EP 25 | Profit Boss® Radio | A Step-by-Step Guide to Bulletproof Your Finances After Geopolitical Surprises

I’m taking time off to bond with a beautiful new arrival to our family: My daughter is finally here! She’s perfect and I’m enjoying the time off to adjust to my new role as mommy. However, I still wanted to answer an important question I’ve received from friends and family, as well as those in the Profit Boss® private Facebook group: How can and should we react to the global events that wreak havoc on the stock market?

That’s exactly what I address on this episode. I’ll give you the 4-step process that I use to evaluate events and make sure that your financial wealth plan is intact regardless of unexpected events on a global stage.

We can’t control the weather so we take precautions to protect ourselves from the elements. In the same vein, we can prepare financially and weather events that impact the market. Make sure you take notes and then take action.

Listen To The Full Interview:

 

What You’ll Learn From This Episode:

  • How to handle the fear and uncertainty of large-scale economic events.
  • Why market prognosticators are often wrong.
  • The very simple and easy-to-understand way to ensure peace of mind even during times of volatility.
  • A no-nonsense but effective approach to consistently growing your wealth.
  • Step-by-step guide you can follow, no matter what happens on the global stage, to help ensure your family’s financial success.

Featured On The Show:

Don’t forget to join our free private Profit Boss® community on Facebook!

Episode Transcript:

A Step by Step Guide to Bullet Proof Your Financial Plan after Geopolitical Surprises

Hey, this is Hilary Hendershott, your host at Profit Boss® Radio and today’s episode is totally going to rock your world Profit Boss®. Today I have for you a show I’m calling a Step by Step Guide to Bullet Proof Your Financial Plan after Geopolitical Surprises. I have lots of people in my Profit Boss® Facebook group and even lots of friends and family members saying to me, what should I be looking out for now that something surprising has happened in the world, what does this mean for my investments? Should I sit on the sidelines? Should I wait it out? Should I double down? How do I listen to what I see in the media? What should I do right now, Hilary? So, in this episode I’m going to answer that very question for you.

I’m recording this in the last week of June of 2016 and what happened late last week is that British voters, much to the surprise of global markets, voted to LEAVE the European union. And it WAS a big surprise so the markets reacted very negatively and most of the major indices lost percentage points so that means most people’s portfolios lost value.

So, now, what I’m going to teach you today is the exact process I use to evaluate these events and how to know what actions you should take to protect yourself and make darn sure your financial wealth plan is intact no matter what happens. This process is evergreen, its universal and you can use it now or you can use it to evaluate any future geopolitical event.

That said, just like I always say, you shouldn’t take anything I say in this episode as customized advice. If you’re not a client of mine, I don’t know you, and I certainly haven’t considered your individual situation. Still, you’re going to learn some things today that will blow your mind.

And I’m coming to you just after the birth of my first baby! For those of you NOT in the Facebook group, her name is Harlyn Nimah Simone Hendershott and she’s quite perfect. We’re having just a lovely time staying home and being with her and getting to know her and just loving on her.

I ended up taking some time off before she was born because it turns out I had this condition in my hips that’s normal but somewhat rare during pregnancy. So, it was getting really hard for me to get around so I’ve technically been on maternity leave for about 6 weeks now even though at the time of me writing this Harlyn is only 2-and-a-half weeks old.

And some of you I know are thinking, lady, what are you doing recording a podcast episode when you’ve just had a baby?

And the truth is that I’ve had lots of people tell me how long of a break I should take after giving birth. Whether that be 6, 8 or 10 weeks or more. I’ve had people tell me my priorities would change, that I’d be less focused on work, and I’ve had people react strongly when I said I was going to come back and record an episode about recent economic events.

But you know what? Nobody says those things to my husband is the thing! It’s like there’s this big pool we put new mothers in regardless of her situation or her priorities or her desires or her passions, or her new baby’s personality or needs. But not the dads.

Or, you know, maybe you do have those same expectations of fathers, it doesn’t really matter, the gender discrepancy isn’t really my point it’s more of this straight-jacket I seem to be in when it comes to some people’s expectations of how I should behave right now.

Listen, it’s going to take me a couple of hours to put this episode of PBR together, get into the recording studio and record it. Then, boom, done. And frankly it’s going to be one that I refer back to time and time again. And, in case you can’t tell, I love doing this. It’s fun and fulfilling and rewarding for me, and I promise that baby Harlyn is very well taken care of!

More than that how about we lighten up on the expectations of new moms? How about that? Support? Yes. Stringent expectations… seems a little righteous and arrogant to me. And since Profit Boss® Radio is about supporting the empowerment of women, this topic seems right on point. Examine your pre-conceived notions and HEY, be generous when it comes to how you think other people should be, right?

