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Hi everyone…..

Seems a day hasn't gone by this path month where someone doesn't ask me, think its a good time to buy into the stock market now?

I mean a market that dropped 30% seems like it's a good bargain, right?

Well….let's do a little homework on that and see what you think.

I like to start with a couple of indicators. I've shown these before in previus vidos cause they do a good job of looking at the market from a 30,000 foot view.

One is Shiller PE ratio.

I like this because it's an inflation adjusted S&P 500 index.

Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio)

I won't go too deep there, but what we want to do is look at the overall index and have a quick look to see if it's over or under valued.

The PE ratio as of today is sitting at 26.14.

To understand what that is telling us we need to know a couple of things.

What is the median for this ratio – in other words over the past century, what has the average?

The Mean is 16.7 – just for clarification, the MEAN is what we'd typically call the average, it's adding up all the numbers and divide by how many numbers you added up.

If you added up 10 random numbers, 5, 12, 17, 2 etc, then added all those numbers together, then divided by 10, you'd get an average of those numbers.

That gives us a MEAN.

So 16.7 is the mean.

Then there is the Median which is 15.77 –

The "median" is the "middle" value in the list of numbers in numerical order, finding the middle number.

So taking those same 10 numbers as an example, put them in numerical order, 2,5,9,12,18 etc…then you find the middle number between them all to get the MEDIAN.

Then you can see that lowest the indicator has ever been was in 1920, at 4.78

And the maximum ratio was hit in 1999 at the peak of the dot com boom and bust at 44.19

So, looking at the current graph again, we see we are still significantly above the mean or the average.

For some perspective, we were about 29 on this indicator before the recent Corona Virus crash.

We dropped 30%, it came back up a bit, and now we're down about 20% from the highs, and that dropped the indicator about 3 points to its current level of 26.

Another chart to quickly take look at is the GDP to Market Indicator.

There is a lot of story to this chart and we'll have to get into one day, but the basic idea here is to see if the market is overvalued or undervalued based on GDP.

GDP is gross domestic product which is basically the entire economy. It's all the production of the whole country.

Since the stock market is essentially based on the economy, we want to see if the market is high or low in value as it relates to GDP.

Bottom line is – This graph suggests we are still paying more for stocks than they will produce.

Our total output is just over 20 trillion, and we are paying over 30 trillion for that output if you were to buy the Total Market Wilshire Index.

This means we are paying 129% of GDP when buying into the Wilshire index.

That quickly tells us that at the current price, even after the 20% drop, still may not be a good value.

As it stands now the rate of return on stocks would be about 0.1% and this includes the 2.7% projected dividends.

When looking at both of these graphs what seem apparent is that even though we had a 30% drop and now hovering at a 20% loss for the year.

And our rate of return of a 10th of 1% is hardly worth the risk.

We seem to still be overvalued.

You know, I noticed this when we hit that 30% mark.

I had read a bunch of FB posts and saw some YT videos saying, wow this is a good time to get in, a 30% drop!

You can see from this 5-year chart how we pretty much jumped off a cliff.

The low for this mini-crash hit on March 20th when the Dow went from over 29,000 down to 19,173.

A 30% whack in just a few weeks.

You might ask, when was the last time the DOW was at this level?

You have to go back to Dec 2, 2016.

In other words, if you bought at the low of the crash, and assuming you bought into the DOW, you would be buying at 2016 prices.

Seem like a good deal, right?

Well might be, who knows, depends on when or if we get back to where we were, and how long it takes to get there.

If we look at the Shiller p/e back then, we were right at about 22 - 24 on the indicator, still high valuation of the mean of 16 and higher than today's indicator at 20.

In other words, back in 2016 to get 1.00 of earrings people were paying 22-24 dollars.

If there was no growth and you got the 1.00 every year per share, it would take you 22 years to get your money back.

Today, after the market drop its still indicating it would take 20 years to get your money back.

Most investors who are willing to take the risk of the stock market like to get their money back or payback in 7 years or less.

That's about a 10% rate of return.

Now not all return comes just from the revenues or dividends. It can come from growth too.

Both play an important factor in determining what price a stock is worth paying.

So, one could say that even buying in 2016, wasn't that great of a bargain either.

In fact, I found it hard back then to find really good values in companies I'm interested in owning.

If you did not buy back then, for the last 4 years you might think how dumb you were for not buying in 2016 as the market continued to rise.

Then in one fell swoop of a germ nearly 4 years of growth was wiped out.

4 years wasted, back to where you were.

We call those compounding periods, and missing out on even one of them can be a huge difference in your wealth.

Well, with a little recovery, we will see where we go from here…..

Today, is April 22nd, the DOW is at 23,445.

The last time we were at these levels was, Oct 27 or 2017.

So, if you had invested back in Oct of 2017, you would have rode a wave of growth up for just over 2 years or about 27 months, and again, you're right back to where you started.

Now let me get get to the original question.

Is the market a good buy right now?

Based on everything we've looked at, and with a projected growth rate of 0.1% it doesn't seem to poised for great returns.

We were due for some sort of correction anyway, but maybe this virus hasn't pushed a correction far enough.

Now look, I love a good economy, that last thing I want to do is see a market crash and a depression.

I'm merely pointing out that the market as a whole, as an index, isn't necessarily a good buy right now.

That doesn't mean individual stock companies that have suffered a great deal more, might not be good buys.

The question is the recovery time for some of these companies and all the unknows.

For Instance, travel, you've got airlines, hotels, and cruise ships all really taking a beating.

Airlines are off 50% or more.

Delta last year at this time was trading at 58 and now it's at 22 and a half

Is that a good value, a bargain?

It's all about recovery time.

What we don't know is how much travel will be affected.

What about the possibly of fewer flights, empty seats, not being able to fill planes to capacity for social distancing?

I mean we have a lot of unknowns.

Royal Caribbean a year ago was 122, now it's just above 34.

Seems like a bargain.

Until we see the revenues coming in, we have no idea if this is a bargain or if it needs to go down another 30% or more.

What you can't assume is just because a stock was 122, that it's a bargain at 34.

It may have been way overpriced at 122, and still could be at 34. We really don't know until the cruise ships start cruising again.

We are pretty certain that their revenue, earnings, and profit will be down significantly, and likely their debt up.

Will it be months, days, or years, or will they ever recover?

Great question, and until you have the answer, there is no way to evaluate what a good price for this company is.

As a whole if you're looking at the index, it's still not a very good value.

With that said, there may be some companies within the index that are looking good, have a clear path to growth and profitability, while others may not rebound as quickly or at all.

If you think you want in, then please, do your homework!

We're seeing a lot chatter out there and guys trying do some day trading.

But if you're looking for value, Buffet style, as I like to call it, it's still not easy.

Buffet's partner Charlie Munger did a recent interview and he basically said they aren't doing much of anything right now.

He said, "I think there are lots of troubles coming,

One thing about Buffet and Munger is they like bargains.

They like to buy wonderful companies on sale.

Buffet was a buyer in Airlines a couple of years ago.

Obviously, no one, not even the guru of investing, could have predicted this virus,

However, he's not selling them, and interestingly enough he's not buying them either.

If he's going to hold a position, normally he would add more shares when the price hits his valuation mark.

So, either he may not hold them, or they haven't hit what he thinks is a good value right now.

Again, they are hard to evaluate until we get going again can see revenue, and profit, the amount debt they will be carrying from this debacle and the kind of numbers that tell us if a company is going to make us any money or not.

I think Buffet will keep them, until or unless the story changes, in other words, if why he bought them is still the story, then he'll likely keep them and add to them at some point, when there is a way to make money on them again.

Think about this, he has enough money sitting in cash that he could buy the four major airlines right now, but he's not.

I think he's waiting this out. Munger said there is still trouble ahead.

The other side to this, is they still might not be a bargain.

Some have calculated that we need another 30-40% drop before we get into bargain territory.

This is what I want to talk about on my next video – becaue just because something is cheap, compared to what it was last month, does not mean it's a bargain.

So….that's it for this week….

