Hello, hello, hello my dear listeners. As you may or may not know, my husband Carl and I have a YouTube series on the Bigger Pockets Money YouTube channel called Life After Fire. As a very special bonus, we are going to be airing episodes here on Wednesdays. Without further ado, let’s get into it.
Hi there, I’m Mindy Jensen. And I’m Carl Jensen. And this is the Mindy and Carl on Life After Fire show where we talk about what happens after you reach financial independence. Why do we call the show Life after Fire? Because we’re talking about and talking to people who are living their best life after reaching financial independence.
Today we are speaking with Emma Von Weasy, who is a CFP, but not your CFP. However, we can still ask her questions because she has a lot of knowledge. I am so happy to welcome back Emma to the Life After Fire podcast. Emma, thanks for joining us.
Thank you on this very, very fun market volatility week.
Yeah, so tell me about this, uh, it’s been a fun couple of days at the office thing.
Yeah, I mean, it’s really just we’re taking it one day at a time. I don’t really check the markets, but at the bottom of my computer and I can’t get it to go away. It always kind of tells me what’s happening. Um, and so, I mean, it’s been going down for the past couple days and then we’re now recording this on April 10th. Um, yesterday, President Trump announced that he’s pausing the tariffs for 90 days. Um, and I saw my computer. It shot up like 5, 6%. We were all like what the heck is happening? Um, checked the news. Okay, more volatility.
Yeah, it is crazy and um, now today, we’re recording this. What day is it today? Thursday. It is back down. Uh, to use a professional market term, yesterday was a dead cat bounce and the cat is uh, falling back down today.
Ew, have you, have you not heard that term before?
I have and every time I hear it, it’s such a gross term.
I don’t know if it’s really a dead cat bounce. This is all short-term thinking, which is not the right way to think about any of this. But I’m curious I’m uh, I always think of people like you when these things happen and I, I see you, I’m picturing you in your office and the phones are ringing off the hook like you’re grabbing 10 phones and you become a psychotherapist at that time because everyone’s freaking out. Is that what actually happens or tell me what actually goes on at your office when these uh market fluctuations and dead cat bounces happen.
Yeah, I think for some advisors, that’s definitely what’s happening. Um, but for us, we have really close personal relationships with our clients and we keep them very well trained. So like every time someone comes in and at the end of their meeting, we show them their statements real quick. And we point to the number and we say, hey, at any given point, this number could fall in half. Your $4 million could be two and you just have to sit there and shrug your shoulders and say you don’t care because that’s what investing is. There is always volatility. And for our clients, I think the last time I was on, we talked about, um, our cash buckets. And so for each client that’s in distribution mode, we have about two years of cash or cash equivalents for them. And so we can weather any down market for at least two years, if not more, um, just by using those buckets. And so if we see a sharp correction or the market goes down for a while, we’re just turning off their distributions, we’re not selling, um and we’re giving taking their distributions from cash. And so they’re all, they’re all okay. Maybe a couple panicked emails here and there, but most people just want to know that it’s okay. And they know what we’re going to say, but they just, they send us a message anyway just to um hear it again.
One comment and then one follow-up question. I love your 50% drop. Uh Charlie Munger was my probably my favorite money person of all time and he has some quote that said if you can’t sustain a 50% drop in your portfolio, you’re probably going to lose a lot of money over the long term. And and I love that because that’s just how the markets work. Things go up most of the time, but they also go down too. and I think there perhaps there’s data to back this up that you can comment on. I have a feeling that the way up is probably gradual and then when we have drops, sometimes they’re violent uh, like we’ve seen lately. So they don’t, things don’t go up in the same way they don’t go down. But the thing I was going to ask you about is, I really like the two years of cash in distribution mode because if you’ve got two years cash and the market drops 50%, who cares? You’re living off your cash that mitigates the risk for at least two years. Do you find that works for for most people? Like what percentage of clients in distribution mode are on that two years cash plan?