Okay, here we go, a step-by-step guide to bulletproof your financial plan after geopolitical surprises.

First a wee bit more back story about the Brexit.

Brexit is the tongue-in-cheek name for the decision of the British people to leave the European Union. There was a nationwide referendum last Thursday, June 23, and the Brits voted 52 to 48% to leave the European Union, which is a economic union of European countries.

The political and definitional aspects of this event aren’t really important here, but what is important for this conversation is what was expected to happen in the stock market after the vote occurred.

The fact that the result of the vote was to leave the EU was a big surprise to investors, and we know this because the market movement in the days before the vote had been very positive. So that’s optimism and since markets hate change we knew that the wisdom of the crowds, meaning the combined intelligence of the people, was saying that the Brits were going to REMAIN in the EU. So the stock market closed in the US on Thursday afternoon and then the results came in. And it was a surprise!

And the financial news media really went to work on us overnight. By the time the market opened on Friday morning they were predicting a several point decline in all of the major indexes: the S&P 500 and the Dow Jones are domestic indexes, and the most frequently cited European index in called the EAFE, and of course that one was supposed to be worse. Again, the markets hate surprises.

I mean, just think about what happens when Apple misses an earnings estimate!

Sure enough, markets declined that Friday but none of the indexes lost double-digit percentages and then, as of the time of this recording one week later on Thursday the 30th of June, the domestic indexes have largely recovered and the European large cap index has recovered more than half of its losses.

So, basically, it’s like nothing happened. But on Monday of this week, you have people like Billionaire George Soros saying in the press that the fallout from this is going to be like another Financial Crisis of 2008. And there are people making these sensationalist claims during and after every single event like this. Scary claims. And people think to themselves, “My god. Is he right? Should I sell now? Should I get out?”

But just 3 days later it’s like nothing happened! And remember the market dip in January of this year? Actually Soros said the same crazy things back then, too, but in January the Royal Bank of Scotland was telling people to sell everything and most of the US media was predicting a recession, and now all of those indexes have recovered and no one’s even mentioning all of the people who are on record with false or unfulfilled pessimistic predictions.

Again, that’s just the blow-by-blow.

That’s what happened.

And most of you have been paying attention to best practices in the investment markets for long enough to know that you don’t sell on Friday, the day after the vote. You don’t join in the temporary panic and take the chance of buying high and selling low. You don’t dump your stocks during the downfall.

I pay close attention to what people say online and the commentary and posts from a lot of smart, educated, sophisticated people were aligned with this thinking. People now have this understanding that they’re in it for the long haul.

But, and here’s the question we’re answering today: What now? What is a conscientious investor to do after an event like this occurs?

So now, here we are, with most experts predicting that Britain is going to take 2 years to fully extricate itself from the EU, and so what does that mean you should do with your investments to acknowledge this event?

How can you properly invest going forward and what adjustments should you make?

Ready? Here we go.

Alright, first and foremost, you need to break all of the things that impact your financial future into two distinct camps. Just two:

  1. Is things you can do something about, and
  2. Is things you cannot.

The future of the European Union? You can’t do anything about it. Currency exchange rates? Nada. Monetary and Fiscal policy, here and abroad? Don’t even try. The same goes for things like Quantitative Easing, the Presidential Election, inflation, the financial crisis, the fiscal cliff, macro liquidity problems, mortgage-backed security bond failures, the Savings & Loan Crisis, Black Monday, the Tequila Crisis of 1994—yep, that’s a thing—the Asian banking crisis, the Dot Bomb in 1999, you can’t do anything about those events. Nada. Zilch. Zero.

They’re like the weather. They’re things that happen TO you. So, how do you prepare for the weather? Well, you live in a house with a roof and working heater. Some of us have air conditioning. You don’t park on the street with the top down. You buy umbrellas and sometimes you carry your umbrella around and you don’t end up needing it, but sometimes they come in really handy!

If you travel to San Francisco as a tourist in the summer, I guarantee you weather happens TO YOU because you step out of your hotel in your shorts and tank top and you turn into a freaking icicle with your teeth chattering and then you become part of the multi-billion dollar Pier 39 Sweatshirt Empire and by that I mean you do what you have to do to deal with the weather and you buy a sweatshirt. Or six.

In other words, these kinds of things, you prepare for them, you accept them as likely future outcomes, and you just deal.

What are the things that impact your financial future that you CAN control? Your savings rate. How much you save tax-deferred. Whether your investments are tax-wise. The construction of your investment portfolio is very much within your control and definitely impacts your financial future because that directly impacts your long run rate of return and just a few points of differences in that return rate can mean a big difference for you. So the amount of risk you take in that portfolio is another aspect of it that is within your control and when you invest smart and you take more risk, you darn well better be getting more expected return

What else impacts your financial future that is within your control?

