer is, I don't know. But Jacob, you're supposed to know.

Jacob: 08:33

And I get that, but that's a big misconception. I have the same information available to me as you do, but the value that I bring to my clients is the fact that I'm an objective third party, one that can speak into their decisions without an emotional bias or some sort of emotional tie to their money, because it's hard to make decisions about your money simply because it's yours. So now that we've talked through some of these data points and maybe the inherent problems of, you know, trying to figure out what will happen next, how do we answer this question of, is now a good time to buy? Well, my suggestion is to ask yourself this question, when do you need the money? When do you need to sell the investment to create income for yourself or to go buy whatever it is you need to go buy or to do whatever you need to do.

Jacob: 09:18

So maybe you've got a new car you need to buy in five years. Maybe you need to do a home renovation in three years. Those are timeframes that you can set and say, because of these expected larger expenses, I'm going to need some of my money at that point, therefore I should invest my money in a certain way to achieve that particular spending goal in the future. If you don't need the money immediately, and by immediately, I mean, you know, within the next three years, you can think about investing that money. And I'd probably even lean towards pushing that out to five years instead of three because anything can happen.

Jacob: 09:48

If we look back to 2,008, it took five years to get all the way back to where we were pre financial crisis. So the key here is is don't get greedy and try to make a quick profit because you could easily lose money and not be able to buy the car or do that house remodel whenever you actually need to because your your investments have gone down in value and you can't sell for a loss and then go do the thing that you need to go do. So for money that you need less than five years from now, you likely need to have that in a money market or some sort of treasury or bond fund. Basically, fixed income products that you're getting interest on, but they're not fluctuating with the stock market, that's the key. And I like to even break this down a little bit further by following a bucketing approach, and if you've listened to my podcast, perhaps you've seen or heard me talk through this before, but typically, I apply this to retirement planning that I do for my clients, but you could easily take this and apply it to any period of life depending on your particular needs, but here's how that bucketing approach works.

Jacob: 10:45

Bucket number one, I've got three different buckets, and bucket number one is the cash bucket. And here's what we wanna do with this one. We wanna have at least two years of living expense needs in the cash bucket. Now, if we go back to our example of, let's say you're not retired, but you have to buy a new car in two years, well, whatever the cost of that car is, that's what you would want to have in cash. So you can, again, you can apply this to your situation, but from a retirees kind of mindset or framework, we can look at it this way.

Jacob: 11:12

You wanna have at least two years of living expenses in cash, which is bucket number one, and then in bucket number two, which we'll call your fixed income bucket, that can be treasuries, it can be CDs, it can be corporate bonds, really anything that's not a stock, but also not a money market. So something that's gonna create some sort of interest or income, but also has a little bit of ability to appreciate depending on interest rates and things going up or down there. So you could have some appreciation in the fixed income bucket, but it's not designed to be very risk on. So bucket number two is fixed income, and I want at least three years of living expenses in that one. So what you've got here in bucket number one and bucket number two is a total of five years of your living expense needs in these two buckets so that you can ride out any particular recession or market downturn for that long and live off of that money for income, especially if you're retired.

Jacob: 12:05

Now bucket number three is our stock bucket, and this is designed to be a long term growth bucket, and the purpose here is to really outpace inflation. One of the biggest risks that a lot of retirees come across in my opinion are they get really conservative in retirement, which jeopardizes them on the back end. Yes, it sures things up on the front end, right? Because you've got a lot of money set aside in cash or at the bank, and it's not necessarily volatile, but you're losing money over the next ten, fifteen, twenty, thirty years to inflation, and your buying power, your purchasing power is actually going down. You're losing value because it's not invested in a certain way that can either keep up with inflation or perhaps even beat inflation.

Jacob: 12:45

So that's why you need to have money in stocks, even in retirement, you have to maintain a long term mindset in my opinion. But the way I like to do that is by bucketing it out in these three different ways. And what this does is it eliminates the short term risks that could come up of not having money to create income for yourself or having to sell stocks at a loss to create income. And it also eliminates the long term risks that I just talked about, inflation, cost of living, things that are going to increase over time, and you've got to have money invested in growing so that you can help outpace or at least match that pace of inflation so that twenty years down the road, you're not having to spend too much money and you don't have enough money to meet those spending needs. And I really like this because it keeps people from going all cash or all stocks.