Almost all of them. Um, and if we don’t have the cash outside of their portfolio, we have it in like within their IRA. We’ll like set a cash limit to we want at least $100,000 of cash if that’s their expenses for the year. So if even if they don’t have it outside the portfolio, we’ve created it inside. And it works really, really well. If anything from a behavioral standpoint, like it’s probably not going to make them the most money over time. It does help with that sequence of return risk where if you’re pulling money out in down markets, that just kind of compounds and impacts you much longer down the road. I mean, and we talked about this in the last episode, it’s so behavioral. It’s they just feel so much safer um when the market goes down and then they’re not, I hear all the time, the market goes down, you tighten your belt and you spend less money. Well, I don’t want people to spend less money especially, if they’re in distribution mode, they’re probably the healthiest they’re ever going to be. Um, I want you to go take that trip to Portugal. I want you to help their kit your kids with what they need. Um and it just really helps that mental barrier of now they don’t have to sell when they’re down. Um they have the money available and they can do with it what they want.
Emma, do your clients ever push back on having so much in cash?
Every once in a while, yes, they do because they’re like, well, especially past a couple of years when the market’s been doing really well. A lot of them have, I mean, they have recency bias. I feel like we all do to an extent. When the market’s been doing really well, you get a little greedy. You want your money to be doing that well. Why would I have my money especially now that high yield savings account rates are going down a little bit. You have your 4% in your high yield savings account, but if the market did 20% last year, I mean, you’re like, well, why am I getting 4? But then things like this come around and they’re like, oh, yeah, that’s why we have the cash. And then they’re happy again.
Do you park this cash someplace? You mentioned a high-yield savings account. Is it literally just cash in a savings account or is it in some sort of like money market or something that yields a little bit higher?
So one year we do in cash. And like that would be we all make sure it’s all in the high yield savings account. Um so that’s getting about 4%. And then the other year we will do some kind of bonds where our goal there is to just slightly beat inflation. Um, I mean, bonds over time, they do a little bit better than the cash does and so we just pick up a little bit there. so it’s not all in cash, but a good chunk of it is.
Emma, that’s really interesting that you bring up the B word, bonds. I saw an article this morning that said bond yields are spiking and Carl, you were trying to talk to me a little bit about this. Yields going up sounds like a good thing. So why is this bad?
We don’t own any bonds, but bonds behave in an inverse way where the more demand there is for bonds, the lower the yield is. So if yields are going up, that means people are selling off bonds, which is pretty weird because usually if people are selling off the stock market, um, people are buying bonds or vice versa. So yields going up and stocks going down doesn’t seem like a good thing. So then the question becomes who is selling these bonds. And in tough times you want yields to be low because that’s going to determine interest rates, right? So the the more people who buy bonds, I think the 10 year is most closely tied to mortgage rates. Emma, please step in and correct me if I’m wrong about any of this. I’m probably wrong about most of it but, you want yields to be down when you want interest rates to be low. Uh I know there’s various ways to do that but it was weird that those yields spiked at the same time we were having a sell off and I think everybody, people were speculating and up in arms and going crazy about that. Have have you been following any of this, Emma?
I mean, a little bit. There’s just so much happening especially in the last couple days that it’s a little hard to follow. I jokingly, I went in my trader’s office earlier this morning and I said, do you know what’s happening with the bond market? I was like, give it to me in five minutes or less. And he just looked at me and said, no.
So again, Carl, you’re saying the yields are going up because people are selling. and your explanation made sense, but that still makes it sound like getting into bonds would be a good thing right now because the yields are going up. Are they gonna then turn around and go down? Or like the fact that they work inversely is really messing me up.
This is past my circle of competence. I don’t have any further information on this. Uh, do you have anything else Emma or?
