Should You Sell Stocks Now?
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On any given day, there's a 50% roughly, 50% chance that you'll be right and a 50% chance you'll be wrong. Welcome to Stay Wealthy San Diego, a show for successful professionals doing all the right things with their money and are ready to take their financial plan to the next level. I'm certified financial planner, Taylor Schulte, and I'm here to teach you advanced financial planning strategies in plain English.

This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services. ♪

Welcome to Stay Wealthy San Diego. If you've been a listener of the show, you know that I mentioned we would be making some changes and improvements starting this month. One of those changes is bringing on fellow certified financial planner, John Luskin to co-host with me. Hello, podcast people.

John and I, we work closely together. He's a super sharp guy, and I think you will really enjoy and benefit from his perspective on all things financial planning. John does a lot of writing for our firm blog. Maybe you've come across some of his blog posts, but these blog posts actually typically begin as a question from a client or...

a potential client or someone random that just threw a really good question at us. Those questions end up becoming a blog post. And one blog post in particular that's been getting a ton of traction on our blog, not surprisingly, is a blog post titled, Should I Sell Stocks Now? And

because of all the traction it's getting, we thought we would start by diving into this topic a little bit more today. The stock market has been screaming upwards for nine years now. And I think just about everybody's asked themselves this question, is it time to get out of the market? So I think it's a really important topic. It's something that deserves a little bit of extra education. It's not a simple question to answer. And

But I think it's also really important too in terms of how you manage your financial plan for the next 10, 20 years. So we thought we'd start off today by directly answering the question, just kind of prefacing a few things. So first is talking about time horizon.

before you even think about investing in the stock market, or even even the bond market, for that matter, you should have a time horizon of at least 10 years. If you're looking to just put some money to work for the next three to five years, probably not smart to go and throw it in the stock or bond market, because anything can happen in a short period of time. And

I think John actually has some data to kind of back some of that up. So this is fun. On any given day, U.S. stocks could go up or down in value. It's a coin toss. So if you put money in the market today, at the end of the day, you might be up, you might be down. So on one day, stock market doesn't really have great odds. But if you wait a little bit longer, if you give it a month now, you have a 63% chance that you'll have more money than when you started. So that's certainly a lot better. But what if you wait a little bit more?

If you wait a whole year, your odds that if you put money into US stocks and you wait a whole year, 75% of the time, you'll have more money. Now, that's a lot better. So three out of four years, the stock market is positive. Three out of every four years. That's right. And for me, I'd rather wait a little bit and get better odds. But...

If you're ultra patient, if you're ultra disciplined, if you wait 10 years, the odds that you're gonna come out ahead are 94%. For me, that's fantastic. I mean, why would you turn those odds down? You can just wait and have more money or you could be impulsive and jump in and out and your odds get a lot worse. Now that's just US stocks, right?

I'm sure a lot of you folks are thinking, geez, if I put money in the market for 10 years, you're telling me there's still a chance I may lose money? Well, that's where diversification is important. If you have a mix of stocks and bonds, let's say 60% stocks, 40% bonds, there is historically at least a 0% chance that you'll lose money.

So to recap, in talking about time horizon, like John said, on any given day, there's a 50% chance that you could make money in stocks or lose money in stocks. It really is a coin toss. The further out you go, the better the odds of making money in the stock market are. And then if you add some diversification to that, if you're a smart investor and add some additional asset classes, it's

It's really, really, really challenging to lose money over a long period of time. Now, I do want to add that we're just talking about historical indexes here. And if you work with a financial advisor or you invest in mutual funds or certain investments that have fees, they're going to eat away at some of those returns. So this is before fees and this is just pure indexes that were

looking at, but it's a really good starting place for this conversation. One of the things I like to talk about is going back to that 75% annual number, three out of every four years, the stock market has a positive return. I was joking to John before we started the show, it's like

If Blackjack paid out 75% of the time, if you knew that 75% of the time you're gonna win at Blackjack, you would be at the Blackjack table all day, every day, and you'd be borrowing money to invest in the Blackjack table. Everybody would be there, but that's not the case.

