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Now on to the podcast. When markets soar, investors face a subtle but dangerous temptation. trading wisdom for excitement. Hi, I'm Rob West. With headlines touting record highs and optimism running wild, it's easy to get swept up in the momentum.
But is now the time to double down or to take a step back and exercise caution? Today, Mark Biller joins us to unpack the dangers of investing with emotion instead of wisdom. Then it's on to your calls at 800-525-7000. This is Faith in Finance, biblical wisdom for your financial decisions.
Well, it's always a pleasure to welcome Mark Biller, Executive Editor and Senior Portfolio Manager at Sound Mind Investing, a longtime and proud underwriter of this program. Mark, great to have you back. Thanks, Rob. Always a pleasure to be with you. Mark, the markets have made a strong comeback, no doubt, since spring, and many investors are feeling optimistic about even the year ahead.
So how would you describe the mood right now? Yeah, Rob. I mean, investors' mood has shifted from really intense fear back in early April to optimism and arguably even excessive optimism at this point. That can be a danger sign because just like fear often leads to bad decisions during bear markets, When investors get excessively optimistic, that can lead to bad decisions during bull markets. You know, the danger is that people allow their emotions to override their sound judgment and in our context, their long-term investing plans.
Yeah, no doubt. I'll certainly second that.
Now, you note in your article in the latest SMI newsletter, it's called Bull Market. Great, but don't get carried away, that we've been here before.
So what lessons, Mark, should we remember from the past? Yeah, well, we've seen episodes of excessive optimism before, you know, the The classic example was in the late 1990s during the dot-com bubble. The euphoria back then was contagious, but eventually the bubble burst and that wiped out huge amounts of wealth.
So, while the hot new technology of that era, which was the internet, did go on to fulfill its promise and it did change the world, a lot of those early companies ended up failing. And even those that survived ended up losing 80 to 90 percent of their value over the next few years. Investors who threw caution to the wind in the late 90s ended up paying a pretty steep price over the early years of the 2000s. Yeah, and we certainly don't want to repeat that.
So how should we approach the current market optimism? Is there a healthy way to keep it in check? Yeah, there is. And first of all, I should be clear that it's worth pointing out that long-term optimism by investors is normally rewarded. You know, if you look back over history and all the wars and depressions, recessions, and bear markets, despite all of that, stocks have trended upward for more than a century.
So we're not arguing against long-term optimism and being a stock market investor. It's more the short-term, acute, excessive optimism that can be dangerous because it tends to lead to overconfidence and then the assumption that markets are going to keep rising without interruption. And that's just never been the case. You know, pullbacks and bear markets are part of the deal as an investor.
So the big mistake, Rob, that many investors make is they project the current market environment indefinitely into the future.
So since October of 2023, less than two years ago, the stock market's up about 60%.
Now, historically speaking, that's about six years of normal gains that we've packed into a period of less than two years.
So if investors start expecting those types of gains to continue or worse yet, they start shifting into even more aggressive investments that have performed really, really well lately.
Well, that's when people often get hurt. Yeah, no doubt about it. And do you see people, you know, trying to time the market in situations like this because they have so much upside already baked in that just even with a hint of a correction, they're trying to go to cash or something like that? I mean, is that more prevalent in an environment like this? You know, I actually tend to see more of the opposite, Rob.
It's that because everything has worked so well, any kind of pullback automatically is a dip that we need to double down even more. We need to buy every dip. And then the other big mistake is if you have a well-diversified portfolio, undoubtedly you're going to have some things that aren't performing as well. And when the market has done so well, people start chucking those investments overboard and doubling down on the really aggressive stuff that's been posting the big returns lately. Mark Biller here today.
We're talking markets. Back with more after this. Stick around. What matters most to you when selecting a financial advisor?
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Soundmindinvesting.org Well, it seems almost daily we're seeing new record highs on at least one of the market indexes. We've got optimism running wild. How do you manage your investments in light of all that?
Well, good news: Mark Biller is here today. He's our good friend, executive editor, and senior portfolio manager at Sound Mind Investing and underwriter of this program. And Mark, you were sharing with us how we need to just be careful as we think about investing in light of this current market optimism. And you've mentioned the risk of overconfidence. I'd love for you to unpack what that looks like for investors.
