The Stress Test: How Enduring Volatile Markets Leads to Success – Episode 237

Find out what it takes to keep your poise during turbulent times.

Investors are tense, the public seems restless. Where can you find financial calm when everything seems so unstable? On this episode of the Dentist Money™ Show, Reese and Ryan attempt to alleviate your anxiety.

Feeling stress during times of volatility is normal, but if your portfolio has been carefully constructed to fit your personality and long-term goals, you can be confident when others have the stock market jitters. 

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Podcast Transcript

Ryan Isaac:
Hey Dentist Money Show listeners. So far in 2020, we’ve had quite the wild ride with COVID, economic shutdowns, and the stock market. Have you wondered if things are going to get worse, and if so, what you should do about it with your portfolio and your investments? Join us today on the Dentist Money Show where we talk about these stresses and these emotions that are going on a lot of people’s heads because of the market and the economy and COVID and the shutdowns and what you can do about it to position yourself to have success in the future. Thanks for joining us.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, our registered investment advisor. This is Dentist Money. Now, here’s your host, Reese Harper.

Reese Harper:
Welcome to the Dentist Money Show where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old cohost, Sir Ryan Isaac.

Ryan Isaac:
I am here. I’m glad to be here. Thanks for another introduction on another fine production day here on the Dentist Money Show. Thanks for joining us, everybody. Also, it’s nice to have you.

Reese Harper:
Beautiful day. The mountains are green, the sun is shining, the skies are blue, and we’ve prepared some excellent content for you.

Ryan Isaac:
I was hoping you’d finished that way, end on the heels of that poem that you prepared weeks in advance, so I’m going to start actually, Reese, with a, this is going to be like a warmup. This is like the stretch before a workout, okay? Before I jump into this question. This question, this statement actually comes from texts and emails that I get, it’s a couple of times a week. Usually they’re unsolicited or they’re just in the middle of a conversation with clients, and they come in the form of statements, not questions, so they’re kind of like really open ended and sometimes I get myself trapped because I just start talking without asking more questions. The statements are this.

Ryan Isaac:
“Hey Ryan. Man, I just really feel like things are about to tank. I think we’re in for something bad in the market,” period. I’ll just get like a text like that or an email, and if I’m too jumpy, I just launch into an explanation about long term and blah, blah, blah, blah, blah, and sometimes it’s not even a real issue to discuss, so that’s our warmup for today. Are you getting that question? I mean it’s very logical, I totally get it, I understand the emotion behind it. Are you hearing that? What have your conversations been like around that subject?

Reese Harper:
I think it’s very normal right now for people to feel like worried about how does the government throw $3 trillion of the country, and a lot of people are still not even working but the stock market’s back up. Why is it up? Why does it go back up? Isn’t it just like fake and won’t it just drop again? These are normal feelings. I’m definitely getting this. I can read you probably two texts from today on this topic.

Ryan Isaac:
You got some quotes? I’ve got a couple.

Reese Harper:
I’m sorry, but this one made me laugh because I looked at the text I got but then I saw that right above that was pretty much the same thing on March 27th. So I got a text on March 27th with about the same question as I got on Thursday of last week, and again, Tuesday of this week.

Ryan Isaac:
Which is like June something.

Reese Harper:
This is June, yeah, so two months later. “Anyway, I’m still expecting the bottom to fall out with both COVID and the unrest of people on the left,” period. It must be a text about political affiliation. Remember, you have an election right around the corner, and this might be the end. Should I get more conservative than I am right now?

Ryan Isaac:
How old is this person?

Reese Harper:
Late 40s.

Ryan Isaac:
Financially decent situation?

Reese Harper:
Yeah, like in a pretty good spot. I wouldn’t say they’re-

Ryan Isaac:
Not done.

Reese Harper:
Not done but in a good spot. Like they’re going to be fine.

Ryan Isaac:
When you get that, do you make the rookie mistake of just launching into something sometimes?

Reese Harper:
This is what I said. I said, “You can get more conservative right now if you want to. You’d be going from fixed income to cash, and because you’re not having any withdrawals right now, you’d probably be better off staying the way that you are. Interest rates and bond yields right now are so poor that in order to get more conservative, we’d have to be selling some stocks and buying bonds that are trading at a pretty high premium.”