But that is the case when it comes to investing. The reason most people don't reap the rewards of investing and kind of have a bad taste in their mouth is they let their emotions get the best of them. And they say, wow, you know, John, the stock market's been racing upwards for nine years. I better get out. But the thing is, there's no data that says the stock market can't go up for another nine years. We just don't know what the future holds. Yeah, I think it's about a third of all

market highs are from another market high. So you just don't know what's going to happen. The big takeaway here is patience. And I know it's kind of weird to hear that, that it takes patience to be a successful investor because in most things in life, the more effort you put into something, the more you get out of it. But investing is just this one weird thing where the

The less you do, the better off you are. Now, you can be patient and you can keep things super, super simple and really low cost. And you can do a pretty good job investing your money. But there are some smart things that you have control over that you can kind of sprinkle into your investing mix to make it even better. And if I dare use this word, make it even more bulletproof.

But you don't typically just own US stocks, at least not if you're a smart investor. You typically own other asset classes in your portfolio. You might own international stocks. You might own emerging market stocks. You might own real estate investment trusts. And then you might even own some bonds in there as well. So when we talk about should you sell stocks now, well, stocks

probably only make up a percentage of your portfolio and not the whole thing. So you wanna make sure you're looking at this globally too before you just run out to liquidate a portfolio. But let's talk about that for a second. I mean, everyone loves to talk about US stocks. CNBC loves to talk about US stocks, but we've written a lot about this. Like you should probably own other asset classes.

Yeah. What's interesting is going back to the original numbers on daily, maybe you'll make money monthly. That figure gets better when you go to yearly. Now you're three out of four times, which is pretty good. But that data only looks at U.S. stocks. Now, were you to diversify, were you to hold, as Taylor mentioned, U.S., internationally developed, emerging markets, some real estate via low cost REIT index fund. Now,

Now your odds are much better. So we actually did write a pretty good article called, Do I Need to Own International Stocks? That is on the blog as well. And we'll link to that in the show notes. But as we answer this question, should I sell stocks? Just remember, one, you should have a really long investing time horizon before you invest in stocks.

So if you think you're going to need this money in the next three, five, six years, you probably just shouldn't be in the stock market anyways. I think you've answered your own question there. And then second to that, remember that you should have a globally diversified portfolio. You shouldn't just own U.S. stocks or a handful of individual stocks.

And to talk a little bit more about the value of international diversification, there's a time period that goes from the top of the tech bubble bursting all the way down to the bottom of the financial crisis, and it's called the noughties. And that is when the S&P 500 got marginally a negative return over almost a decade. So that's really not a great investment return to have. But if you added up

other stocks to your portfolio besides just US, you did just fine because emerging markets did great. Subsets of the US economy, like large value, did great. So that's why diversification is so important when it comes to investing. Yeah, I mean, and it's possible that for the next 10 years, we could have really low returns. We could have a flat market for the next 10 years. Just because historically, you know, you've typically made money over long periods of time, it doesn't mean that we can't go through these decades where things are just flat or are

or maybe even negative. So historically, we've had pretty good returns in the stock and bond markets, but we just don't know what the future holds. Our goal is to just take all the knowledge that we have, everything that we know, and just try to tilt the odds in our favor as best as possible. And throughout this podcast, and as we build out these shows, we'll just be talking about more things that we can

add on to our financial plan to just keep tilting those odds in our favor. One thing I'll add about international diversification, just because it's too funny from at least from a nerdy investing paradigm. And I think it was Michael Kitsis who said it, but I'll do some research and we'll link the original attribution in the show notes. But diversification is always having to say you're sorry, because there's a lot of investments out there. And we don't know which investments are going to do

good when, so we just pick all of them. So of course, some will do good, some will do bad during certain periods. But over a long timeline, they're all going to do good. And in the short time, the good will cancel out the bad and thus the value of diversification. Yeah, I love that quote. And it's really true. You're never going to have the best performing portfolio if you're diversified, and you're not going to have the worst performing and you're just going to kind of be hovering in the middle. And it's kind of boring. And you kind of have that FOMO, that fear of missing out a lot of times.