It’s so volatile right now. I would not make any decisions based off the current prices. I would again, like we always say, you go back to your investment policy statement, what is your plan? How much bonds do you want in your portfolio? How much stocks do you want in your portfolio? Um and you make sure that you’re allocated to that plan based off your goals. I wouldn’t make any decisions right now based off what the bond market’s doing or what the stock market’s doing.
Yeah, I absolutely agree with that and I want to go a little bit further and say, you know, to anybody who is really freaking out about this, the the way that the market is is handling itself right now. I would encourage you to write down your feelings. What exactly is making you freak out? I mean, I know it’s the stock market, but like, what about this? Are you afraid that you’re going to lose money? Are you retired and you are afraid that you’re going to have to pull money out before the stock market goes back up? Write down all your feelings because I want you to have an investment plan. and if you don’t have an investment plan, now is the worst time to make it. But now is the best time to understand how you’re feeling when it’s dropping. So write that down and then when the market calms down, you can revisit this and say, wow, this really made me feel terrible. I need to adjust my asset allocation not for the good days, but for the bad days so that my good days like, hey, the stock market’s up. Awesome. Nobody’s ever like, wow, that stinks. They’re always hurray, the market’s up. But when the stock market goes down, some people are like, oh, well, you know, that’s just a normal part of the cycle. And other people are like, oh, my goodness, the sky is falling. I need to sell everything before I lose more money. You actually don’t lose money until you sell. So don’t sell. I mean, that’s an oversimplification, but
No, that’s exactly right.
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Welcome back to the show.
There’s just so much going on, like you said, Emma, it’s it’s hard to keep up.
We keep coming back to okay, what’s our worst case scenario, right? In the history of time, the stock market has been volatile, but it’s always trended up and that doesn’t mean that it’s going to continue trending up, right? Um but what happens if it doesn’t? If what’s our biggest fear? A lot of people are like what if it goes to zero, right? Well, if it goes to zero, then Target’s out of business, Amazon’s out of business, you don’t have an iPhone anymore because Apple’s out of business. And so like if that’s the case, then it’s the apocalypse and all that matters is that you have spam and maybe you’ve taken some jujitsu classes because that’s all that’s going to save you. Your gold bars aren’t going to do it. The crypto means nothing. It’s not going to save you. So we just have to keep invested and keep that big picture, that long view because things are volatile right now and it always feels scary when you’re in it, but then you always zoom out and if you look at the history of time of the S&P 500, my favorite chart is where it’s plotted and it’s like here’s the 2008 economic crisis, here was the Vietnam War and it plots all these major history events, the pandemic where we were like, we don’t know what the future of the world’s gonna look like. Um and those are all just blips now. And so based off that information, we have to assume that this is going to be a blip at some point in the future.
Yeah, people always say scary comments when these things happen. I remember when COVID happened, someone said something to me that that struck terror in my heart, aside from all the economic and uh the fact that there was a pandemic coming. I remember I was talking to someone and uh, Costco had removed samples. I don’t know if you have a Costco membership, Emma, but they have samples there. And someone was like, yeah, samples are gone and they might never come back. I’m like, ah, ah, I don’t wanna live in a world without Costco samples. But then they came back and my life moved on. So I think, uh, perhaps one of the themes of this whole conversation is just to think, like you said, Emma, you can’t react, you can’t do things in the midst of the storm because you’re going to make bad decisions and they’re not going to be based on data, they’re going to be based on emotion, which is never, ever, ever a good thing. I’m curious, maybe we should transition into what you should be doing and that is having the plan or the investment policy statement. And um, like I just said, you don’t wanna create this in the middle of a storm, you wanna do it when the skies are blue, when your thoughts are rational, and uh when things are going okay. How would you advise someone to start thinking about creating a plan or this investment policy statement?