Reese Harper:
What I’m basically saying is we can get more conservative. You’ve got a good mix right now. If we want to go more conservative, you’re going to be like selling something that is probably fairly priced in saying, I mean the stock market still hasn’t recovered back to where it was in February and even then, I wouldn’t say it’s like overvalued dramatically, but the bond market and the cash market, there is no return in those markets and you are buying a risk asset, like if you buy a bond right now, you’re buying something that pays a low interest rate and you have a high likelihood of losing money in the next year.

Ryan Isaac:
For context, not losing money in the same fashion as a stock. No, not the same-

Reese Harper:
If you’re only making 1% on a bond and it goes down 3%, then it’s not a big deal because you still get safety and security in liquidity-

Ryan Isaac:
In absolute terms, it’s not a big deal, but like comparatively, if you lose three, five, seven, maybe 10% of the bond but you only get one, that’s bad. That’s not good math.

Reese Harper:
Anyway, I said that and then the next text was “Let’s just keep things as they are. Thanks for connecting.” I don’t know. Here’s kind of my assumption. If I was a bad financial advisor and I didn’t know what I was doing, my response to this person would not calm them down, it would make them worried and they would probably not just have texted me back and said “Let’s just keep things the way they are. Thanks for letting me know,” because I’m like really methodical about how their portfolio is built for their age and the mix of assets I have, I’m not just like giving them a random answer of like “You’re going to be fine, things are okay.” I’m actually telling him, “I’ve thought about this like so many times because we’ve had this conversation a lot,” and I know that the portfolio mix is appropriate for their income level risk profile.

Ryan Isaac:
Timeframe, career-

Reese Harper:
It’s not the same as everybody else. This person got a very specific investment portfolio construction that is specific to their personality type, and based on how I know that they’re going to react, right? It’s not a different portfolio than anyone else has, it’s just like it’s specific to their age, income, and personality. So because I know that is the case and when they asked me this question, I actually can look at their portfolio immediately and make sure I feel good. If somebody asks this question, there’s a lot of times that a financial advisor is going to have to legitimately worry, like not know, like I don’t know if this person’s okay. I don’t even remember how their money is invested, I don’t even remember what we did. I don’t even know where I put the money-

Ryan Isaac:
What they do for a living, how much did they earn-

Reese Harper:
Who are they?

Ryan Isaac:
What do they spend, what are their debts.

Reese Harper:
Because it’s a really good question-

Ryan Isaac:
Are they about to buy something?

Reese Harper:
If you had 400 clients and this text came through and you didn’t even remember their situation, you wouldn’t know the answer, but because we have like a smaller number of clients per advisor and I know this client really well and I have access to their data on my phone and I can get confidence really quickly about their allocation, I can respond back pretty fast and turn what would have been a multi hour, potentially several meeting interaction in the old days when advisors didn’t have access to good data and they weren’t doing good planning. I can turn it into like a 45 second to a minute long text. Instead of the client being stressed out for five days or a week or two weeks about this, I can help them feel good within an hour of them texting me, and it’s because I actually feel like the answer to their question really is we’re already positioned the right way. This market reaction or what’s going on right now doesn’t change anything about our strategy.

Reese Harper:
The amount we have in stocks is invested for a longer timeframe. It’s a seven year minimum timeframe from today before we would even need that money, so I’m not worried about that, and I don’t want to take more money from that bucket that I’m not even going to need for seven years and then put it into bonds that are already even more conservative. That’s what people were saying all the way down and I would just rather be the person that holds the equities for the timeframe that I need and not guess when I should be getting in and out. That’s how I think it that I would view that.

Reese Harper:
My reaction generally, probably like yours is, is to just be empathetic to people’s question, be empathetic to their stress and realize I don’t know everything about what’s going on, but be very cautious before I make any moves because there’s a reason I built a portfolio the way it’s built and I’m not going to let someone’s first gut reaction make me change my mind. I’m going to make sure that there’s something that’s substantively different. Something had to have changed, and market volatility is not a change. That is not a change.