But over the long run, it's really what works best. Okay, so back to the title of this blog post that we really wanted to dive into was, you know, should I sell stocks? And the catalyst for this question was really, again, the market's been screaming upwards for nine years. Is it time for me to get out and maybe sit on the sidelines and wait for things to

cool off and then I'll get back in. That's really kind of what sparked this question. That's kind of where it was coming from. And in order for us to kind of answer that question, the first place that we dove into was market timing. Okay, so this is a market timing question. Market's going up for a long period of time. Does that mean I should get out now, sit on the sidelines and wait? That's market timing. You're trying to time the market. Unfortunately, market timing just doesn't

Absolutely. And we can just go back to the first data point we talked about in the beginning. On any given day, there's a 50% roughly, 50% chance that you'll be right and a 50% chance you'll be wrong. So those aren't really great odds. Now, if you're out for more than a day, the longer you're out, the more likely you're going to be wrong. Now, those are just the odds. We also have to talk about cost.

Because if you decide to get out of the market, you have to pay a fee. And then when and if you do decide to get back in, once you've realized that you've been missing out on all these gains, because of course, on the long term, the market goes up. Now you have to pay fees to get back in. So the odds are bad. And there's fees just doesn't really make a good case for market timing. You know, some of the most brilliant academics and investors in the world are

have had trouble timing the market. There's some Nobel Prize winners that have come out with some commentary in the past trying to say now is the time to get back in and now is the time to get out. And just nobody's been able to do it consistently. And plenty of them have been wrong. Now, there's always a few people that got lucky that got out at the right time or got in at the right time. And then they built this whole business around it and wrote books and went on CNBC. And these people

People just got lucky. It was simple luck. And then they were smart and built a business around it. And you know, that's what they did. But for those of us who are working really hard to make money and save money and do all the right things with our finances, like trying to time the market is just really not a smart thing to do.

And you guys have to realize that our advice, our perspective is coming from historical data. Our objective is to give you value so you can go out and make your own lives better. Now, there are other organizations and people out there also talking about investing, but they have a little bit of a different agenda than what we do. Mostly it's to get

eyeballs. And this is going to be my segue into sharing with you some pretty hilarious predictions about stock market performance in the past. So if you turn on CNBC or if you go to your local newsstand, you'll probably see some predictions about this is the hot stock or this is where the market is going. So let's look at some of those predictions and let's just see how they did.

So I have the cover of Time Magazine in July of 1993 saying to sell U.S. stocks. Now, what would have happened if you did that? Probably wouldn't have worked out very well. Right, yeah. You would have missed out on seven years of awesome investment returns. Now, then in May of 1999, Money Magazine said place up to 40% of your equity stake in technology. In technology stocks, but before the tech bubble, right before the tech bubble burst.

Yeah. So again, there's just some hilariously fallible predictions out there by folks who are looking for eyeballs and looking to generate ad revenue, but not really the best investment strategy. Yeah. I'll piggyback on that. I mean, just keep in mind what

the motive is from these big media outlets, these magazines, their goal is to get eyeballs so they can sell advertising. And in order to get eyeballs, they have to make these really interesting headlines and suck you in and get you to buy it and look at these ads or watch these ads. So just remember that the

business that they're that they are in before you trust their their advice and i'll share a little kind of a personal story about market timing that i just went through recently that i do this for a living i've been doing this for over 11 years and you know i can still get caught up in some of this as well but my wife and i we sold our house last year and we're kind of in between houses and trying to figure out what to do and if any of you are in southern well really anywhere in the

country, real estate has just done really, really well for the last eight or nine years, especially here in San Diego and Southern California. I mean, real estate has just exploded. I mean, it's just almost impossible to buy a house these days. On top of just the economy doing really well, there's not a lot of inventory out there. And so just everybody competing for what is available. Anyways, we were trying to figure out if we were going to buy a house and I caught myself thinking...