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Hi everyone, this is Dan Thompson with wise money tools video. Thanks for joining me today. If you recall in our last video, we were talking about another video out there called the index card. It was done by PBS or something like that. Basically it was an index card with a list of 10 items that basically everything you need to know to have financial success or to create a financial plan that would actually work. And the list looked like this. If you recall, number one was saved 10 to 20% of your income. Number two, pay your credit card balance in full every month. Number three, max out your 401k and other retirement savings accounts. Number four, never buy or sell individual stocks. Number five, buy inexpensive index funds or ETFs. Number six, make your financial advisor commit to a fiduciary standard. Number seven, buy a home when you're financially ready. Number eight insurance - make sure you're protected. Number nine, support the social safety net and number 10, Remember the index card. Okay? Well, in the last video, we went through the first five, and we're gonna finish up on these next five. But just as a quick little recap, because I think some of these things are important. Remember, number one was save 10 or 20% of your income. Again, no brainer, got to do it. Number two is also an easier one. Make sure that you pay off your credit cards every single month. That's a very good practice to get into now. Number three, maxing out your 401K and IRAs. That's something that you may want to review. Go back to the last video. It's something that you can't assume or just take for granted that it's a good move to make. Number four and five. We finished up where we left off, don't buy individual stocks and buy ETF. Well! maybe understanding what's really gone on there. We'll change that around just a little bit. Again, you're gonna want to review those steps because there's a lot to unpack there and honest, we could do a whole video on each one of these steps. Okay, but let's go to number six. Number six, make your financial advisor commit to a fiduciary standard. So we really need to understand this for just a second. What he's saying is that there's kind of two sides of the Wall Street world so to speak. There's brokers and financial advisors, and then there are what are called registered investment advisors and they also tout this title called fiduciary. Now the reason he says that you need to insist that your advisor commit to a fiduciary standard is because when you pay a fiduciary. You're supposed to be paying a fee for a service and the advisor is not supposed to have any bias and do what's best for you. Well, In the end, that's really what it means it means the advisor is supposed to put your interest over his or her interests. Okay? So first of all, if you even have this smidgen of a doubt for a single minute. That this person that you're sitting in front of isn't gonna do what's best for you get out of their office, move on. If you're doubting their integrity, and the purpose that you're there to talk with him for. Then you really shouldn't stay even, like I say, even a minute longer, okay? I don't need to slap a title on my desk or on my forehead with this big bold word fiduciary to make me do what's best for my client. So the irony is this, just because they say that they're putting your interests ahead of theirs has no bearing on whether or not you'll make any money. Whether or not you'll lose money, or whether or not the advisor is a complete moron. Moron might be a tough word. But seriously, morons can be fiduciaries. And sadly I see him all the time. I think more important than a title is to find out if the advisor has a clue as to what they're doing. If they have a plan or a strategy, that's not the same old thing that everyone else is doing. Does the advisor or the person you're talking to have a way to protect your money on the downside and make you money on the upside, and better yet even make you money? No matter what the market environment is doing? That's better than a title. So folks, listen to me. A title or a designation does not make that person a genius. A fiduciary, a CFP, a CLU, even a CPA is not an absolute given that they're gonna be smarter then a three year old, they just know how to pass tests. So let me It kind of reminds me of a story back in high school, right? I used to date this girl and hope she's not listening. But she could sit in a class and understand the lecture. She did great on tests. And she was a straight a student. She always did her homework and passed with flying colors. The problem was, she was about a smart as a post I'm gonna to really take some flak on that one. Yeah, let's just say she wasn't the brightest bulb when it came to common sense and real life situations. If you taught her how to do a math problem, and it was given to her well, she'd probably be able to do it. But if she had to figure out things like, you let's take some financial things like a price earnings ratio or how much revenue a company made. Or what does a large manufacturing company need to do to be profitable, you know, things like that we had to kind of think through it. Well, she'd be totally lost. And I see the same thing so often with some of these fiduciaries, or CFP, whatever, they're really good test takers, right? But I wouldn't give them five bucks to manage, right? They just don't seem to understand how to formulate and look for things outside of the box. So just remember, insisting that someone commit to being a fiduciary is not gonna make him or her any better or smarter when implementing a strategy. And finally, if mutual funds are their answers, in other words, you walk in and the answer is to buy five different mutual funds. Well, you really need to look elsewhere because they haven't figured it out yet. Now, I have no problem with fiduciaries don't get me wrong to my partners, our fiduciary they fit that bill and man, they are extremely smart. There are plenty of them out there that are smart. And I can assure you that these guys aren't gonna sell you a basket of mutual funds and then charge you fees for the next 10 or 20 years. As if they have any control over those funds or the markets for that matter. So please get the picture, a title is worthless. Ask them how they're gonna protect and grow your money and see how they answer it. Then ask how much money did your clients lose over the last month, right? And then finally ask how much of my money are you willing to lose? And by the way, if that's even above zero, yeah, again, you might want to walk out. So that's gonna give you a lot more peace of mind and a lot more realistic expectations than a particular title. Now, again, I understand what he's saying. He's saying, find somebody who's gonna do what's in your best interest. Well again, If you got a good solid advisor, they're doing that with or without a title. So let me just talk real quick about fees again, some fees are worth pain. I mean, if they can protect your money on the downside, make you money on the upside, that might be a fee worth pain. If you're just writing the ups when the things are going great and then you'll lose money when it's going down. What are you paying for? You could do that by yourself just investing in indexes or ETFs without paying fees. You know, just this morning, literally driving around. I was listening to a talk show morning talk show. And the guy happened to be talking about fees. Now he was a fee based advisor. And what he was doing is he was getting all over another advisor who is getting paid commissions instead. And he was saying that the Commission guy, all he wants to do is sell you a product, lock your money up for 10 years and take his 6% commission. And I got to thinking, Hmm, well, what does the fee-based guy want? We came right down to it. He wants to sell you his product, lock your money up for 10 years or so, and then get paid a fee every single year that you have your money there. There was really no difference. The only difference was the final product. And I have no problem with somebody arguing whether this product or that product works better, right? But he was such a hypocrite, because he wanted the same thing that he was accusing the other advisor of wanting. He just charges differently. But he still wants the same thing. Then I got to thinking just kind of in my mind real quick, then I had to run back to my office and calculate this. But let's just say the client was gonna invest $100,000 and suppose this guy, the other advisor did get a commission of 6% or $6,000. That's it and then he has to to basically work with that client over the next 10 years without any further compensation. So what is the fee based guy get? Well, most have sliding scales on fees. And the more you put in the lower the fee, but at $100,000 from the scales I've seen in very familiar with. Most advisors are gonna be right about 2% in that range. If he sells you a mutual fund, that you can pretty much count on another percent and half, maybe even more for the fund manager as well. So he's stacking his fees on top of the mutual fund fees that are already gonna be there. All right. Now let's just use the proverbial 10% growth rate, which is not likely to happen after market corrections, taxes, volatility, all that but we're gonna use it anyway. So without fees, and a straight 10% per year if you just had $100,000 got 10% on it. No fees, you'd have about $259,000 in 10 years. Okay? Now if we just take out the advisor fee of 2%, the account would net after fees $216,000. So in other words, this advisor charges the client $43,000 in fees. So you kind of have to ask the question, who's really the fiduciary now? Interestingly enough, the advisor who was paid the commission, he wasn't even paid by the client. In other words, the company that took in the money, paid the advisor, and 100% of the client's money went into the investment. So it wasn't like the client was paying $100,000 and then $6,000 went over to the other advisor. Anyway, the point is the fiduciary. The fee based advisor made 700% more compensation. Then the other advisor that he was accusing of being such a dastardly dude. That's why I call the fee, an annual commission, because that's what exactly what it is. Wall Street just is disguised it to hopefully make you feel all warm and cozy that you'll pay $43,000 out in fees during the same period of time. But fee based advisors have been making a killing over the last number of years, some might deserve it. But seriously, most of them are simply collecting fees and not even managing your money in the first place. They send it off to mutual funds or to an index and then just hope that the markets do well. And that you'll keep paying their fee as because they're gonna call you up every once in a while and say, hey, look how good we're doing. Well, worse than anything, guess what, you probably lost money to these fee based advisors this year. Maybe even as much as 30% and guess what's gonna happen now, you're still gonna pay the fee. So you're down 30% and they're still gonna take out their fees. So when you see that there's one famous commercial out there. It's about fee based advisors. And they have this fancy tagline that says, we only make money when you do. Well that is just hogwash. Their tagline should be, we make money even when you don't, because that's exactly what's happening. They're gonna make their money, they're gonna charge you the fee no matter what. Okay, so that's a lot for one item number six, sorry about that. But it's an important one, because the fleecing of America is happening in many cases due to fees. All right on to number seven. Number seven, buy a home when you are financially ready. Once again, I can buy into this principle good principle. But let me just take it one step further. If everything you make each month goes into your mortgage payment and your living expenses, and you can't save a penny above that, where you bought way too much house. So going back to principle number one that we have to implement today this moment, and that's pay yourself first and at least 10%. So if you can pay yourself 10% and by the house awesome, you did a probably a very, very good financial thing. Don't get house payment poor, be able to comfortably make the house payment and save your 10%. But where we live, I just somehow lucked out that housing turned out to be a really good investment. And since you have to have a roof over your head, it's not a bad idea to build some equity along the way. But also be able to save and save that money outside of your sticks and stones. Don't put all your wealth inside your house. Okay, number eight was a more insurance oriented and it was saying make sure you're protected, again makes common sense good financial sense. And we're not talking about just life insurance here but we're talking about car, home and health insurance. And one thing to consider is to have insurance be there for your catastrophes and your major expenses, not the little stuff. So oftentimes, it's so much better to get high deductibles and low premiums and being able to cover those smaller expenses of $200, $500 even $1,000 that are out of pocket. Seriously, if you'll save the difference between the premiums of a low deductible and a high deductible insurance policy. In other words, go get some quotes. See what car insurance as an example, see how much the premium is each year. For a $1,000 deductible or even a $20,500 deductible, and see how much the premium is for a $250 deductible, and you're gonna see a pretty wide spread of premium. And if you would just take the higher deductible, save the difference, you're gonna put away that 500 or 1000 bucks in no time. And be able to handle those kinds of expenses and unforeseen incidences. Now for medical, if you're not covered by your employer, and you're paying for your own Medicare, medical insurance, there's some group share programs that you might want to look into them. Some are pretty good and some are very inexpensive and it's not technically insurance. It's more groups, but look into it. The other thing you might do is get that deductible up there, maybe 5000 10,000 or even more and once again, if you'll save the difference between the premiums. And you start to save that deductible and get it put aside, you'll be surprised how fast you can put that money away. It is a good idea to have access to your deductible, just in case, right? You may not be there in the first year so, but you'll get there. And the money that you'll save by having high deductibles you tuck it away, you'll have plenty for the deductible down the road. So don't invest that deductible somewhere where you could either lose it or you lose access to it. In other words, an IRA is not a good place to put your insurance deductibles. Interestingly enough though, life insurance that's building high cash value may be a good spot for it. Because not only will that cover your life insurance needs potentially, but access to that cash as well. So when you keep your deductibles high, it's eventually gonna save you more money in the long run. Now, we're almost done because I don't have to spend much time on numbers nine and 10. Number nine is support the social safety net. Now this is just another way of saying, be charitable giving, you know, local charities and churches can often be the first ones on the scene to help others out in your community. In the book, The Richest Man in Babylon, great book, if you haven't read it, you gotta go read it. The first two principles are pay yourself first, at least 10%. And then give away 10% that could be to a church or a charity or a school or just anywhere where you're helping out others. And I think being charitable is a great way to give back. But it makes you not only feel good, but it's a win-win for the charities and the communities and being able to help others as well. Sadly, someone seems to always be hitting a rough patch, and hopefully you can be there with some of your funds to help them out when you can. Number 10 Lastly, remember the index card, right? So I think this is kind of a play on Warren Buffett's two rules. Warren Buffett's rules are this rule number one, don't lose money. Rule number two, don't forget rule number one. And so I think number 10 is kind of doing the same thing. It's saying the idea is, if you're a believer in these concepts, then don't forget them, use them, put them into your financial strategies and implement. So at the end here, let me say, there are some great strategies that you can implement that will adhere to the important aspects of these principles or these 10 rules, if you will. Overcome the challenges of the ones that don't make a lot of sense. Make some adjustments on those. But keep your money growing and keep it safe and even keep it tax free. If you do things right. You might be genuinely surprised when you see what safe money strategies can do. When you implement Einstein's formula of y=a(1+r)x exponentially growing or squared, right? The squared or the exponential growth is what so many people are missing. Even we missed it for years. We had to build it from scratch. And I think when you start looking outside the box and how other people are generating their wealth, you can figure out some of these things. And what I love to do is figure out how are people generating wealth or return and doing it with the least amount of risk? Well, if you want to see how that might fit into your situation, then just click on the time trade link below and we'll have a quick strategy session. Always feel free to comment below. If you have any questions, shoot them to questions at wise money tools.com. I'll answer them as quick as I can. And for heaven's sakes, don't forget to subscribe. Don't want to miss a video. Always good to have you with me. Thanks for joining me today. Until next time, take care.