Yeah, it's a fine line, right, Rob? Because we want people to be confident investors, but there's a big difference between confidence and overconfidence.
So I would say confidence, healthy confidence, comes from understanding the market fundamentals, setting reasonable, appropriate personal goals, and then investing according to your own personal risk tolerance.
Now, when we take the next step into overconfidence, that's when people start assuming that they know what the market's about to do next. And the truth is, nobody ever knows that. With the markets being so strong lately, that overconfidence becomes a real danger. Hmm. Yeah, interesting.
By the way, the article we're discussing today is available for you at soundmindinvesting.org. Check it out. It's called Bull Market. Great. But don't get carried away.
Again, that website for you to read it, soundmindinvesting. O-R-G. All right, Mark, turning to the financial media. Many people base their investing decisions on what they see on TV or perhaps read online.
So, how much value or perhaps confusion do you think that creates? Yeah, well, you know, unfortunately, the financial media, and of course, we're painting with a broad brush here, but broadly speaking, it does thrive on hype. It does actively foster the fear of missing out emotion that tends to nudge people into taking more risk after markets have already produced big gains. You know, they have to fill 24-7 with interesting, engaging content. And so, inevitably, they end up running a lot of stories about people who've struck it rich and this or that, or predictions about, you know, the next big thing and what the market's going to do.
And those stories get attention, but they typically don't really make people. Better investors. And that's where the noise really can distract people from their own personal long-term investing goals. Yeah, that's really helpful. All right, let's talk about a principle that we find in God's word from King Solomon: it's diversification.
Why does it take on added importance in a market condition like we have today? Yeah, well, Rob, diversification, if we really boil it down, is in essence an act of humility. You know, if any of us knew for sure what the best performing investment was going to be in the future, we wouldn't need to diversify. But because nobody knows that, that's why diversification is such an important discipline.
So a diversified portfolio is almost always going to underperform whatever the hottest investment or the hottest index is during a bull market. But that's okay because that same diversification is going to protect you from the worst performers during a downturn. You know, diversification, as you mentioned, is a biblical principle. It recognizes we don't know what the future holds.
So we spread our investments among different types of assets. And that is the King Solomon reference you mentioned, Ecclesiastes 11:2. That says, give a portion to seven or even to eight, for you know not what disaster may happen on earth. Yeah, that's exactly right. And it's such an important idea when it comes to investing.
Still, though, Mark, some investors see diversification as a way of limiting potential gains because they're saying, you know, just to be diversified, I have to add in these other asset classes that are perhaps going to underperform. How do you respond to that mindset? Yeah, you know, diversification is not going to be the most exciting strategy in the short run. But over the long run, it's one of the best defenses against emotional decision making. And when markets are volatile, diversification provides the stability that helps us stay the course with our long-term plan.
But in the short term, there is that powerful temptation to look down your list of, you know, however many things you have in your portfolio, maybe you have seven or eight positions in different things. And inevitably, you're going to see those laggards at the bottom. And it's so tempting when the market's up 60% in two years to say, These two are really holding me back. I'm going to get rid of those and I'm going to double down on gold and bitcoin because they're up the most over the last year and a half. And that's where people start deviating from their long-term plan, and it usually catches up to them eventually.
Yeah, no doubt about it. All right, Mark, we've given some warnings. We've talked about some helpful things to remember. I'd love for you just to give us this broad brush look at what a solid long-term investing plan actually looks like. Yeah, well, at a basic level, Rob, it needs to account for a person's risk tolerance and their stage of life, and it should be long term in nature.
There are lots of details we could get into, but in the context of what we're discussing today, let's think it through using an example.
So, maybe we'll be generous and remember a time when I was in my mid-30s. And for a person at that age and stage, with you know, 30 plus years till they need to pull money out of their retirement accounts, an aggressive asset allocation would be perfectly appropriate.
Someone like that could probably be 100% stocks, maybe no bonds. And then, taking that personalized plan a step further, let's say that I get matching in my 401k plan, and I'm fine using a simple indexing strategy to just match the market's long-term rate of return.
So, my personalized plan would say I'm going to take full advantage of that 401k match. I'm going to try to put in, let's say, 10% of my income. I've worked that out in my budget that I can handle that. And I'm going to invest in these index funds. That's a great, simple, long-term plan.
