Navigating Market Volatility

Larry Seigelstein: Rob, that's a great point. Thanks for pointing that out. So as we move along, we're going to be giving you some quotes. This is a lot about education today, but you might've heard of him or not. But this is a British-born economist. He was from the 19th century. He was actually known as the father of value investing. And what he says is the investor's chief problem and we all experiences even his worst enemy is likely to be himself. So sometimes we let our heads and our emotions get in the way, and that's what his point is. And we're going to spend time today a little bit about philosophy, discipline, investment and things like that. But another thing he also said, which is kind of applicable, it says, individuals who cannot master their emotions are ill suited to profit from the investment process. So we understand that these things can happen and our job is to kind of help our clients stay on course. Rob, any comment on that?

Think we can move on. There's one more quote before we get into the agenda. Some of you probably know who Jim Cramer is from Mad Money and his quote is, every once in a while the market does something so stupid, it takes your breath away. So yeah, basically what ends up happening is we anticipate even if as an example, pending news or something to do with the reporting of earnings of a company, we think it's going to be a favorable thing, but the market reacts in a different or the antithesis. So you never know what's going to happen. Again, we're going to be talking about things that control factors that you have to make sure you stay on course to achieve your goals and objectives.

Alright, so we're going to take a quick look at what we're going to be discussing today. We're going to spend a lot of time on timing of the market. Again, it's going to be really some lessons on how to look at things for your personal goals, for your family goals to be approaching that, how the markets respond to crises. We're definitely going to touch on your approach to long-term investing. We're going to touch on investment strategies and again, if there's time at the end we're going to be able to answer some questions that you guys might have. Robin, anything you want to add?

Rob Fradella: No, I think we're in good shape.

Larry Seigelstein: Okay. Alright, so starting with this timing the market so we can't time it, okay. The old adage has proven true that through time that it's time in the market versus timing the market. There's always going to be volatility. There's to be things that happen. There's going to be news these days, especially with social media and with constant media out there with 24 7. You can get bad news 24 7 a day. It'll happen all week long. The difference that you have to think about is how does that impact your long-term game plan? And that's what we deal with Rob and I, we deal with clients related to these things happen. We are in volatile times. There is a lot of concern, a lot of trepidation with what's going on with current administration, world affairs every single day. There's something else coming up that could impact the market and we know that and people think about volatility only on the downside. You got to understand there's also volatility on the upside, people like that on the upside, but that's still considered volatility. So we're going to be talking about really just taking this into account. Again, thinking about these events that are transpiring and how does it coal down to your actual family and how it affects you. You're going to see that jumping in and out of the market is not an advantageous thing for your long-term game plan.

So going back to this, so let's talk about that. There are a lot of instances and we're going to go over a few of the crises and things that have kind of triggered what we would call downward markets or bear markets, but we talk about, like I said, time in the market versus timing the market. So this graph is showing you basically the impact on your portfolio of missing certain days within a 20 year period. So this is actually tracking the s and p 500. For those of you who know what that is, that's an index that consists of 500 large cap stocks. So we use that as an index, but it's going to show you for the person on the left hand column all the way to the left who stayed the course, who kind of ignored or didn't let the news kind of deter them from their goals and just stayed the course, their $10,000 investment back 20 years ago, stay the course, turn it into $224,000.

If you go to the next column, what has the missing the 10 best days, just 10 best days. It's hard to emphasize the impact of this of a 20 year period. Their overall portfolio performed 54% less as you'll start to see 20 best days now 73% less, and if you miss the 30 best days, that's 83% less. The point is that you have to again, consider the portfolio, consider what's going on around you and try to, I hate to say it, but try to put the blinders on related to the news that's going on out there because there is, like I said earlier, is going to be news that's going to be negative or positive that impacts the portfolio every day. But if you stay the course obviously, see that's the most advantageous thing to do, Rob.

Rob Fradella: It is just shocking that just by missing 10 days of the last 30 years, you'd have less than half the account. It's just stunning that 10 days makes such a big difference over 30 years.

