10 Things Every Stock Market Investor Needs to Know
Summary
Market Outlook: Emphasizes the long-term upward trend of stocks, explaining secular versus cyclical bull/bear markets and the lumpy nature of returns.
US Equities: Advocates broad, long-term ownership of the U.S. stock market as a compounding machine tied to corporate profits and innovation.
Fixed Income: Highlights that with higher yields, high-quality bonds can serve as a prudent “safe bucket” in retirement strategies versus holding only cash.
Risk Management: Stresses preparing for bear markets and rare large drawdowns, using diversification, dry powder, and disciplined rebalancing.
Investor Behavior: Recommends automation, reducing tinkering, and evaluating investments within the full portfolio context rather than in isolation.
Retirement Withdrawals: Notes there’s no perfect rule; mixing cash and bonds can improve flexibility, and strategies should be tailored to needs and assumptions.
Housing & Debt: For mortgages, suggests a 30-year for flexibility with optional extra principal payments instead of locking into a higher 15-year payment.
Stock Picks: No specific company tickers were pitched; any company mentions were illustrative and not recommendations.
Transcript
Welcome to an all new episode of Ask the Compound, the show where you ask and we answer the questions. I am Ben Carlson. Let's say you're buying a new house. Mortgage rates were way higher than they were just a few years ago. So, what makes more sense, 30-year fixed rate mortgage or a 15-year mortgage with a higher monthly payment but lower lifetime interest costs? I'm going to answer this question and more on today's show. Let's do it. [music] All right, our email here is ask the compound show@gmail.com. Welcome back to our usuals, the live stream, watching on Twitter. On today's show, we're going to answer questions straight from our compound audience about some simple portfolio fixes, what everyone needs to know before investing in stocks. What's the difference between a sec cyclical and secular bare market or bull market? How bonds can impact your retirement spending plan. and helping a young couple decide between a 15 or a 30-year mortgage. But first, our show today is sponsored by Rocket Money. Listen, we're closing in on New Year's resolution time. Right, Duncan? You have one? >> I have some. >> Wear some more hats. Uh, for many people, that means getting your finances in order. And Rocket Money is a great way to do that. Rocket Money is a personal finance app that helps find and cancel your unau subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money shows you all of your expenses in one place. You can check on their desktop, on the mobile app, including subscriptions you forgot about. If you see a subscription you no longer want, Rocket Money will help you cancel it. Rocket Money has saved users $2.5 billion, including over 880 million in cancelled subscriptions alone. Their 10 million members save up to $740 a year when they use all the apps premium features. Cancel your unwanted subscriptions and reach your financial goals faster with RocketMoney. Go to rocketmoney.comc today. That's rocketmoney.comc or just download the app. All right. You know, I see uh Dave talking about Christmas sweaters in the chat. I think giving us a hard time for not wearing them. I just want to point out I am wearing a Christmas Christmas shirt. It's uh got Stitch on it. >> Okay. So, Stitch was very big at Disney when I was there. That's a new thing. My daughter, that's all my youngest daughter, that's all she wanted to buy was Stitch stuff. >> That's a fun one. >> Okay. I never saw the movie. >> I'm a bigger fan of Wall-E, personally. >> All right. Next week, Dave, I will be in I will be in a holiday sweater. You got it. You You mark it down. Next week. >> I've got one I can pull out, too. Speaking of, a lot of people are looking for uh stocking stuffers this time of year. >> What do you got? >> I think you still got time for this one. >> Anyone uh wanting to >> to give your uh to give your kids something useful for >> you can also buy the uh you can buy the uh Kindle version, too. >> Look how thin it is. >> They can read it really quickly. It's it's a good book. >> And our our compound hats are back, too. >> It's true. I don't know that you can get that in time. Uh I'm not sure, but but I bet you can get the book. Uh, and then also there's this one. This is another fun one from uh from yours truly, uh, from from Ben. Uh, this one is a little more adult. The first chapter has a lot about goat anatomy in it. So, like maybe not for like little kids. >> What a fun story. They should make that into a movie, right? It's the guy who Yeah. said if you cut into goat testicle. Never mind. All right, let's do a question. >> I think you're probably the only person to write about uh write about that in a finance book. There they talked there was talk that Matt Damon was going to play that guy in a movie and it never never happened but I would like to see it. >> Okay. Yeah. Interesting story. Terrifying but interesting. Okay. Up first today we got a question from Jeff. Here's a short one for Duncan to read and Ben to answer. What's something that's relatively simple that most investors don't do? >> See Jeff Jeff knows how to how to get on here because short questions. That was that was perfect. >> Yeah. Love it. >> All right. My kind of question. Uh, I've written I think I've written plenty of blog posts about this over the years probably. I think the biggest one for most investors is just to automate and then get out of their own way. You automate your contributions, what you invest in, your asset allocation, how often rebalance, all that stuff. I just I think the less you look, the less you do, the less you tinker, the better your results going to be. I also think far too many investors, I think this is the big one, and this is especially for people who are just starting out, is that they focus on the individual investments in their portfolios, the performance of certain securities or funds or even asset classes as opposed to looking at the investments as one big bucket in a overall portfolio perspective. So, I think when adding any kind of investment, you should think about it in terms of how it fits within the context of your entire portfolio, not the merits of itself on its own. Right? One of my bosses taught me this back in the day. We look at all these different fund providers and portfolio managers and funds and if it it could have been a great fund on its own merits, but if it didn't really fit with what we were trying to do and and have a make sense for the overall portfolio, it didn't it didn't matter. I think one of the ways that I've been personally trying to simplify my finances is by doing a better job of aggregating all my accounts in one place. Someone someone asked a question a couple weeks ago about why doesn't Ben like HSAs? I I have too many accounts. So, I had a 403b [snorts] from my wife's previous employer sitting there in it in the account. It was fine, but I finally rolled it over. Um, we have all of our retirement accounts at Schwab and Fidelity. So, I moved all of my crypto and brokerage accounts to those platforms as well. So, I'm just I'm trying to simplify as much as I can because it's so much easier to understand the entire picture of your investment plan when everything is under the same roof. So, I've been doing that a lot. Um, I think every investor should know how they performed in a given year or given period of time, especially if you're actively managing your money and I don't always trust the the brokerage platforms explicitly on some of the different time frames they're using. So, I think if you have a nice back of the envelope, how much money you put in, how much money you have now, uh, I think again, I think you should manually track this or something. >> Well, I think you should have some sort of benchmark. Listen, I I take here at the end of each year, here's my starting portfolio value. Here's how much money I put in for contributions. Here's my ending portfolio value, right? And there's there's some time weighted stuff in there, but just back of the envelope, take away the contributions. What's the differences? Your investment gains or losses. How did you do? Right? And if you're actively managing portfolio over some benchmark, are you actually doing better than the market or could you just index the whole thing? Right? And then I think the other really simple one is just defining your time horizon before making an investment. This is really hard because sometimes you make an investment and it falls out of bed. Sometimes you make an investment and it goes to the moon. So I think you have to know is this a trade? Is this a buy and hold position? Is this something you plan on holding for a decade, maybe two to three years? And then finally, I think the the easy one that most people don't pay enough attention to is just save a little more money each year. And I say I always say that saving more money can improve your performance better than investment returns. So Daniel, let's do a chart on here. I created this simple table using historical returns. And I said, "What if you had a 100% stock portfolio or an 8020 or 6040 or a 4060?" And I looked over 25 years and I assumed you saved 10%, 15% or 20% of your salary. I used median wages, which is like $80,000. And I think on my table here I wrote $80, but that'd be a little low. Um, and if you look here, going to an 8020 portfolio, but saving 15% as opposed to 10% gives you more money than having 100% in stocks. So, I I think over especially long time frames, just saving a little bit more each year can