Hi everyone, this is Dan Thompson with wise money tools. Welcome to our video slash podcast today. You know, I always like to look around and see what's going on out there in YouTube land. And I saw kind of an interesting video. It was a I believe it was a PBS special on what is called the index card method. And what it did is essentially was all the financial advice you'll ever need on 1 index card. And there were basically 10 steps that you would write on this index card. And supposedly where the idea was that if you achieve these 10 steps, that's all the financial planning you would need. So what I wanted to do is kind of review those steps and see how they stack up so to speak. Some of them are good, some of them makes sense for sure. Others need to be kind of discussed. So here's the list. All right. Number 1 was saved 10 to 20% of your income. Number 2, pay your credit card balance in full every single month. Number 3, max out your 401k and other retirement savings accounts. Number 4, never buy or sell individual stocks. Number 5, buy inexpensive index funds or ETF. Number 6, make sure your financial advisor commits to a fiduciary standard. Number 7, buy a home when you're financially ready. Number 8 was insurance make sure you are protected. Number 9, support the social safety net and number 10, remember the index card. Okay, so big list I know. Again, some of these things make sense, but let's just do a quick review. I don't want to go too much detail on all of them, let's just talk about this list just really quickly. Most of it's fine, obviously. But there are some things to be cautious of. So number 1, save 10 to 20% of your income. Okay, good one completely agree no-brainer. We've talked about it 100 times, right? Look, if you don't figure out a way to save some money, unless you expect some kind of inheritance. You're always gonna struggle financially, you've got to pay yourself first. And remember, that's part of the wealth equation, y=a(1+r)x, simple equation. We'll talk about that in just a second. But when that paycheck comes in, be selfish. Pay yourself first. After all, you're the one doing all the work, you deserve something at the end of the day. So number two is pay your credit card balance in full every single month. Again, great habit to get into a no-brainer. I personally like to run things through my credit cards for all the miles, bonuses, rewards perks you get by running them through the credit card first. But I never carry a balance at the end of the month. And I've gone years, literally years without having to pay for a meal. Because one of the things I do is I convert my cash back into restaurant gift cards and also Amazon cash. Now I know there's probably better things to do with it. But it's kind of nice to just never have to pay for a restaurant meal when you go out. I've also had free airfare or upgrades to first class hotels. And as I said, I use them for Amazon cash. So lots of Amazon purchases over the years too. Now the disaster with credit cards is if you carry a balance, then you're the one paying for all the rewards and airfare miles and all the different restaurants that others who don't pay interest are getting. Those that pay interest, help pay the rewards for those that don't. Not to mention, if you pay the minimum credit cards, they're literally designed to almost never pay them off. So get them paid off, then don't use them. If you can't pay them off at the end of the month. There's really hardly anything worth having that you can't do without if you can't pay for it and have the balance of zero at the end of the month. Okay, number three was max out your 401k and other retirement savings accounts. Now, here's where me and this guy may part ways just a little bit. I understand that idea. It's saving for retirement and I'm totally on board with that. However, deferring taxes now, only to have to pay them later may not be the most prudent thing to do. So let me present it to you this way. How about if I lend you $10,000 today? Now don't worry about paying you back right now. And in 10 or 20 years, you can start to pay me back. But it's at that time that I'll tell you how much interest I'm gonna charge you. Sound like a fair deal? Well, that's really what tax deferral is. It's the idea that today, you know, your tax rate. But you're making a deal with the government, that at retirement, you're gonna be happy to pay the tax rate that the government decides on down the road. Now, with all this talk about more social programs, more benefits for people, that $2 trillion that we just racked up based on this Coronavirus. And maybe another trillion or two, do you really think your tax brackets gonna go down in the next 10, 15, 20 years. Another side to that is so many people are actually in the lowest tax bracket they're gonna be in. Let me give you an example. I was talking with a client the other day, son just getting a really good job just out of college gonna be making some good Money. But he's probably in the lowest tax bracket he'll ever be in. Yet, they want him to already start to participate in the 401k, which means he's gonna defer paying tax at, let's say, 15% to ultimately pay tax down the road it 18, 20, 25, 30, 40%, who knows what it's gonna be. The deal is, he's gonna know what his tax bracket is in 40 years. And that may or may not be a good deal for him down the road, statistically and knowing what's going on, it's probably not gonna be a good deal. He's probably better off right now getting that tax out of the way, then storing it in a place where he may never be taxed again. Now, the other side of that is the where, in other words, where the funds going. When you invest into a 401k IRA, so on and so forth with most financial advisors or with most retirement plans at companies. They're typically going into mutual funds. Now what that means is you're gonna be taking all the risk, it also means that you're gonna be paying all the fees. Now on the low side, it's estimated that 30% to as much as 50% of all you earn in those 401Ks are gonna go to fees and taxes. You know back in 2008 when that market crashed, we kind of affectionately or jokingly called 401K's 201K's because they were basically cut in half. If you've got a retirement plan and it's in mutual funds, good chance that you just lost 30% maybe even 40% of your market value just in the last month due to this Coronavirus. Hopefully you weren't retiring this month or this year because your potential income just got decimated. So although I understand his motive, which is safe, safe, safe for retirement, good thing, nothing wrong with that. The options he gives are really not all that complete. We need to hear much more of the story and find out is does it make sense to be putting money to 401Ks and IRAs and other places where I'm deferring attacks. Hoping the government's gonna treat me fairly down the road. There may be a much better place to store those funds and keep those funds tax advantaged too. Okay, number four. Number four is never buy or sell individual stocks. Now, again, I know where he's coming from, and I get it. Most people don't take the time to become good investors. And as a result, they're really speculators. And they do what I call the they get the barbershop advice then fact you know, if you've been watching me for a while, my last few videos have been about Facebook, financial advisors, right? And you can't just hear something in the barber shop or read some I'm Facebook and think you're a good investment or investor just because you jump on that. Now, because most people don't want to be speculators. What they do is use a very common tool. And it's used by financial advisors every single day. And they call it diversification. Why? Because they don't know what's gonna happen. So instead of buying two or three or five individual stocks, they end up buying bunches of stocks in mutual funds or indexes. And that also kind of ties into number five, number four, and five kind of can be talked about together. So instead of buying individual stocks, number five says, buy inexpensive index funds or ETFs. This way you own 1000 or 2000 different companies with the idea that not all of them will go out of business at the same time. Or if you buy the index of ETFs diversification supposedly keeps you safe and unharmed in market crashes. Now, quick question, do you have mutual funds? Index funds? ETFs? Did you lose any money over the last month or so? Now, wasn't diversification supposed to protect you from these losses? See, this is what really frustrates me they use this term diversification make you feel all warm and fuzzy. But in reality, if markets go against you diversification in the method that they use, it just doesn't work. So why did they do just as bad? Why is it that you're likely down 30% even though you did diversification, in other words, diversification didn't help you that much did it. And I think Warren Buffett said it best when he was asked about diversification, because he doesn't diversify all that much. And if you didn't have so much money to work with, you'd probably diversify even less than he is today. But he essentially said, diversification is for those that don't know what they're doing. So instead of learning and educating themselves, what they do is they toss money into funds and indexes and then cross their fingers. You don't take the time to learn about the company, how the management does their thing, the numbers, the P/E ratios, the revenue and all those expenses and the taxes and the debt. And by doing that, figuring out, hey, maybe this is a good company to own long term. Now, I understand barring your willingness to become a good investor. It's probably best to stick with the indexes. Now we're gonna talk about this in just a second down the on one of the other principles. But there's really no reason to pay an advisor to buy mutual funds that won't perform any better or worse than the index and by the time you pay the advisor fee, things are even worse. Which brings me to number six, but guess what I've gone over time. So we're gonna have to do number six through 10 on the next video. I don't want you to miss it, so make sure you subscribe. In the meantime, these five principles that we've talked about if you have any questions about them or thoughts about them, put your comments below any questions, shoot them to questions at wise money tools.com and I'll answer them just as quick as I can. And if you want to talk more about your specific situation, click on the time trade link below quick strategy session. And see what's going on in your financial world. Well, that's it great to have you with me on this video. I look forward to talking about number 6 through 10 on the next one. Till then, take care.

