Bearish sentiment rose sharply last month — and even though that sentiment has now softened somewhat, many investors remain uneasy. They're concerned about the economic and market impact of Fed policy, rising inflation, and huge amounts of government spending.

Is the unease warranted? On Monday, SMI's executive editor Mark Biller talked about that with host Rob West on Moody Radio's MoneyWise Live. He also took questions from callers.

To listen, click the play button below. Scroll down for the transcript.

MoneyWise Live airs daily at 4:00 p.m. ET/3:00 CT. 

For more radio appearances by members of the SMI team, visit our Resources page.


Transcript

Rob West:
Hi, I'm Rob West. Are we at the end of a bull market? Are we about to see the bears set loose on Wall Street? No one knows for sure, but you can prepare!

Here to talk about that today is investing expert Mark Biller — then it's onto your calls and questions: 800-525-7000. This is MoneyWise Live — biblical wisdom for your financial decisions.

Well, Mark Biller is the executive editor of Sound Mind Investing, where they're always watching for changes in the market. Mark, always great to have you on the program.

Mark Biller:
Thanks, Rob. Good to be back with you.

Rob West:
Well, I'm looking forward to diving into this, especially amid the recent market volatility. We're going to talk about your recent article, Beginning of the End or Business as Usual? I know you wrote this several weeks ago now, but I want you to tell us what's going on from your vantage point that prompted you to write this.

Mark Biller:
Yeah, Rob. So back in mid-September when I first wrote this, the stock market was down a few percent off its highs, but investor sentiment was getting really bearish at that point. In fact, the thing that really grabbed my attention was the Investor Sentiment Survey was showing that investors were more bearish a month ago than they'd been at any point since the March 2020 bear market bottom. And that was with stocks, just, you know, maybe 3% off their highs! On top of that, it was clear from some of the positioning data that investors were really heavily hedged already against a bigger market decline.

So it was in that environment of really kind of rapidly rising fear that I wrote this article that we're talking about today to argue that any further pullback from that point was likely to be pretty mild rather than real severe. And I had some reasons in there for that, and that's really what's unfolded in the weeks since then.

But I really want to emphasize that while all of that sounds like I was making some big market time and call that things are going to be great, the point of the article, Rob, was actually the exact opposite of that. What I was really trying to accomplish was to encourage SMI readers to not make a market timing call by abandoning their long-term plan and letting all the noise, the rising tide of bearishness that was all over the news right then, to scare them out of the market.

And, you know, it's worth noting at this point now that as the markets recovered over the last few weeks, some of that bearishness has gone away. So things do look a little bit different today than when that article first came out. But I think there's still a lot of helpful points that we can draw from that article.

Rob West:
Oh yeah, I think we absolutely can. Mark, why do you believe — at least at that point, and obviously a lot of this continues today — why are investors so pessimistic?

Mark Biller:
You know, a number of factors. I think one big one is that investors can see how far this market's run since those March 2020 lows. So over the last 18 months or so we've had the stock market basically double. It's been a full year now since we've had even a 10% correction. So there's kind of this feeling that the market may be overdue for a bigger decline.

But there are also some more, you know, obvious, immediate challenges. On the political side, we've had this debt ceiling issue, we've got this massive infrastructure bill squabble going on, and a lot of people are probably rightfully concerned that maybe borrowing another $3-and-a-half trillion for more social spending may not be the best thing for us right now. We've got the Fed clearly wanting to start to "take the punchbowl away" a little bit by tapering some of their monthly bond purchases. You've got a lot of the aggressive government support from the last 18 months recently rolling off.

So a lot of factors — inflation — a lot of things that make people nervous as they look ahead to next year.


Rob West:
Mark, just before the break, you were explaining some of the reasons that led to this incredibly negative sentiment on the part of investors. And I'm curious, do you think we should be concerned about the present state of things?

Mark Biller:
Yeah, Rob, it's so tricky, you know. I've rattled off this awful-sounding laundry list of things after I just said how I was writing an article arguing that those things shouldn't be scaring us out of the market. So how do you reconcile all of that? And that's really where timeframes become very important.