actually have you take a less take a little less risk in your portfolio um but get you further because you save more and it compounds. So, that that's my spiel. I'll get off my soap box now. What do you think? What did I miss? >> No, I mean makes sense to me. I think uh just from a personal finance standpoint, the the biggest thing that I feel like most investors probably do this, but a lot of young people don't pay off credit cards. And it's just something that we've talked about ad nauseium on the show, but yeah, like that >> that's the first step >> that's going to eat away any gains you're making in the market if you're carrying a big balance on credit cards. >> Yes. And I get why people have to do it sometimes, right? If you don't have a a backs stop or whatever, but then that's your one financial goal until you have >> But I'm saying if you're if you're investing money in like your Robin Hood or public, you know, account and you're carrying a balance on credit cards, that doesn't make a lot of sense because you're probably not beating 30% interest on your credit card compounded, you know, >> that I agree with. Yes. You do not carry a balance and then you divert all savings until you pay that credit card balance off, right? What's the point of it? Yeah. >> Y >> All right, let's do another one. Oh, also before we move on, I it just occurred to me that half of our audience is audio only and I just did the like pitch for your books by just showing them. But so if you're listening, Ben's books that I was promoting are Saving for Retirement and Don't Fall It: A Short History of Financial Scams. So >> biggest fan, man. What a guy. >> Yeah. But I just I mean, we have a lot of listeners. They they couldn't see what I was doing. So yeah. >> All right. >> All right. Up next, we have a question from Andy. >> What are the short one? >> I know. I love it. What are top uh what are the top 10 prudent indicators a retail investor needs to know before stepping into equities? >> I looked at this. This was way way down the list of our doc way back in the day. We still have I'd say hundreds of questions from people that we haven't answered yet. And we're sorry we're trying to get to them all, but we have so many coming in. We can't get to them all. Um I am a night owl. So I used to watch a lot of late night shows in the pre-streaming era, right? You couldn't watch them on YouTube clips back then because YouTube didn't exist. So I was a huge Letterman guy growing up. So put my Dave Letterman up here. This is one of my favorite ones. He did the top 10 numbers 1 to 10. Uh, I would have put seven number one. Sorry, Dave. That that's just me. That was my football number. Uh, so I thought of this as like a top 10 list. That that's what this reminded me of. So, I feel like I could have gone at least 2025 deep on this, but I'm going to I'm going to do 10. And I got some I got some charts. So, I'm going to fly through these. Luckily, the uh production guys in the back end, Daniel, are keeping up here. So, uh, number one, stocks mostly go up, but sometimes they go down. So, try here. This is, uh, I'm gonna use some charts from exhibit A and Y charts in here. And remember, if you're an adviser, check out exhibit A foradvice.com for some of these charts. Uh, this just shows even when stocks go up, a lot of times they go down during the year. So, you just have to be okay with volatility. Um, number two, take chart off, please. N chart off. Uh, we're not going to have a chart for everyone. Uh, returns are lumpy. So, we went nowhere for a decade. From 2000 to 2009, the S&P was down 9% in total for a whole decade. Since 2010, the S&P is up almost 800%. So, you don't get these numbers just going up on a stairstep approach, right? It it can drop. It can go up higher to the moon. It It's not normal. It's lumpy. Okay. Number three, there's no such thing as average. Now, give me a chart on Daniel. I love this chart. Average up here, stocks are up 21%. Average down year, they're down 13. So, there is a wide range from year to year. You don't get 8 n 10%. That rarely ever happens. Okay? There's nothing is average in the stock market. Chart off, please. Uh, number four, your time horizon matters. Chart on. All right, another one from exhibit A. [snorts] The odds increase. I've used this one a million times. The longer you invest, the better your odds of seeing a gain. The stock market is the best casino there is because the longer you stay in invested, stay in there, the better your chances of gains. This is a good thing. Chart off. All right, we're halfway there. Take a breather. Good. All right, number five. The stock market can be a basket case. Let's do chart on here. This is just the daily returns in 2020 at the end from the end of February through early April when we had the pandemic and you can see just these massive swings. There was a in the middle middle of March the stock market was down 9 and a half% up 9.3% down 12% up six down five in consecutive days and when we were trying to figure out what's going on is the world going to end [snorts] is everyone going to die it. So the stock market can be a basket case. This doesn't happen all the time, but sometimes it can happen. Chart off. Number six, don't be afraid of all-time highs. Chart on, please. Another one from exhibit A. This shows the number of all-time highs over the years. And you can see it's marked out on the chart. And obviously, these things cluster more in bull markets than bare markets. Duh. But there are a lot of them. And I think because the stock market went nowhere from 2000 to 2009, we didn't have a lot of all-time highs. When we finally hit new all-time highs again in 2013, a lot of people thought to themselves, "Oh my gosh, this is it." And look what's happened since then. A ton of new highs. Just because that that one all-time high is going to be bad doesn't mean they are. Most of them are fine. >> This is something that I struggle so much with since I've been, you know, uh, following the markets and been investing. Yeah. There's something that is ingrained in a lot of people. I guess don't study this professionally where you feel like, well, yeah, it hit a high, so now it's going to revert to the mean. and the mean is some like much lower line or something, right? When in reality, the market just trends up over time over a long >> most of the time it goes up. And listen, one of those highs again is going to be like the high before a crash, right? But guess what? Crashes are pretty rare, >> which brings me to number seven. You have to be prepared for crashes. Let's do the let's do the chart. This shows the draw downs. This is from Y charts going back to 1950. There's been three 50% crashes in the early mid1 1970s in the early 2000s from the dotcom bubble and then the great financial crisis. Charlie Mer says you should be prepared for two two or three 50% crashes in your investing lifetime. I think that's a pretty good pretty good bet to happen. Now, a lot of people thought they were going to happen all the time because we had two of them in a decade, but this is just something you have to be prepared for. >> How quickly did that that worst draw down happen around 2009 or 10? >> Well, that was a long one. That was from October 2007 through March of 2009. So that's we're talking 18 months or something. >> It just looked very steep there. I couldn't tell if that was like a month that happened time frame, but that was living through that. It felt like it was never going to end. It felt like stocks just literally went down every day. We had a few counter trend rallies, but for the most part, it felt like the stock market was just going to go down forever. >> I was in college and not paying attention to the market, but yeah. So like every day the market just went down more basically for a long period of time. Even after all the crazy stuff of the fall of um 2008 when you know layman was falling and bear sterns went out. I guess that was in March but um all that stuff happened and even a few months later we're still falling. It was it was pretty nuts. All right now it's not just crashes. Bear markets are normal. Let's do the next chart number eight. Uh another one from exhibit A. This shows like you know the average bear markets about 35%. You can see there those huge crashes on there but there's the run in the mill bear markets too where you just fall 22% 28% 27%. Like you have to be prepared for those too. Just these run-of-the-mill call it every I don't know five to six years on average that happens. >> Uh all right chart off. I think I'm building my charts here for this question. >> So just to follow up on that though how talking about preparing for a bare market or for a crash? I mean how how do you prepare with keeping you know good market exposure? >> What do you mean me personally? >> Like well I'm just saying like what what would your your advice be to someone who says okay so how do I prepare? Okay, two things. One, you just have the intestinal fortitude to sit through it and sit on your hands and not do anything and not not sell when they're down. Um, two would be you have some sort of dry powder. That could be in the form of cash or bonds, right? So, you're going to rebalance into the pain or you have savings in the future, right? That's how I made it through 2008. I was saving. I was putting more money in. So, I didn't care as much because I knew more money was going in. So, it's one of those things. So you either diversify if you have a more mature portfolio so you don't have all of your money exposed or you're just a psycho and you can sit through these things and some people are psychos about it, right? I can handle it. I've done it before, right? So I