PODCAST 87: The History of the Market and What it Means for Your Wallet NOW


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Below is a transcription of the Ask Gregory Podcast 87: The History of the Market and What it Means for Your Wallet NOW

Gregory Ricks  00:00

Hey, welcome. I’m your host Gregory Rick’s a financial advisor here to answer your questions and help you win with your money.

Podcast Intro / Outro  00:09

On today’s episode of the Ask Gregory podcast, Gregory is going to discuss the history of the market, how it fluctuates, and what that means for your money now, also, we’ve got a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast87. Again, that is gregoryricks.com/podcast87

Gregory Ricks  00:30

Let’s talk a little bit about market history here. You know, some of the things we you know, there’s risks, what are the known risks, that that’s one of our concerns known risk, every two year we get a 10% correction kind of as an expectation, you should plan for every decade, every 10 years, somewhere in there, you’re getting probably a 20% or more downturn, that doesn’t mean it’s going to finish up for the year or down for the year as a result of those impacts. So it doesn’t mean you’re going to have a year that’s going to be 20% off, but you can have that happen during the year and at the end, it may result in less, could we potentially have one of those years? Yeah. The s&p is down 17.6% for the year, you know, I’m getting that number from btn research. But you could go to any of the indices, websites and look up those numbers, Yahoo Finance, as well, then somewhere they’re about, we’re probably having a larger downturn. I’m gonna give you some stats, stocks have lost a third of their value, at least 12 times in the past 170 years. It just seems like it happens. More often. Of Light, meaning we have a big downturn during the year. But did the market closed down that much? No. So but we’re, we’re talking about the market closing down for the year off that much. But here, here’s one of my concerns for you. Let’s go back to 2000. And we’re we’re talking about the s&p 500. And I’m getting these numbers from from Vanguard s&p 500 index returns VF I in x. And while we look at and let’s just kind of run through this, if we look at the return for 2000, it was minus 9.06% 2001. It was minus 12.02%. In 2002, it was minus 22.15%. And then 2003 It was up 28.5%. So you had three consecutive negative years starting with 2000. Let’s let’s translate that to dollars. If you had put a million dollars to work. At the end of the first three years, your million dollars would be down to $622,870. That fourth year I mentioned in 2003 where the market was up 28.5% Well, that got you back to $800,388. What would you have done in that situation? Surely, I hope all your money’s not in that for that reason. That’s in 2004 it was up 10.74%. So you got back to $886,350. Then in oh five it was up 4.7 2006 Up 15.6 2000 to seven 5.39. So you now you’ve gotten above water at the end of 2007. You’re back above a million dollars. You’ve got $1.31 million. Then get what yours next 2008. Yeah, there’s that a third of market value was erased.

Gregory Ricks  04:49

The s&p This Vanguard s&p 500 fund was down 37.02% That 1.13 1 million is now 702 $12,775 I hope that wasn’t all of your money. Hope that was just part of their. But look, we and then it got on a run that next year 2009. It’s at 26.49%, you’re back to 901,000. And next year 14.91. Now you’re back to 1,000,010 years, then you started this investment in 2000. And year 2010. You’re at 1,036,000. Not a lot of gain. Hmm. But if we look at that run, when was the next negative year after 2008 2018? Most people saw that was a good year. Yeah, until the end of the year, it erased the gains for the year. But in 2018, this account was all 4.52%. But look where you’re at $2,414,000, you’ve more than doubled the assets in an 18 year span. But what but what I’m getting at here is we had one negative year in that 10 year period. Was there some corrections and adjustment along the way? Yeah, but you basically had positive years for a long run. So in 2019, this count was up 31.33% 2020, up 18.25% and 2021, up 28.53%. Here’s part of the psychology, I think investors are just used to it always finishing up. And now they’re worried that it’s not in it’s probably not going to finish up for this year. But that’s why we gotta let the year play out. But that million dollars that you put in in 2000, with these up and downs in 2021, finished up at $4,819,502. In this year, we’re off 17.6% That takes you to $3,971,269.65 Based on the losses as of Friday, June 10 through the year and so next I will take you through bond fine. there and it’s VB mfx if you had a put a million dollars in that, you know when in 2000, you would have been up 11.39% 2001 Up 8.43%. In 2002, you would have been up 8.26%. So comparing that to the s&p index fund at Vanguard that million dollars in the bond fund would be at 1.30 7 million opposed to the s&p dropping down to 622,000. See why you should have a mix of asset classes there. And and we can take that all the way forward. Like okay, here’s the question I’m not going to take you through every year here on this but I will point out when set between 20 and 2021. When were the negative years and bonds, well, there’s three level 2013 was minus 2.26%. In 2018 was minus point one 3% And 2021 was minus 1.77%. It averaged over that timespan 4.99% opposed to the s&p 500 averaging 8.07%. But in that first five years, from 2000 through 2000 and $4 million in that bond strategy in that bond mutual fund a million dollars went to $1.417 million post to the s&p 500