Larry Seigelstein: And I would say Rob, even for folks who do this and they get out of the market, that's sort of like a temporary feel good to make them feel good. But then the challenge that happens is when do they get back in? So you get out of the market and then they say, oh, I'll get back in when it's moving back up. But that start to feel comfortable again, they might've missed a tremendous bull run along the way. Okay, moving along. Okay, so this is kind of important too because even during bear markets there are good days that happen. The statistics say that within two weeks of a downtrend there's going to be days that are going to be large. Okay? So you talk about that gold represents the bear market, but you'll see in the white area that's just 22% up in the matter of just two months of that particular bear market and then you see 28% increase during the rest of the bull market. There's going to be good days, there're going to be bad days. And to refer to the slide that we just had is you don't want to miss those good days when those bad days are going on.

And then you want to add Rob,

Rob Fradella: No, just don't overreact to bad days what the stock market does. It's good days, bad days, ignore the noise and stay the course. Have your plan, your strategy and just keep contributing.

Larry Seigelstein: So I like this slide. It talks about human emotions and let's face it, everybody attaches the emotions to the market. Rob and I, our purposes in essence as advisors, again, I use the term we have to act as our client's emotional circuit breakers. We want to make sure that our clients are not doing the wrong thing for the wrong reason. So you kind of see sort of market cycles here. Okay, we start out as an investor, we're optimistic, we're looking forward to growth of our portfolios and prices start to get higher. That's great. Okay, and we're getting happy, we're getting almost comfortable. But here's where that high point, this sort of area where there's the elation that's also should be an area of concern because what that means is we're at a higher point of the market, which means based on historical trends, there's a possibility and or a probability that market's going to take a little bit of a dip down.

So what ends up happening? So then we start to say, okay, it's starting to come down, we start to get nervous, then we take it even a deeper dip, and now there's fear. So going back to the slides before, and this is going to be not to beat the dead horse, but the fact is when we reach that fear point, what do people do? Well, they start to react and they say, I got to get out of this market. I'm not comfortable. Now, quite frankly, when you're at that higher price level, maybe that's a chance for you to rebalance or maybe divest a little bit from some situation, some holdings that you're in. And when you're at that fear level as uncomfortable, and believe me it is uncomfortable, we want to say that's an opportunity to buy. The fact is when we go back to times like 2008 during the Lehman Brothers and the a IG downtrend and Mark in the mortgage crisis, we went to our clients and said, we understand this is an uncomfortable time, but it's also a buying opportunity.

And quite frankly, the clients who took our advice, who had liquidity at that juncture, obviously 17 years later, they reap the benefits of that. And again, the cycle begins, it starts to trend up and the optimism begins. It's a full market cycle. But we want to make sure again, as these peaks and valleys happen, there's different things that you could be considering within your portfolios to take action on, whether it be divesting, reinvesting, or buying more into it. So from a 401k standpoint, you guys on this phone when you're getting paid and the markets are down, hey, don't think of that as a bad thing. That is a tremendous market opportunity to buy in and what we call either dollar cost averaging or phasing in, you're buying at lower prices, which means that your dollars and your average cost goes lower. So that means when it starts to build, you're going to have a better profit at the end of the day.

Rob Fradella: And with a 401k plan, this is money you're not going to touch for some of us for another 20, 30 years. So as Larry said, even when the market goes down, don't panic, it's going to come back up. That's what we've seen over the last a hundred years. And you're buying things when the markets go down and you're investing and you're contributing every pay period, you're actually buying things on sale. Think of it, you go to the store, do you want to pay the ticket price or would you rather buy something when it's on sale, when it's cheaper? So that's what happens when the stock market goes down and you're buying into it, you're buying more shares of a stock, which is a good thing.

Larry Seigelstein: Absolutely, absolutely. So this is something that I use with clients when we're starting the beginning of the investment education. Some of you out there might be having a flashback to chemistry class for the periodic table of elements, but this is more of a table that really each color and we actually refer to our clients with the term colors of the market, really colors of the market. What you see here is just different asset classes, different sectors, and the key here is to say that there's no trend. You don't see. Each color again is a different asset class or sector and you'll see the top performing asset classes at the very top of the chart and the worst performing asset class at the bottom. And what we want to do is we want to talk to you about the fact that we want to emphasize diversification of your portfolio that allows you to access to different asset classes.