Hi everyone, this is Dan Thompson. Welcome to another wise money tools video. Glad you could join me today. You know, in the last video, we were talking about some comments on a post put on Facebook. And the advice or non advice that was given after that. And just as I finished up those videos, I started reading through it again and there were some more comments. And I just thought, Man, I've really got to talk about this. Now, for those who don't recall, maybe didn't see the last video, you can go back and watch it. What happened was, I think a second level person in my facebook group had this question. And the question was, for those of you who have stocks and bonds, do you use an investment advisor or self-invest in an index? He goes on to say, we have an account with Stiefel, but I'm not overly impressed with the performance we've seen and the fees that they charge. Any recommendations anyway, then the recommendation started coming. A lot of that I call barbershop advice. And I'm not trying to disparage barbers. It's just that's kind of the proverbial thing, you know, Oh, I got the stock tip from my barber. Anyway, go back and revisit last week's video if you want to hear some of the other comments and what was said there? Well, the next couple of comments were really telling one of them read like this. He said, I managed my own investments in Robin Hood. You can do fee free trading there. If you're interested let me know I'll give you a referral code. That gives you both you and me some free stock. Okay. Well, Robin Hood, actually it is a pretty good place to trade. It's a pretty good place to trade here that again, it's a pretty good place to trade. It's not a very good place to learn how to trade or to learn how to invest is not very many places that can teach you that. I think the guy who had the original post was trying to either turn it all over to someone else, or learn how to do it himself. If I can hear what he's saying, because he says, back to this guy he says, Well, I already run Robinhood. So in other words, he's already got the app. But I don't trust myself to run my entire portfolio yet on my own. Are you actively trading or park on some index funds? Now, not quite sure what he was saying. I think I get what he was asking there. But what's interesting is he's kind of self-aware. He knows he's just pushing some keys and some buttons and buying stocks. But he has no confidence that he's doing it right or even knowing what he's doing, and so he's reaching out to somebody, you know, what do you guys do? How do you guys know what you're doing? Sadly, not everyone's all that self-aware. They think if they pull the trigger on some stock, and it does well, now they're expert traders. And again, we saw this so much through the 90s and the early 2000s. Because it was just hard not to do well, if you push that button. So this guy's answer to him was priceless. And it's exactly to my point. He says, basically, I do a little of both, mostly indexes for my parked stuff. But I do invest in companies that come and go in value. That come and go in value. That's the key word here. For example, I had some Tesla shares I bought during the dip, and then sold during that insane not logical price jumped last month. Okay, so kind of laugh at that because we got to unpack this answer. So first off buying indexes, I get it. For many, this is where they should probably be investing, rather than being in managed mutual funds and paying high fees. However, this really isn't investing, it's more speculating. It's hoping the market will continue to go up. It's kind of betting on America, which again, is all good. But it's not really investing and investing is more when you understand what you're doing, why you're doing and you're doing it with purpose. See, these guys really have no reason to be investing, no logical explanation then other than, you know, isn't just what you're supposed to do with your money. Right? So now, by the way, what I think he means by Park stuff, I think he means his long term money, or maybe money that he doesn't necessarily want to put out there to lose. Even though that hasn't worked out so well in some of these major recessions but I'd be curious what long term is to to this person? I always wonder if these people have been taught or even thought about compounding periods. And the effect negative compounding has on their losses. Well, then the part that really got to me was his comment about Tesla. Now, I personally like Tesla as a company, I love the technology. I love the innovation. I love the cutting edge. It's a fun company to watch. However, in nearly any evaluation model that you use that you can find out there, you can think that Tesla is ever what is considered a value play or a value stock. Last year alone, it lost $5 a share, which means it has no earnings, right has no dividends, has no revenue, and it sells for $800 a share at least at this current time of this video. So you pay $800 a share to lose $5 and for some reason that stock keeps going up and up and up. Okay? For Tesla, I kind of get it. It's all on the hope that they're gonna do something incredible. Discover something, they're gonna explode their profits and their earnings and some days that those, the revenue is gonna catch up to the stock price. At least that's the hope. And that can take years and years, if not decades, who knows? They probably can happen maybe will happen. But for now, you can't give me an evaluation model that shows Tesla is in any way shape or form of value buy. So just by this guy's comment, I realize he's technically not a value investor. Anyway, he says I buy companies that come and go in and out of value. And then it goes on and buys Tesla on the depth. Alright. Tesla on dip is more of a technical way of trading, but it's certainly not value. So and again, be I hate to reiterate this, but Tesla has no intrinsic value. So how did he value it, it's really hard to value a company that has no earnings. In fact, the value stock or the value stocks that are out there, it's where their earnings are better than their current stock price is selling for. So in other words, you have a really good chance of getting your money back out of that stock in a very short period of time because of the earnings. The truth is, all this guy did was roll the dice on a technical dip. And now he thinks he's a value investor. So as a comparison, you got to look at a true value investor and even Buffett doesn't necessarily like this but Buffett is really a value investor. He's not buying on dips of value investors when you buy a stock, that may be worth $50 a share, but you're buying at $25 a share. And it has enough earnings to get all your money back in say 7 to 10 year period of time, just through it's earnings. That's just kind of a cursory overview of what value is. And again, Tesla was not value. And that's why I say oftentimes, this is barber shop advice. Okay, then he ends with this last comment. He says, not logical price jump last month, well, not logical. I'm not sure what is logical about Tesla right now, but it's certainly nothing logical in the value arena. So in addition, one thing to know that when Buffett wants to buy a company, he wants to buy it so that he never has to sell it. In fact, he says the best time to sell is never but for different reasons than a typical Wall Street advisor would have. See a Wall Street adviser basically says not to sell with their fingers crossed, hoping that the markets gonna come back. Buffett doesn't sell because he knows the company so intimately. He knows the management, the revenues, the products they build, the cash flow, the balance sheets, I mean, knows everything about that company before he buys it. And if he's gonna buy one stock, he treats it as if he's gonna buy the whole company. And he won't buy a company for one day, if he doesn't think he can hold it for 10 years. That's really how you become a wonderful investor. He's virtually assured that unless something significantly changes within the company, he's gonna make money. And that's why he wants to just hold on to that company forever. Why not keep holding companies that are making your money. And again, the only time he would sell is if the story changes dramatically, and it's no longer the same company that he studied, understood and originally bought. The guy who bought Tesla, he was speculating. He was rolling the dice got lucky. And now he's able to give financial advice to his friends. He came out, okay, because that's really the kind of market we're in. We're in that greater fool market, the greater fool seems to be just around the corner. And you don't have to do much homework right now. You can listen to your barber, and maybe you'll do okay. The point is, if you're not going to learn to invest, then please don't take advice from Facebook comments. I guess Facebook is becoming the new barber shop where advice is free and worth about that much too. I'd love to see anybody that's interested become great investors. But if you don't want to take the time and educate yourself, there are ways to get compounded returns without the worry, without the risk, without the heartburn, without spending hours and hours looking at spreadsheets. In fact, with the accelerated leveraging strategies and having safe money, you can oftentimes do better than risk investments and not miss out on compounding. And if you do it right, you'll even have some tax advantages. Well, that's it for this Facebook post. It was sure interesting to say the least. If you have any comments, please make sure you put them below if you have any questions, you want to shoot them to questions at wise money tools.com, answer them just as quick as I can. Don't forget to subscribe, and don't miss a video. Got a lot of good stuff coming up. If you ever want to have a conversation about your situation. You can also click on the time trade link below and we can talk about what's going on in your life. Well that's it for this video. Until next time, take care.

Hey everyone, Dan Thompson with wise money tools. Glad you could join me this week, we're gonna continue our conversation where we left off with this Facebook post. Because this has been really interesting to see all the comments that came after this one little post. Okay, so the next comment was kind of interesting. This guy said, I do use a financial advisor. And I can tell you why and the risk. PM me, you know, private message me. The reason it was interesting is maybe he can tell you why he's using a financial advisor. But how do you quantify the risk this financial advisors willing to take. I mean, does this he mean this advisor is taking too much risk, not enough risk. I wasn't sure what the comment meant. I really like to hear this conversation. If he does PM him, I always ask people who call me wondering about their advisor? And if he's really any good or not. So I asked them, Well, have you ever asked your advisor? How much of my money are you willing to lose? Most people haven't asked that question. And of course, they have no idea how much their advisors willing to lose. So unless this advisor tells them exactly how much he's willing to lose, this is unquantifiable. And if the advisor is willing to tell you how much money they're willing to lose of your money, maybe that's not the right adviser at all. I mean, I want to tell someone that I'm not willing to lose any of their money. And sadly it's just a dream if you're gonna put your money at risk that at some point, you're not gonna see some losses. All right, then the next comment said talk to so and so. Now they name somebody but I took out their name don't want to get anybody into trouble. Anyway he says talk to so and so. He's got a combo that's working really well. And we just used etrade. I think, by combo, he meant he does some stuff on his own. And he uses a financial advisor as well, once again, I point out, he's doing really well compared to what a bank savings account. Is he doing? Well, compared to Warren Buffett, what is well, so to speak. And here's the here's the other thing. And the way I understood this is people look at their statements right now. And I just want you to understand that money is not your money yet. Unless you're thinking of pulling that out, taking it in locking in those profits. That's not your money. Those values are a snapshot in time. You may think that your money but unless again, you're willing to pull it out chances are pretty high. You're gonna write it down as well. That's just what most people do. So you really don't get to count your money until it's out of the market in a safe place, then you can say, all right, this is my pile of money. And I wonder if this advisor combo is ever gonna tell him when to get out. Most advisors don't. It's really interesting in my 35 years, I don't ever hear about advisors telling their clients to get out of the market. Now one of the reasons why it's counterproductive to the advisors goals. Now, what are the advisors goals, to keep as much money under management charging fees as possible? So there's always a reason to stay in from the advisors perspective. If a markets dropping, they're always saying, Hey, you got to stay in. You don't want to lock in these losses. This is gonna come back. If a markets going up. It's Hey, you got to stay in. You don't want to miss out on these returns and we're in this great economy. Here is never a good time to sell on Wall Street. You know, I remember the.com boom very, very well, late 1990s. Everyone was a stock genius. People were buying up internet stocks at a 1000 or more times earnings. That means for a company that would earn $1 people were willing to pay $1,000 for that dollar. And sadly, there were so many of these internet companies who didn't even have earnings and they were being bid up just ridiculous. I remember Yahoo at the time, probably worth about $3 billion. But people were buying it up at $34 billion valuations. That'd be like, you go in to buy a house that's worth $100,000. But you're paying 1.1 million for it, hoping one day it's gonna be worth more. That's just how insane things were at the time. We called it the greater fool theory. If you bought it today. You were just hoping that a greater fool would buy it from you tomorrow. There really were no valuations that made sense. There was no concern for earnings, no understanding of economics. I mean, it was the wild wild Wall street West. And then it happened again a few years later in a way. And that downturn, we saw a lot of people lose 50% or more in just a really short period of time. Now, I don't think we're there quite yet. But there are a lot of advisors thinking that they're kind of King of the hill because the markets been so good to them. And they look like geniuses. But what is geniuses like Warren Buffett doing right now? Well, as of December 2019, he's sitting on $128 billion in cash. Is he a big buyer in this market? No. Do we think he's stupid sitting there in cash? No. I mean, everyone else is at least buying the index, shouldn't he? Well, he's a very, very patient and disciplined investor. He's gonna wait till this market turns, then he's gonna just buy like crazy when things are on sell. And he's gonna do what he says he's gonna buy $10 bills for $5. So, he says to be greedy when others are fearful and fearful when others are greedy right now, I don't sense much fear in the marketplace. Will the general population and these Facebook commenters wait it out? Probably not. They're gonna get aggressive. They're gonna start buying, they're gonna take each other's advice and then one day, you know, kaboom, it's gonna blow up. And they're probably gonna panic and then, you know, sit there and miss out on 1 or 2 compounding periods, which is so important in life. Well, here's the next comment. He says, I use a financial specialist and he partners with my company and gives great non-biased advice. Also, not fee based. And then he goes on he says our company does not manufacture their own funds. So I'm guessing this is some sort of a financial company, and he can utilize most major fund companies. So let me know if you'd like to get a second opinion on what you have in place. It never hurts. Well, first off, I have no idea what a financial specialist is. It's either, you know, some made up term, or this guy is really got his clients fooled into thinking he's something special. Anyway, he says he also partners with many companies and gives great non-biased advice. So one of the first things I think of is what in the world is non-biased advice? And what is great advice compared to what. Right. Now we're all biased. It's kind of human nature to be biased towards something. The fact that this guy is giving mutual fund advice and selling mutual funds tells me he's probably biased in favor of funds over individual stocks or gold or real estate. Right. Now, I don't care if you're biased. Just tell me why. And give me some good reasons why I should listen to you. And maybe I'll be biased with you as well. I remember a few years ago, one of the comments on of my videos can't remember what the video is about, but I do remember the guy says, Hey, don't listen to this guy. He's biased. And I immediately answered, well, of course, I'm biased. Why do you think I did this video? Right? I'm biased toward whatever this video was. But for the most part, I'm biased towards safe money and compounding. I have a biased against advisor fees that have no real value. So yeah, it's okay to be biased. Biased is not the issue. Ignorance is the issue. I like to hear ideas and I'm open to most things. However, after 35 years of doing this, I've kind of heard about Lot of the garbage that doesn't work that's still being sold today. So yeah, I do get a little bit biased. And then he went on to say also not fee based. Well, if his advice isn't worth the fees, then yeah, you definitely want to, you know, avoid that kind of a thing. Now, I'm not a big fan of fees, but if someone can get me Buffett like returns. And they're worth paying a fee to, that's a little bit different story, but your traditional advisor who's just buying mutual funds, and doesn't even understand the buffet way, probably not worth paying the fees. I'd be interested in his level of knowledge of how to invest again, if he's investing buffet style, it might be worth, you know, paying a fee. Sadly, again, most advisors aren't worth really the fee that you're paying them and they don't know much more about investing, then a lot of you do. Studies have shown that fees can rob you from as much as 30% of your total return. You know, if you assume a 2% total management fee and 8% returns. So about 30% of your total returns. Very, very expensive. Well, it sounds like this guy in this comment simply picks mutual funds for you. And if that's the case, we really don't want to be paying fees. He does say that this guy gets to pick from all the major fund companies. Well, that's got to be a winner right? At wrong. You can find so many reasons why the major fund companies lag even an index. Well, this is kind of what I end up calling barber shop advice, not trying to, you know, pick on barbers but that's kind of where you know hear about the advice coming from the barber shop, it can be pretty much worthless. Then he says at the end, that he can be there for a second opinion. Well, look, as I said this before, and I'll say it again, you need to become the expert. If you're in interested in investing, and stocks and all these kinds of real estate, whatever it is, you need to understand it. You need to understand money and investing and valuations and everything that's gonna to help you become a great investor. If you're not willing to do that, if you're not willing to put in the time, which by the way, it's not like it's that hard. But it does take some time and effort and energy, and you really need to have a desire. It's just not something that you can just learn overnight. But if you're not gonna do that, then you're going to be susceptible to this barber shop advice. Which is worth about as much as the hair on the floor. Right. So then the comments started to go into different brokerage firms that they use and up and comer brokerage companies like Robin Hood and then one. And you know, those are good firms, but they're good firms in actually executing the trades, but they're not unnecessarily good. Helping you learn how to make good investment decisions and becoming a great investor. They're not gonna find you a strategy that works. They're just gonna help you execute trades.And this is why I go back to Einstein's wealth equation because it works and we can implement it and it's easy to implement. And it's something that we can help our clients implement easily and you know, the equation y=(1+r)x, pay yourself first, start today. Don't lose money, let it compound and leverage for exponential growth. It's a pretty simple equation. And since we're on the topic of stocks, don't lose money should be the focus. That is probably the biggest wealth killer is when you lose money, you lose compounding, you lose time. You don't have to be a market or a stock genius. You don't have to tie markets. You don't have to take any advice from the barbershop crew. Because it's not gonna get you there in the long run anyway, you've got to be smart be deliberate be compounding be safe with your money and wealth on naturally follow. Okay, so that's it for this video. If you have any questions, shoot them to questions at wise money tools.com, we'll answer them just as quick as I can. Also make a comment below. Don't forget to subscribe. And if you want to talk about this stuff more in detail in your specific situation, just click on the time trade link below and we can have a quick conversation. That's it for this week. Until next time, take care.