Ryan Isaac:
That’s not the driver of change in a portfolio. Yeah, totally.

Reese Harper:
Change would be “Oh, I didn’t realize that you had bought this boat. We didn’t talk about that.”

Ryan Isaac:
Or a building or you dropped an associate.

Reese Harper:
I didn’t realize you bought a second home and bought some land or I didn’t realize that you’ve been struggling so much to get collections back up and you have a higher AR balance than you’ve ever had. Those would be like substantive life changes that would require an adjustment, but when we built the portfolio, we built it with volatility in mind, and we said when we built it, if tomorrow the market drops 30%, are we okay with that risk that we’re about to take right now? We said yeah, and over a 20 year period, we know that this volatility, we accept it, we acknowledge it, we’re okay with it. It’s a trade off we want, and this person wouldn’t have any stocks in their portfolio, I guarantee you that.

Reese Harper:
If it wasn’t for my involvement, they would have no stock in their portfolio. Because they have stock in their portfolio, they have a six figure amount of money more than they would have had without it.

Ryan Isaac:
20 years from now, if they continue to hold on to appreciating assets-

Reese Harper:
It’ll probably be the reason that they retire or don’t comfortably. It’s kind of like you go to the gym and you work with a personal trainer, and if you have a personal trainer, like this morning I went to the gym and it was like upper body day, so he’s like “Get a stick, throw a stick on your back,” I’m like, “What is this? All this new language, a stick on my back?” Apparently that’s what they call a barbell. Anyway, he’s like “Grab the stick, put on your back, start warming up,” and so I go through, it was like inclined press, bench, shoulders, overhead stuff, like just all upper body. I was so beat, I couldn’t even get through the 10th rep of most of my sets because he was putting on so much weight, right? I was just get until like rep nine every time. He’s like, “That’s exactly how I want to see it. I just want to see you crash on that 10th rep, I want to get you just right to the-

Ryan Isaac:
He’s just getting his boy a pump, man.

Reese Harper:
I’m just like, “What?” It’s just so heavy and I’m just thinking to myself like I wouldn’t be lifting this without him. There’s no way. I would probably have 50 pounds less on the stick, right? If I was doing it on my by myself.

Ryan Isaac:
For sure.

Reese Harper:
When it comes to portfolio management, what I find is that most people don’t have the confidence to be as aggressive with their investments or push as hard without a financial advisor. People carry more cash without a financial advisor. This is my anecdotal evidence, okay? I can’t prove this yet because I don’t have like a large enough scientific study to prove this or a consistent set of financial advisors to monitor this with, but we will have this study completed at some point. I believe that the-

Ryan Isaac:
You’re saying 15 plus years of watching dentists make investment decisions, you can confidently say that’s what you deserve.

Reese Harper:
If Ryan is working with you, you’ll carry less cash in the bank. If Ryan is working with you, you’ll probably have a portfolio that is tilted towards slightly riskier assets, because Ryan will have confidence that that’s the right path to go down for most people.

Ryan Isaac:
And you’ll hold them for a longer period of time which historically-

Reese Harper:
You’ll hold them for much longer, you’ll be much more consistent with them just like if you were working out the gym and you were working out alone versus with a person standing over your shoulder, poking fun at you like I had this morning. Just kidding, he wasn’t that bad. It’s just human nature. You got to get a buddy, they will help you push further, and that’s been my experience. I let one of my financial advisor colleagues look at my personal investment portfolio like nine months ago. Usually I have Ryan look at it but this was another friend of mine that works at another firm and I’m just like “What would you do? How much cash would you carry?” He’s like, “Man, why do you need the cash?” I’m like, “I don’t know. I need to carry this much cash, just the maybe, the what if.” He’s like, “I don’t know, man. It doesn’t seem like you’ve given me a really strong argument for why you need that. You’ve got a salary, you’re living within your means, you’re not giving me a strong conviction on why you’re going to need that extra cash.”

Ryan Isaac:
You have a savings rate.