Jacob: 13:27

It really eliminates the all or nothing mentality and assigns a purpose to your money. So, with all of that kind of understood, you know, should you buy stocks right now? The answer is, in my opinion, yes. If you have too much cash or fixed income based on your goals, yes. Even as a retiree, you need to have your money last throughout the rest of your life, which could be upwards of thirty years.

Jacob: 13:48

So yes, you need to own stocks, but it's really dependent on your situation, on what you should do. If you've got, for example, a lump sum of cash just sitting at the bank or sitting on the sidelines and you're trying to determine, you know, what do I do, how do I invest this money, well, you've gotta, you know, analyze your particular situation, analyze how much you should have invested in stocks, and if you don't have that much there, then yes, we want to begin investing that, but we need to do it in a strategic manner. So you don't have do it all at once, you're likely gonna wanna do what's called a dollar cost average strategy, so DCA for short, and you wanna do this over a particular period of time, you can say twelve months, eighteen months, twenty four months, whatever timeframe you decide, and what this does is it eliminates the timing risk of putting everything into the market right now today and perhaps risk losing upwards of 20 or more percent over the next month or two months. So that's the whole idea of why you would want to do a dollar cost average strategy, even if you have the money ready to go today.

Jacob: 14:43

Now, I will say in the long run, you would actually end up with more money, higher percentage of the time if you did a one time purchase instead of that dollar cost averaging strategy, but in some sense, we don't necessarily want to optimize for returns when we're doing this, I want to help you optimize your behavior. If you put all of your money into the stock market today and you lost 20% over the next thirty days, you would sell immediately, and then you would never get back in the stock market because you got burned. Now, that's not helpful for you and your long term success. So if you're overly conservative right now, go through the bucketing strategy, see how much you can invest in stocks based on your specific situation, and then put a plan together to get that money invested over a particular time period. I know it's tempting to try to wait for the perfect time to invest because we believe in the age old saying of buy low and sell high, but the reality is, is no one actually does that.

Jacob: 15:35

We all say that we will, but no one ever does. When markets are down 30%, guess what? You're not very excited to go take your $100,000 and dump it into the stock market whenever things are not going well. And whenever markets are up, guess what? You want to go invest so that you don't keep missing out.

Jacob: 15:50

So what happens is our emotions lead us to the opposite of what we know we should do. So we know we should buy low and sell high in theory, but it just never seems to work out that way. So instead of actually buying low and selling high, I just say buy now and never sell. So I'll say that again. Instead of buy low, high, buy now and never sell.

Jacob: 16:10

So think of it this way, try to buy so much that you never had to sell because your dividends and your interest provide enough income for you to meet your spending or life expense needs. And as the old Chinese proverb says, the best time to plant a tree was twenty years ago. The second best time is now. So my final recommendation for you is this, don't get lost in analysis paralysis. Evaluate your situation, use this framework that we talked through.

Jacob: 16:37

If you can't get yourself to execute the strategy, hire an advisor to help, and sometimes the worst action is inaction, and your future self will be thankful that you did something decisive and you actually put a plan in place. So, hopefully this helps you maybe have a good understanding of maybe how to think about this question of is now a good time to buy, even if it feels like it's not, it very well could be. So what I would say is this, don't be reactive, be proactive. Put your plan in place, begin executing the plan, and then the results long term will be what they need to be for you to achieve your financial goals over the rest of your life and throughout your retirement. So if you have any questions on some of this, feel free to shoot me an email.

Jacob: 17:15

It should be down, listed there in the description below. So, check that out. I'd love to communicate with you and hear from you. If the show's been helpful, again, you can go ahead and leave a rating and review there on Apple Podcasts or Spotify. That helps a bunch.

Jacob: 17:27

And, other than that, I hope you have a great rest of your week and we will talk to you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice.

Jacob: 17:53

Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.