Well! Hi everyone, this is Dan Thompson. Welcome to another wise money tools video. So we've been right in the thick of this virus, this Coronavirus scare over the last few weeks. And boy has this market taken quite a tumble on February 20th, literally just a month from today. So today's March 20th. So a month ago, the Dow kind of peaked out it was 29,000 and some change 29,300. And then just fast forward, you know, exactly almost 30 days, we're all the way down to 20,100 so about a 9000 point drop. And we have seen it worse it was actually had dropped even more so. Than that we were in the 19,000 even I think he got into the 18,000 so it was it got ugly fast. So to kind of put it in perspective, there's some different definitions in market cycles, a pullback is considered somewhere between a 5 to 9.9% drop. So if the market drops 5, 6, 7 percent, that's considered a pullback. Once the market hits 10%, that's considered a correction. So we hit correction territory, like within just a few days. Then a bear market is considered anytime a market drops 20% or more. And of course, we've hit that. Now a recession, it's more or less a broader term, it's pretty much identified by two quarters of negative growth. Now, we're most likely gonna go into some sort of recession territory with this virus, slowing the economy or definitely down for this quarter. We'll just see how far this is gonna go. So we've pretty much dropped 30%, which obviously puts us into bear market territory. And we'll see if we get to quarters to see if that's gonna push us into recession territory. But what's happened is we've essentially wiped out five years of market growth. I mean, everything that everybody got in the last five years is pretty much gone. I remember doing a video, I think it was late last summer. And what I said was, there's a lot of people getting their statements, they're feeling really good about it. They're calculating how much money that they have. And I remember saying that they think it's their money. However, the only way it would actually be their money is if they were to sell out and protect their profits. Right. Then I went on to say that most people are not gonna keep their profits. They're typically gonna ride the market down whenever that happens and lose a lot of their gains. So when people were looking at their statements late last summer, and feeling really good about how much money they had. You know, acquired over the last number of years, I remember thinking, Oh, man, these people think this is, you know, this is their money, so to speak. Well, who knew that this virus was right around the corner. And that, you know, in a surprising turn of events, literally five years of gain would be wiped out in less than about three weeks. However, the behavior is the same with every correction, every recession, every bear market, most people just ride it up and down. And it turns out to be more like a treadmill than an uphill climb. You know, when you look at Wall Street, it's really driven by two different forces. And those forces are greed and fear. Well, we've certainly seen fear replace greed in the last few weeks. And as I've mentioned before, the stock market just wants predictability. Whenever there's uncertainty, fear is gonna set in. And for the most part, a pullback of 10% is fairly normal in, you know, in a year or twos period of time. There's always gonna be fluctuation and profit taking change in some economic situations. Those are normal business cycles. But let me emphasize again, that losses have a substantial negative impact on your money. You know, you're always hearing advisor saying, the market always recovers. You hear the radio guy say, the markets gonna recover? Well, of course it does. No one's gonna argue that, but what they neglect to tell you is how devastating the loss can be, because it's a loss of time. Let me give you an example. And I've used this before I just seem like I have to say this almost every week. But let's just use this proverbial 10% return that every advisor seems to throw out there. That if you stay in the market long enough that you're gonna average 10%. All right? That means that your money is gonna double roughly every seven, seven and a half years rule using the rule of 72. Rule of 72 basically says if I divide 10% into 72, I should be doubling my money every 7.2 years. Now, that's not all that accurate, but it's pretty close. And as I've discussed before, in a working lifetime of a typical lifespan. We start working, you know, in our careers that roughly age 25 and we're gonna work till 65, 66, 67. So we're basically gonna have 6 compounding cycles. So let's look at it from a guy that 25 years old, he has $10,000 and he's gonna leave it alone until he's age 65. And again, we're gonna use 10% as our annual rate of return. So it's gonna look something like this, in the first cycle $10,000 to $20,000, 2nd cycle $20,000 to $40,000, then $40,000 to $80,000, $80,000 to $160,000. In the fifth cycle, we go from $160,000 to $320,000. And then the most important, the most critical cycle of all is cycle number six, which is $320,000 to $640,000. Reason why I say that's the most critical is because as you get into those last two cycles. Especially, they're really creating some powerful, some capital some net worth. I mean, going from $320,000 to $640,000 is huge and can make a big difference in your retirement. So that's how the cycles work. Now, here's the problem with market cycles. Again, I think everyone will agree that the markets gonna recover always have and presumably always will. But at what cost to you see if you have six compounding cycles or basically 45 years for your money to grow? If we look at this chart, you can see what's happened in the past. And these are, this is going back to 1929. Now, we all know about the stock market crash at 29. Right? Well, it took from 1929 to 1959 for the market to quote-unquote recover. So if you had $1,000 in 1929, it took till almost 1959 to have your $1,000 back or to quote-unquote, recover. That is 4 lost compounding cycles. Now think about that. Losing four out of six compounding cycles in your lifetime. That means in the same 45 years that we're looking at, you only got to double twice. So you went from 10,000 to 20,000, and then 20,000 to 40,000. And that was it. You missed out on the other four compounding cycles that really would have made a difference in your lifestyle. Now, after 1959, things went along pretty well. We had a pretty decent decade, and then we hit the 70s. And between oil embargoes, inflation, high interest rates, some of the worst economies and that we've had, there was another 3.5 last compounding cycles. So from the 1970s, through most of the 80s, it was just recovery time. And yes, the 80s were good years. But for those who had already saved and invested in the 70s, they were pretty much just recovery years. Now I started as a financial advisor in 1986. And back then, because the market had done so well from like, say 1980 on the Wall Street and the advisors were projecting 20% returns going forward. Because things were like I say they kind of were on fire, things were doing great. Then after the 80s came, 90s did pretty good. And then we had the.com boom and bust and then y2k. And there we lost another 1.2 to 1.5, you know, compounding cycles. In fact, we call 2000 to 2010, the last decade, basically where there was no money made in the market. So you can see my point here, it's not that the markets won't recover. It's that you lose time, you lose compounding cycles and that is time that you can never get back. Now we've had a drop of 30% as my pointed out, painfully. What we don't know is how many months or years will it take for us to get back to 29,000 and some change. And the reason for that is because we don't know how long this virus gonna last and so on and so forth. We do have a pretty strong economy waiting to kind of get going again, so we might recover fairly quickly. But keep in mind that when a market drops 30% if it goes back up 30% that's not a full recovery. Let me give an example. Let's say I have $1,000 and I lose 30%. That takes me down to $700. Right. Now, if I'm at 700, and the market goes up 30% I'm only at 910. So it actually requires just under 43% return to get back to my original thousand. So a 30% loss requires a 43% gain to get back to where we were. So now that we're down here, let's just say at 20,000 in the Dow. We need a 43% gain from this point to get back to where we were. So in that period of time that this recovery is happening, I not only lose out on compounding periods. But the markets have to do much better to get me back to where I was. Now, I love a strong economy. Like I was saying, I hope this recovers quickly. I don't want to see us go five or seven years just to get back to where we were. But what I really want to emphasize to you is a very simple principle. I call it the ABC principle. ABC stands for "Always Be Compounding". Don't miss out on compounding cycles and certainly not 3 or 4 cycles. This is why way too many people end up broke or near broke during retirement. They just missed out on way too many cycles. And if you're within 1 to 2 cycles of retirement, basically 7 to 14 years, let's just say, you can't waste those. You need to do something different if you think that these cycles are gonna affect your future retirement. If you're completely relying on the market and you're 1 or 2 cycles away from retirement, you might need to be doing something different. You know, Einstein said it perfectly. You've heard it all before. It's the definition of insanity. And that's doing the same thing over and over and expecting a different result. Well, I've been doing this for 35 years, 36 years and sadly, everyone keeps doing the same thing over and over and hoping this time it's gonna work. You know, if your advisors been doing this for less than 10 years. He or she probably has no idea what it's like to have a market crash or to go through a cycle. I mean, the last 10 years have been pretty good. They think this is just how markets work and that markets always go up. If this is their first time, they've had to deal with this, they're in somewhat of a panic mode. And all they can do is repeat the mantra. Markets are always gonna recover, you're gonna be just fine. They just forget to tell you, yeah, you might miss out on 1 or 2 compounding cycles. And that can be devastating. Unfortunately, I've been through way too many of these, which is why you need to never miss a compounding cycle. Again, ABC pretty simple. Always Be Compounding. You know, again, I hope this corrects quickly. I'm not a doom and gloomer, I like to grow money just like the next guy. However, we've had to develop a process that lets you compound keeps your money protected at the same time. Because I went through too many cycles and I don't want to do that ever again. Well! That's it for this video. Feel free to reach out and ask any questions that you have. I'll try to answer them as quick as I can. If you'd like to schedule a time to chat, just click on the time trade link below. We'll schedule a time to have a few minutes, see what it's like in your situation. And see if you're in panic mode right now and what you could potentially do about it. Feel free to make a comment also below and don't forget to subscribe, never miss a video, never miss a podcast. And that's it. I will talk to you later. Take care.

