Investing and Volatility with Kevin Matthews
For most of 2017, those of us who were investing got to experience what’s called a bull market - when the stock market continues to go up no matter what is happening around it. From the beginning of early 2018, however, the stock market has hit some bumpy roads and if you checked your first quarter 401k statement from the year, or watched any news outlet, you are probably concerned about what’s going on in the market and if you need to change your strategy. Well, today I’ve invited Kevin Matthews, a Financial Advisor and Founder of BuildingBread.com to discuss what’s happening in the stock market recently (spoiler alert, it’s called volatility) and how you can manage your portfolios through volatile markets. I hope you find this conversation extremely helpful if you’re invested in the stock market.
What are we drinking?
Kevin — Water
Shannon — Black Cherry Schweppes
Podcast Notes
Kevin started his career through Teach for America as a seventh grade math teacher in Dallas, Texas for two years.
He majored in economics and brought the personal finance piece into his class, because the kids didn’t have access to basic financial education. There weren’t financial advisors or banks that catered to the area and Kevin was interested in bringing education and financial literacy to underserved areas.
Kevin is now a financial advisor.
Most people think the stock market is only for retirement and long-term investments, but Shannon said the stock market actually operates on a two-year cycle. There is an amnesia about the downturns when the market has been good. We always remember terrible weather, but we never remember the perfect weather days. This is flipped with the market - we remember when it is up but never when it is down.
Volatility is like speed bumps in the road. It is the increased ups and downs of the market. It is like turbulence on a flight. Sometimes it is worse than other and it will eventually even out.
Kevin only recommends checking investment performance four times a year to make sure you are not reacting to the daily volatility and to make sure your investments are balanced.
Asset allocation is the mix of investments that you choose.
When thinking about volatility, keep it in context: remember what the money is for, how long have you been investing, and when you actually need it.
What’s normal and when should you get scared? Kevin shows clients the history of the funds and focuses on the bad years. He emphasizes the length of time the money will be in the market. If you see something drastic on CNBC or Fox, they are reporting on what is currently happening - it’s entertainment reporting.
Warren Buffet is a billionaire because he has a boring investment strategy. He invests in companies and keeps to his asset allocation.
Your investments should be like a tree. The trunk is your core portfolio and it is healthy, stable, and growing. You can take the branches and do the crazy stuff. If a branch falls off, the tree is still healthy and growing. Bitcoin is a leaf. You have to be comfortable with it not being there if the market goes down.
There is a huge difference between possibility and probability. Anything is possible, but the probability may be slim.
The worst thing that happens during volatile markets is people either jumping out of the plane or not jumping in.
The market is up close to 70 percent of the time. This means that 30 percent of the time the market will be down. If you hold your investments for the long term, you will be fine. It is rare to be down five years in a row. If you don’t sell, you have an unrealized a loss. Nothing is experienced unless you sell. A normal downturn is 10 to 15 percent. Anything over 20 percent is extreme and usually means something is going on. The most extreme downturn took four years to recover.
Asset allocation is the most important thing you should pay attention to - 92 percent of your returns come from it. It’s like riding a bike. You need stocks for your pedals and bonds for your brakes. You need both to get to your destination. It is all about having the right mix.
It is always a good time to get into the stock market. It is impossible to time the market. If you are always investing, you won’t have to worry about the ups and downs. Successful investors do not just invest one time. You shouldn’t be making changes during volatile times.
Stick to the basics of asset allocation and investing for the long term. Remember to relax, because we tend to get emotional about money but the market has no feelings about you. It will do what it’s going to do whether you feel good or bad about it. We have to roll with the ups and downs.
TAKEAWAY: Remember that while volatile stock markets are scary just like an extreme rollercoaster they also give you a great time to reflect on your investment portfolio, review why you’re investing, and reassess and confirm your approach. I would expect most of you to plan to invest for decades and if that’s the case, you’re bound to hit rough patches along the way. Just don’t let those rough patches create anxiety to the point where you make bad decisions for your financial future.
Random Three Questions
Where is a place you would like to travel to?
What is a show you like to binge watch?
If you won a million dollars, what would you do with it?
Connect with Kevin
Website: buildingbread.com
Facebook: Buildingbread
Twitter: @buildingbread
Instagram: @buildingbread
If you need someone to help you evaluate and understand your investment portfolio, I hope you’ll reach out to my team at the Financial Gym. We’re constantly working with our clients to make sure that they’re staying focused on their long-term plans and managing through the turbulence accordingly. You can schedule a free call here to find out more. No matter where you are in your financial journey, my financial trainers can help you get where you want to go. So head over to or send friends to financialgym.com/friends to sign up today!