Reese Harper:
Yeah, you have a good free cash flow, you’re saving at a high rate, you should probably deploy that. I’m like, “All right.” I’m looking back, I’m just thinking even as a financial advisor, it wasn’t like a ton, but it made me actually even go a little more aggressive. I was already 100% equity as it was so it wasn’t like I was investing in bonds, but like just to know I got that little extra emergency fund cushion. Do I really need that? Basically I was carrying like six months worth of personal living in cash and I went down to three. It’s a small example, but over like a 20 year period, that actually, and even in the last year, it made a big difference. Anyway, carry on.

Ryan Isaac:
I like that. Thanks. I think you pointed for our listeners, I think you pointed out a couple maybe myths that are really, really common. One of them being that there’s the thing called recency bias and it’s really easy, we all do this in different parts of our lives. It’s really easy to get caught up in what we feel today, what’s going on today and feel like it’s the most urgent or important thing that it will take precedence over anything else that’ll ever happen again, and the truth is people who have been investing for maybe 15 plus years or a couple of decades, they weren’t the same as COVID but there were stresses in the marketplace, in the job market, in the economy and the stock market that gave them similar amounts of stress, and there will be in the future again too, and so this idea, the myth would be that market volatility would change the allocation of a portfolio, and that’s just not the truth. That’s not what should change the allocation of a portfolio. It’s a life event.

Reese Harper:
It’s a life event, it’s the time that you have that has now changed because of a life event. It’s the income that’s changed that you no longer have or has lowered or increased maybe. It’s the inheritance that you got or didn’t get or the money you had to bail out one of your children that found themselves in the local jail cell, right? Not the inheritance, the opposite of that. It’s just like there are life events that cause you to change your liquidity position and there are life events that cause you to have income changes. Those are very substantive reasons to consider allocation changes.

Ryan Isaac:
Yeah, and then the other one in my head I’m thinking about is there’s kind of like this myth or this belief that the main most valuable job of a competent financial advisor is to help you pick mutual funds in an account, like set it up and pick the funds, because that’s what has been marketed in our industry for so many years as like the big differentiator, like I pick better funds than the next person, but what you’re pointing out is that’s a job, and that’s a job that requires attention and hours of someone’s time to do right. People do mess that up, that is true, but the real value is once those things are chosen, whether an app picks it for you or a human picks for you, sticking to it for 30 plus years is the job that requires like dozens and dozens and maybe hundreds of little things along the way to just make you stay with it.

Ryan Isaac:
There’s this like the big myth that the job is picking it. No, the job is helping someone like “Can I just get you to stick to something for 30 years?” Even if it’s not the best, most optimal, in hindsight, we could have picked better mutual funds, but did you stick to a good plan for 30 years? If you did, man, there’s just so much power in that. Let’s go ahead and take a quick little break and when we come back, we’ll keep rolling with that topic.

Ryan Isaac:
We know there are listeners who want to know what Dentist Advisors can do for them but they’re a little reluctant to reach out. Stop hesitating. Let’s just chat. Our consultations are completely free, you can just call 833-DDSPlan or go to dentistadvisors.com and click “Book free consultation.” We’ll see you soon.

Ryan Isaac:
All right, and we’re back.

Reese Harper:
There are businesses all around the world that are only in existence because of accountability. There’s one of my friends, Peter Shallard, he’s got a business in New York that he started called Commit Action, and literally, its only job is to like keep track of basically three goals that people would set in a week that they want to get done and then the job is for a human to like hold people accountable to getting those three things done in that week.

Ryan Isaac:
Make you do them, yup.

Reese Harper:
That’s been really successful. It was like all these testimonials of how it’s changed people’s lives and it’s just ultimately, that is the role of a good financial advisor is they will ensure that all of the financial jobs that you’re supposed to get done get done, and one of those things that’s supposed to get done, not the main thing, not the only thing, but one of those things is that humans have a tendency to change very well thoughtfully designed plans that you spend a lot of time putting effort into, and we want to just make a change, and change feels good and change feels like it must be better, and if we don’t change, then we might be stupid. Warren Buffett has a quote that relates to this and he says, “Don’t just…” Normally you hear the quote that is “Don’t just sit there, do something.”