think that's it. It's dry powder or you're a psycho or you have some sort of tactical strategy that sort of gets you out and and is behaviorally. We talked about that a few weeks ago. Um now the good thing is that I I think number nine, you mentioned the stock market goes up. I'd say that the stock market is a compounding machine. So $10,000 invested in the S&P in 1980, no taxes, no fees, all that stuff, caveats aside, would be worth more than $2 million today. Again, $10,000 in 1980, $2 million today. It's an insane compounding, right? [snorts] And that leads me to number 10. I I I just I think sometimes people forget the stock market allows you to own a share of corporate profits and innovations, right? You're owning all of these companies. If you're invested in the stock market, you're part taking part in their cash flows, their their sales growth, their dividends that they pay out, all the innovations and the things that they do. It it's really magical that this system even exists that allows us to invest beside these corporations, right? So, uh that's my 10 things. I could have come up with way more, but yeah. >> Yeah. Do you feel like that's had a negative impact on the market that so many young people now just think of it as kind of like trading, you know, just trading numbers on a screen instead of being an owner in a company or, you know, like when they buy Apple stock, they're shareholder in Apple and that means something. Do you think that's been lost? >> Probably by some people. I do think that's that's the right mentality though. Oh, this is an interesting one from Dave in the chat. He said, um, I want to ask RWM employees who are not CFAs or CFPs their top two to three lessons working at RWM. Duncan has become really pretty sharp on this. So, what what have you learned about investing by coming in here being a non-investing person? >> I mean, a lot. The the main one is just to for someone who is relatively young like myself, I'm 38. Um, but that that draw downs are not something to be afraid of that, you know, if you're going into retirement and the market crashes, I get why that's scary and bad. But but yeah, like if you're someone, you know, who has a decent time horizon, then it's it's actually something that can be a good thing for you to be loading up as prices are falling. That's probably one of the the biggest things that >> you guys have probably the hardest counterintuitive thing to realize, right? >> Right. >> That it's like the store when something goes on sale, it's actually a good thing. >> Also, this one dovtales nicely with what you were just saying about the market, you know, going up over time. individual stocks, a lot of them end up not existing in like 30, 40 years, right? >> Some of them, some of them crash and don't come back, right? There's a difference between investing in a crash in the stock market versus a stock, right? Like Cityroup and AIG, they didn't come back from the 2008 crisis. They crashed and never came back. And there's there are a lot of stocks. Some stocks do come back, a lot of them don't. >> That was one of my biggest mistakes when I first started investing was buying a bunch of stocks that had seen massive draw downs and being like, they'll go up over time, right? That's how it works. And then yeah, they never they never did. So yeah. >> Right. All right. We got another one. >> Okay. Up next, we got one that came from the comments on YouTube. >> I think this was in the comments last week. >> Yeah. So, uh, Frederick says, "What does the word secular mean when used in front of bull or bare market?" >> All right. On the show last week with Yuri Timmer, who was a great guest. We've had on twice now, and people loved him. Everyone in the comments was really he's he's great. You mentioned he he's not one of these people that comes in and sounds like a know-it-all. He knows a lot of stuff, but he doesn't sound like a know-it-all, which is I think a great that's a great way to to behave. Like the people who who know a lot of stuff, but then pretend like they're smarter than you. That is always kind of offputting to me, >> right? He's also he's a super nice and it comes across. >> Yes. Very nice guy and a wonderful cook if you look at the pictures he shares on on Twitter. Uh so he's we were talking about cyclical versus secular bull markets. A lot of people in the comments were trying to ask this and I think I don't think anyone kind of got to the answer. So I figured I would I would help people out. So cyclical is short-term intermediate term in nature. Secular is long-term. But here's an example in stock market terms. Okay, chart on. [snorts] This is the 1982 to 1999 bull market. This was a secular bull market. It lasted a very long time, mostly up and to the right. And if you look at the move starting in '95, how it just goes to another level, that it's pretty crazy. I know this isn't a log chart, but still, that's a secular bull market. It's something like 18% per year for nearly two decades. All right, chart off. But there were cyclical bare markets along the way. New chart on most notably in 1987 when stocks crashed 34%. You also had uh many bare markets in 1999 and then one again in 1998. Okay, so that's a cyclical bare market within the context of a sec broader secular bull market. So again, a short-term bare within a long-term bull. Now there are also cyclical bull markets within secular bare markets. I mentioned this already chart on this is 2000 to 2009. That's a secular bare market. We had a lost decade. You had two crashes. But from 2003, call it to 2007 at the peak, the S&P 500 doubled and it was up like 16% per year. So that's a cyclical bull market within the context of a longer term secular bare market. Chart off. >> Wait, how do how do we decide where they start and finish? >> After the fact. We argue about it. >> Okay. [laughter] >> There's no good rhyme or reason to it. We argue about it after the fact. You don't know it in the in the That's why it's >> I thought you were about to give me an indicator or something. [laughter] No, because >> they argue about it. >> Listen, I I and this is it's it's splitting hairs and semantics, but I think the the bare mark current bull market started in 2009. Okay, we've had secular we had cyclical bull markets in 2020 and 2022, but now we are right back on the long-term trend. Some people will say, "No, no, no, Ben, you know what you're talking about. We we hit reset button twice there because I think 2020 was like the 1987 crash, right?" [snorts] Um, so anyway, it's it's hard. So, you can Dan, you can put up the the chart here. This is the one since 2009. So you can see it's the trend is still up and to the right, but we've had setbacks along the way. But to your point, it's hard to know when exactly that happens. And the funny thing is start off, we've only had like five secular markets over the last h 100red years. So 1929, start of the Great Depression through World War II, that was a secular bare market. End of World War II through call it 1965, 1966, secular bull market. Long one. Then from 1966 1981ish secular bare market the Dow went nowhere over that 15-year period. 1982 1999 as we mentioned secular bull 2000 2009 secular bare 2009 to present secular bull. What's that? Six I guess. So we we we haven't had that many of these longer term ones. That's why it's hard to know in in the you you define it after the fact. >> All right. >> So that's secular cyclical. There we go. >> There we go. It was an interesting comment thread. People were kind of going back and forth and arguing about it. So, >> I looked at the comments and I think people were trying to figure it out. So, I I figured I'd come in from the top ropes and tell people what it is. >> Yeah. And also on that note, I should just say it's pretty cool how how good our comments are on the show. You know, people, you know, nice and helpful and and trying to explain things to people. So, yeah, pretty >> we have a very very knowledgeable audience. Even the people asking questions, the way that they ask the questions is very knowledgeable. like they know what they're talking about, but they want some assurance or some fill in the hole. So, let's do another one. >> Uh, yeah. Oh, I'm just looking at the comments. Uh, Michael Skyus said, "Uh, Duncan is gaining real market knowledge. Ben is a good Jedi stock market master and Duncan is his Padawan." >> All right. Not a Star Wars guy. Sorry, folks. >> Wow. Okay. Wow. >> One of my hot takes is it's the most overrated movie of all time, but we'll get into that later. >> Okay. [laughter] Wow. Wow. >> Listen, it's a good pop It's the biggest pop culture movie of all time, like in terms of what it did to future movies in pop culture, but the movie itself is not good. And if it didn't have Harrison Ford in it, it would be bad. >> Which movie are you talking about? >> The first Star Wars. >> Okay. The the very first. >> Yeah. All right. >> Sorry. Come on. Bring your booze. I know. I know they're coming. >> All right. Yeah. No, you're going to you're going to get some attention in the >> Here's the thing. Mark Hamill is not good in the movie. He's a bad actor. >> That that is something that I feel like a lot of people Yeah. a lot of people agree with with you on that. >> He's the main character of the movie and he's bad. Moving on. >> Sorry. >> In a fun kind of way though, you know. >> All right. >> It's it's a pop it's the biggest pop culture movie of all time. I will give it that. But the movie itself is it's kind of hard to rewatch. >> It's to me it's it's like Harry Potter. They both do an amazing job at world building. These are really cool places to >> to see, you know, played out in front of you and