Whether you have a financial advisor is within your control. The quality of your tax advice. The tradeoff decisions you make between having the things you want now and having the life you want later. What kind of estate planning you do, how you minimize risk in your life, heck, whether you wear your seatbelt, the insurance you buy and the car you drive. All of these things are within your control.

So, you want to get to a place where you rationally view the items in Camp #1 as, frankly, noise.

What I’m saying is that the Brexit and nearly every single geopolitical issue that will come after it are just noise to you. You don’t need to pay any attention. Because guess what? You don’t need to change your life plan because it’s going to rain. Because it IS going to rain!! You just buy an umbrella.

I know that’s anathema to some of you, and really it’s not your fault that this statement I’m making goes against the grain of everything you’ve learned implicitly and explicitly about how a prudent person manages their money.

A lot of the financial journalists out there just need something to print and there was a time when Wall Street brokers charged a lot of money to strategize you around the financial crisis du jour and they played on people’s naiveté and they charged investors lots of money for a service they never adequately provided.

I’ll say various versions of this same thing time and again on this podcast because it’s a truth that really takes time to sink in.

So, now, if you’re like most people, you’re wondering “What does this mean for the near term future? I made it through the initial stock market storm, but what should I do now?”

And of course the financial press is in infinite discussion about Britain’s leaving the EU and their predictions about exchange rates and interest rates and bonds and even some “psychological futurism” and that’s a term that I made up but they’re calling Brexit a vote against the Establishment and what does that mean for the US Presidential election??

And I’m going to tell you something now and you’re going to think that I’m crazy or wrong. But don’t change the channel yet.

The truth is that all of that is basically… hot air.

Sound and fury signifying nothing.

How do I know that? Well, there’s this thing called the Efficient Market. And what that means is that the stock market is this great pricing mechanism and there are so many people trying to accurately predict price movements the very second information is available to us that stock prices and market values basically do incorporate all of the information we have very, very quickly.

Like a prayer request chain. Lots of churches have them. Something bad happens to someone in the parish, and the prayer chain gets activated. One person calls 3 people and all of those people call 3 people, and now we’re at 9 and all of those people call 3 people and now we’re at 27 and two steps later we’re at 243 people who are involved.

But information travels amongst market analysts and day traders much faster because it’s available on the Internet so people aren’t calling each other they’re just sitting there getting up to the minute information and these very smart data heads are trading based on what they make of the information and that drives prices to the right levels almost instantaneously.

So all that talk about impacts on interest rates? That stuff is already worked into bond yields.

All that talk about currency exchange rates? Already baked in to the relative currency prices.

And these media commentators and investors and economists who go on record saying that these changes are going to take place down the road they just aren’t acknowledging that simple fact. That markets are efficient and information is baked into prices the minute it’s available.

The markets aren’t perfect and the markets aren’t even always right. I just told you that the market was voting for a vote to remain before the vote, but they were wrong.

It’s just like when the Golden State Warriors were up 3 to 1 against the Cleveland Cavaliers in the NBA finals. Very few teams have ever come back from that kind of deficit to win 7 games total and the championship so most of the world at that point would have been smart to bet on the Golden State Warriors.

So, again, very very smart people are hard at work integrating all of the information we currently have into market prices, that makes the markets efficient, which means they are our best predictor of the true value of the companies whose stocks trade there.

So if you’re wondering what this means for your plans to buy a house or invest in the markets, the answer is that everything people already know is worked into those prices already, so unless something else happens, there are no more global financial market impacts from the Brexit!!

The thing you need to realize is that we human beings work our way out of the risks we know about. We cured measles and avoided the disaster that was going to be Y2K. We are developing sustainable energy sources. We figure things out. The risks we really need to worry about are the ones we don’t know about.

If you’re considering holding your money out of the market or pushing off other investments or large purchases you were going to make, assuming those investments are not in something concentrated like Pounds Sterling, you’re telling yourself that you are being strategic and waiting out volatility, but you’re wrong. Sitting on the sidelines is always a fear play. Always. And the fear play only pans out, only pays off, if markets decline. If the markets go up while you’re sitting out, you’ve lost money.

But over time, macro markets and values always go up, so chances are your fear play is not going to pay off.

When someone says to you that they’re being conservative or biding their time or waiting out the uncertainty in the market, they are afraid, and when it comes to investing your emotions are not your friend. Fear is definitely not your friend.

If you have your portfolio or investments in cash I want you to go listen to Episode 11 of this podcast as soon as you can. That episode is called Women, Technology and Wall Street and its’ about how we tend to get fooled by the advice we get in this world where information is free but unchecked. Unverified. In that episode I interview an executive from BlackRock Capital about their survey results that tell us that women are at the same time feeling more confident and doing worse things for themselves in their portfolios. Unjustified confidence, I believe, that is brought about by the perception that free advice is good advice.

