Balance is one of the most powerful tools investors have, helping you stay steady and confident even when markets get unpredictable.

Matt explores a common mistake many investors make: putting too much money into a single stock, sector, or idea. This kind of concentration can increase risk and lead to bigger swings in your portfolio. Having adequate cash reserves and a balanced approach can help you handle unexpected challenges and stay on track long term.

Welcome to the Live well podcast where we explore how to navigate life's biggest changes, overcome challenges, and build a future that aligns with your values and your goals. Hi, I'm Matt Wilson, financial advisor, coach and business owner of my practice here at Cornerstone Wealth Services in South Bend, Indiana.

And I am so glad that you're here today. Today we're going to discuss the second pillar of the four pillars of successful investing.

Balance, I believe, is the secret weapon of successful investors.

So today we're going to weave in some really powerful statistics and I believe that you're going to come away today really informed about not only what quality is, but what you may need to adjust. I just want to give a special shout out and a thanks to truthworks Media again for hosting us live in their Momentum Studios here in South Bend.

They do an incredible job helping people bring these meaningful conversations and stories to life, and I would encourage you to look them up again. Today is the second episode in our four part series called the Four Pillars of Successful Principles, not predictions.

So in the first episode we talked about two big ideas. First, defining what success really means to you. And then second, the first pillar of investing, which is buy quality, own quality.

So today again, talking about the second pillar of successful investing. Balance. The secret weapon of successful investors. Why does balance matter?

So the biggest mistake I see investors make or one of the biggest mistakes, and we'll talk about more mistakes later, but one of the biggest mistakes that I see investors make is going all in on one idea. Maybe it's one stock, maybe it's one sector, maybe it's one trend or one emotional reaction. I think you might remember the meme stocks.

And I'll not talk about specific investments, but people were talking about these particular companies as the companies were villains and they were evil. But let me explain what they did really quickly. There were people that got together and maybe it was through different social media platforms.

And what they did was they said, we're going to buy into this stock and raise the price. So think of it like, hey, there's only so many boxes of whatever goods you're going to sell. There's only so many boxes. Well, it's supply and demand.

And what happened is they drove up the demand, which drove up the price. And then without telling anybody, they all agreed to get out. So you had all these people who were left holding the bag, so to speak.

They were destroyed if they put a lot of money into it.

And they lost pretty much all of what they had earned because they decided to stick it to These companies, and they decided to band together and they got out hurting other people. And some people got hurt really badly. And I'll never forget that. Who's more evil? Here's a statistic that might surprise you.

In a typical year, the stock market might move up 20% or more or down 15% or more. Volatility is not the exception. It's the normal behavior of markets.

So Warren Buffett once famous, famously said, you see who's swimming naked when the tide goes out.

So people that depend on this money that they've invested, and we'll get into that a little bit more, you see who it really affects and who's exposed when the stock market goes down. But when investors are not properly diversified, those swings become terrifying. And when people get scared, they make emotional decisions.

But then one negative year happens and it feels like the world is ending, Right? So out of every four years, you're typically going to see three really good years.

Maybe one or out of five years, I should say, we're going to see maybe three really good years. One flat year and probably one down year. That's not the exception. That's the reality of it.

So let's talk about really quickly bonds and the role of bonds that come into a portfolio. I know this is very exciting stuff. Think of bonds more like being a dairy farmer, okay? We're in the Midwest and you see farms all over.

Back in New England, where I grew up, there were a lot of dairy farms. I applaud anybody who runs them, but this comes to mind.

That stuff comes to mind when I talk to or talk about bonds, because bonds, you don't really care about the price of the bond necessarily. You care about what it produces. They tend to be more steady, though. So you don't really care what the price of beef is.

As a dairy farmer, you care what the price of milk is, and you care that you get that milk every single day. That's kind of the way bonds are. They kind of stabilize the portfolio and they give you a little bit more predictability.

So here's a stat that might surprise you here. Historically, bonds have produced positive returns about 80 to 85% of the time.

No, they don't grow as fast as stocks, but they dramatically reduce your volatility. Stocks grow wealth, but bonds, smooth ride. And this may be elementary for some people listening, but to be Honest with you.

Most people do not understand the role that bonds play. They don't understand fixed income. There's 16 different kinds of fixed income that you can have.

Which one is good for you, which one is the right thing at the right time? It's not a question of should you own it, it's a question of maybe what kind and how much.

One thing that I want to talk about here is a very effective way to explain balance and a very effective way to take away the terrifying times that come along with investing in the stock market. And that's called the bucket strategy. So let's just kind of dive into that for a minute. So bucket one is going to be for your short term needs.

