Just how "every dog has its day", every area of the market has its time in the lead, and how to emotionally deal.

• So one thing to remember is that most returns are due to what area of the market, what box, so to speak, your fund may be in. (06:10)
• Rebalancing is basically taking the areas that did well, and selling them, and putting those funds into other areas that did not do well and buying them. (06:59)
• I would again not recommend somebody trying to manage individual pieces and do this rebalancing because you have to be again completely emotionless about it, you have to have the ranges set and as soon as it hits the ranges, boom, you're rebalancing. (08:57)

Quote for the episode: "Goal statement: I better understand how to view my winners and how to view my losers." (01:37)

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Welcome to the Enjoy More 30s Family Finance

podcast. The only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

that tend to weigh on us, stress us out, and distract our focus

from simply enjoying life.

Hello, and welcome here to the next episode of this

Raising Your Investment Mindset series. This series we're

wanting to help you to reframe how you may view the scary

unknown, that is investments, therefore be able to you know,

utilize them in a more constructive way to better reach

your goals and therefore make life more enjoyable. That would

be great, right?

So, as always, if you like what you're hearing, please make sure

to subscribe or follow us on Apple podcasts or wherever you

listen. Clicking the stars, leaving the reviews, it really

really helps us reach the quite literally millions of other

young families out there that are just like you.

Last week, we discussed how our perceptions are based on what we

hear and what we see. And when it comes to investments,

Hollywood tends to only put out very negative ones, which can

increase our uneasiness, decrease our likelihood of

taking the steps we need to through investments or advice.

So if you haven't checked out that episode, yet, you

definitely want to do that soon.

Today's episode is titled Winners and Losers Are

Temporary, where we're going to cover just how like "every dog

has its day", every area of the market tends to have its time in

the lead, and how to emotionally make the most of that fact. The

goal for today's episode, so what we've been saying is the if

you can say this at the end of the episode, then you have

succeeded statement is "I better understand how to view my

winners and how to view my losers. So I better understand

how to view my winners and to view my losers."

Now horse racing is something that a lot of people enjoy. It

is not at all my thing. Gambling in general is not something that

I really partake in something that I find enjoyment in. That's

just me, which I mean, as a financial advisor, that's

probably a good thing. You don't probably want a financial

advisor that loves gambling. But when it comes to the horse

racing Triple Crown event, I always find myself somehow or

another, you know, at least in front of a television for one or

two of the races because I'm the weird one and most people like

to actually watch this stuff. So let's say that I'm watching the,

you know, second or third race in the Triple Crown series. I

don't know what they're called but yeah, I know there's three

of them. More times than not a horse that is the one that you

know, won the prior round is most likely going to be the one

that's the favorite for the next race. Right? You know, I mean,

if they were faster than everybody last time, why

wouldn't they be the fastest this time around, right? So it's

logical for our minds to go in that way. If something worked

for me last time, it's probably going to work for me the next

time around, right? While logical, while very common

sense, when it comes to investing this prebuilt human

tendency winds up hurting us long term, many more times than

it helps us. And as we've talked about before, there are all

different areas of the market. There are large companies, small

companies, US companies, foreign companies, growth companies,

value companies, government bonds, high yield bonds, real

estate. So each one of these areas tends to have times where

it does really well and other times where it does poorly

compared to the other areas of the market. Real estate is the

most recent example of this that we just went through. In 2021

the index went up over 45%. In 2020, it went down over 11%. So

our human tendency would be after 2020 let's sell this, it

went down 11%. Get me out of there, it went down, lost money.

Let's try you know something else. That would be the normal

logical human reaction, right? In 2021, though, it would have

produced the exact opposite action, hey, this is the best

area ever let me please put more money into real estate funds. So

far this year, as of January 31, 2022, the real estate index is

down around 6.5 percent. So as you can see, our pre built human

tendency would have had us pull money out after it went down 12%

or so in 2020. So what we would have missed out on going up 45%.

But then that same tendency would have said oh wow, real

estate's great again, let me put money back into it after 2021

after it went up 45%, after we missed it, only to see it then

decrease so far this year through the end of January in

2022 by 6.5 percent.