to to immerse yourself in. >> They're fun. >> Yes. Everyone's booing me in the comments. That's >> I'm sure you're gonna Yeah, you're gonna get ratioed on that one. >> That's That's fine. >> Okay, >> don't make that one a social club. All right, next question. >> Okay, up next we got one from Jeff. Uh, John's was a very solid and smart strategy, especially considering that interest rates were near 0% for much of his time horizon. But how about revisiting this for the current time period with bond returns comfortably higher for the foreseeable future? Wouldn't at least some bonds now be prudent versus cash? Would also be interesting to know how his strategy at the time might have worked if he owned bonds since it sounds like he owned none. >> Yes. So, we got a lot of this is for people who don't know what he's talking about here. A couple weeks ago, we outlined uh from John who was an old pal email paline. He had this four-year rule. We outlined the whole thing. I put the whole thing up on my blog, too, for people wanted the the longer term look at it. [snorts] Some people loved it. Some people wanted to make their own tweaks to it, which I think is the point of any of these retirement withdrawal strategies. Um, but this is a topic a lot of people are really interested in these days. So, on our talking wealth channel tomorrow, I have a conversation with Stefan Sharansky about his retirement withdrawal strategy and why he says it's better than the 4% rule. So, I've interviewed now the guy who did the 4% rule. We've talked about the four-year rule. Here's one that thinks it's better than the 4% rule. So, there's no perfect way to do this. And listen, I agree with Jeff in the question here. Um, I think bonds can be a piece of this. If you if you have them high quality and in the right duration, we use high quality bonds for our Rhynolds clients as this part of this safe bucket. And you're right, with bonds yielding four to 5%, that makes way more sense. Now, I don't think it has to be all cash to be the safe part of your portfolio. I think bonds can be part of this shorter term and then intermediate term piece. So, bonds bonds can act as that safe part. So if you want to include, you know, high quality bonds that are relatively low in duration, not long duration as part of your fallback or your dry powder or whatever it is, I think that makes a lot of sense. I think people who mix cash and bonds that that that all makes sense to me. I don't think that there is a perfect with retirement withdrawal strategy. It hasn't because it's so dependent on different assumptions and variables and flexibility and needs and so yeah, there there isn't one right thing. That's why I like to share different ways to do it because I think people can pull, oh, that makes sense for me and this makes sense for me, but that doesn't. I think that's that's the whole idea. I'm getting smoked in the comments. >> Yeah, I'm sorry. I'm I'm just I'm reading the chat. >> Yeah, that's all right. Hey, listen. I used to have the Star Wars figurines back in the day. It's just when all those new movies came out a few years ago, I tried I re I rewatched all the first three Star Wars and I thought, "Oh, wow." In my head, these were really good movies, but um they're just pop culture relics. That's it. >> I mean, you can't even appreciate the special effects, all the miniatures and models and things. >> That's what I'm saying. That that part of it. >> Okay. >> The the the cinema quality that you would like that was good. >> You're saying that you just couldn't believe Job of the Hood as a character. >> I'm just saying if Harrison Ford wasn't in it and his charisma, uh it would have been an uphill battle as a movie. That's all I'm saying. All right, next question. >> Now we're never getting George Lucas on the show. >> But hey, listen. Whenever anyone asks Harrison Ford a question about this, he like dunks on them and he's like, I don't care. So me and Harrison Ford, we're in the same boat here about Star Wars. >> Oh, really? Is I >> You ever heard that before? He Someone asks him about some Star Wars lore or something and he just he'll be I don't He gets he'll cranky. I don't care what he talk He totally doesn't care about any of that stuff. It's really funny. >> That's funny. I'll have to look that up. Okay, last but not least, we got a question from Chris. My fiance and I have been looking for a home in the Chicago suburbs recently. We're both 27, have stable incomes, and no debt. We're leaning towards a 30-year mortgage, but would it ever make sense to go with a 15-year mortgage instead. We love the idea of paying less in interest, but the higher monthly payment is also brutal. Would love to hear your thoughts. >> All right, one more comment here. Jim in the comments says, "I choose Space Balls." Thank you. I' I probably like Space Balls more than Star Wars. There, I said it. >> You know what? I I got to come clean here. I've never seen Space Balls, >> so I guess I'll have to go watch that. That's Mel Brooks, right? >> Yes, we we watched it a lot in college. All right. All right. So, great question from Chris here. Um, you know, I think people really like saying the word fiance and writing it because you put the little thing over the e. What's it called? The little hat. >> Um, so a couple I think last month we talked about 50-year mortgages versus 30 years, but now I think 30 versus 15 is a more meaningful conversation to most people. Um, so remember in that example, we used a 30-year versus 50 year. We showed that there wasn't a huge difference in the monthly payments, but there was an enormous difference in the cumulative interest expense. So Daniel, let's do a chart on this is one we used about a month ago. So you can see the difference and we used the same we use a $500,000 mortgage at a 6% rate and it wasn't a huge difference in monthly payments relatively speaking, but it was a huge difference in interest like half a million dollars over the course of those loans. All right, chart off. Now let's look at the current rates today. This is from mortgage rates daily as of yesterday. So a 30-year is at 6.27, 15 years at 5.75. So, let's use the actual rates, right? [snorts] Um, I want to use $500,000 again because I like round numbers. So, let's do the comparison again. Daniel, next chart. Okay. So, I did a $500,000 mortgage again using the current rates. So, about 6.3% for a 30-year, 5.75 for 15. You can see the monthly payment is huge. And Chris mentioned it. Like, it's a brutal difference. So, in this example, that's more than $1,000 monthly difference in payments. But the total interest, you're saving over $360,000 by taking the 15 versus the 30-year. Okay. chart off. Um, so here's the deal. Obviously, because of the way amortization works, you're paying way more in principle up front for a 15-year. Duh, you pay it off faster. Um, I refinanced my mortgage to a 15 year in the early days of the pandem pandemic when rates fell to the floor. I think I did it at 3%. And then like 18 months later, rates fell further and then I refinanced back into a 30-year because I thought, wait, what am I doing? Why am I not borrowing more money for as long as I can? And I think again I think I went from the same rate as a 15-year 18 months prior to a 30-year which is the same rate around 3%. >> It sounds like a snip snap snip snap situation. >> It was it thinking back now the closing cost was stupid for me to pay that much. But in hindsight I should have borrowed way more money. Like I should have taken out as much as possible because I locked in 3% for 30 years. Like that was that was just obvious like duh. Why didn't I do that? So I think with with rates at 6% today that does change the calculus where maybe h maybe a 15-year does make more sense for some people especially the de debt averse among us of which there are many of our audience right we we know that because of what we've heard from people however [snorts] I think there's a better solution for Chris and his fiance here because especially since he's concerned about the higher monthly payment like listen this is I'm locking myself into a way higher payment even if I'm going to pay the mortgage off soon. take out the 30-year fixed loan, you lock yourself into a lower payment, but you can always make extra principal payments on the loans. There's there's no rules against that, right? Some months, maybe you want to throw extra cash at the loan, maybe you get a year-end bonus or something and pay it down that way. This strategy gives you way more flexibility and doesn't lock you into the higher payment. So, if you realize, oh shoot, after two years, I can't, this 15 year is way too much for us. We can't save this. It's eating up all of our budget. Then you have to do what I did and snip snap back into the 30-year, pay more closing costs. That's stupid. So, that's what I would do is go in the 30-year. You can always pay down earlier, make principal payments only, and then you're good. Someone says, "Hey, Ben likes to pay mortgage insurance." Hey, I didn't say that. You can still put 20% down. That's where the mortgage insurance comes from, not putting enough down. So, yeah, I think it just gives you more flexibility. I don't think I don't see the reason, especially at 27 or whatever, to lock yourself into a higher monthly payment like that. That doesn't make any sense. >> All right. Yeah. Good. Convince me. Convince me. But yeah, I've always wondered about that because yeah, they both exist, but 30 years all anyone ever talks about. >> All right. Um, send any of your hate mail into Duncan's email. He'll get that to you shortly. Um, >> well, now I'm I'm getting uh I'm getting it because I haven't seen Space Balls, so we're even. We're even today. >> Yes, it's a I love satire like that. So, to me, that that's a it's it's a great great play on it. [music] Um, remember, email here, ask the compound show@gmail.com. We will be here next week. I will be wearing a holiday sweater. So, we'll dunk in and then we're taking off the last week of the year for the holiday. We'll be back here in the new year, but we'll be here next week. Send us your questions. Send us your comments. Thanks. We're in the live chat as always. See you next time. >> Thanks everyone. See you. [music] [music] >> [music]