And what I would say here is it's going to be things that you're. It's going to be money that you're going to need in the next maybe one to three years, six months, whatever it might be.

But you kind of know you're going to need it, or you definitely know you're going to need it. Maybe you have a family reunion that's coming up. Maybe you have a wedding that you're going to have to go to.

Maybe you know your roof is going to need to be replaced and maybe that's sooner rather than later. You want to make sure that you have stability with that money. That's the purpose of your short term bucket. Bucket two is more intermediate.

Maybe it's five or 10 years, maybe up to 15 years, but really five to 10 years I would look at, and maybe you can look at that as more of income with maybe some moderate growth. Maybe you know, you're going to send a kid to college. Maybe you know, you're going to need to buy a new house.

You want to make sure that you're saving money for those things and maybe that can have a little bit more risk associated with it. And let's talk about that, let's talk about risk in a minute here.

But let's go through bucket number three because I don't believe there's no such thing as no risk. Bucket three is long term.

So obviously if you don't need the money in the short term, you can handle the volatility, you can handle the ups and the downs. You're going to buy equities, you're going to buy stocks, you're going to buy growth investments.

The purpose of that long term bucket is compound growth. I had a lot of people that came to me when the inflation hit over 9% and all of my retirees Basically said the same thing.

They said, matt, we really didn't get affected by this inflation. How come we didn't really feel it? And I said, well, it's there, it's definitely there. I can see it in my grocery budget.

You know, groceries are about as big as a mortgage these days for a family of four, five or six. We have six of us. And I can tell you this, that it's been shocking, especially as they grow older, you know, they, they get bigger.

I guess that's what happens when you feed them, right? So our grocery budget is, is growing exponentially. And you know, my retirees said, look, we didn't really feel it. And where am I going with this?

My point of bringing that up is they had made a lot of good returns through the years. They didn't need that money at that time. They needed it when inflation hit.

And they've been trying to keep up with inflation and outpace it so that when retirement hit, they didn't have the stress of are they going to make it or not? Are they going to have to not spend as much money? Are they going to have to pull back in their day to day budget?

That's the last thing you want to do when you're retired is to say, hey, look, I got to cut back.

I understand that it happens, but the reason that you're investing in your earlier years is so that when you get to that place, you're not going to be affected nearly as much. And with the right strategy, you can handle the ups and the downs of the market. And that begins with the bucket strategy.

Making sure that you have enough cash, making sure that you have the priorities listed out, making sure that you have discipline and purpose with that particular money. The long term bucket, that's going to go up and down, we know that that's gonna go up and down.

So the first question I ask when people are really nervous about the volatility in the market, number one, are we in the right risk profile? That's what I tend to ask myself. Did they tell me correctly? But really, do they know that their buckets are filled properly?

And if they do, then the market volatility is not gonna bother them too much. Here's something that I wanna bring up with respect to that in the bucket strategy.

In cash, it is really important that you understand what's coming up. It's really important that you know that you have a way and a strategy to get that cash when you're going to need it.

And so when people can't handle the Ups and the downs of the market. It tells me one of two things.

The first thing it tells me is they might not have enough cash because maybe they're depending on their investments to give them the extra money that they might need in an emergency. Or they have something that's unexpected that happens and what do they do then? Do they have enough cash in reserve?

So I see this happen a lot with people in debt. And again, debt is a tool. And I've talked about this a little bit. Debt is a tool, okay? It's just like any other investment.

And what I mean by that is it enables you to increase your standard of living and it also helps you to navigate times where maybe you just can't plunk down all the money. Nobody's going to go buy a house with cash when they're right out of college or they have a young family. It's just typically not going to happen.

So having debt does enable you to have a better standard of living and to advance yourself. Yes, it could be a bet on yourself.

But at the end of the day, when you look at debts, sometimes I don't think people can afford to pay off their debt. And here's what I mean by that. I've seen people who get into strategies that are very aggressive and every red cent goes to pay off their debt.

Every red center extra dollar goes to pay off whatever debt they have. Matt, debt is important debt. You have to get rid of it. You have to be completely debt free. And I understand that. I get that.

I'm not saying that's a bad strategy, okay? What I'm saying is that cash is important. And if you don't have enough cash, stuff in life is going to happen.

I mean, you get storms that come through, you get sick, you know, you have time off of work.

I can tell you story after story where people just, they could not afford to pay off their debt because they were one situation away from devastation financially. And so what I like to prescribe to people is very simple. Build up your cash reserve first. Your student loans, your debts, those kinds of things.

