290 | Ask Hilary: How to Approach Investing During Economic Uncertainty and Volatile Markets

[INTRODUCTION]

[00:00:34] Hilary Hendershott: Welcome to Love, your Money^®, where we’re flipping the script on traditional financial advice. This is an Ask Hilary episode where I answer your real questions about investing, tax planning, money mindset, and more. Because Ask is one of the seven steps to wealth, and whether you’re asking questions that help you learn more and empower yourself or seeking out the support you need to take the next step in your wealth-building journey, asking is an essential step to building clarity, confidence, and momentum with your money. Let’s dive in.

[EPISODE]

[00:01:07] Hilary Hendershott: All right, money lovers. I’m excited to be back with another Ask Hilary with questions that have come in over the last few weeks, some that have been asked in various ways by our clients and community. Let’s get started with something that’s been top of mind for a lot of people over the last few months. Question one. “Hilary, I’ll keep this straightforward. How should I approach investing during economic uncertainty or times of market volatility? Do I act or do I wait it out?” Well, this really is the age-old question, isn’t it? And we’ve all heard the phrase, “Stay the course.” And while that is certainly the tactic that my team and I take with our clients, the real question is why, right?

[00:01:50] I mean, every time something interesting happens in the economy or the stock market, even I want to hear the experts analyze what’s happening in global relations or with GameStop stock. I mean, I want to figure out what’s happened, so I have questions. But of course, the real question is why should I trust the stock market when everything seems uncertain? So, there’s a couple of things I want to talk to you about. The first is, what is the stock market really? And you want to take the time to internalize this at a time period when emotions aren’t high. I mean, that’s the fact of the matter. Just like any good marriage involves time of deep bonding, and then, what is it called?

[00:02:35] You know, you get in a fight, like stuff happens, and then repair. So, everything’s fine, and then it goes bad. But then you repair things and somehow the relationship gets more intimate, right? Stronger. There’s that phrase that’s like, “I’m stronger in the places where I broke,” and I’m married 11 years now, and I think there’s truth to that, and it’s kind of the same with the stock market. The problem is the stock market’s never going to apologize to you. It’s never going to say, “I have compassion for your feelings, Hilary.” What it is going to do, though, is put lots of compound returns in your account over the decades that you’re willing to partner with it. But so, what is the stock market?

[00:03:14] When you put your money in a stock market investment, what you’re doing is giving some cash to that company. I mean, this is not theoretical. Like, people say, “Oh, I like to own real estate because I can touch it.” Yeah, I can touch my stock market investments too, right? When I lived in Silicon Valley, I could go down to Facebook’s headquarters, now they call it Meta, or I can go to Google, or I can go like it’s there. It’s a real company. When you put your money in a stock market investment, what you’re doing is giving some money to the CEO and executives, and board of directors of that company, and saying, “You use my money. Go out, use it to pay for R&D, pay for advertisements, invest in your company, make stuff better, produce more shareholder value, produce more consumer value, sell more stuff at higher profit.

[00:03:58] And then when you make higher profit using my money, I want my pro rata share back.” That’s what a stock market investment is. Okay. It’s really kind of simple. It’s a profit-based investment. You could imagine making that kind of investment in your friend’s restaurant or whatever, right? And so, it’s very easy to understand, even though we don’t talk about it that way, us investing people. So, that’s literally what a stock market investment is. And then you want to make a diversified investment because there’s something like 15- or 16,000 publicly traded companies out there. So, you want to spread your investment thin. Why? Because diversification is the only free lunch in investing.

[00:04:36] You definitely don’t want to make one investment that can make or break you. So, at that point, you’re probably out of the ability to do a deep dive due diligence on any one of those companies. There are 500 companies in the S&P 500 Index fund. Some people just buy that. Don’t buy it because I said it. This is not a personalized investment recommendation. My clients own 12,000 companies, so 24 times what the S&P 500 Index holds. So, we’re not doing due diligence on all those 12,000 companies. Instead, we are betting on the ambition, creativity, ingenuity, competitive spirit of those CEOs, boards of directors, executive teams to produce profit over time.