10 Things Every Stock Market Investor Needs to Know
Summary
Transcript
Welcome to an all new episode of Ask the Compound, the show where you ask and we answer the questions. I am Ben Carlson. Let's say you're buying a new house. Mortgage rates were way higher than they were just a few years ago. So, what makes more sense, 30-year fixed rate mortgage or a 15-year mortgage with a higher monthly payment but lower lifetime interest costs? I'm going to answer this question and more on today's show. Let's do it. [music] All right, our email here is ask the compound show@gmail.com. Welcome back to our usuals, the live stream, watching on Twitter. On today's show, we're going to answer questions straight from our compound audience about some simple portfolio fixes, what everyone needs to know before investing in stocks. What's the difference between a sec cyclical and secular bare market or bull market? How bonds can impact your retirement spending plan. and helping a young couple decide between a 15 or a 30-year mortgage. But first, our show today is sponsored by Rocket Money. Listen, we're closing in on New Year's resolution time. Right, Duncan? You have one? >> I have some. >> Wear some more hats. Uh, for many people, that means getting your finances in order. And Rocket Money is a great way to do that. Rocket Money is a personal finance app that helps find and cancel your unau subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money shows you all of your expenses in one place. You can check on their desktop, on the mobile app, including subscriptions you forgot about. If you see a subscription you no longer want, Rocket Money will help you cancel it. Rocket Money has saved users $2.5 billion, including over 880 million in cancelled subscriptions alone. Their 10 million members save up to $740 a year when they use all the apps premium features. Cancel your unwanted subscriptions and reach your financial goals faster with RocketMoney. Go to rocketmoney.comc today. That's rocketmoney.comc or just download the app. All right. You know, I see uh Dave talking about Christmas sweaters in the chat. I think giving us a hard time for not wearing them. I just want to point out I am wearing a Christmas Christmas shirt. It's uh got Stitch on it. >> Okay. So, Stitch was very big at Disney when I was there. That's a new thing. My daughter, that's all my youngest daughter, that's all she wanted to buy was Stitch stuff. >> That's a fun one. >> Okay. I never saw the movie. >> I'm a bigger fan of Wall-E, personally. >> All right. Next week, Dave, I will be in I will be in a holiday sweater. You got it. You You mark it down. Next week. >> I've got one I can pull out, too. Speaking of, a lot of people are looking for uh stocking stuffers this time of year. >> What do you got? >> I think you still got time for this one. >> Anyone uh wanting to >> to give your uh to give your kids something useful for >> you can also buy the uh you can buy the uh Kindle version, too. >> Look how thin it is. >> They can read it really quickly. It's it's a good book. >> And our our compound hats are back, too. >> It's true. I don't know that you can get that in time. Uh I'm not sure, but but I bet you can get the book. Uh, and then also there's this one. This is another fun one from uh from yours truly, uh, from from Ben. Uh, this one is a little more adult. The first chapter has a lot about goat anatomy in it. So, like maybe not for like little kids. >> What a fun story. They should make that into a movie, right? It's the guy who Yeah. said if you cut into goat testicle. Never mind. All right, let's do a question. >> I think you're probably the only person to write about uh write about that in a finance book. There they talked there was talk that Matt Damon was going to play that guy in a movie and it never never happened but I would like to see it. >> Okay. Yeah. Interesting story. Terrifying but interesting. Okay. Up first today we got a question from Jeff. Here's a short one for Duncan to read and Ben to answer. What's something that's relatively simple that most investors don't do? >> See Jeff Jeff knows how to how to get on here because short questions. That was that was perfect. >> Yeah. Love it. >> All right. My kind of question. Uh, I've written I think I've written plenty of blog posts about this over the years probably. I think the biggest one for most investors is just to automate and then get out of their own way. You automate your contributions, what you invest in, your asset allocation, how often rebalance, all that stuff. I just I think the less you look, the less you do, the less you tinker, the better your results going to be. I also think far too many investors, I think this is the big one, and this is especially for people who are just starting out, is that they focus on the individual investments in their portfolios, the performance of certain securities or funds or even asset classes as opposed to looking at the investments as one big bucket in a overall portfolio perspective. So, I think when adding any kind of investment, you should think about it in terms of how it fits within the context of your entire portfolio, not the merits of itself on its own. Right? One of my bosses taught me this back in the day. We look at all these different fund providers and portfolio managers and funds and if it it could have been a great fund on its own merits, but if it didn't really fit with what we were trying to do and and have a make sense for the overall portfolio, it didn't it didn't matter. I think one of the ways that I've been personally trying to simplify my finances is by doing a better job of aggregating all my accounts in one place. Someone someone asked a question a couple weeks ago about why doesn't Ben like HSAs? I I have too many accounts. So, I had a 403b [snorts] from my wife's previous employer sitting there in it in the account. It was fine, but I finally rolled it over. Um, we have all of our retirement accounts at Schwab and Fidelity. So, I moved all of my crypto and brokerage accounts to those platforms as well. So, I'm just I'm trying to simplify as much as I can because it's so much easier to understand the entire picture of your investment plan when everything is under the same roof. So, I've been doing that a lot. Um, I think every investor should know how they performed in a given year or given period of time, especially if you're actively managing your money and I don't always trust the the brokerage platforms explicitly on some of the different time frames they're using. So, I think if you have a nice back of the envelope, how much money you put in, how much money you have now, uh, I think again, I think you should manually track this or something. >> Well, I think you should have some sort of benchmark. Listen, I I take here at the end of each year, here's my starting portfolio value. Here's how much money I put in for contributions. Here's my ending portfolio value, right? And there's there's some time weighted stuff in there, but just back of the envelope, take away the contributions. What's the differences? Your investment gains or losses. How did you do? Right? And if you're actively managing portfolio over some benchmark, are you actually doing better than the market or could you just index the whole thing? Right? And then I think the other really simple one is just defining your time horizon before making an investment. This is really hard because sometimes you make an investment and it falls out of bed. Sometimes you make an investment and it goes to the moon. So I think you have to know is this a trade? Is this a buy and hold position? Is this something you plan on holding for a decade, maybe two to three years? And then finally, I think the the easy one that most people don't pay enough attention to is just save a little more money each year. And I say I always say that saving more money can improve your performance better than investment returns. So Daniel, let's do a chart on here. I created this simple table using historical returns. And I said, "What if you had a 100% stock portfolio or an 8020 or 6040 or a 4060?" And I looked over 25 years and I assumed you saved 10%, 15% or 20% of your salary. I used median wages, which is like $80,000. And I think on my table here I wrote $80, but that'd be a little low. Um, and if you look here, going to an 8020 portfolio, but saving 15% as opposed to 10% gives you more money than having 100% in stocks. So, I I think over especially long time frames, just saving a little bit more each year can actually have you take a less take a little less risk in your portfolio um but get you further because you save more and it compounds. So, that that's my spiel. I'll get off my soap box now. What do you think? What did I miss? >> No, I mean makes sense to me. I think uh just from a personal finance standpoint, the the biggest thing that I feel like most investors probably do this, but a lot of young people don't pay off credit cards. And it's just something that we've talked about ad nauseium on the show, but yeah, like that >> that's the first step >> that's going to eat away any gains