As long as we can handle that in the budget, let's maybe put a pause on that and make sure you build your cash reserve first. And if you do that, then you'll have more freedom and flexibility.

And then when those tough things come, they won't devastate you as much or maybe at all.

But when people can't handle the volatility of the market, here's the thing they're telling me, they either don't have enough cash in reserve, or they're telling me that there's something that they want to do and we haven't talked about that yet, or they just haven't voiced it, they haven't told me. And usually it's one of those two things. I can't think of really any situation where it wasn't one of those two things.

And yes, some people get fixated on how much they have. That's a whole other topic.

And that's maybe for the long term perspective, but understanding that, that you have a long term and that means for some people, just the rest of your life. It doesn't mean a certain defined time period, it just means the rest of your life for many.

But they can't handle the volatility because maybe they're fixated on a certain goal, certain number. And that's fine. If we know what that is, then we can work towards that.

Again, that is the purpose of an advisor, is to help you not only define what success is, define what your purpose is, but to help you to achieve those goals. And then maybe once you reach those goals, you pull back and you take less risk. You don't need to invest in the stock market in order to get returns.

There's other vehicles and mechanisms out there for that. So I think that some people think that it's either investing in the market or it's not.

And I have to remind people that, look, when that volatility happens, you don't own the market. You don't own 100% in stocks, you don't own the S&P 500.

You might see that reported and that might be some of what you own, but that's not really what you have, you know, during this time. I can tell you this truthfully, that the market has been negative in the year, year to date.

But I'm looking at portfolios and almost all of them are positive year to date. Why is that? It's because of the balance that we took. It's because we weren't all in just the stock market or the index.

So some people are getting good returns because they're diversified. Well, that's a different topic. But they're balanced differently. They don't have everything in one place. Okay.

So I think that's really important to understand when it comes to cash and when it comes to the volatility and why people can't necessarily stand it. Then there's the market timing problem. When investors panic, they often try to time the market.

You've heard this before and I think I mentioned this in the first episode, and that is, let's sell everything now and let's buy back when things get better. I can tell you this, that I had somebody that got out of the market during the pandemic, and unfortunately, it was right before they retired.

And to my knowledge, they lost a third of their retirement and never recovered. I've never known anybody that's gotten out at the worst time and they've actually done better.

Very few people that I've ever heard of, and nobody that I've worked with in my experience could really say that.

Here's the stat that again, I think would surprise you is that the 10 best days in the stock market over the last 20 years, if you missed those 10 best days, then your returns are cut in half, because the best days often happen very close or right after the worst days. And a great example is when you look back in the pandemic time, there's a lot that we didn't know, but we knew exactly why the market was going down.

We knew why stocks were going down, going down. And we just needed some clarity. We needed to understand what was going to be the next step. Were we going to open up what was going to happen?

Politics and market noise Another thing that causes investors to abandon balance is politics. What I like to tell people is this. Don't vote in your portfolio. Vote in the booth, because elections have consequences, yes.

But don't vote with your portfolio. That usually leads to disaster. Leave your politics in the booth. So here's a stat.

So when you go 10 years out of any election, you'll be surprised to know that the market has made gains 10 years out. So don't play politics with your portfolio. Politics makes headlines, but balance and discipline build wealth. Another stat.

The stock market has historically returned 10% annually, but the average investor has only earned about 6 or less. Why is that, well, it's because they panic, they chase trends, they abandon their plan. And that's why balance matters again.

Balance helps you stay disciplined. Future episodes, we're going to talk about something incredibly important.

We're going to talk about the 7 worst investing mistakes that people make make. And these are the mistakes that I've seen over and over again in my career.

And avoiding just a few of them, I can tell you this can completely change your future. On my website, you're going to find a downloadable resource connected to this series and we'll put that in the show notes here.

It's going to be a simple checklist that walks through key principles that every investor should understand. And if you're listening to this episode and wondering whether your portfolio is balanced correctly, then that's exactly what we do.

At Cornerstone Wealth Services, we help individuals and families build financial strategies that align with their goals, their values, and their long term vision. Again, you might say I've already got an advisor. Matt. Well, that's great, but different isn't always better, but better is always different.

Reach out. At worst, we affirm your plan. At best, we're going to help improve it.

In the next episode, we're going to talk about the third pillar of successful investing and that is diversification.

And we'll talk about why diversification is often misunderstood and why it can protect investors from the kind of catastrophic losses that come from putting everything in that one idea. So just remember, until next time, money is a tool. Use it. It's going to use you.

And use it wisely so you can build a life that truly allows you to live.