Number one, just let's say large cap, mid cap, small cap, international, emerging markets, fixed income, international fixed income, alternative asset classes, commodities, things like that. So it allows you to participate, excuse me, in all of these different asset classes, but at the same time what you're also doing is creating diversification amongst your portfolio. So typically people say, well the market is the s and p, yes, that's one color of the market. So if the s and p is doing well, that client is doing great, but if the s and p has a bad year or several years potentially if they're only in that one color, their financial house has the potential of collapsing. So what you'll see in this chart is what we try to do and what you see here is if you have a balanced portfolio which is in that yellow, you'll see when the markets are up you might not be as high, but also when the markets are down, you're not feeling the pain of it going all the way down because of that diversification.

Rob Fradella: And Larry, the balance, I'm sorry. Well the balance is really just having a mixture of both stocks and bonds don't hold just large cap, even though large cap growth has dominated over the last 10 years, you see it's been the winner six times, but check out the year 2022, large cap growth was the worst performing, so losing 29% in your portfolio when you're close to retirement would hurt a lot. That's why you don't want to put all your eggs in one basket. Large cap growth. You want to diversify because sometimes when large cap growth is doing bad, international might be doing or in favor, so you want to have a little exposure to international, especially again if you're close to retirement, having a diversified balanced approach about stocks and bonds is very important

Larry Seigelstein: And I think that's something to remember because as we work with clients, rob, it all obviously is based on potential demographic and risk tolerance and how far away from retirement, but having a diversified portfolio, even if you are aggressive to be in different within the equity market to make sure that you have a blend of large cap, mid cap, small cap, et cetera.

Rob Fradella: Yep. And we can even look at this year as an example, at the beginning of the year the s and p 500 was down 19% earlier in the year and internationals were up eight, nine, 10%. That's why you want to have a balance, have money in both areas at the same time.

Larry Seigelstein: Exactly, exactly. Underperforming can also at some point in time outperform, so we want to make sure we represented in those colors. Great point. Okay, so this next one is showing you sort of returns intra year and basically what it's telling us is that the markets can be done, excuse me, down within the year, but does that mean for the calendar year they're going to end up down? A perfect example that Rob and I always like to point out is if you go to, I know that it looks small on my screen too, but basically in 2020 right here, you're going to see at one point in time, and I could tell you exactly when this happened, the market was down at 34%. So we all know this is when the onset of COVID, COVID came out beginning of basically the first quarter of 2020. So historically it was unheard of that the market went down 30% in one month and actually returned back 30% the next month. But you'll see it was down 34% during the year but ended up positive, I want to say does that say 16%?

Rob Fradella: 16%,

Larry Seigelstein: Yeah, 16.

So there are times throughout history you see the blue dots, there's the.com in back in I would say in the 2000 range that we still, it was down farther. There's times when the market's down farther and it ends up less than it might've been and down where there's negative within where it has huge increases like in 1995 was down 3% at one point in time ended up 34%. Again, there's inter year declines versus the calendar year returns and you'll see despite average inter year drops of about 14%, there was annual positive returns in 34 of these 45 years that they're illustrating

Rob Fradella: And just looking at 2025 this year, the s and p 500 was down at one point was down 19% negative 19. As of today it's up, it's positive, it's up about one and a half percent so far year to date.

Larry Seigelstein: So hopefully we're driving home the points. Rob, this next one talks about, we were talking about earlier, about crises that have transpired throughout time and again, it goes back to what we're talking about staying the course. What you see here is the results of, again, to what Rob was just referring to, excuse me, I meant to apologize at the beginning in advance. I'm getting over cold, so please excuse my once in a while, spontaneous coughs, but this shows a blended portfolio of 60% stocks and 40% bonds. And you'll see after these crises there was the 87 crash, there was a savings and loan crash. There was the Asian, we had the Asian contagion, there was Russian crisis, there was a collapse, the.com crash. We had 9 9 11 bankruptcy. This is one we just talked about in 2000 of Lehman Brothers of a IG, the mortgage crisis.

You'll see that, let's just take nine 11 as an example. After one year the portfolio was down 3%, but after three years it recovered up 35% and five years after that was up 70%. Again, we can't emphasize enough, there are bad things. There's always something that's going to happen in the news and in the world that's going to bring us bad news and the market's going to respond. People will say it's different this time and we say absolutely it is different, but the fact is the market responds the same way. The market doesn't know what those different things are. They're just responding to those particular crises. And the fact is that as this graph shows, typically most of the time you're going to see your patients and staying in the market is going to pay heed for you and it's going to be advantageous in the long run.