Well! Hi everyone, and welcome to another wise money tools video. This is Dan Thompson, glad you could join me this week. You know, an interesting thing happened on Facebook just a couple of days ago, I saw a post from I guess you consider this like a second generation person. Anyway, this is what he posted. He said, for those of you who have stocks and bonds, do you use an investment advisor or do you self invest in an index? And he goes on, he says we have an account with Stifel, but I'm not overly impressed with the performance. And we've seen that we've seen in the fees that they charge any recommendations. Well, the floodgates opened. I mean, a lot of people have opinions on stocks and bonds and all that good stuff, right. Well as the advice came pouring in, it was kind of like a train wreck for me. I just couldn't look away. First off, you know, he's right, big firms like Stifel and Fisher. And those kind of companies that do a lot of advertising, typically aren't the most competitive in the long run. And then he's also right about fees. If you watch my video just a few weeks ago, where I talk about the negative compounding effect of fees, you can see just how devastating they can be. Anyway, what I wanted to do here is go through some of the suggestions or the feedback or the comments that he got. And I want to know what you think about these comments as well. But here was the first one. The guy says, Well, we self manage, and you can too, you're smart, you can do it. I've averaged much better returns myself, as I'm more willing to assume much more risk at this stage of my life. Advisors tend to be much more conservative, understandably Okay. First off, he says he's averaged much better returns on his own. And I always have to ask, Well, what is that compared to what or to? Or to whom are we comparing these returns to a guy like Warren Buffett or to your local barber? Now, maybe he's used a financial advisor in the past who just bought a mutual funds. And you know, I think just about anyone can pick mutual funds as good as an advisor, if not better and could save a bunch of fees as well. So maybe that's what he's comparing to, however, and this is where I started to cringe a little bit. He says, I'm more willing to assume much more risk at this stage in my life, and advisors seem to be much more conservative, understandably. Now, my thought is going back just a few videos, where I talked about the golden goose. And I talked about how many compounding periods you get in your lifetime. Now I remember those days as a financial advisor and being told, it's okay. Take risk while you're young because you can recover. Well, folks, I may tell you, you really can't recover. If you lose out on a compounding period. That could mean a lot of money and very hard to recover from. Now, let me explain what I mean by that. Suppose you have six compounding periods in your lifetime. Now, we're gonna use seven years as a compounding period because everyone likes to get or think they're gonna get 10% on their money and investments over time. And the rule of 72 says if we divide 10 into 72, money doubles every seven years. So every seven years our money is gonna double. That means in our working lifetime, let's just say from age 25, we'll go to age 67. That gives us 42 years and exactly six compounding periods. So What happens at age 67 in this case is you're probably gonna start taking some income from your money. But hopefully, if you've got it in the right place, it's gonna still continue to grow and compound, even those last 20 or 30 years of your life. So all told, maybe you're gonna get the six compounding periods while you're working. And then maybe another 3 or 4 compounding periods after age 65 or during retirement, depending on how long you hang around on this planet. Okay, so just for the sake of argument for this example, let's say this guy's 25 and he has $10,000. I know, not a lot of right out of college students have $10,000, but just hang with me for just a second. So it would look like this if every compounding period grew and he didn't have any losses. So period 1 would go from $10,000 to $20,000. Period 2 would be $20,000 to $40,000. Period 3, $40,000 to $80,000. Period 4, $80,000 to $160,000. Period 5 is $160,000 to $320,000. And then finally period six $320,000 grows to $640,000. Now what I want to point out is that each compounding period built upon the previous compounding period, right? Notice that the largest gain though, was that sixth compounding period. Even though it's the same return, nothing changed in that regard. But it was substantially more. In other words, that sixth period went from $320,000 to $640,000. So it made $320,000 in that last compounding period. And think about it $320,000 can make or break a financially sound retirement. Now, tell me If you take more risk as the commenter suggested, what yours Would it be okay to lose money? And are you okay to miss out on the compounding period in your 30s? Maybe compounding period two or how about in your 40s? Maybe compounding period four, you see what I'm saying? The answer really is none of them. You can't afford to miss out on any of those compounding periods. So it's silly to think just because you're young, it's okay to lose money you're gonna make up for later missing just one compounding period would cost $320,000. Because again you'd only have five compounding periods instead of six. If he just missed out on one. See how expensive that can be just to be absent in one compounding period. Now, just for fun, let's keep going after age 65. And he's got let's just say three more compounding periods. So compounding period seven would be from $640,000 to $1,280,000. Period eight would be $1,280,000 to $2,560,000. And then finally period nine is 2,560,000. That goes all the way to $5,120,000. So you can see in period seven, even if this person wanted to start taking some money out, say $50,000 or $60,000 a year, he's still gonna grow and compound over that period of time. So his money's still gonna increase in value while he's still taking out some income? The bottom line is, what do you think of this advice? Now that you understand the importance of compounding and not missing out on one compounding cycle? Is it okay to be really aggressive while you're young and lose money. He should be protecting those compounds periods not being frivolous with him. For those of you who are older, maybe you're already in your 50s. And maybe you've saved a good chunk of money, maybe even have a half a million dollars. Well, you can go from $500,000 to 2 million in just two compounding cycles. But most people won't do that. Why is that? Because these darn markets, okay. If you're in the market, what typically happens is people just ride the downturns they hold on. They lose that valuable time of compounding, because they're spending their time just getting back to where they were. In other words in 2008 after that market drop, it took many investors 10 years just to get back where they were at the beginning of 2008. You had a nightmare if you retired in 2007 and you kept your money in your 401k. Many of those 401K's were cut in half, we affectionately call them the 201K's a year later. And sad to say, who knows, some of those might have turned out to be the new Walmart greeters. The next comment that I'll talk about was pretty typical advice. It went something like this, just by the low fee index from someone like Vanguard. And I get where they're coming from. And honestly, if you're probably more likely to beat mutual fund picks by a paid financial advisor. Than if you just buy the index with low costs between the fees and trying to manage the market. Index funds typically outperform managed mutual funds, depending on the timeframe selected. This is the technique that wall street advisors use, is they kind of cherry pick the years that they want to show you how great they're managed mutual fund has done. But the truth is, if you're patting yourself on the back for how well you've done in the last five to seven years. You're probably going to be in for a rude awakening at some point. Look, we're living in one of the strongest market cycles in history. And I think that's great. I mean, I love strong economies, but it is overvalued. And we are due for some sort of a correction recession something. I just don't know when it could still be out another year two or three or four. Who knows? Anyway, my point is, everyone right now is an amazing stock trader, their financial experts or money managers because really just about anything you get involved with is making some money and it has for several years straight. You know, if you've used a financial advisors and paid them fees during this time. It's almost been a huge waste of money because you really didn't have to have an advisor to buy an index to pick a fund. And you would have done just as well. So now is that gonna change? Gosh, I don't know. But those who are walking with their chests out, you know, they're gonna probably be humbled at some point. And then sadly, they're gonna miss out on 1 or 2 compounding periods. They're gonna be agonizing over their losses and then just sitting there waiting for things to come back. The bottom line is if you don't learn how to become a good investor, understand fundamentals, study companies that you love and maybe intimately want to know, understand where the prices should be at what's a good value, when to buy all that good stuff. You're probably gonna get trapped sooner or later in a downturn. And you're gonna, you know, potentially panic like most investors and even financial advisors do. If you are interested in stocks, this is what I would tell this guy. Learn to be a great investor, and I consider being a great investor more or less the Warren Buffet style. Don't rely on some advisor who usually doesn't have the time, nor the capacity to really help you. Even if they wanted to. You can get pretty good at this. And it's, I say it's simple, but it's not easy and the reason why it's very simple concepts, but it's not easy to necessarily implement. Okay, I went a little over time here. Sorry about that. I try to keep these videos a little bit shorter. So I'm gonna continue this conversation on this Facebook post on my next video. In the meantime, if you have any questions, shoot them to questions at wise money tools.com, I'll answer them just as quick as I can. Also, feel free to put a comment below and don't forget to subscribe. And until next week, I hope you have a great one. Take care.