you're making in the market if you're carrying a big balance on credit cards. >> Yes. And I get why people have to do it sometimes, right? If you don't have a a backs stop or whatever, but then that's your one financial goal until you have >> But I'm saying if you're if you're investing money in like your Robin Hood or public, you know, account and you're carrying a balance on credit cards, that doesn't make a lot of sense because you're probably not beating 30% interest on your credit card compounded, you know, >> that I agree with. Yes. You do not carry a balance and then you divert all savings until you pay that credit card balance off, right? What's the point of it? Yeah. >> Y >> All right, let's do another one. Oh, also before we move on, I it just occurred to me that half of our audience is audio only and I just did the like pitch for your books by just showing them. But so if you're listening, Ben's books that I was promoting are Saving for Retirement and Don't Fall It: A Short History of Financial Scams. So >> biggest fan, man. What a guy. >> Yeah. But I just I mean, we have a lot of listeners. They they couldn't see what I was doing. So yeah. >> All right. >> All right. Up next, we have a question from Andy. >> What are the short one? >> I know. I love it. What are top uh what are the top 10 prudent indicators a retail investor needs to know before stepping into equities? >> I looked at this. This was way way down the list of our doc way back in the day. We still have I'd say hundreds of questions from people that we haven't answered yet. And we're sorry we're trying to get to them all, but we have so many coming in. We can't get to them all. Um I am a night owl. So I used to watch a lot of late night shows in the pre-streaming era, right? You couldn't watch them on YouTube clips back then because YouTube didn't exist. So I was a huge Letterman guy growing up. So put my Dave Letterman up here. This is one of my favorite ones. He did the top 10 numbers 1 to 10. Uh, I would have put seven number one. Sorry, Dave. That that's just me. That was my football number. Uh, so I thought of this as like a top 10 list. That that's what this reminded me of. So, I feel like I could have gone at least 2025 deep on this, but I'm going to I'm going to do 10. And I got some I got some charts. So, I'm going to fly through these. Luckily, the uh production guys in the back end, Daniel, are keeping up here. So, uh, number one, stocks mostly go up, but sometimes they go down. So, try here. This is, uh, I'm gonna use some charts from exhibit A and Y charts in here. And remember, if you're an adviser, check out exhibit A foradvice.com for some of these charts. Uh, this just shows even when stocks go up, a lot of times they go down during the year. So, you just have to be okay with volatility. Um, number two, take chart off, please. N chart off. Uh, we're not going to have a chart for everyone. Uh, returns are lumpy. So, we went nowhere for a decade. From 2000 to 2009, the S&P was down 9% in total for a whole decade. Since 2010, the S&P is up almost 800%. So, you don't get these numbers just going up on a stairstep approach, right? It it can drop. It can go up higher to the moon. It It's not normal. It's lumpy. Okay. Number three, there's no such thing as average. Now, give me a chart on Daniel. I love this chart. Average up here, stocks are up 21%. Average down year, they're down 13. So, there is a wide range from year to year. You don't get 8 n 10%. That rarely ever happens. Okay? There's nothing is average in the stock market. Chart off, please. Uh, number four, your time horizon matters. Chart on. All right, another one from exhibit A. [snorts] The odds increase. I've used this one a million times. The longer you invest, the better your odds of seeing a gain. The stock market is the best casino there is because the longer you stay in invested, stay in there, the better your chances of gains. This is a good thing. Chart off. All right, we're halfway there. Take a breather. Good. All right, number five. The stock market can be a basket case. Let's do chart on here. This is just the daily returns in 2020 at the end from the end of February through early April when we had the pandemic and you can see just these massive swings. There was a in the middle middle of March the stock market was down 9 and a half% up 9.3% down 12% up six down five in consecutive days and when we were trying to figure out what's going on is the world going to end [snorts] is everyone going to die it. So the stock market can be a basket case. This doesn't happen all the time, but sometimes it can happen. Chart off. Number six, don't be afraid of all-time highs. Chart on, please. Another one from exhibit A. This shows the number of all-time highs over the years. And you can see it's marked out on the chart. And obviously, these things cluster more in bull markets than bare markets. Duh. But there are a lot of them. And I think because the stock market went nowhere from 2000 to 2009, we didn't have a lot of all-time highs. When we finally hit new all-time highs again in 2013, a lot of people thought to themselves, "Oh my gosh, this is it." And look what's happened since then. A ton of new highs. Just because that that one all-time high is going to be bad doesn't mean they are. Most of them are fine. >> This is something that I struggle so much with since I've been, you know, uh, following the markets and been investing. Yeah. There's something that is ingrained in a lot of people. I guess don't study this professionally where you feel like, well, yeah, it hit a high, so now it's going to revert to the mean. and the mean is some like much lower line or something, right? When in reality, the market just trends up over time over a long >> most of the time it goes up. And listen, one of those highs again is going to be like the high before a crash, right? But guess what? Crashes are pretty rare, >> which brings me to number seven. You have to be prepared for crashes. Let's do the let's do the chart. This shows the draw downs. This is from Y charts going back to 1950. There's been three 50% crashes in the early mid1 1970s in the early 2000s from the dotcom bubble and then the great financial crisis. Charlie Mer says you should be prepared for two two or three 50% crashes in your investing lifetime. I think that's a pretty good pretty good bet to happen. Now, a lot of people thought they were going to happen all the time because we had two of them in a decade, but this is just something you have to be prepared for. >> How quickly did that that worst draw down happen around 2009 or 10? >> Well, that was a long one. That was from October 2007 through March of 2009. So that's we're talking 18 months or something. >> It just looked very steep there. I couldn't tell if that was like a month that happened time frame, but that was living through that. It felt like it was never going to end. It felt like stocks just literally went down every day. We had a few counter trend rallies, but for the most part, it felt like the stock market was just going to go down forever. >> I was in college and not paying attention to the market, but yeah. So like every day the market just went down more basically for a long period of time. Even after all the crazy stuff of the fall of um 2008 when you know layman was falling and bear sterns went out. I guess that was in March but um all that stuff happened and even a few months later we're still falling. It was it was pretty nuts. All right now it's not just crashes. Bear markets are normal. Let's do the next chart number eight. Uh another one from exhibit A. This shows like you know the average bear markets about 35%. You can see there those huge crashes on there but there's the run in the mill bear markets too where you just fall 22% 28% 27%. Like you have to be prepared for those too. Just these run-of-the-mill call it every I don't know five to six years on average that happens. >> Uh all right chart off. I think I'm building my charts here for this question. >> So just to follow up on that though how talking about preparing for a bare market or for a crash? I mean how how do you prepare with keeping you know good market exposure? >> What do you mean me personally? >> Like well I'm just saying like what what would your your advice be to someone who says okay so how do I prepare? Okay, two things. One, you just have the intestinal fortitude to sit through it and sit on your hands and not do anything and not not sell when they're down. Um, two would be you have some sort of dry powder. That could be in the form of cash or bonds, right? So, you're going to rebalance into the pain or you have savings in the future, right? That's how I made it through 2008. I was saving. I was putting more money in. So, I didn't care as much because I knew more money was going in. So, it's one of those things. So you either diversify if you have a more mature portfolio so you don't have all of your money exposed or you're just a psycho and you can sit through these things and some people are psychos about it, right? I can handle it. I've done it before, right? So I think that's it. It's dry powder or you're a psycho or you have some sort of tactical strategy that sort of gets you out and and is behaviorally. We talked about that a few weeks ago. Um now the good thing is that I I think number nine, you mentioned the stock market goes up. I'd say that the stock market is a compounding machine. So $10,000 invested in the S&P in 1980, no taxes, no fees, all that stuff, caveats aside, would be worth more than $2 million today. Again, $10,000 in 1980, $2 million today. It's an insane compounding, right? [snorts] And that leads me to number 10. I I I