And what following that plan is gonna look like in a case like this is I'm gonna continue to make regular contributions into those funds that were selected at the outset. It means not wavering when the market plunges occasionally. And importantly, not deciding that those index funds are just too boring when the market's been running hot and all my friends have been getting better returns investing in meme stocks or crypto coins. And, you know, it's important. I know that when I say all that, it sounds like I'm saying you can never make changes to your long-term plan.
And that's not the case. Maybe someone listens to one of our conversations and decides a 5% gold allocation would be a good idea.
Well, great. But try to make those types of changes, those types of decisions, based on level-headed considerations. Consideration of what's going to be best over the long term. Try not to make those kinds of decisions simply because gold happens to be ripping higher right now. Avoiding that FOMO, that fear of missing out.
That is so important because those types of decisions usually end badly. Yeah, no doubt about it. Now, Mark, you mentioned friends doing better. What about when your brother-in-law is doing better? I mean, that's just the worst.
Absolutely. Yeah, you got to run from those decisions. Mark, always appreciate you, my friend. Your sound, godly wisdom. Thanks for being here.
Thanks, Rob. Always glad to be here. Mark Biller is executive editor and senior portfolio manager at Soundmind Investing. You can learn more at soundmindinvesting.org. Become an SMI member or consider their private wealth management if you want to delegate this to someone else.
I'm Rob West, back with your questions after this. Stick around. Are you a financial professional looking to grow your practice while offering advice that aligns with your Christian values? By becoming a certified kingdom advisor, you'll gain the biblical wisdom and professional credibility to serve clients who are seeking faith-based financial guidance. Each year, more than 75,000 people search for a certified kingdom advisor.
Join our community and share your expertise with clients looking for someone who shares their faith and values. Start your journey today by going to kingdomadvisors.com/slash get certified. We're grateful for support from Guidestone, whose diversified suite of investment solutions align with Christian values to create positive change in the world. More information is available at guidestonefunds.com/slash faith. Investing involves risk, including potential loss of principal.
Carefully consider the investment objectives, risks, charges, and expenses of Guidestone Funds before investing. They're distributed by Four Side Funds Distributors LLC, which is not an advisory affiliate, a registered investment advisor, nor do they provide investment advice. Thanks for joining us today on Faith and Finance, helping you see God as your ultimate treasure and money a tool. Remember, money is not the goal. Money can add meaning to your life, but it's not the meaning of life.
You see, we need to put money in its proper place, and that is a tool to accomplish God's purposes. Yes, to enjoy. Remember, we serve the God who is the author of delight and joy, and we should enjoy what God has entrusted to us. We should also hold it loosely and give it away. And now we can even deploy it into investments that create human flourishing and bring about God's redemptive work here in the world and love our neighbors.
And that's just what we do, but we can't make money the goal. We need to make loving God, glorifying Him, and loving others the goal, and then see money as a tool. The problem is so often it becomes the end as opposed to the means to an end, and it gets intertwined with our hearts and our devotion to God. We have to be careful there. And each day we want to remind you of that on this program, but also give you those practical solutions to the issues you're facing in your life.
All the lines are nearly full.
So let's head to Kentucky. Dick, thanks for being on the program, sir. Go ahead. Thank you for having me. I'm a business owner.
I'm 72 years old. I've got an IRA and a Roth. And I'm trying to figure out, I've never drawn from it. How do I go about the most efficient way of getting you know, the money out of there. the way the government has the least amount of their hands on it.
Is that possible? Yeah. Yes, absolutely. I mean, the very best way once you're 70 and a half or older is through a qualified charitable distribution.
Now, that does require that the money is given directly to a not-for-profit.
So that is not a strategy for you to get it out and avoid taxes or minimize taxes where you have use of it for your purposes. But for any portion of it that you want to give away, that is the very best way because remember that money, at least in the traditional IRA, or if it's a rollover from a traditional 401k, it went in tax deferred, meaning you didn't pay tax on it on the contribution. We set aside that amount of the contribution from your taxable income in that year. But normally the IRS gets paid their taxes as you pull it out. But in the way of a qualified charitable distribution, there's never any tax paid because even when it comes out, it's not added to your taxable income so long as it goes straight to a Christian ministry.
Apart from that, you are going to pay taxes on it.