[00:05:22] And so, what is the stock market? Well, the stock market, when you look at the greens and reds, when you look it up on Yahoo Finance app, or when you log into your stock market account, you see two things represented in there. So, there’s literally the book value of that investment. It’s not a fugazy. It’s not a mystery. Like, I know when people talk about the stock market, they’ll say things like, “It’s not real. It’s hypothetical.” Some people even say it’s a Ponzi scheme. That is a lie. Flat out capital L lie. There’s a book value to your investments. And then there is temporary investor sentiment.

[00:05:58] So, when people get scared, most stock prices go down a little bit. When people get bullish or excited, a lot of stock prices go up a little bit. And when you find a stock price that’s not at its book value, it is likely, statistically speaking, to go back to its book value. So, mostly what you get as an investor is the book value of the stocks you invest in, and then you have to like suffer through the temporary investor sentiment that’s produced generally by the news. And so, what we say is the stock market is a scoreboard for human ingenuity and creativity. I know that the news wants to make it out like dire times. The sky is falling, chicken little, it’s always bad. Doom and gloom runs the day when it comes to the national financial news media’s headlines.

[00:06:48] But the truth is human beings are pretty dang smart, and most of us want to leave the planet a better place than we found it. And there are lots of people out there trying to do that through the companies that they’re running. And your stock market investment is a way for you to take advantage of that, to ride that wave. If you’ve ever played craps at the casino, you are standing on the pass line. You are betting the players will win. And that is what investing in the stock market is. So, the next time there’s a downturn in the stock market, remember that relationship cycle I talked about? Now is the time for, “Oh, I’m questioning my relationship with the stock market.” I’m telling you I do it too. I do it too. It’s my natural human emotion, “Oh no. What’s happening? Let me figure this out.”

[00:07:38] Ask yourself, “I may be feeling like I need to lose faith in my stock market investments, but have I lost faith in humanity? Have I lost faith in the intelligence of human beings? When I look out in the world, do I see that more people are trying to produce value, build careers, have profitable exits, solve problems that no one’s solved before?” I mean, think about all the problems that we as human beings have solved. We solve most of the problems we know about. For those of you who are my age or older, remember Y2K? In 1999, we were convinced the world was coming to an end. And then what happened at New Year, December 31st, midnight? Absolutely nothing. Why? Because we solved that problem.

[00:08:28] The problem my daughter had. If she had been diagnosed with the form of leukemia she was diagnosed with in 2018, if that had happened in 1960, she wouldn’t have made it. But we solved that problem in between 1960 and 2018, right? The window is probably a little more precise, but like human beings are kind of a miracle. So, if you’ve lost faith that human beings are miraculous and want good outcomes, you probably should take your stock market investment and consider maybe a little bit of therapy, like work out your relationship to humanity.

[00:09:03] I love people. For the most part, I think we’re doing a good job. I’m going to keep my money in the stock market because that’s my bet that human beings are going to continue to solve most of the problems we know about. So, that’s a philosophical answer to your question. I think if you have a good portfolio, and I haven’t analyzed your portfolio if I don’t work for you, so I don’t know if you have a good portfolio, but if you have a good portfolio, you wait it out. Remember that all the data tells us that the best returns, the best outcomes come to people who focus on time in the market versus timing the market.

[OUTRO]

[00:10:05] Hilary Hendershott: Thanks for listening to this Ask Hilary episode of Love, your Money^®. If you’re ready to get intentional with your finances, I recommend you start with the framework we use with our clients and in our own lives every day, The 7 Steps to Wealth. You can download the free guide at HendershottWealth.com/7Steps. That’s the number 7 steps. And don’t forget, you can send your own Ask Hilary questions to hello@hendershottwealth.com or just go to HendershottWealth.com/AskHilary. Until next time, keep loving your money so it can love you back.

[END]