Okay, this is just sort of piggybacking on that and just to point something out, again, this is a response to crises. It talks about what year these things happened and again, reasons not to invest. Rob and I hear that all the time. I'm going to wait, this is not a good time. I shouldn't be doing it out. Let's wait until the crisis is out again. Sometimes when we wait, we're going to lose and miss that opportunity to have the growth within the portfolio. So you see about a $10,000 investment from that point in time from these particular years of what happens if people can stay the course and kind of put those bladders on. Let's take a look. Most people are in the phone. Were probably in the market in 2005. So if you have a $10,000 investment, even though there was, remember Hurricane Katrina, we remember the London bombings.

There was things that happened all over the world, an earthquake in Pakistan. All of these things drove the market down and the calendar returned for that particular year. It was only 4.91%, but you'll see $10,000 invested in 2005 actually at this point in time actually to the end of year of last year brought a $71,750. It's mind boggling to think about all these things that have happened, read those individual things of why we shouldn't be in the market, but what ends up happening when you do have that patience and the resilience and to turn off the emotional responses of things to stay the course,

Rob Fradella: And this is without even adding another penny. This is just an initial investment of $10,000 and not adding to it after that and a four one K, you're contributing to it every pay period. So your amount would be even higher if you started out with $10,000 in 2005 and add it to it every paycheck.

Larry Seigelstein: Yeah, think about the compounding effect, Rob. That's a huge point. Continue to put in. Exactly. And when the markets are down, again, we go back to the buying on sale. Again, uncomfortable for us emotionally, but rationally we have to think about the long-term and know that if we're not tapping into these doesn't mean we can't adjust. The portfolio just means not going to cash and panicking. Okay. Nope. I think it looks like I missed a slide, so let me go back. Okay, that was me. This is a great quote. So everybody probably knows or have heard of Warren Buffett. He's the chairman of Berkshire Hathaway and before I pass to the Rob, just one last quote. It says, be fearful when others are greedy and greedy when others are fearful. This goes back to sort of the emotional slide related to elation and fear. Okay, so the other quote is, I think it's J Paul Getty.

When there's blood in the streets, that's when there's opportunities, okay? When others are feeling confident people, even with things like gold, there's trends that go on that maybe sometimes when it's at a high, maybe you want to consider when it takes a little bit of pullback and when markets are down and positions are down and you like that position, it's an opportunity to build on that position to buy it in at lower levels. Again, going back to 2008, again, people were fearful if there's liquidity, it was an opportunity to take advantage of that. Again, does it feel good? Is it uncomfortable? Absolutely not. But the fact is sometimes, again, divorce yourself from those emotions. Think rationally, think long-term as an investor, and again, the same thing happened back in 2020 with COVID, even for that one month or two months, you have to take advantage and think about when the markets are down, when people are driving certain emotions, that doesn't mean that you follow that trend. Don't always follow the herd. With that, I'm going to pass it along to my friend Rob.

Rob Fradella: All right, thank you Larry. We're going to change topics a little bit. Talk about investment strategies and generally inside a 401k plan, you have two choices. Do you want to pick your own funds, do it yourself or do you want to set it and forget it and not have to worry about monitoring the funds going forward? So we're going to start with the set it and forget it mentality. Basically every 401k plan has these target date funds available and they're easy to identify. They have the name of the fund ends in a year, whether it's the 2030 fund, 2040 fund, and they're so easy. The reason why you call it set it and forget it is just pick the range of when you were born. Let's say in this example you were born in between 1983 and 1987. The right fund for you, it'd be the 2050 fund.

That's the fund you expect to retire. So somebody born in 1985, they're 40 years old today and they have 25 more years to go. They put all their money in the 2050 fund and that one fund is a basket of both stocks and bonds. So you don't have to decide which one stocks, how much stocks, how much bonds the fund manager decides for you and that fund, again, I'll use the 40-year-old as an example, that 40-year-old has 25 years to go to retirement. So that fund is going to be aggressive today, have mostly stocks and just a little bit of bonds, but over time, that fund is automatically adjust and it'll have actually become more conservative in the future, slowly migrating to more bonds and less stocks. So the set and forget it, you pick one fund and you stay in it for the remainder of your time in the 401k plan. That's one approach.