God, the real estate market has just been on a tear. And we have all this money saved. Maybe we should wait for the real estate market to cool down or correct. And then we'll have this pile of cash and we'll be ready to pounce and we won't be competing with other people. And we can get the house that we want for a lower price. I mean, that's really what my mindset was because it was just so challenging to find the house we wanted and be able to afford it. And yeah,

real estate market has come down here soon, right? And just like slap myself and say, who says that the real estate market has to correct? Just because it's been on a tear for the last eight or nine years doesn't mean it can't continue for the next eight or nine years. And so as my wife and I were kind of talking through it, it's like, what's more painful to suck it up, maybe overpay a little bit for that house today, or do we

try and time the market. And what happens if that $800,000 house, million dollar house today is $2 million in five or six years? Now, how is that gonna feel to us? And it wouldn't feel very good. On top of that, our home purchase or your investment purchase in stocks or bonds or anything should match up with your financial plan.

And the reason that we were buying a house was not just because we thought homeownership was a smart thing to do. We're buying a house because we have a one-year-old, we have another one on the way, our family lives in this area that we're looking. And so we're buying that house for stability and for our family. We're not buying it to try and make a quick buck. So that purchase kind of matched up with our financial plan as well. You know, these things can catch you off guard and no matter if you're a professional or not.

So we have concluded that market timing doesn't work. You might get lucky, somebody might get lucky, but if market timing doesn't work...

And the question is, should I sell my stocks? What's the alternative? The alternative is simply to not sell your stocks. And really, the real answer is to hold your investments forever, especially if you're a long-term investor. And here's why. There's two main reasons why never selling your investments is the answer here. The first reason is that, John already kind of mentioned this, but transaction costs,

can eat up gains from trying to time the market. So trying to jump in and out every time you buy or sell an investment, it costs you money. There are transparent fees that you pay. And then there are also some fees behind the scenes when you see those commercials that say 100 free trades. Those trades aren't really free, are they? Absolutely not. And if you want to learn about

the nerdiness that can be some of those free trades. We will link to a post in the show notes called Define Bid Ask Spread, where you can learn all about that. A hidden fee behind the scenes that just not a lot of people know about called a bid ask spread. So although you might say, well, I don't...

anything to buy or sell, what do you mean by these transaction costs? There are hidden fees that are eating away at your returns every time you buy or sell an investment. So if you're trying to time the market, you're paying these fees. And the more fees you pay, the less you have in your pocket. So we want to avoid fees or keep fees as low as possible. And trying to time the market and jump in and out just doesn't allow for that.

Yeah, there's a fantastic study by Morningstar that showed that fees are the number one driver of investment returns. So there's a direct relationship. The more money you pay to invest, the less money you have at the end of the day. So the logical conclusion is spend as little money as possible to invest. And one way to do that is to just do nothing. Just buy, hold, and just enjoy the long-term stock market returns. So the second reason...

why holding onto that portfolio and taking a long-term approach and not selling makes sense is that trying to time the market means that you can give up really, really good investment returns. Just about everyone has seen the averages over time for the stock market. Everyone kind of has that nine or 10% number in their head that they've heard before. The US stock market on average has returned about 10% every year for the last 100 years.

That's an average return. There's been great years. There's been really, really bad years. If you remember 08, 09 and everything in between. But if you're shooting for that 9 to 10% annual return on average, you have to take a long-term approach. You have to capture those really good years and you have to be in the game for those really bad years and everything in between. If you want to see these really good returns, if you're jumping out and sitting on the sidelines and not earning a compensation,

There's a

fantastically hilarious tweet on the internet and I'm quite confident I'm gonna butcher it but the idea is you put out a book that's 100 pages long and every page of the book shows the stock market going from 1926 to 2017 as a straight line up and the book is entitled shut up