It’s going to be different for every person, but it’s going to be based off your goals. We don’t take market risk with short-term cash needs. So if you’re gonna have a big purchase coming up, um that should not go in the market. I know a lot of times when the market’s down, people are like, oh, I’m going to buy the dip. Um but if you need that cash for other things, you should not subject it to the market and so that’s step one is kind of creating your emergency fund, figuring out what expenses are coming up. And all that money is not going to be invested. and then you can look at the next step, okay, what’s going to be my mid-term money? And then what’s going to be my long-term money? And if you have a really long time horizon, then you can have more money in stocks than bonds and cash. But the shorter your time horizon is, the less time you have before you retire, your portfolio would get a little bit more conservative. And I wouldn’t say completely conservative. I think people can end up putting too much bonds in their portfolio, but it does kind of, you do want to add a little bit more in when you’re in that distribution mode, but it’s really just based off of where you’re at, how much time you have moving forward and what your cash needs are going to be.
I know someone, this is a pretty extreme situation, but he’s our friend and neighbor and he retired in his like I think uh early 50s and he put his entire portfolio into cash and he’s smart, like super smart guy, made a lot of money, but he’s like, I just want to be ultra conservative and I I’ve adjusted for inflation and I’m gonna make sure if my wife lives to be 120, she will still have money and uh, the thing you have to do if you have this is to save up a whole lot more money because then you don’t have that money working for you. I thought about this a lot and one of my favorite quotes too is uh, there’s a lot of risk to not taking risk because he didn’t take any risk, but this particular person has left a ton of money on the table because we’ve just had like a spectacular bear market. Maybe one of the best of all time. And uh, he’s missed out on that whole thing and that’s what happens if you don’t take any risk and keep it all in bonds or cash.
We have this chart that we’ve been showing clients lately and it’s illustrating if you miss one of the best days of the market. And it’s from 1980 to 2021 and it’s if you invested $1,000 in the market, um 40 years later, it would be worth about $132,000. And if you missed the single best day of the market in that 40 year period, one day in 40 years, you’d have, it was like $118,000. And then if you missed the five best days, you’d have about $80,000, which is a little more than half of the 132 where you started. Um but at the end of the chart, it shows if you had everything invested in like treasuries and that was, you would have $5,000 because it’s just not growing. So we have to be subject to that market volatility to an extent, but we just have to be careful about how that volatility impacts us and making sure that we’re not selling when it’s down, um because then we could miss that best day. Um and usually that best day occurs within two weeks of the worst day. And so if you get scared and pull out, just like a lot of people probably did in the last week, um they’re like it’s impending doom, tariffs, all the prices are going up. Everyone people are pulling out. They are getting scared and then you would have missed yesterday where it shot back up. And then today it’s back down again, but again we don’t know when that’s gonna happen and you can’t guess.
Yeah, and all this flies in the face of human psychology because humans want to optimize and have the best solution. So Emma, you just said we hold our investments over the long term just to capture those few days that do really, really good. and there’s another example of this and and that is holding an an index fund, which is probably the best idea for most people. I’m not a CFP, Emma is. But it probably is the best idea for most people. That’s what Mindy and I do. and uh, you don’t hold the index fund to capture a thousand stocks that are performing well, you hold it to capture those very few that severely outperform the rest, which is super interesting. So I’m sure there’s a similar chart, Emma, where if you hold the entire stock market, but you didn’t hold like Apple, Google or whatever the top five stocks are. I think Monster Energy Drink might be the biggest one. If you didn’t hold those, you would have poor returns. Uh, so all this flies on the face of how humans want to think about life in general.
Yeah, exactly.
Emma, you just said a moment ago, people can end up putting too much in bonds in their portfolio. Bill Bengan recommends a 60-40 stock bond portfolio for the 4% rule and the safe withdrawal rate. What did you mean by too much bonds?