Larry Seigelstein: Rob, these are great tools and you and I know why we rebalance our client's portfolios at a minimum on a quarterly basis. So some people don't have the wherewithal to actually rebalance and have the time to do that to know, well, I see I'm over allocated my large cap or my small cap. This is way for clients and for our participants to say, okay, I don't have the time, nor really the investment experience to be doing that, to let professionals take care of it and rebalance as time goes by,

Rob Fradella: Set and forget it. Go back to life, be with your families, have fun. But yeah, if you choose the other approach, one more thing about the target dates. So this is a typical glide path to give you an idea of how they work. The ages are on the bottom. So if you take a 20-year-old up to the age of 40, you notice there's a lot of green. That's the stocks that are in the portfolio for when you're younger. So up until about the time of the age of 40, you're about 90% invested in stocks both domestic and international. And the yellow are the bonds, the safer investments. So very little bonds early on. You'll notice once you get approached about the age of 40, 45, the fund slowly starts adding more bonds to it and less stocks, but still majority of the count is stock. That's where you're going to get the bigger gains, but there's more risk.

Then there's a glide path here where as you age, the fund automatically becomes more conservative, adding more and more bonds, and look at the retirement age, it's about half and half. At age 65, you're still invested in stocks at about 50% of the portfolio and 50% in bonds because again, you don't want to be too conservative because life expectancy, hopefully we all lived into our nineties, maybe even a hundred. So you don't want to outlive your money, so you still want to have exposure to stocks even in retirement because that's going to give you the potential for higher gains. Again, there's more risk, but the potential for higher gains is with the stocks, but gradually, you'll automatically become into more bonds as you get to your target retirement date.

The other approach, instead of picking a target date is to pick your own funds. There's more work involved. You do have to diversify your portfolio. You have to think about how much do I want to put in large caps, small caps, mid caps, international, so there's more work, but you want to focus on the long-term strategy and you also want to make sure, as Larry mentioned, you want to rebalance your account perhaps on a quarterly or annual basis. So over time, let's say you're in 60% stocks and 40% bonds. If the stocks do really well over time, you're going to be more invested in stocks. You're going to be overweighted in stocks if they outperform the bonds. So instead of the 60 40 that you intended, you might be 80 20, 80% stocks and only 20% bonds, and if stocks get hurt, if they underperform in a particular year, you might lose more because you're overweighted in stocks. So the downside to do it yourself, there's more work. You want to make sure you log into the 401k plan and rebalance, there'll be a rebalance option and most record keepers allow you a one-time of rebalancing it. You pick the rebalance option and it'll automatically rebalance going forward. So you don't have to log in every year to do that. But again, if you're going to pick your own funds, make sure you do rebalance.

Larry Seigelstein: I'd say that's an important point, Rob, because let's say I have a certain risk tolerance and maybe I'm a 60% equity, 40% fixed income if like you said, if there's a very good year and now all of a sudden my equity has really taken over and now I'm 80% equity and 20, I've left my comfort zone in theory. So now that's where it's so important to make sure we are keeping an eye on this if we're doing it ourselves. Otherwise, you're going to be more aggressive, actually more conservative potentially than you want to be for the long term.

Rob Fradella: Here's just some sample asset allocations, a guideline based on your age, so you'll notice someone in their twenties, thirties and forties, there's more blue than green, blue being the stocks, green being the bonds, but you'll slowly notice as you age, you want to increase the green, more bonds, but again, even at the age of 60, you notice there's still a lot of blue. We're recommending between 45 and 65% of your portfolio still being in stocks. As you approach retirement, you'll see the introduction of the red color. That's the money markets that's even more conservative than the bonds, but again, slowly migrating, aggressive when you're young, more conservative as you get older, just a nice loose guide to utilize. Again, this is only if you're going to pick your own funds. If you're in a target date fund, that work is done for you. You don't have to worry about this.