Gregory Ricks  09:30

fund million dollars went down to $886,350. So by 2020 Warren that bond fund value was $2,703,000 on average 4.99% The s&p averaged 8.07%. So the bond fund didn’t have to make up much and losses did but yeah the stock market yet had to make a lot. So when you look and say, well, at average 8.07%, you sure can’t use that number going forward as an average return, you’ve got to drop down a good bit. And that’s for another conversation. You come into our office, we kind of take you through this so you understand how you could be a little bit misled regarding sequence of returns. So once again, two asset classes, I went over with you there. Next example I’m gonna give you is in regard to fixed indexed annuities. I like growth annuities, I I’m not a fan of income riders, or bonus annuities. And just to be out there, you know what the negative on a fixed indexed annuities are in theirs, they’re different from variable, they’re also different from fixed in interest annuities, I don’t care for variable annuities, they’re just There’s way too many fees too expensive. I like a fixed indexed annuity, because it’s clean. There’s no asset fee. It is a commission product, they do pay the firm a commission, but they’re not taken fees out of the account. Whereas managed money, you know, like, you know, your brokerage accounts, IRAs, that sort of brokerage firm an example Fidelity Investments, you’re going to be feed annually on that account could be taken quarterly or monthly. But the fixed indexed annuity, it does not have a fee. Now, some of those, you could add riders and such and create fees, I like it clean, I just want it for growth purposes. And let’s I’m gonna give you an example or a participation rate with a 50% par. And if we go from 20 through 2021, using a fixed indexed annuity, how many negative years were there? And using a participation rate based on the s&p 500? How many negative years were there? Some of you may have guessed the answer, I’ll tell you now, there was no negative years. But there was let’s see, 345 years where it was zero. So if the market went negative, the index that it was correlated to went negative. It’s zero in place. So once again, there is no negative year. So that strategy, that asset class does not have to make up losses. And if you were using a 50% participation rate is an example. And those rates adjust each year, some years could be less, some could be a little bit more, but just hypothetically speaking, simplicity here use a 50% par right, which means you’re only getting half of the upside of the market. So if the market made, you know, if the s&p was up 10%, then you’re getting 5% as an example. But if we use that same par rate 50% over that timespan we just looked at with bonds, and the s&p 500 a million dollars went to 3.8 to $0. million or average 6.05%.

Gregory Ricks  13:47

And is the par rate fixed index annuity negative this year? No. Because the you know, the s&p is negative bonds are negative. But the fix index, well, it’s zero because there’s no gain, and it doesn’t suffer losses. So let’s go back and something I left out on the bonds, the bonds, that bond fund is off 10% this year. I said well, that’s not good. That’s like the most since 2000. Yeah, it is. But it’s off less than the s&p 500. So where that s&p 500 fund Vanguard I showed you, that it’s at $3.971 million, the bond fawn would be off about $270,000. So that puts you at $2,470,000, estimated in value, and the fixed indexed annuity was at 3.8 to $0 million The end of 2021, it would currently still be at that value this year, because once again, markets off, but if it’s off, all you get is a zero. So what the point is, everything’s not going down or as much and we really kind of have an anomaly from a bond standpoint. But a portfolio can be adjusted in the utilizing bond ETFs, for example, to be less interest rate sensitive, but you you’ve got in from an investing standpoint, you have to understand there’s some negative impact. And if we’re blending assets, I would rather blend all three of these plus another one I’m not getting into today, but that’s using quantitative tactical where money rotates in favor, and actually when kind of things are volatile, can shift to cash until it finds momentum again, and this is from a growth standpoint. Thanks so much for listening to ask Gregory where we answer your financial questions. You can find us anywhere Podcasts can be found and on YouTube and Facebook Live every Saturday from 10 to one subscribe, leave a review and tune in next time.

Podcast Intro / Outro  16:23

Don’t forget we have a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast87 Again that is gregoryricks.com/podcast87

Podcast Intro / Outro  16:37

Gregory Ricks & Associates is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Gregory Ricks & Associates are not affiliated companies. Gregory Ricks & Associates, The Total Wealth Authority is our trademarked tagline, it does not promise or guarantee investment results or preservation of principal nor does it represent a certain level of skill. Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. This radio show is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Gregory Ricks & Associates is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Gregory Ricks & Associates. Any media logos and/or trademarks contained herein are the property of their respective owners and no endorsement by those owners of Gregory Ricks & Associates is stated or implied Gregory Ricks & Associates has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. AEWM, Gregory Ricks & Associates, WJ Blanchard Law, LLC, J Heath & Co. and Mortgage Gumbo are not affiliated companies. This show is a paid placement.