So we see the problem, right? It's pretty easy. It's pretty

apparent. People tend to do the wrong thing because they're

following what just happened thinking that what just happened

is an indicator of what is going to happen next. Now, what's the

solution, right? The first part of this is, in my opinion, and

most opinions I've seen, is to try not to guess what's going to

do well or not. So this is called market timing, trying to

guess what areas we think are going to do well. There is no

study that I've ever heard of or found that says, "This is anyhow

plausible in the long term." I mean, if there was someone out

there who guessed right every single time, every single year,

I'm pretty sure that everybody's money would be with them by now,

right? They are knowing what they're doing, if they guess,

right, every single year. And the last one I've ever heard

that said they could do this, I think was Bernie Madoff. And

that didn't exactly work out too well. So I would be very, very

skeptical about anybody out there who is saying that they

can do that kind of thing.

Winners and losers, when it comes to different areas of the

market have been temporary when you look back at history.

Emotionally though, selling something that just went up a

bunch is not easy. So one thing to remember is that most returns

are due to what area of the market, what box, so to speak,

your fund may be in. So ABC large growth fund and DEF large

growth fund will likely have similar returns very similar

returns, just because they are in the same box, the same area

of the market. This can sometimes help us remove that

emotional attachment because it's not that we stumbled upon

some magical mythical fund, it's we happen to be in the right

broad area, the right box of the market, which probably just

happened to do well in that particular year.

So in our practical application of this, we do something called

rebalancing. Rebalancing is basically taking the areas that

did well, and selling them, and putting those funds into other

areas that did not do well and buying them. This can be done on

an annual basis, quarterly, monthly, even weekly, depending

on the program. So for an example to kind of help us

understand what this means, if large growth, that box, is

supposed to be 10% of our portfolio, but it does so well

compared to everything else that it goes up to 15% now, there's

too much now in that piece. Rebalancing says, I sell that

extra 5%, when it's high, and invest it into another area of

the portfolio that is below where it is supposed to be when

it's lower. Now, for most ordinary investors, this is not

something I would recommend doing on your own, as you need

to build out those ranges of how far different areas can stray

and may be very, you know, difficult, and you have to be

diligent about it. And you have to be emotionless about it when

this is going on. And that's a tall task for anyone. If you saw

in that same example, large growth did so well that now it's

15% of the portfolio, human tendency says "Well, maybe it's

going to go a little bit higher. Maybe it's going to go all the

way up to 20% of the portfolio, I don't want to get out of it

now." But that's the mentality where you know, you're not going

to pull out of it until it starts going down. And that is

when you kind of missed the high more times than not. So this

rebalancing is what helps us do a diversified approach.

So when we use an advisor who uses rebalancing, you know, they

can help us with this. And obviously, that's my first

choice, because I'm biased, I am an advisor, but if you're doing

on your own, or through a work plan, or you're using an

allocation or target date fund, you know, these are things that

are built in when it's an allocation or target date fund.

I would again not recommend somebody trying to manage

individual pieces and do this rebalancing because you have to

be again completely emotionless about it, you have to have the

ranges set and as soon as it hits the ranges, boom, you're

rebalancing. Or some plans allow you to do it automatically on an

annual or quarter quarterly basis. So it needs to be

something that's automated and if you're looking at it, and

you're saying, "Oh, I'll remember to do it", you're not

going to remember to do it. If you're going to say "I'm going

to just wait for it to go a little bit higher", you're going

to wind up missing those kinds of opportunities when it is

high, and it's going to at some point start going down because

most people won't want to sell it until they see it go down

significantly. It's just it's just the truth of it. That's

human nature. That's the emotional part. So when we have

an advisor, where we have funds, like I said, the target date or

the allocation funds where that manager is built in internally,

now we're taking our emotions out of the equation. As we get

to the end of this episode let's circle back around to the goal

statement for today if you can now say "I better understand how

to view my winners and my losers", then you have succeeded

in the main takeaway from today.

So thank you for tuning in today and join us for next week's

episode called, We Can All Save Another $100 where we're going

to cover just how powerful a little bit more, just a little

bit more can be when we're young. Overall, if you're able

to implement what we cover today, then that's fantastic.

You have less to worry about that before and you can focus

more just an enjoying life. That's the whole goal. If you're

wanting help with these things, though, where you have questions

you need help in clarifying, check out the ASK JOE section on

the show's website EnjoyMore30s, that's EnjoyMore30s.com. You can

also connect with me directly by visiting my wealth management

firm New Horizons Wealth Management at nhwmllc.com. Until

next week, thanks for joining me today and I look forward to

connecting with you all again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

only. They do not constitute accounting, legal, tax, or other

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer, or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

of TFS Securities, Inc., and TFS Advisory Services an SEC

Registered Investment Advisor Member FINRA/SIPC.