So then it's just a matter of spreading the withdrawals. out across the years. To smooth out the tax impact, because what you don't want is to kind of jump up with any portion of this into a higher tax bracket if you can avoid it. And you're going to want to coordinate with other income, whether that's wages or Social Security or distributions from your business.
So, those would be the kind of things you'd want to think about: the QCD for your charitable dollars, which is the ultimate tax savings, and then for the money that you're actually going to need to pull out because you're, you know, perhaps starting a required minimum, you know, which will kick in at, you know, at age 73 if you were born between 1951 and 1959. You know, then you just want to coordinate that with other taxable income just to avoid any unnecessary tax hikes.
Okay, so understand everything that you've just told me. What I'm going to have to do then is get with my CPA and look at what my you know, what all the streams of income are. And Simpson, wish I'd called you last year because I just gave money just straight up. Where being seventy two, I can take it out of the IRA now. That's exactly right.
And a lot of people miss this. I mean, it's one of the most effective giving tools, this qualified charitable distribution, because a lot of people are sitting with more money than they need in their IRA. And especially once that required minimum kicks in at 73, you're required to take it out whether you need it or not.
So you might as well give it straight through a QCD. It doesn't hit your taxable income for the year. And it also applies to your required minimum.
So it's a phenomenal strategy. You can even, up to a certain limit, you could fund even a charitable gift annuity with the money coming out from a QCD and an IRA as well. But yeah, with the money that you ultimately need, either to supplement lifestyle or for a one-time expense, you're just going to want to coordinate with your CPA about the other taxable income that you have. And you're going to want to think about something called IRMA. You know, which is that income-related monthly adjustment amount?
On Medicare. And so, you know, if your modified adjusted gross income gets above certain thresholds. then it's going to increase your IRMA, the income related monthly adjustment amount, and it could make that Medicare more expensive.
So you just want to be thoughtful about that as well. When I have seen That and I didn't quite understand. I thought, golly, it's magging me every chance they get. Yes, I totally agree. Yeah.
And so, what happens is that, you know, that those higher Medicare premiums through Irma, you know, hit you because they look back two years. And so that's where it really plans or it pays to plan ahead as you spread those charitable, spread those withdrawals out, use charitable deductions, you know, even partial Roth conversions can keep you under those income thresholds as well.
So a lot of things to consider, but I'm glad you're asking the question because with some planning, you can and really help your situation here. Dick, thanks for calling. Lord bless you, my friend. Let's go to Oklahoma. Hi, Evelyn.
Go right ahead. Yeah, I have have a couple of retirement plans through actually through one account. And I'm needing some cash lights. quickly Yeah. Both of them, but there's only like nine thousand in each account, so it's like eighteen thousand.
but they're wanting to withhold the twenty percent plus These So that's like 2,200 on each count. Is that normal? It is. Yeah. So typically, you will have that withholding, you know, just because most plant administrators will require it.
And basically, that's just being sent to the IRS. It is going to be taxable to you at a minimum.
So it will be added to your taxable income.
So oftentimes, that 20% may not even cover the tax owed on the distribution. It's really a starting point more than anything. Are you under 59 and a half, Evelyn? No, I'm over.
Okay, all right.
So you're not going to have the penalty, but it is certainly going to be taxable, and this will just make sure that you've got a good head start toward paying whatever you owe.
Now, of course, if you don't owe as much as they're withholding, then you would get that back at tax time based on your federal tax rate.
So, you know, when you file your taxes, depending on your tax bracket, that would be the time that you get it back. But generally, you know, this is very common and often it is required. Ah, okay. Yeah, towards those. All right, that is.
Are there other options, Evelyn, where you could consider? I realized you said you kind of need this in a hurry. I don't know of any.
Okay. What is it you're needing to do? Are these home repairs or something else? No personal issues. Yeah, no worries.
Very good.
Well, it's not unexpected. This is very typical and. You know, it's just getting you started toward making sure you have.
Something paid into the IRS so you don't get caught with a big tax bill. Hopefully, you'll get a little bit of that back. Especially in this season of life where income is lower. Thank you for your call today. This is Faith and Finance.
So thankful for my team today: Sandy and Taylor and Devin and everybody here at Faith Five that makes this possible. Come back and join us tomorrow. We'll see you then. Bye-bye. Faith in Finance is provided by Faith Buy and listeners like you.