just I think sometimes people forget the stock market allows you to own a share of corporate profits and innovations, right? You're owning all of these companies. If you're invested in the stock market, you're part taking part in their cash flows, their their sales growth, their dividends that they pay out, all the innovations and the things that they do. It it's really magical that this system even exists that allows us to invest beside these corporations, right? So, uh that's my 10 things. I could have come up with way more, but yeah. >> Yeah. Do you feel like that's had a negative impact on the market that so many young people now just think of it as kind of like trading, you know, just trading numbers on a screen instead of being an owner in a company or, you know, like when they buy Apple stock, they're shareholder in Apple and that means something. Do you think that's been lost? >> Probably by some people. I do think that's that's the right mentality though. Oh, this is an interesting one from Dave in the chat. He said, um, I want to ask RWM employees who are not CFAs or CFPs their top two to three lessons working at RWM. Duncan has become really pretty sharp on this. So, what what have you learned about investing by coming in here being a non-investing person? >> I mean, a lot. The the main one is just to for someone who is relatively young like myself, I'm 38. Um, but that that draw downs are not something to be afraid of that, you know, if you're going into retirement and the market crashes, I get why that's scary and bad. But but yeah, like if you're someone, you know, who has a decent time horizon, then it's it's actually something that can be a good thing for you to be loading up as prices are falling. That's probably one of the the biggest things that >> you guys have probably the hardest counterintuitive thing to realize, right? >> Right. >> That it's like the store when something goes on sale, it's actually a good thing. >> Also, this one dovtales nicely with what you were just saying about the market, you know, going up over time. individual stocks, a lot of them end up not existing in like 30, 40 years, right? >> Some of them, some of them crash and don't come back, right? There's a difference between investing in a crash in the stock market versus a stock, right? Like Cityroup and AIG, they didn't come back from the 2008 crisis. They crashed and never came back. And there's there are a lot of stocks. Some stocks do come back, a lot of them don't. >> That was one of my biggest mistakes when I first started investing was buying a bunch of stocks that had seen massive draw downs and being like, they'll go up over time, right? That's how it works. And then yeah, they never they never did. So yeah. >> Right. All right. We got another one. >> Okay. Up next, we got one that came from the comments on YouTube. >> I think this was in the comments last week. >> Yeah. So, uh, Frederick says, "What does the word secular mean when used in front of bull or bare market?" >> All right. On the show last week with Yuri Timmer, who was a great guest. We've had on twice now, and people loved him. Everyone in the comments was really he's he's great. You mentioned he he's not one of these people that comes in and sounds like a know-it-all. He knows a lot of stuff, but he doesn't sound like a know-it-all, which is I think a great that's a great way to to behave. Like the people who who know a lot of stuff, but then pretend like they're smarter than you. That is always kind of offputting to me, >> right? He's also he's a super nice and it comes across. >> Yes. Very nice guy and a wonderful cook if you look at the pictures he shares on on Twitter. Uh so he's we were talking about cyclical versus secular bull markets. A lot of people in the comments were trying to ask this and I think I don't think anyone kind of got to the answer. So I figured I would I would help people out. So cyclical is short-term intermediate term in nature. Secular is long-term. But here's an example in stock market terms. Okay, chart on. [snorts] This is the 1982 to 1999 bull market. This was a secular bull market. It lasted a very long time, mostly up and to the right. And if you look at the move starting in '95, how it just goes to another level, that it's pretty crazy. I know this isn't a log chart, but still, that's a secular bull market. It's something like 18% per year for nearly two decades. All right, chart off. But there were cyclical bare markets along the way. New chart on most notably in 1987 when stocks crashed 34%. You also had uh many bare markets in 1999 and then one again in 1998. Okay, so that's a cyclical bare market within the context of a sec broader secular bull market. So again, a short-term bare within a long-term bull. Now there are also cyclical bull markets within secular bare markets. I mentioned this already chart on this is 2000 to 2009. That's a secular bare market. We had a lost decade. You had two crashes. But from 2003, call it to 2007 at the peak, the S&P 500 doubled and it was up like 16% per year. So that's a cyclical bull market within the context of a longer term secular bare market. Chart off. >> Wait, how do how do we decide where they start and finish? >> After the fact. We argue about it. >> Okay. [laughter] >> There's no good rhyme or reason to it. We argue about it after the fact. You don't know it in the in the That's why it's >> I thought you were about to give me an indicator or something. [laughter] No, because >> they argue about it. >> Listen, I I and this is it's it's splitting hairs and semantics, but I think the the bare mark current bull market started in 2009. Okay, we've had secular we had cyclical bull markets in 2020 and 2022, but now we are right back on the long-term trend. Some people will say, "No, no, no, Ben, you know what you're talking about. We we hit reset button twice there because I think 2020 was like the 1987 crash, right?" [snorts] Um, so anyway, it's it's hard. So, you can Dan, you can put up the the chart here. This is the one since 2009. So you can see it's the trend is still up and to the right, but we've had setbacks along the way. But to your point, it's hard to know when exactly that happens. And the funny thing is start off, we've only had like five secular markets over the last h 100red years. So 1929, start of the Great Depression through World War II, that was a secular bare market. End of World War II through call it 1965, 1966, secular bull market. Long one. Then from 1966 1981ish secular bare market the Dow went nowhere over that 15-year period. 1982 1999 as we mentioned secular bull 2000 2009 secular bare 2009 to present secular bull. What's that? Six I guess. So we we we haven't had that many of these longer term ones. That's why it's hard to know in in the you you define it after the fact. >> All right. >> So that's secular cyclical. There we go. >> There we go. It was an interesting comment thread. People were kind of going back and forth and arguing about it. So, >> I looked at the comments and I think people were trying to figure it out. So, I I figured I'd come in from the top ropes and tell people what it is. >> Yeah. And also on that note, I should just say it's pretty cool how how good our comments are on the show. You know, people, you know, nice and helpful and and trying to explain things to people. So, yeah, pretty >> we have a very very knowledgeable audience. Even the people asking questions, the way that they ask the questions is very knowledgeable. like they know what they're talking about, but they want some assurance or some fill in the hole. So, let's do another one. >> Uh, yeah. Oh, I'm just looking at the comments. Uh, Michael Skyus said, "Uh, Duncan is gaining real market knowledge. Ben is a good Jedi stock market master and Duncan is his Padawan." >> All right. Not a Star Wars guy. Sorry, folks. >> Wow. Okay. Wow. >> One of my hot takes is it's the most overrated movie of all time, but we'll get into that later. >> Okay. [laughter] Wow. Wow. >> Listen, it's a good pop It's the biggest pop culture movie of all time, like in terms of what it did to future movies in pop culture, but the movie itself is not good. And if it didn't have Harrison Ford in it, it would be bad. >> Which movie are you talking about? >> The first Star Wars. >> Okay. The the very first. >> Yeah. All right. >> Sorry. Come on. Bring your booze. I know. I know they're coming. >> All right. Yeah. No, you're going to you're going to get some attention in the >> Here's the thing. Mark Hamill is not good in the movie. He's a bad actor. >> That that is something that I feel like a lot of people Yeah. a lot of people agree with with you on that. >> He's the main character of the movie and he's bad. Moving on. >> Sorry. >> In a fun kind of way though, you know. >> All right. >> It's it's a pop it's the biggest pop culture movie of all time. I will give it that. But the movie itself is it's kind of hard to rewatch. >> It's to me it's it's like Harry Potter. They both do an amazing job at world building. These are really cool places to >> to see, you know, played out in front of you and to to immerse yourself in. >> They're fun. >> Yes. Everyone's booing me in the comments. That's >> I'm sure you're gonna Yeah, you're gonna get ratioed on that one. >> That's That's fine. >> Okay, >> don't make that one a social club. All right, next question. >> Okay, up next we got one from Jeff. Uh, John's was a very solid and smart strategy, especially considering that interest rates were near 0% for much of his time horizon. But how about revisiting this for the current time period with bond returns comfortably higher for the foreseeable future? Wouldn't at least some bonds now