I mean, I think this is really common when people are working with advisors, but also just when people are doing it themselves, you hear bonds are safety and that’s the way the media portrays it. That’s the way even target date funds are set up more and more and more in bonds as you get older. And so people kind of think, okay, well then as I get older, I need to add in a lot more bonds. And so I think 60, 40, 70, 30 and again, it’s different for every person, but in general, 60, 40, 70, 30 is probably the sweet spot because anymore than that, um and your money’s just not going to grow. And even if you’re 60 years old, your time horizon could be 30 years and also your portfolio is probably going to be passed down to your kids. So then that turns your time horizon from 30 years to 60, 70, 80, 100 years, um because that portfolio is going to outlive you. and just having too much bonds, like Carl said, your money’s just not going to grow. and so finding that balance um between growth and safety. and I mean, we want some bonds in the portfolio again because it evens that right out especially in distribution mode because if it’s all in stocks and say the market’s down for more than two years and we’ve run out of cash, um we want to be able to have some bonds in the portfolio that are more steady that we can sell from there as well, but too much and your money’s not growing and your money has to grow. inflation is real and it impacts your living expenses. And so your living expenses, it is kind of crazy to see some people’s, we’re looking at their like long-term projections, their couple hundred thousand dollars of living expenses now can turn into double that or triple that in 40 to 50 years just because of inflation. and so you’re going to need a larger portfolio to support those larger expenses. and so you have to have that growth, otherwise your portfolio is just not going to keep up with inflation.
Okay, I love that answer. I was Googling once like how much bonds should I have or something like that. And Kevin O’Leary said your, the amount of bonds in your portfolio should equal your age. like if you’re 52, your portfolio should be 52% bonds and I was like, you know, I don’t think I’m gonna take that advice from you. You’re a billionaire and I’m not yet, but I just can’t imagine that that’s the right answer. That’s certainly not the right answer for me. So I’m, I’m very glad to hear you say that you do need some but you don’t need that many because, I mean even 60 40, 40 seems like so much. Carl and I are currently uh 0% in bonds.
And that is fine for you guys if that’s what you want to do. I do think having a little bit in distribution mode does help smooth the ride. and I mean studies show you can do a slightly higher safe withdrawal rate if you have a little bit more in bonds. They’re just not the safety hail mary that people think they are.
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Thanks for sticking with us. Way back on episode 120 of the Bigger Pockets Money podcast, we interviewed Michael Kitsis. And we this interview actually was recorded right as the market started to drop during COVID, uh, right up like in March. And we asked him about, you know, dollar cost averaging and lump sum investing and all of that and and that’s not relevant to this conversation, but he said the odds on mathematical answer at the end of the day is on average, markets go up more than they go down. So if you don’t actually have a functioning crystal ball, best odds are just to put the money in as soon as you can. Because it goes up more often than it goes down. And I think that’s really important for people to note. I love that chart that you shared with us just a moment ago. If you zoom in on any small space on that, you know, historical returns on the S&P 500, you’ll see ups and downs and ups and downs. like in one day, it’s up and down and up and down and up and down. and at the end of the day, maybe it started a little bit higher than it ended up or it started a little bit lower than it ended up and that’s when the market is up or down. But if you zoom out and you’ve got some ups and downs in the very beginning, it goes up again until August of 1929, it goes down until June of 1932, and then it is essentially an upward trend. Yes, there’s some big humps in there, but overall, it’s an upward trend. So, the market does go up more than it goes down. And when you get out, like you said, that was that was so brilliant. You were down for three or four days in a row, if you had sold, you missed yesterday’s right back up. I mean, how much did yesterday come up? Did it erase all of the losses?
Not completely. I think, um, it was somewhere between 5 and 7% up.
That’s not a day that I would have missed in the market. So, uh, famously, Scott Trench sold 40% of his index holdings, um, in January of this year. So he missed all of those down days, but he also missed the up day of yesterday. So he looks like a genius for selling in January, now. And he did take the money and he put it into real estate. He’s head of bigger pockets. He knows real estate. He put it into cash flowing Denver real estate, which is what he really knows well. He made an educated guess, informed decision. He didn’t just hear it from somebody and be like, oh, I better sell. He sold based on not wanting to, you know, he thought the PE was too high in the market. So he sold so that he didn’t have to watch his portfolio drop in half. I just, I want to encourage people to make intelligent, informed decisions, not panicked decisions. And this goes back to that investment policy strategy or investment policy statement. This is something that you should have written down. Um if you’re working with a financial planner, work with them to craft this for you and revisit it on these days where you’re like, wow, the market’s down 6%. I don’t love that. So, Emma, is now a good time to start looking into tax loss harvesting?