You know, I do think that a lot of these things that I just mentioned, they are probably gonna be concerns as we look ahead a few quarters and, say, the middle of next year and so forth. It's not that these things aren't real, or that they don't have actual implications, the thing about this article and where I was coming from is that it was really hard for me to believe that some kind of a significant correction was imminent. And that was in part because there were so many people looking for that type of imminent correction and positioning for one. And one thing that a lot of investors don't recognize is the market tends to move against whatever position the majority of investors currently have.

So when investors collectively rush to one side of the boat, like they were doing a few weeks ago and getting real fearful the boat, more often than not, tends to tip back the other way to balance things out. And that's kind of what we've seen as the market has popped back higher.

So another way of looking at that, Rob, is that the time for concern is usually when everyone's really excited and optimistic and nobody's playing any defense — not when everybody's already scared and piling into these defensive positions.

Rob West:
I won't ask you for a firm prediction, but how are you sizing all of this up? I mean, take everything you just said and talk about where you think we go from here.

Mark Biller:
Yeah, sure. So one caveat that's pretty important is SMI uses trend-following processes that don't let us stay on the wrong side of market trends for very long. And that's important because short-term stuff like we're talking about today really plays a very minimal role in how we make investment decisions. If I'm wrong about everything that we're talking about today, the SMI strategies are still gonna respond to what the market action is doing regardless of any beliefs or things that I think. So I say all that to say, we've got the benefit of a safety net when we're evaluating this kind of short-term stuff.

But big picture, as we're looking out saying the next year, there are some risks to be concerned about. We have some pretty highly valued markets. We've got some potential growth challenges for the economy ahead. You know, this was more of a short-term focus than what we're usually looking at. And we don't usually focus on that kind of stuff.

But with that all said, there's really nothing that makes me especially concerned right now that something bad is imminent for the markets. You know, I see an economic reopening that got kind of delayed that seems to be back in motion again. The economy seems pretty strong. People seem eager to spend. Just last Friday we got some really encouraging, surprisingly strong retail sales numbers. And so all of that just makes me think the base case, the most likely path is probably that the markets keep looking pretty decent through this last quarter of the year.

So, you know, next year, sure, I'm a little more concerned about that — but we'll worry about next year, next year. So yeah, all of that.

Though, Rob, I really do want to reiterate that all of this was really about encouraging people to stick with their long-term plans and not get scared into selling. That's less about making some bold bullish call that things are going to be great. And it's really more about encouraging people to stick faithfully to their long-term plan because that's really where the success, the "secret sauce" in this investing thing is sticking with a good long-term plan.

Rob West:
Yeah. This idea we read about in Scripture, Mark, "steady plodding" has a lot to do with what you're describing right here. Mark Biller here today is willing and excited to take your phone calls on investing. Here's the number 800-525-7000.

In just a moment, we'll be talking to Michael in Colorado Springs. Let's first go to Belinda in Chicago. Belinda, you're on the program. How can we help?

Caller:
Hi, I have a question. I was doing some research over the weekend. I have some funds that are just sitting in a bank account is not growing in any way at all. So I was thinking about maybe investing it into like mutual funds or something, but I saw something about an index annuity. I'm not sure what that is, or if that's not a good place for me to invest the funds — if you can refer me or recommend some other places that I could possibly invest in where it can start growing.

Rob West:
Yeah. Belinda, I'd be happy to get Mark to weigh in, but first, let me just understand for context a bit more about your situation this money that you have put aside that you want to invest. Is that money that you've earmarked for the long-term — 10 years or beyond?

Caller:
Yes, it is about $15,000. Yeah, about 15. 

Rob West:
Okay, great. And that's in addition to your emergency fund, do you have a liquid savings account that's separate from that?

Caller:
Yes, I do.

Rob West:
Okay, great. And do you have a company-sponsored retirement plan available at work, like a 401(k) or a 403(b)?

Caller:
I just started a new job last Monday and they do offer the 401(k) and I'm already in that as we speak. I just signed up like two days ago.