be prudent versus cash? Would also be interesting to know how his strategy at the time might have worked if he owned bonds since it sounds like he owned none. >> Yes. So, we got a lot of this is for people who don't know what he's talking about here. A couple weeks ago, we outlined uh from John who was an old pal email paline. He had this four-year rule. We outlined the whole thing. I put the whole thing up on my blog, too, for people wanted the the longer term look at it. [snorts] Some people loved it. Some people wanted to make their own tweaks to it, which I think is the point of any of these retirement withdrawal strategies. Um, but this is a topic a lot of people are really interested in these days. So, on our talking wealth channel tomorrow, I have a conversation with Stefan Sharansky about his retirement withdrawal strategy and why he says it's better than the 4% rule. So, I've interviewed now the guy who did the 4% rule. We've talked about the four-year rule. Here's one that thinks it's better than the 4% rule. So, there's no perfect way to do this. And listen, I agree with Jeff in the question here. Um, I think bonds can be a piece of this. If you if you have them high quality and in the right duration, we use high quality bonds for our Rhynolds clients as this part of this safe bucket. And you're right, with bonds yielding four to 5%, that makes way more sense. Now, I don't think it has to be all cash to be the safe part of your portfolio. I think bonds can be part of this shorter term and then intermediate term piece. So, bonds bonds can act as that safe part. So if you want to include, you know, high quality bonds that are relatively low in duration, not long duration as part of your fallback or your dry powder or whatever it is, I think that makes a lot of sense. I think people who mix cash and bonds that that that all makes sense to me. I don't think that there is a perfect with retirement withdrawal strategy. It hasn't because it's so dependent on different assumptions and variables and flexibility and needs and so yeah, there there isn't one right thing. That's why I like to share different ways to do it because I think people can pull, oh, that makes sense for me and this makes sense for me, but that doesn't. I think that's that's the whole idea. I'm getting smoked in the comments. >> Yeah, I'm sorry. I'm I'm just I'm reading the chat. >> Yeah, that's all right. Hey, listen. I used to have the Star Wars figurines back in the day. It's just when all those new movies came out a few years ago, I tried I re I rewatched all the first three Star Wars and I thought, "Oh, wow." In my head, these were really good movies, but um they're just pop culture relics. That's it. >> I mean, you can't even appreciate the special effects, all the miniatures and models and things. >> That's what I'm saying. That that part of it. >> Okay. >> The the the cinema quality that you would like that was good. >> You're saying that you just couldn't believe Job of the Hood as a character. >> I'm just saying if Harrison Ford wasn't in it and his charisma, uh it would have been an uphill battle as a movie. That's all I'm saying. All right, next question. >> Now we're never getting George Lucas on the show. >> But hey, listen. Whenever anyone asks Harrison Ford a question about this, he like dunks on them and he's like, I don't care. So me and Harrison Ford, we're in the same boat here about Star Wars. >> Oh, really? Is I >> You ever heard that before? He Someone asks him about some Star Wars lore or something and he just he'll be I don't He gets he'll cranky. I don't care what he talk He totally doesn't care about any of that stuff. It's really funny. >> That's funny. I'll have to look that up. Okay, last but not least, we got a question from Chris. My fiance and I have been looking for a home in the Chicago suburbs recently. We're both 27, have stable incomes, and no debt. We're leaning towards a 30-year mortgage, but would it ever make sense to go with a 15-year mortgage instead. We love the idea of paying less in interest, but the higher monthly payment is also brutal. Would love to hear your thoughts. >> All right, one more comment here. Jim in the comments says, "I choose Space Balls." Thank you. I' I probably like Space Balls more than Star Wars. There, I said it. >> You know what? I I got to come clean here. I've never seen Space Balls, >> so I guess I'll have to go watch that. That's Mel Brooks, right? >> Yes, we we watched it a lot in college. All right. All right. So, great question from Chris here. Um, you know, I think people really like saying the word fiance and writing it because you put the little thing over the e. What's it called? The little hat. >> Um, so a couple I think last month we talked about 50-year mortgages versus 30 years, but now I think 30 versus 15 is a more meaningful conversation to most people. Um, so remember in that example, we used a 30-year versus 50 year. We showed that there wasn't a huge difference in the monthly payments, but there was an enormous difference in the cumulative interest expense. So Daniel, let's do a chart on this is one we used about a month ago. So you can see the difference and we used the same we use a $500,000 mortgage at a 6% rate and it wasn't a huge difference in monthly payments relatively speaking, but it was a huge difference in interest like half a million dollars over the course of those loans. All right, chart off. Now let's look at the current rates today. This is from mortgage rates daily as of yesterday. So a 30-year is at 6.27, 15 years at 5.75. So, let's use the actual rates, right? [snorts] Um, I want to use $500,000 again because I like round numbers. So, let's do the comparison again. Daniel, next chart. Okay. So, I did a $500,000 mortgage again using the current rates. So, about 6.3% for a 30-year, 5.75 for 15. You can see the monthly payment is huge. And Chris mentioned it. Like, it's a brutal difference. So, in this example, that's more than $1,000 monthly difference in payments. But the total interest, you're saving over $360,000 by taking the 15 versus the 30-year. Okay. chart off. Um, so here's the deal. Obviously, because of the way amortization works, you're paying way more in principle up front for a 15-year. Duh, you pay it off faster. Um, I refinanced my mortgage to a 15 year in the early days of the pandem pandemic when rates fell to the floor. I think I did it at 3%. And then like 18 months later, rates fell further and then I refinanced back into a 30-year because I thought, wait, what am I doing? Why am I not borrowing more money for as long as I can? And I think again I think I went from the same rate as a 15-year 18 months prior to a 30-year which is the same rate around 3%. >> It sounds like a snip snap snip snap situation. >> It was it thinking back now the closing cost was stupid for me to pay that much. But in hindsight I should have borrowed way more money. Like I should have taken out as much as possible because I locked in 3% for 30 years. Like that was that was just obvious like duh. Why didn't I do that? So I think with with rates at 6% today that does change the calculus where maybe h maybe a 15-year does make more sense for some people especially the de debt averse among us of which there are many of our audience right we we know that because of what we've heard from people however [snorts] I think there's a better solution for Chris and his fiance here because especially since he's concerned about the higher monthly payment like listen this is I'm locking myself into a way higher payment even if I'm going to pay the mortgage off soon. take out the 30-year fixed loan, you lock yourself into a lower payment, but you can always make extra principal payments on the loans. There's there's no rules against that, right? Some months, maybe you want to throw extra cash at the loan, maybe you get a year-end bonus or something and pay it down that way. This strategy gives you way more flexibility and doesn't lock you into the higher payment. So, if you realize, oh shoot, after two years, I can't, this 15 year is way too much for us. We can't save this. It's eating up all of our budget. Then you have to do what I did and snip snap back into the 30-year, pay more closing costs. That's stupid. So, that's what I would do is go in the 30-year. You can always pay down earlier, make principal payments only, and then you're good. Someone says, "Hey, Ben likes to pay mortgage insurance." Hey, I didn't say that. You can still put 20% down. That's where the mortgage insurance comes from, not putting enough down. So, yeah, I think it just gives you more flexibility. I don't think I don't see the reason, especially at 27 or whatever, to lock yourself into a higher monthly payment like that. That doesn't make any sense. >> All right. Yeah. Good. Convince me. Convince me. But yeah, I've always wondered about that because yeah, they both exist, but 30 years all anyone ever talks about. >> All right. Um, send any of your hate mail into Duncan's email. He'll get that to you shortly. Um, >> well, now I'm I'm getting uh I'm getting it because I haven't seen Space Balls, so we're even. We're even today. >> Yes, it's a I love satire like that. So, to me, that that's a it's it's a great great play on it. [music] Um, remember, email here, ask the compound show@gmail.com. We will be here next week. I will be wearing a holiday sweater. So, we'll dunk in and then we're taking off the last week of the year for the holiday. We'll be back here in the new year, but we'll be here next week. Send us your questions. Send us your comments. Thanks. We're in the live chat as always. See you next time. >> Thanks everyone. See you. [music] [music] >> [music]