Ryan Isaac:
Don’t just do something.

Reese Harper:
Warren Buffett says the opposite. He says, “Don’t just do something, sit there,” and once you build a good plan, it’s very difficult to sit under tension. It’s not the first plan that you come up with that you just stick with your whole life, but it’s a plan that puts you under tension, it puts you under pressure, gets you to a point where you’re kind of straining a little bit, and then you’re trying to figure out what adjustments to make so that you can continue to stay under tension as long as possible. You’re just trying to stay under tension for as much of your career as you can and keep your money under tension as well, and that means exposing it to investments in an uncomfortable way, more than you would otherwise normally do, because you would normally just take all your cash, let it pile up and pay off debt.

Reese Harper:
That mix just doesn’t result in as much growth. You don’t grow your assets as much that way, and so a good financial advisor helps you find the balance between all of those things so that you don’t get hurt. You don’t want to get hurt, you don’t want to put too much pressure on yourself, but you do want to be under tension as long as you can be in a healthy way, and it’s the advisor’s job to monitor that and watch that and make those adjustments, and it’s the wrong… I would just say I love what you said about like trying to stick with something. I think sometimes that could be misinterpreted to like never changing anything.

Ryan Isaac:
Yeah, I know. Sometimes things change every three to six months.

Reese Harper:
What you’re saying is you want to stay under tension more than you would normally do, and so when people are stressed, sometimes they want to take the tension away. They’re stressed, so what did that text that we read earlier, right? It said that the person texted me and said “I’m under stress, I want to take the pressure off. I’m under tension, I don’t want it,” and I said, “Well, are you sure? Because right now, there’s no reason to relieve the pressure. Nothing has changed to where, like if we don’t stay under tension right now, we might actually be worse off than if we-”

Ryan Isaac:
I was going to say, that’s like a temporary release, but then the possible tension that you could feel from like bailing on your plan, stop saving money, pull investments out as months drag on and a year drags on and things don’t, the market doesn’t do what you felt it was going to do because it doesn’t care and it doesn’t have to do what you think it’s going to do. That tension could actually be a lot worse than-

Reese Harper:
Just have a different tension that actually wasn’t as productive. It felt better but it wasn’t product tension.

Ryan Isaac:
Not as productive. That’s a good point.

Reese Harper:
Sometimes tension in a lot of ways in our life feels like it’s the right thing and it’s really not, it’s the wrong kind of tension. It’s like “Well, I’m working really hard, I’m putting in all the hours, I’m working 12 hour days.” It’s like is that the right kind of tension? Is physically exhausting yourself the right amount of tension? Same thing with your cash. Is paying off all your debt aggressively the right kind of tension that you need or is that just like what you feel like relieves your immediate pressure? I think that there’s so much emotion with money and so much emotion with making choices, I think it’s just risky to try to do that on your own just like it’s risky to try to lift a lot of weight without supervision or a friend or someone looking over your shoulder helping you, because if you’ve never done that before, there’s risks.

Reese Harper:
I feel like as people go along in life with their finances, the more they need at least a little bit of accountability and a little bit of guidance, and so I like that about our job.

Ryan Isaac:
That’s great, man.

Reese Harper:
Let’s try to give people some closure here on your kind of number one piece of advice. Given this dynamic, given the stuff we’ve talked about today, what piece of advice would you give people to help them have a better experience and with stock market investing in general?

Ryan Isaac:
I think I relate a lot to the story and example you gave of like being under tension. In the lifting world, they talk about time under tension quite a bit, so I really relate to that. I think one of the best things people can do is find some version of community that will give them not only accountability but like benchmarks to shoot for. What should you be doing and where should you be at certain points of your career and your age? I would just encourage people-

Reese Harper:
Ideally, you’d say be a personal trainer in your community but-

Ryan Isaac:
Ideally, it’s one on one.

Reese Harper:
That’s expensive in the training world. Luckily in the financial planning world, because Dentist Advisors is more accessible. We’re a little more or accessible. We’re a reasonably priced personal trainer for your finances.

Ryan Isaac:
And very nice people too, I might add to boot.