That's right. We'll have to see if we can find that though. It was pretty funny. It's hard. And you know, even when we say it out loud, 10 years doesn't sound like that long of a time period. Oh, I can wait 10 years. But you know, in reality, 10 years is a really long time. I mean, think about where you were 10 years ago. I don't even know if the iPhone was around 10 years. I think the iPhone came out in maybe 06 or 07. I'm not sure. But anyway, I mean, even the iPhone was in its infancy stages 10 years ago. So it doesn't sound like a long time, but

man, I mean, 10 years is a long time. And it's really, really hard to go through a recession like we did in 08, 09, and stay with your investments and stick to your plan. That's really challenging. So we're not dismissing that we are acknowledging that is it is really, really challenging and really hard. And we'll be talking about some other methods later on in the podcast, you know, about how you can stay the course and some things you can do to put in place. But

But yeah, it's hard. Absolutely. I'd say our number one value as advisors is not so much tweaking the investment portfolio for X percent of a certain asset class, but really standing between the investment portfolio and the clients. I think about the couple who came in, man, they just come in time and time and again with terrible investment ideas. And it's our job to

to keep them away from doing that stuff. And that is what's going to have them generate wealth over a long time. It's a good segue into this next segment, which is sometimes it is okay to sell some of your stocks, sell some of your portfolio. And there are a few reasons why maybe now is a good time for you to sell some of your stocks or sell some of your investments.

And your example there about a client, you know, one of the reasons is if you feel like you're missing out and you want to have some fun and you want to invest in that local biotech firm or whatever is of interest to you, you might have what we call a cowboy account. And a cowboy account is just a fun play account. It makes up less than 5% of your investable assets. So if you have $100,000 that you're investing for, you know, something like retirement,

Maybe you have $5,000 sitting in this cowboy account and that's what you're having some fun with and you're just getting that off your chest. So if you have a cowboy account and maybe you feel you have this, your crystal ball is working really well today and you think, you know, today's the day that we should probably get out of stocks. That's okay. That's your cowboy account. It's not going to affect your long-term plans or long-term goals. Do whatever you want in that account and that could be one of your reasons to sell stocks.

Yeah, cowboy accounts are super fun. I have one. I've got some Berkshire Hathaway in there. Maybe not the most aggressive pick for a cowboy account, but it certainly helps scratch the itch. So if you've got the itch, scratch it. Just don't scratch it with more than 5% of your investable assets. So a few other reasons why maybe selling stocks right now makes sense.

One of the big reasons is you might be rebalancing. Rebalancing is this term you've probably heard about, or maybe your financial advisor has talked to you about it. What rebalancing really means is you're selling the things that have gone up in your portfolio and you're buying the things that have gone down. And you've got a system in place to do this. So you're not just waking up one day and deciding you're going to rebalance today. No, you've got a system in place that helps drive these rebalancing decisions.

But when you rebalance, you're selling what's gone up and you're buying what's gone down. And lately, stocks have gone up and bonds have gone down. So if you are rebalancing today, you might be selling some stocks and you might be buying some

bonds. And rebalancing is absolutely the way to do it. I get giddy at the idea of rebalancing because it means I get to buy stuff that's on sale. If bonds have gone down and stocks have gone up, I got to take a little bit of money off the table from the stocks that have gone up. And now I get to buy bonds at a discount. And I love getting a good value. Yeah. You remember the old adage, buy low, sell high. And that's essentially what you're doing with rebalancing. Again,

Again, just be careful. Make sure if you're doing this on your own, have a system in place. Don't just do it on a whim or it's the end of the year and I'm going to rebalance. Put a real system in place for rebalancing if you really want it to work right. Another reason why maybe selling some stocks today might make sense for you and your financial prospects

plan is that maybe there's been a major change or just a change to your life or your financial plan. We always recommend that your investments, how you invest your money is being guided by a financial plan. You should just never invest money blindly or again, you just, you

wake up one day and feel like investing your money in US stocks, you should have a financial plan that's guiding those investment decisions. The only time the investment portfolio should change, we've mentioned a few others, but really the only time the investment portfolio should change is if something changes in your life or something major changes in your financial plan. We had a new client

come on board recently and she is, I want to say she is 70 and it was her first time working with a comprehensive financial planner. So her investments had been neglected for quite some time. And she was in, gosh, I want to say roughly 90% equities and her