Everyone’s portfolio is different, but I think when the markets are down, there are things we can do to take advantage of it. Um, I always say the market are up, we’re happy we’re making money. If the market’s down, things are on sale and we get to tax loss harvest. So there is kind of a bright side on both ends. Um and so what tax loss harvesting is is that if the market’s down, you you have your index fund, your VTSAX say. VTSAX falls, um you can sell it. Now, we don’t sell when things are down, right? So what we’re going to do is we’re going to buy something that’s very, very, very similar to VTSAX, but not the exact same because then you run into wash sale rules. But your index fund comes down, you sell it at the bottom, you buy something similar and it comes back up, and then you have tax losses at the bottom that you get to write off against gains. And so this can really be good if you are expecting really high gains this year. Say you’re selling an investment property and the market falls, well, then you can capture those losses and use them against um, the gain of your investment property. Or if you have really highly appreciated stock um in your portfolio that you want to get rid of or diversify, but it has high gains, the market falls, you can take advantage of that, you get your tax losses, and then you can sell some of the stuff with higher gains and offset that a little bit. So it is kind of a little on the bright side of when markets are down, we do have this little thing that we can take advantage of.
I like that a lot. I think Carl and I are gonna have a conversation after we stop recording.
I’m so good at investing though. I don’t think we have any losses.
Oh, man. Well, and it’s interesting, anytime the market’s down, I know the market’s down first because I’m getting emails that my traders are tax loss harvesting. Um, I don’t know it by checking the market, I know because I’m getting emails about the tax loss harvesting. But in the last couple days, I haven’t gotten one email about it, but why the markets have been down, but it’s because they were so up in the last couple years that very few people actually have losses in their portfolio um because the last 2024 and 2023 were so good. But if you invested a good chunk at the end of 23, then you probably will have some decent losses that you can look at.
Yep. And that is the real reason why we don’t have any losses, not my trading expertise.
Yeah, ’cause we’ve we’re long term holders. All right. Emma, this was so much fun talking to you today. I always appreciate when you’re able to come back on and chat with us. Uh, do you have any last words of uh advice or soothing to people who are starting to look at the market and say, oh my goodness, should I stay in?
I love JL Collins’s um stock market crash video. I just sometimes I’ll just send that out to people. Um he’s just super zen and he’s like the market is falling. It’s going down, but you will be okay. It will come back up eventually. Or it’s the apocalypse and you need spam and jujitsu. But really like everybody will be okay. Um at some point or another, we will overcome this, like we always have as humans. We spend a lot of time stressing about things and then once we’re faced with the problem, another door opens and we find the way out. Um we’re really, really good at that. And so I can’t guarantee anything, but if I had to guess, we will be okay.
Is this the one that’s called a guided meditation for when the stock market is dropping?
Yes. I love that one. And we will include that in the show notes below. All right, Emma, where can people find you online?
I’m not on the internet as much as I probably should be. I’m on Facebook sometimes in a couple groups. Um my LinkedIn probably is where most people would wanna connect with me, but I don’t have a big presence or anything. I’m not cool like you, Mindy. My kids would disagree. They think you’re way cooler than me. All right. Well, if you want to get in touch with Emma, you can email Mindy at biggerpockets.com and I will forward it along. Okay, Emma, thank you so much for your time today and we’ll talk to you soon. Thank you for watching. If you like this video, please click the thumbs up and don’t forget to subscribe to this channel for more fire information just like Emma provided. This is Mindy Jensen signing off.
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