Rob West:
Yeah. And how much are you putting in, what percentage of your salary do you know?

Caller:
I'm going to do 5% because they match, up to 5%, so I'll see if I'm going to do the 5% also.

Rob West:
All right. Last question: Do you have any consumer debt of any kind credit cards or student loans or anything like that?

Caller:
Absolutely none.

Rob West:
Okay, great. So, Mark, she's in a great spot — emergency fund, no consumer debt. She's got this $15,000 and a new 401(k). Where should she focus her energies? And what about this idea of an annuity?

Mark Biller:
Yeah, I love it, Belinda, that you've, you've checked all the boxes in getting that firm foundation in place. That's great. Index annuities — we're generally not real big fans of largely because most annuities tend to come with a lot of fees. And so, usually, you can accomplish what an annuity is trying to accomplish less expensively in other ways. With the 401(k) that you're starting, that's wonderful. If this is longer-term money, I would probably be inclined to look into a Roth IRA, and starting to put that money into a Roth IRA using traditional mutual funds like you were mentioning initially. I like that better because you can do that on a much lower cost basis and still participate in the market's upside — which is what an index annuity is trying to do is capture that upside.

Now, it doesn't give you as much downside protection. And that's where the long timeframe that Rob was was asking about comes in, because if you do run into a bear market, you need that longer runway to be able to have time to have that recover. But there are any number of good ways to invest that. We have some good starting material on our Sound Mind Investing site about how to do that exactly.

But I would encourage you to look into putting that money into a Roth IRA and using some good stock equity funds — maybe even some of the same ones you have available through your 401(k) that you can purchase through your Roth IRA.

Rob, any other thoughts on that?

Rob West:
Well, I couldn't agree more, Mark. Great thoughts. I would agree about opting for the Roth, in addition to the 401(k) instead of the fixed, or the indexed annuity, for the reasons you mentioned. And I think Belinda that as you look at this, the goal is to get your total contributions between the 401(k) and the Roth up to between 10 and 15% of your pay. And if you do that for a long period of time, with the compounding effect and the high-quality funds that Mark was describing, you'll be well on your way to having what you need in the retirement season of life.

And, finally, I would also encourage you to check out soundmindinvesting.org. The SMI newsletter will be a wonderful resource to give you those mutual funds you're looking for, so you'd know exactly what to buy and when. We appreciate your call.

Lines are open for Mark Biller — 800-525-7000. Stay with us.


Rob West:
Welcome back to MoneyWise Live — biblical wisdom for your financial decisions. MoneyWise Media and MoneyWise Live are listener-supported. If you're a part of our community, you rely on this program and all of the resources available at moneywiselive.org and in the MoneyWise app, we would be grateful for your partnership with us financially. You can do so at our website — moneywiselive.org. Just click the donate button — and you'll see that, between now and the end of the year, as our way of saying thanks for a gift of $25 or more, we'll send you a copy of the great new book from Paul David Tripp, Redeeming Money. It's our way of saying thank you when you support this ministry. Again, moneywiselive.org. Just click donate.

Taking your calls and questions for Mark Biller. We'll be going back to the phones in just a moment.

Mark, we were talking about kind of the state of the market to some of the pessimism among investors and the current state of affairs, if you will, in our economy. I'm curious your thoughts for folks that in the midst of this raging bull market are finding that perhaps for their age and risk tolerance, goals, and objectives, maybe they were weighted too heavily towards stocks because they didn't want to miss the upside. And now this market volatility has them a little spooked. Is this a good time to look at whether you have the proper allocation in your portfolios?

Mark Biller:
You know, Rob, I don't know that there's ever a time that isn't the perfect time to look at whether you've got the right allocation. You know, one of the foundational rules at Sound Mind Investing that we harp on all the time is, "Never take more risk than you need to to accomplish your goals." You need to keep in mind — and the financial media can really take your eye off the ball of this point — but the goal is not to amass the biggest pile you can. The goal is to reach retirement with the resources that you need to be able to sustain your lifestyle and meet your expenses and so forth. And those are two very different things.