403B and 401K and her other accounts. So that didn't really reflect what she needed to have given that retirement was going to be probably this year. So we put her into a portfolio that made sense for her, something that reflected where she was in her life. Yeah. One of the reasons why you might be selling some stocks in your portfolio is like John said, you're getting closer to retirement. She probably should have started that process a little earlier.

Absolutely. Which is why we love working with people in their 40s and 50s who are, they've nailed down all the basics, but we get a chance to work with them over the next 15 years and help them put these really smart things in place and watch those compound. But for her, she probably should have started a little earlier selling some stocks, decreasing risk in her portfolio as she approached retirement. So that's a

big life change that should have changed how she invested her money. But it can be other things too. I mean, it could be getting married, getting divorced, having kids, buying a house, selling a house. We also talk about risk capacity, right? Financial advisors love to talk about risk

tolerance. Risk capacity is different. Risk capacity is how much risk do you need to take in order to reach your goals? And some of you are rockstar savers, and maybe you've saved enough already to reach your goals, and you just don't need to take as much risk. So that could be a reason why your portfolio changes. You just don't need to take the extra risk anymore. Absolutely. Hopefully you found this helpful. Again, we're

We're not underestimating how difficult some of this stuff is. We know the anxiety around the market and politics and the economy and all this stuff that gets in the way of smart investing. But hopefully we've shared some things with you that really reinforce how people are successful investors, how to think about buying and selling stocks and building that portfolio.

portfolio. As we continue to build out the show, we'll be talking about other financial planning components to stack on top of this and really put the odds in your favor and just help you make really, really smart financial decisions. So before we let you guys go, John and I, we love to read. John, what are you reading these days?

So I'm halfway through The Power of Habit, which is just, it's just such a neat book because I think about how I can use it in my own life. But the premise of the book is that it looks at what human beings and what organizations do out of habit, not necessarily because it aligns with their goals, but because it's a book that's really about how we can use it in our own lives.

but just because it's something that you're used to doing. So it breaks down, the author breaks down the parts of a habit and shows you how to change certain subsets to get you towards your goals. So it's, it's pretty neat. I'm halfway through and I'm looking forward to tweaking some habits. That's always tough is, is adding a new, new habit. I know I read that book a long time ago. There's something called like the habit loop and you got to have some, some sort of reward tied to that habit. Right.

Yeah. So there's a cue that prompts you to take an action that will get you to a reward at the end. So the trick then is to, life is going to be full of cues. So you have the cue and then you change the response to the cue. But at the same time, that response is still going to get you the reward that you had in the previous habit loop. It's a pretty interesting concept. Yeah. That's a really good book. Well, I just finished it actually last week. A book that was floating around the finance world is a nonfiction book about

William Browder and it's called Red Notice. I'm a big nonfiction reader, sometimes too much. I need to take a break one of these days. But what's amazing is this occurred just recently, like up until 2014, this stuff was going on, which really blew my mind. But he was a hedge fund manager and he was not only living in Russia, but investing in Russian companies and

and just kind of got caught up with the wrong people. If you know anything about Russia, that can be slightly dangerous. So things took a pretty wild turn, and it's pretty amazing what he had to go through. And again, I just can't believe that it happened so recently too. So I've heard whispers that it could turn into a movie as well, which would be really interesting. But Red Notice by William Browder, just an awesome nonfiction book. Well,

one of the better ones I've read in a long time. I have already added that to my queue. Well, hey, thanks for being with us today. If you have any suggestions, any feedback, any questions for us for the show, please shoot us an email. You can reach us at taylor at staywealthysandiego.com. Thank you for listening. Thank you for your support. And we will be back with you soon. Thanks a lot.