Hi everyone, this is Dan Thompson and welcome to another wise money tools video. So I read this interesting article the other day about the economy, said in the 2010s, the national unemployment rate dropped from a high of 9.9% to its current rate of just 3.5%. And then it said the economy expanded each and every year in that decade. America's confidence in the economy hit its highest point since 2000. Right before the.com bubble burst. Well, that's kind of a scary thought. If you live through the.com bubble burst. Don't want to do that one again. So these are pretty typical numbers for a prosperous economy, right. However, prosperity interestingly enough can also bring with it other financial issues. So for instance, one thing it can bring is lower interest rates. Now, who doesn't love low interest rates, right? It allows people to buy a bigger home, they go out and finance cars, all kinds of things. But along with the ease of interest rates is also the cost of living. And that becomes quite a paradigm. Think about this, when you put your money into a checking or a savings account, what kind of interest are you getting on those right now? Yeah, pretty much nothing, maybe a half a percent. And then there's a lot of seniors who live on fixed income type investments, bonds for instance, fixed annuities, and CDs. They're not getting the interest that they would normally get or have gotten in the past. And as a result, their incomes been a little bit damaged as well. And then here's what's really strange, especially with the economics looking so good. Why is it that only two in five people can come up with $400 in case of emergency, two in five people, in fact, one in four adults struggle paying their bills each month. This might be why, you know, a surprise furnace repair bill or a parking ticket or you need some car parts or medical expense can almost ruin so many American families, despite all the wealth that this country has been able to generate, and how can that be? I mean, wages are up, profits are up, people are working, unemployment's down. So what's the problem? Why are so many people still struggling? Well, there's a couple of reasons. One is, they don't live within their means. So they're not budgeting. And I don't really like that word budget. I personally don't like a budget, but you have to live well within your means. The only way you can be out spending is if you're also out saving. And I remember way back, I remember thinking, well, if I'm gonna have a car payment, I need to also be able to save that much money too. So I would say, Well, my car payments gonna be $200 a month. I have to be able to save 200 a month or I'm not gonna buy that car. If that car payments 500 I better be able to save 500. The problem is we don't do that we live on paycheck to paycheck, living expenses, and will max out car payments and house payments and credit cards and everything just to barely squeeze under our monthly needs. We can't do that. So that's number one. Just because prosperity up is up does not mean that we're doing great because if we're spending everything we're bringing in, that's not helping us. The other thing is cost. See prosperity when it's on the rise and interest rates are low. You know what happens? Oftentimes, the cost of things, particularly housing increase. It's a supply and demand kind of thing. Housing is one of the most expensive parts of a family's budget. And as housing costs rise, the cost of living rises. And unless you're willing to get less house then maybe you want or you need, you're probably gonna struggle making ends meet. If you're trying to max out that house payment, get all the house you can possibly get in your budget. It's probably gonna mean you're not gonna be able to save quite as much as you need to. And some areas of the country are obviously worse than others. You know, in San Francisco, this is crazy to me, the average home is now 1.6 million. So and that's we're talking about a small home we're talking about 15000, 1800 square feet, you're gonna pay 1800 dollars per square foot in Manhattan, which means a 1500 square foot home is $2.7 million. Now those are the two coasts and those are probably the extreme areas to live in. But still housing costs are rising faster than wages and almost 80% of the country. Then we add to that healthcare costs rising, and it can be a double whammy for a lot of families. Now, wages have gone up, they've gone up on average about 20%, which is great. But if healthcare premiums have gone up, let's say, you know, 25 or 28%, you're not really keeping up. Now, I get frustrated with health care, because it's so regulated. But it's because of that regulation that costs keep rising. Now I understand we have to have some regulation because unfortunately, there's a lot of unscrupulous people out there, but we live in one of the most productive and innovative countries technologically advanced in that, you know, literally the history of the world. And in nearly every competitive industry costs go down and or benefits go up or maybe mistake the same. I mean, just take a look at technology. I remember way back in the day when I first started in the mid 80s. I remember having to buy my first computer, it cost me 1800 dollars. But the problem is, it didn't do hardly anything, maybe a little word processing and printing on a dot matrix computer, which means it's just a bunch of dots. It didn't even have a very good font when it was all said and done is basically just a glorified typewriter. But if you fast forward 30, 35 years, you're still probably gonna pay about 1800 dollars for a new Apple Computer, let's say but look at what you get. I mean it basically does everything for you the and the colors and the music and everything that you can do. You can edit the you know, full scale movies on your apple. And you really can't live without them, right? And we've gotten so used to them. But the point is, costs really didn't go up. But we got so much more for our money. And that's again, because of competition and innovation in technology. It improved the entire industry. Take a look at cars. At the same time. Obviously, they're getting more expensive, but we get so much more for our money. I mean, we're even getting to the point where cars can drive themselves, they help prevent accidents by using braking control, not to mention all the convenience and the electronics that you get. It's so funny that on a personal note, I love the big huge screen and the Dodge Ram and I needed to replace my truck. So I joke that people say well what did you end up buying? And I say Well, I I bought a big screen with a truck wrapped around it. Because I love that kind of technology is kind of fun. Anyway again, Competition, innovation, technology all have improved the automobile industry. And one thing that holds car companies back oftentimes are the burden and the costs of more government regulations. Now, some are good again, some not so good. I think both college education and health care could be part of this innovation. Interestingly enough, what does the government have it's fingers in the most college education and health care. So it's so much regulation and government intervention and little competition, you can see what the results can be. Housing has it's own unique set of circumstances. There are two factors that we have to at least look at and consider when it comes to housing. One is supply and demand. Now, if I go back to San Francisco, Manhattan, you know, big cities like this. They basically have a, you know, moratorium on building. You can't build any new homes. So there's you just have to be able to buy what's there. And oftentimes, even in other parts of the country, there's no really building going on, there's nowhere to build and where there are fewer homes that are needed or wanted cost naturally rise, bidding wars happen and people have to be willing to pay more as those prices rise. The other factor is low interest rates. When interest rates are low family can buy more house for the money. Since the mortgage companies are encouraging you to always max out your potential mortgage payment, lower interest rates, lets you buy more home. This though in turn, drives up prices right? And then the third thing to take into consideration is location. You know, they say in real estate, it's location, location, location, right? This factor can drive prices up as well if you happen to live in a location where a bunch of other people want to live as well. So those were extenuating circumstances. But, again, since housing is a substantial family cost, these rising home prices have made prosperity difficult for many families. So although prosperity is not a bad thing, it's a good thing. And although wages are going up, and although the economy is doing well, there are a few things that families still have to do. And as I mentioned before, number one, they've got to live within their means. Okay, by doing that, you can get to number two, be a saver. Save As soon as you can, save as much as you can, let compounding and time be a huge wealth builder for you. Number three, don't let debt rule your life and your choices that you can make. When you're in debt. You have very little choice but to just go to work and keep paying the bank and the credit card company's. Debt is a burden to anyone living within it. Now, this goes back to a video a few weeks ago, you still need to be saving even if you have some debt, you can't miss out on those compounding years. However, best rule of thumb is to don't go in debt. And if you are going into debt, go into debt and in a small enough fashion that you're able to continue to save and invest along with it. Look, not many people have the capacity to go buy a house for cash. But that doesn't mean you have to buy a house that maxes out your mortgage and puts you in debt where you can't even save another dime. Number four, you might consider health care plans that are outside the traditional insurance plans. There's several of them, and I know some of them are more Christian based plans and they're not gonna cover issues that you might have with some vices. Alright, but they cover the essential And they can do it at a much lower cost. And then again, number five, like I was saying, Don't max out your mortgage, find a home that's workable, but allows you to save your money at the same time, don't become house payment port. Number six, plan and save for things. Don't use debt as part of your plans. But again, you must be saving at the same time, long term investment stuff, stuff that's going to grow and compound and build your wealth. And then number seven from the last video, be wise when it comes to education for your kids college. Oftentimes families sacrifice their future retirement to pay for kids college without letting them have the opportunity. I say to letting them have the opportunity to figure it out for themselves. And they will, if you can encourage your child to be innovative and figure out a way to pay for their college. I don't know how they do it. But somehow they figured out, that's a great start to some general concepts to live by. And even though the economy is progressing, and some may not feel like they're progressing, you can see why. And there are some things that you can control. And as we've talked about before, Einstein created this simple equation for wealth, y=a(1+r)x. And it basically means this wealth is what we're after, is attained by number one, paying yourself first. Number two, starting right now, then you got to protect your money from losses. You've got to compound your money each and every year. And then using exponential growth, by using secured leverage to accelerate your returns is the way to really build wealth has safely and predictably as you can. If you can do this, you're going to also enjoy the things in life. Wealth will be attainable, and anyone who understands it can attain it. You know, when it comes right down to it, nothing really controls you or your wealth, except for three things. You got to understand it, you got to know how it works. Okay? Then you got to live within your means so that you can be a saver. And then number three, you just got to take action. You got to get started today. Sounds simple, right? I like to say it's simple. Not necessarily easy. Well, let me make it easy for you. Okay. All right. That's it. Well, if you have any questions, shoot them to questions at wise money tools.com. Answer them just as quick as I can. You can also put some comments below. Don't forget to subscribe. And if you ever want to take a few minutes and talk about your situation, click on the time trade link below. Well, that's it. Hope you enjoyed it. Take care.