Reese Harper:
So you’re saying that that human kind of component, whether it’s-

Ryan Isaac:
Yes.

Reese Harper:
Some form of accountability is really important in order to make sure you’re under the right amount of tension and not being too lax about it.

Ryan Isaac:
Exactly. Human measurement, human accountability I think are just probably some of the best ingredients to achieve success in almost anything in life, yes.

Reese Harper:
I’m going to validate what you said before I say something. I just want to say that for me, most people I think are not under the right amount of tension and they’re not putting their financial situation in the right amount of time under tension. They’re not giving themselves the pressure that when it comes to their investments, basically most people carry too much cash, they’re too conservative, they don’t trust investing in the market over a long period of time, they hate volatility, and as soon as they experience it, they just want to quit, and it’s no different than putting like a bunch of weight on your back and asking you if it feels good. It won’t feel good and you won’t like it and it’s not supposed to feel good, and getting conditioned to live that way, like live in that tension, that’s where you get the most growth from your portfolio.

Reese Harper:
My tip in this would be to make sure that your… To make it not sound exactly the same as what I just said about your tip because yours was good, they’re very related but I want people to be willing to be uncomfortable after you’re convinced that you’ve built the right portfolio. So if your advisor is adequately diversifying your portfolio, and the mix of stocks and bonds is appropriate for your age, and the amount of cashflow that you’re contributing to that portfolio is adequately high enough for your income level, then I would encourage people to get used to being uncomfortable with the volatility of your investments.

Reese Harper:
The volatility of your investments is the time under tension that you have, the thing that we’re kind of relating to weights, and the more you allow yourself to be in that uncomfortable situation, the more it will start to feel normal, and it won’t feel uncomfortable anymore, it’ll just feel like “Okay, this is life. This is the way investing is supposed to go,” and the more you’ll be able to grow the… All of us wish we had more money, we wish we had like way more than we do, and one of the few things we can do to ensure that we have more is being willing to go under a little bit more tension than we would have been able to do without any buddy pushing us.

Reese Harper:
The more conservative that you are, the more cash you hang on to, the more you just want to pay down debt without ever investing. You’re not really allowing your money to work for you and be under tension and grow. With the little amount that we have left over, all of us hardworking white collar, blue collars, a lot of people will say you’re a white collar life but we know what it’s like to be bent over all day, working with a handpiece and carrying dental equipment around and your back’s sore, it’s tough on your knees, your arms, it’s not easy work. For us as financial advisors, our stress comes in a different way. It comes from talking to people, it comes from like emotional stress, like we have difficult conversations for hours on hours and hours every day, and it’s 10 hours of difficult conversations. They’re ones where we’re consciously under pressure, tension.

Reese Harper:
We’re having to push people to be uncomfortable slightly more than they would be without us involved, and that’s not easy. This is hard work and being a dentist is really hard work, and so with the little amount that you have leftover, we just want you to get the most out of it, and the more willing you are to engage in that process with a financial advisor and improve all the financial decision making and the quality of your investments and the volatility that you can experience. Instead of just running away from the tension every time volatility shows up, learn to embrace it, learn to earn your keep during that period of time. That’s really what’s going to give you the best return over a long period.

Ryan Isaac:
That’s great. Thanks man. Thanks everyone for joining us, we really appreciate it. We appreciate the support, we notice it, and it means a lot, and thank you very much. If you have questions, there’s a few things that you can do to get some help and some answers to your questions. One of the easy ones is go to the Facebook group, dentistadvisors.com/group. Post a question in there, we will answer directly and also get some cool feedback from the community, and sometimes we use it for podcast material too. Head there, Dentist Advisors group on Facebook. If you want to have a chat with one of our extremely friendly and very knowledgeable dental specific financial advisors, go to dentistadvisors.com and just schedule an appointment. We have a really flexible calendar on there and you can find a time to chat with someone right away, or just head to the website. Go to the education library, podcasts. There’s articles, there’s webinars every month happening, lots of stuff in there to help you make better financial decisions. Thanks again for joining us, thanks us, and good luck to everyone out there and we’ll catch you next time.

Reese Harper:
Carry on.

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