So if you have been over-allocated, perhaps, to stocks — you know, that's been a fortunate thing over the last year. Stocks have done very, very well. But this may be a perfect opportunity, then, to reevaluate in light of the gains that we've had over the last 18 months. And if you think that you can meet your financial goals with a lower level of risk, then yes, by all means, look at ratcheting that down. Because as we did discuss earlier, Rob, there are a number of things that as we look ahead — you know, 6, 9, 12 months — there are some legitimate concerns out there. So yeah, it's a good time. (chuckle) How's that for an answer? It's a good time.

Rob West:
I like it. "Always a good time" is what I'm hearing — and that makes a lot of sense.

Let's head back to the phones today. Michael is in Colorado Springs, and Michael, how can we help?

Caller:
Well, thank you very much. I am 61 years old. My wife is 56 and I'm planning on retiring maybe at 80, if not 75. I haven't put anything away. And she works for Walmart where she has a 401(k). She has some stock and a little bit of other things at work. But we haven't done anything because nothing is going anywhere, and we haven't seen really any improvement in that area. So do we go with a brokerage firm? Do we go with a — I don't know where to go next. What did we do?

Rob West:
Very good. Mark, your thoughts?

Mark Biller:
Yeah, I think that the 401(k) that you mentioned, Michael, is a wonderful first step. That's something that's already set up. It's going to be a very low cost, very efficient way for you to be able to do quite a bit of saving right there — and probably have access to very good investment vehicles. Usually, you can get a good chunk of that income put away in savings. I'm talking like 15% —if you are able to save that much — can go right there without having to go outside of that umbrella to another source.

If you are able to save even beyond that, then I would encourage you, as we just talked about with Belinda to potentially look at a Roth IRA for additional savings beyond that 401(k). That's a wonderful tax-advantaged way to save more for retirement, and that will give you an even broader range of investment options. Roth IRAs can be set up basically with any mutual fund company or any brokerage company — Schwab, Fidelity, those types of companies. So you've got a lot of options there.

Rob West:
Yeah, that's a great thought. And I would do some planning, Michael, around this: What is your budget going to look like in retirement? How much do you need? What will your wife's 401(k) likely be able to generate in addition to Social Security, and how much more ground do you need to make up? That'll give you a target for what you're trying to save between now and then.

Stay with us. We'll be right back.


Rob West:
Let's head right back to the phones. Muncie, Indiana. Hello, Eric. How can we help you, sir?

Caller:
How are you guys doing today?

Rob West:
Doing very well. Thanks.

Caller:
Thank you so much for what you guys do. I truly appreciate it. I'm 47 years old and I basically am starting over with retirement. I have about two years of retirement saved up in my Fidelity 401(k) through work. God has truly blessed me and that allows me to put 10% of my income into my retirement. Currently, I have 100% of it in stocks because the market has been doing so well. But as you guys have discussed earlier there are going to be changes. So I didn't know what would be a good split. Should I invest the majority of it in a safer mutual fund? Or what direction should I go with that?

Rob West:
Yeah. Eric is 47 years old, just starting over with his 401(k), Mark. What are your thoughts on the right allocation?

Mark Biller:
Yeah, it's a tough question, Eric, because right now with interest rates so low, and with them actually starting to creep higher, bonds are not a real attractive place.

You know, as people get older and closer to retirement or in retirement, it still makes sense to own some even though the dynamics around interest rates and bonds are not great right now. And the reason for that is really for the ballast in the portfolio. Bonds tend to hold up pretty well when stocks fall, when they go through these temporary bear markets and corrections. So bonds can still make sense in that respect. If nothing else, that stocks fall and the bonds hold steady, the bonds can provide some "dry powder" to reallocate into stocks at lower prices. So there are a number of reasons why we build the safety of bonds into a portfolio even if we're not super enthusiastic about the outlook for bonds in and of themselves. Hopefully, that makes make sense.