Well! Hi everyone, this is Dan Thompson with another wise money tools video. Glad you could join me today. So have we seen a crazy market or what? This thing started back on? What February 24. We saw over 1000 point drop just in one day. I mean, it was 28,000- 29,000 dropped all the way down to 24,600. Then a couple days ago, I think it was on Monday it climbed back up to 26 nine, and then today we're hovering right around 26 for another seven 800 point drop today. So the question is why? Now a lot of people say it's coronavirus and all that certainly has something to do with it. But the real reason is this. Wall Street likes predictability. And it's just that simple when Wall Street's comfortable earning are up revenues coming in Wall Street reacts positively. And typically over the last number of years, prices have been going up right? Now that's good for many companies. But man, there's been a lot of companies way overvalued. We've been in the higher end of the what's called the price earnings ratio for quite some time. And eventually the market does get wise and brings it back to equilibrium or to some sort of medium. But that hasn't happened for years. Again, we've been riding on the high side and this thing's really needed some sort of a pullback or correction. But when Wall Street feels jitters, and what will happen is they're gonna react, and it's gonna get ugly. And what's gonna happen is program trading kicks in and then it's just like, you know, jumping off a cliff, which you can see from this chart. I mean, look how that thing dropped in just the last number of you number of days and we've only been at this about 10 days now. So the markets full of jitters certainly set off by coronavirus. But why such a scare? I mean, we've had the flu in various strains, you know, for centuries. In fact, one commentator I was listening to said that we're still fighting the same flu that was a breakout in 1918. So who knows how this is gonna turn out. I certainly don't want to predict where we're gonna go. But the big scare for Wall Street isn't even how many people are gonna die from the flu. I hate to say it, but they really could care less in that respect. But what they do care about is how many workers can't work, how many factories and plants are gonna shut down and basically halt production. So for Wall Street, it's all about the revenue and the profits and if manufacturers aren't producing. Well, Then there's nothing to sell. And then the cost of staying in business goes up. And obviously profits go down. So Wall Street's always looking for a reason. And that reason can be to buy or that reason can be to sell. So you got to think a Wall Street kind of into two separate sides of the fence. One is the transactional side. This is the clearing firms and the brokerage houses that fill trade orders each and every day. And honestly, they do not care which direction it's going if the markets gonna be profitable or not profitable. They are a transactional business. And again, they don't care if you're buying or selling. They just want something buying or selling. Now the other side is the more the you know, the financial planning site, if you were the brokers where markets are going up and down, and that impacts their clients that impacts the families that they're selling mutual funds to. So that side of Wall Street does get affected. But rarely, if ever, do you hear an advisor telling their clients to get out of the market, that's not in their best interest either. They always want you to stay in because that side of the market is fee based. And if you pull your money out, or if they tell you to take your money out, they're kind of hurting themselves because they're gonna lose fees. So you've got the transactional side doesn't care really where the markets going. They just love lots of trades going on every other day. You've got the other side, the advisor trying to say, Well stay in, because obviously they've got the interest in you, continuing to pay the fees. In fact, it'd be interesting if you happen to call an advisor right now. If I give you 100 reasons to stay in one of those being well, you don't want to take your losses now. It's gonna come back right. Well, the next question is why are some of the stocks that may not be directly affected by Coronavirus dropping too. In other words, you can see why some stock companies out there who have some sort of direct correlation with Corona might be dropping. But the top 10 stocks in the world are dropping. And most of these are tech stocks. And when you think of Apple and Google, and Facebook and Microsoft, I mean, why are these companies going down? Well, the reason is, well, there's probably a couple reasons, but one of the reasons is because these stocks are also part of the index. Now the index will just use the S&P 500 index as an example. It's a what's called a cap weighted index, meaning that when you put a let's say, $1,000 into the S&P 500, your money gets spread out to 500 different companies but not evenly. It's spread out based on the value Or the cap of the company. So the larger the company is, the more of that thousand dollars that your thousand dollars is gonna go to. So the big five in particular, they get more of your thousand dollars. And then the last 10 are numbers 490 to 500, they probably just kept pennies. So when there's a sell off, what's gonna happen is all indexes are sold on program trading. Program trading just basically means that the computers do the work for you. And most every day, machines are doing all the trading that's going on but in an index as an example, when you buy or sell the index 500 stocks need to either be bought or sold, and again on different percentages based on their cap weight. So all in all, program trading is a big part of what's going on and especially for those top companies. Because again, they have to be sold and in larger doses than the smaller companies because they have the largest positions in the index. Then what happens is you have what are called buy stops and sell stops, and all the short sells as well. And these are pretty much run and driven by computers too. So a sell stock would be, let's say, I buy a stock at $100 a share, I don't ever want to get in a situation where I'm gonna lose more than, say five bucks. So I put in what's called a sell stop at 95. So as soon as that stock trades down to 95 computer kicks in sells that stock for me. Very common for stock traders to have stops, especially options traders, which also are a big part of this when it's all said and done. So the computers pretty much work all day long, executing these kinds of orders. So what happens is when one stop hits, then the next stop hits, and it becomes somewhat of a sell off. If someone says sell say $100,000 worth of the index, then all 500 shares of those stocks need to be sold and again at different levels. And then when certain levels are hit on the downside, another trigger may started another sell off, and then another and another and so on. Most precipitous drops in the market are not due to individuals calling up their mutual fund company or their broker and selling shares. Most of these drops are because of program trading. And unless the SEC steps in to halt trading, it can kind of get ugly and it can get ugly fast. So that's why you're seeing Amazon and Google and Microsoft and Apple and Facebook. All trading lower, mostly due to program trading and index selling off. So I was thinking, suppose though coronavirus really got bad. Now what companies might do okay with that. And one of the things that popped in my mind is, well, who delivers? All right? Well, Amazon's probably one of the biggest delivery companies in the country, obviously. So you would think that if everybody was shut in their house, that they would need to get food and maybe Amazon would be, you know, able to deliver that. And that might really be good for Amazon, because everybody's ordering from them. But unfortunately, that's only this much of the puzzle. It's all the potential manufacturers that had to shut down. And without being able to produce, they can't send product to Amazon and then Amazon's can't get it to you. So Amazon's stuck to, you know, it's amazing how integral each part of the economy is to each other. And that's why we've got to kind of keep government out of this thing and let the private sector run on it. Because when one part of the economy suffers, it tends to trickle to another. And the problem with government and it tends to try to fix a problem. Oftentimes, it's not even there. And the unintended consequences trickle down, and it just can affect the whole marketplace. So the marketplace seems to be able to work out it's bugs on it's own and will eventually sort out this whole thing and bring fair markets back into and the value back into these companies. However, in the meantime, as you've seen in the last 10 days, there can be a wide pendulum swing, and sometimes even Wall Street can't predict that kind of an outcome. But again, all watched all Wall Street wants is predictability, stability, and free markets and don't want anything manipulating the markets except for themselves right. Now, I can imagine some companies such as well like cruise ships and airlines, maybe even hotels, essentially travel industry, I can see why it's taken some sort of a drop, because these are unknowns. You know, I have some friends, they've been preparing and already to take this cruise through northern Italy. And they were gonna leave in about four or five weeks. But it looks like they're gonna have to cancel it because that's where one of the major outbreaks is. Now certainly that's gonna have a major impact on the cruise liners, the hotel's the restaurants, everything that they would have spent money on while they were gone. So you can kind of see why the travel industry might suffer. But then there's also companies you know, massive companies like Disney for instance. Now, their stock went from 100 dude or from 140 down to 100. Now it's kind of back up to about 116. Now one theme park I want to say it was in Japan, I could be wrong. Anyway, one of the Disney theme parks did have to shut down and that's gonna obviously affect their revenue for at least a few days. And I'm guessing attendance might be down a little bit on the other parks might be a good time to go to Disney. Anyway, that hurts for sure. But Disney so huge. They have so many other businesses and outlets and places where they make revenue. That sooner or later investors are gonna see that this has probably been way over sold. And Disney might, you know, look pretty good here. Then there's companies like Costco where, you know, I was seeing these pictures of these massive lines where people are there. I guess they're trying to, you know, buy toilet paper and paper towels and water and all these things. And this is in cities and towns where they haven't even been affected by the virus yet. But what that could potentially do that could increase Costco's revenues like crazy because they've got buyers panicking for food and paper towels. It may not make a lot of sense in the short term, why? Costco 's stock is dropping, and he was like 324 went all the way down to 281 back around 304- 305. Now, long term, obviously, if they don't have product because manufacturers had to shut down, then they don't have shoppers. And yeah, it could get ugly for them as well. But in the short run, you would think that this could be a real good revenue stream for companies like Costco and Walmart, where everybody's in there buying more stuff than they normally would. The bottom line is, you know, we're likely in kind of a panic and who knows, maybe it's a justifiable panic. I don't want to say that I know anything about the coronavirus. The market again, looks for predictability. And if it has an excuse to go one way or another, it'll use that excuse and they certainly got that excuse back on February 24th, when we had that huge drop, and in the last 10 days, it's been interesting to say the least. So when there's little, and when there's a little unknown in the market, then there's a lot of illogical moves, and that pendulum can swing. So do you think crona is gonna be a plague that wipes out mankind, or something that will eventually be under control. Even though it gives us a few scares along the way, if you think more of the latter is gonna happen, and that's more probable than this really isn't going to have them have much of an effect on us long term. Even though like I say, this market has been due for a correction for some time. It's been way in the stratosphere for years, really. So maybe it was just looking for an excuse to come down where it has. It's just one other reason though, that if you're not an educated investor, if you don't understand What you're invested in, and more importantly, why you're invested in it. And if you don't know the numbers and the financials of the companies that you own, but maybe you're simply speculating and rolling the dice tossing in money into these markets each month. Well, if you're wondering why you still stay in the market, because your nerves can't handle these things. Well, this might be a good time to realize these swings are obviously unpredictable. But they could get worse and worse, as markets try to find equilibrium. It might be a good time for you to look for alternative ways to build your wealth. And let me just tell you, there are easier ways there are more predictable ways and there's ways that you can relax and sleep at night. There's ways that you can reduce even your taxes. And there's some things that we can show you. So if you're interested in that, make sure you reach out to us. In the meantime, that's about it for this video. It's been interesting. It's fun to talk about interesting to watch, and kind of scary for a lot of people. And if you're within a few years of retirement, and these gyrations really affect you, boy, you might want to make some decisions on how to go forward from here. Well, As always, if you have any questions, shoot them to questions at wise money tools.com. You can also make comments below. And if you want to take a few minutes and talk about your particular situation, click on the time trade link below and setup a few minutes with us. Don't forget to subscribe, never miss a video and I look forward to talking to you in. Until then, take care.