Sitting in cash, though, by its very nature, an activist investment strategy and I’ve talked about before on this show that Active Investing doesn’t pay off in the long run. I’ve got more coming on that in the next episode, Episode 26, which is all about smart investing and index funds versus Wall Street Funds and like that, but basically keeping money on the sidelines just to see how things turn out is a very activist, fear-based strategy and I don’t recommend it.

Risk isn’t bad, my friends and fellow Profit Boss®es. If you do it right, increased risk means increased expected returns so don’t run from something like this without really considering what you’re doing.

If you’re sitting on the sidelines in cash, and let me just use simple numbers here for discussion’s sake, so let’s say the market went from 10 to 8, and you’re afraid it’s going to go to 7 or 6 or even 5, but by the time you realize you predicted it wrong it’s back up at 12 or 13, when are you going to buy back in? You need to really think about this because most people can’t stomach the moves here. So the market starts at 10 and George Soros or your buddy at the office tells you you should sell out.

So you sell, but you get out at 8, and now the market goes to 5 and what you did not realize when you sold out at 8 is that you have to be right twice: when you sell and when you buy, so are you going to emotionally be ready to buy back in at 5? Most people don’t, and they wait too long and miss it.

Or, George Soros told you to sell out at 10, you sold out at 8 and it goes back to 9. And then 12 and 13 and it’s not coming back down, so when are you going to admit defeat? Because you’ve lost money now no matter what you do. You have to bite the bullet and that’s why it’s called the Loser’s Game so don’t play it that way.

Here’s my last hypothetical that isn’t going to be hypothetical for some of you. I saw a lot of people commenting online that they were going to take the aggressive play and they were actually going to double down while the market was down. Their plan was to invest MORE money while the market was down. So, they’re following Buffett’s advice to be fearful when others are greedy and greedy when others are fearful. They’re being profiteers during a scary time. Sounds savvy right? Especially in retrospect because if they were able to get in on Friday they probably made a profit.

Except here’s the thing people don’t think about. Where was that money they used to buy in? How did they find this extra investment money? Well, it was sitting around somewhere in cash, right?

They had what in the investments world would be called Dry Powder. That comes from the days when guns and cannons used gun powder and you needed powder lying around to have fire power.

But if you have dry powder, that means that money was sitting in cash doing nothing. We have no idea what returns could have and would have been produced with that money if they had invested it according to their plan.

Beyond that, unless you manage a successful hedge fund or huge investment portfolio that’s producing alpha, I can almost guarantee you that if you’re keeping dry powder around for economic crises, you’re going to lose money over time because you’ll have resources that aren’t engaged for your benefit.

Again, for more on this please go listen to episode 11 of this podcast.

I promised you a step-by-step guide and I’m going to deliver. So, what’s the actual action plan here? Here’s a guide you can run through right now.

  1. Check to make sure you have an intact and up-to-date financial and investment plan. This plan needs to show you being successful in achieving economic independence by combining a good savings rate with an investment portfolio that incorporates the latest investments research. For more on this, check out episode 26 where Barbara Friedberg and I delve into it in detail.
  2. If you don’t have an intact and up-to-date financial and investment plan, stop and go create one or get one.
  3. Now that we know you have a diversified investment portfolio, make sure it’s rebalanced because your allocation is critical to performance. Those investments need to be held in the right proportions. So, rebalance or make sure your financial advisor rebalances.
  4. Proceed with your plan—because it’s the steps inside plan that you can control, and for everything else, like the weather, you have your umbrella. It’s easy to stick to your plan when times are good, but it gets harder to stick to the plan when times seem bad, and that is when your plan is most

Lastly, you need to realize that political risks are not the same as investment risks. And political success does NOT mean investment success! For example, the top performing global market over the last 10 years was the Philippines, which has had so much political turmoil it’s silly. They’ve even had an active guerrilla insurgency!

On the other hand, everybody loves Canada these days, they’ve got a male model for a Prime Minister and apparently they hand out high quality health care like candy to babies, Canada was all the way down the ranks at 30th in terms of stock market performance.

Thank you Profit Boss® for listening to this episode. For the transcript, go to hilaryhendershott.com/25. I encourage you to stay tuned for Ep 26, where we’re going to talk more about investment best practices.

For those of you who are interested in learning more about what it is to sit on the sidelines in cash and why that is a bad idea, go back and listen to Episode 11 in your podcast player right now.

I want to thank those of you who have taken the time to write a review on iTunes, I love you! You’re the best!

I hope this information is not only informational, but also entertaining and inspirational for you. I mean to finally decode investments for women, my goal and the goal of Profit Boss®es everywhere is to empower and inspire women to take control of their finances and to build wealth that sustains us for our entire lives. Thanks for being here!

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