How much can you contribute to your 401k? Here's the maximum limits for 2025, the maximum contribution limit did go up by $500. It's $23,500 is the maximum, and that's a combination of both the traditional pre-tax that we're all aware of. Some people aren't aware though most plans allow you to save in a Roth 401k too, but the combined limit of those two sources is 23,500. For individuals age 50 and higher, you can do an additional 7,500. We call that the catch up for a total of, again, if you're 50 or older, you can do $31,000 and something new for 2025 is anybody who's aged 60 through 63, their catch up limit is not 7,500. It's actually $11,250. A slight an increase. Just those age groups, those 60 through 63, and then if you turned age 64 this year, your catch up is the 7,500, not the increased. And as we mentioned earlier, keep contributing even in a down market. Don't stop. I hear sometimes people say, I'm going to stop payroll. I'm not going to contribute to the 401k because the stock market is down. You don't want to do that. Keep contributing because when the market's down, you're buying things on sale.

Larry Seigelstein: Rob, a question for you. Let's say somebody turns 60 midyear. Can they do the 11,000? Can they go up to the 11,002 50?

Rob Fradella: Yes. As long as you're 60 at any point. At any point in this year, if you're turning 60, you're eligible for the higher amount.

Larry Seigelstein: People should know that.

Rob Fradella: Another question we get a lot is how much should I be saving each paycheck into the 401k? Well, the goal should be, I know it might be tough for some of 'em who's only contributing four or 5% today, but the goal should be 15% of your pay going into the 401k each pay period, and that does include any employer contributions. So if your employer is making a match or a profit sharing contribution and it's 3% of your pay, well then you only have to do 12% to get to that 15%. But if you're, let's say today you're at five or 6% and you just can't afford to go to 15 immediately, you can get there gradually, perhaps each year on your birthday or on January 1st, increase your contribution by one or 2% and eventually you'll get to that goal of 15% to the right of the slide, it just shows you some benchmarks based on your age, how much you should have saved in your 401k at age 45, the recommendation to have four times your salary saved for retirement and at the end, at age 65, the goal is to have 13.5% of your salary saved in the 401k.

Very important to have beneficiaries designated for your 401k. A lot of plans. You go online and you name your beneficiary to make sure you do have a beneficiary designated for your 401k and just as important, any life changes. You get married, you have children, you get divorced, update your beneficiaries. I see a lot of plans where a lot of participants have not chosen a beneficiary and it's very important. Those are the folks who are going to get your money should you pass away.

Larry Seigelstein: Rob, I want to mention one thing about this based on experience. People should also know that that document, that 401k beneficiary document that actually supersedes anything that a will says. So people will say, well, in my will, no, no, no, they're going to refer to this beneficiary. There's been a story in the past. There was a Long Island teacher, she was very young before she got married. She had her sister as a beneficiary. She got married 40 years passed, she passed away and the husband said, well, I'm the spouse. She never updated the beneficiary form. The sister got all the money, not good for a family situation. Okay? So just be weary of the fact that, make sure that this is updated related to changes in life events and things like that.

Rob Fradella: Wrapping up, again, the theme here, focus on what you can control. You can't control the stock market. It's going to do what it does, but what you can control is your investment risk. Pick funds that you're comfortable with. We want you to be able to sleep at night. Again, diversify amongst stocks and bonds. Again, this is a long-term strategy and only make changes to your funds when your objective change, not on the bad headlines. The crisis I, another wrap up slide again, take the emotion out. I think we've hit that home on a couple of slides here. Don't be scared of the headlines. There's always going to be bad news. Just stay the course again, have a plan and stick with it.

We are going to leave it open for questions and I'm going to leave Larry and my contact information up there because we're available to hold one-on-one meetings with you. If you just want to email us and schedule something. Larry and I are happy to speak to you on a one-on-one basis, but we'll open it up to questions. Ah, here's one. How often should I check my 401k? I would say don't check it. Definitely don't check it on a daily basis. I could see checking it each quarter or semi-annually or annually, but going in there every day and seeing the ups and downs is going to drive you nuts. But I would say at a minimum of one time a year, maximum, maybe every quarter to check your 401k.

Larry Seigelstein: Rob, you did such a good job. There's no question, no other questions. Otherwise, Rob and I are thankful for the time that you've spent with us. Obviously we appreciate that and we again, appreciate you taking the time to be with us and we're here as a resource. Just remember that. Okay, some of you might know us already through 401k education we've done for your companies.

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