Now, at 47 years old, I don't personally feel like there's a big need to have a large bond allocation. We are a little bit more aggressive at Sound Mind Investing than some advisors would be — some would be layering in a decent bond allocation already at this age. We tend to look at it as something that as you're moving up into your 50s, you want to start building up that bond allocation little by little. I wouldn't be especially concerned about that right now, but it's something over the next, say five to 10 years, you're certainly going to want to start thinking about creating a bond allocation within your overall portfolio.

So all that to say, Eric, I don't think you're in a bad spot right now being 100% stocks. Now you just have to know what that means if we do head into a bear market. You don't have the ballast, the protection there. So that's the trade-off. You're in a riskier allocation — more upside but less protection on the downside. So that's something that over, say the next five to eight years, you probably want to start layering in a little bit of bonds. We have some allocations that — and [for SMI members,] what we call our "Seasons of Life" table — that helps people see at different ages, what appropriate stock/bond allocations might look like. They're more general guidelines than any fixed rules for individuals, but that might be something that's worth looking at if you're interested over at soundmindinvesting.org.

Rob West:
To Hoffman Estates, Illinois. Hi, Curt. How can we help you?

Caller:
Hi, how are you doing today?

Rob West:
Very well.

Caller:
I just had a quick question. I'm 66 years old. I'm retired from AT&T, and they had a 401k where they've matched funds up to 5%. So I went through that program and, you know, I... [silence]

Rob West:
Oh, I think we might've lost Curt. Let's see if we can get him back. And Curt, do we have you back on the line?

Caller:
Yes, I'm on the line.

Rob West:
Great. Why don't you just finish your question there, and we'll get Mark to weigh in.

Caller:
Yeah, basically that's the question I had about how to grow my income, you know, with minimum risk for the rest of my life. I do have a pension that I retired with, you know, so it rolled over into Fidelity.

Rob West:
Okay. What do you have in that Fidelity account? What's the market value of that?

Caller:
It's about $266,000 — somewhere around there.

Rob West:
All right. And have you started to draw an income off of that yet?

Caller:
Yes. I draw annual maintenance income offer that, you know.

Rob West:
About how much are you pulling?

Caller:
I'm typically pulling down around $12,000 to supplement my Social Security.

Rob West:
Okay. $12,000 a year off of $266,000. And that about covers it in terms of what you'd need?

Caller:
Yeah, That covers my expenses. They have a tool online where you can put in all your expenses and all your income, and then they give you an estimate of what you should draw down.

Rob West:
Yeah. Very good. Mark, he's pulling about 4-and-a-half percent. What are your thoughts?

Mark Biller:
Yeah, that's a reasonable amount to be withdrawing, Curt. So I don't see any issues there in that regard. You know, one thing that as we're having the deal with higher inflation here this year for the first time in many years is retirees are having to kind of look at things a little bit differently — where inflation is pushing expenses higher. And the question is, "How do I keep my portfolio, keep my income growing in proportion with those higher inflation rates and higher expenses?"

And one of the big things, Curt, in that regard is that you don't want to pull too much money too quickly away from the riskier parts of the portfolio. And by that I mean stocks. It sounds kind of odd to encourage a retiree to pump the brakes on getting out of stocks, but stocks are the way that the portfolio is likely to keep up with higher rates of inflation. So that's not to say go heavier into stocks. It's more of just a caution to say one way to keep the portfolio growing is to not get too conservative too quickly.

You want to have that blend of stocks and bonds. And it is a "tight rope" of sorts. You've got this tension between that need for growth on the one side and trying to keep risk as low as possible on the other side. So those are mutually competitive goals that does make it kind of tricky. But if you've got a good mix and you're able to meet your expenses right now that would be the thing that I would keep an eye on. Unfortunately, there aren't any easy answers on the bond side.

Rob West:
Yeah, exactly right. Great counsel. Curt, we appreciate your call today.

To learn more about Sound Mind Investing — or read this article we've been discussing, Beginning of the End or Business as Usual? — visit soundmindinvesting.org. Mark, thanks for being with us.

Mark Biller:
Thanks, Rob.

Rob West:
We'll be right back. Stay with us.