As money loses value, prices rise. That's part of what's happening at the supermarket and in the stock market — as SMI executive editor explained yesterday on Moody Radio's MoneyWise Live. 

He also spoke with host Rob West about four steps that can help you stay calm when the market is rocky.

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

(And for more radio appearances by members of the SMI team, visit our Resources page.)

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


Transcript

Rob West:
Are stocks overvalued? Maybe, maybe not! I'll talk about that first today with investing expert Mark Biller — and how you should plan either way. Then, it's on to your calls at 800-525-7000. This is MoneyWise Live — biblical wisdom for your financial decisions. (theme music ends)

Well, it's always a delight to have my good friend Mark Biller back on the program. Mark is the executive editor of Sound Mind Investing, where they've been teaching investors how to weather market ups and downs for decades. And, Mark, it's a joy to have you with us, sir.

Mark Biller:
Well, thanks Rob. Always good to be back

Rob West:
Mark, I'd love for you to begin today by giving us your impression of the market these days, especially the last few days, but we'll look at a little bit longer term than that. How overvalued are stocks and is the stage set for a significant correction anytime soon?

Mark Biller:
Well, that really is the million-dollar question. Isn't it? Especially after these last few days and a couple of weeks where we've had a little bit of the froth knocked off of this market. I think as we look at this, Rob, if we look at traditional measures that look at stock valuations in relation to things like corporate earnings or U.S. GDP, all these typical measures, stocks clearly are expensive today by these historical measures. And historically when we've reached these types of valuations, we have seen the stock market run into significant bear markets that readjusted and lowered those valuations significantly.

What makes today's situation a little bit harder to interpret though, is we're obviously in the middle of this central banking experiment that started way back after the financial crisis in 2009 and has never stopped since then. And basically what I'm talking about is how the Federal Reserve and other global central banks have taken interest rates down to near zero and held them there this entire 10, 12-year period. And in addition, they've been using these "quantitative easing" policies, where they're actually buying assets in the open market, to stimulate financial asset prices.

The COVID response that we've had over the last 18 months has just kicked all of this into overdrive, but this has been going on now for many years. And the net result of all of that is that asset prices across the board have been driven quite a bit higher.

So we're talking about stocks here and the expensive prices of the stock market, and that is certainly true. But you can also look at other prices, look at home prices, commodity prices, basically any other asset. And the reason for that is we've got a situation where the money itself is worth less. So anything that you are measuring price-wise in that money, those prices are now higher.

And we've seen that consistently with stock market and financial assets now for 10 or 12 years. But what we're now seeing — what's new and makes it a little bit more tangible, I think for people who don't watch the market super closely — is we're now seeing that on a more micro level in the form of consumer inflation. So that's now the hot topic as we're seeing the same phenomenon starting to be priced through in the everyday type of stuff that we buy.

And so the question really is, "Are these stock prices really so absurdly high? Or have they just been repriced to reflect a less valuable dollar?"

Rob West:
Yeah, really interesting, because that's a different way to think about it — the purchasing power of each dollar declining. Explain what that means to the average investor.

Mark Biller:
Rob, I think the easiest way to think about this "new" risk, if you will, is we've always had to protect on one side against falling prices of our stocks and bonds and financial assets. So we've always had to keep an eye on this particular risk that was on one side of our portfolio. And it's not that that risk has diminished. We still have to play defense against the possibility that those prices could decline and we could have a bear market.

What's new is that — or new, at least in the last few decades, we used to have to many, many years ago, this was an issue. But it's been a long time since we've had to think about, well, what happens if this currency debasement continues to push up the prices — they call it the nominal prices — non-inflation adjusted prices of my stocks just keep going up even though the purchasing power of those dollars is going down.

They're really treading water. It's not that they're getting more valuable, but the price keeps going up. The implications of that, Rob, of course, are — if I'm too nervous about a falling market and say, I pull my money out of stocks and move to the sidelines, or I just get really, really conservative because I'm afraid that the market might fall, well now that other risks can bite me a little bit — where I don't have enough exposure to these rising asset prices just to keep pace with the rising cost of living as prices inflate that way.

So basically, all I'm saying now is we kind of have to keep an eye on the risks on both sides of the portfolio instead of just on the one side of a potential falling-price situation.

Rob West:
Yeah, that's really helpful. And we'll talk specifically about what your portfolio could look like to address that in just a moment. But, Mark first, the latest SMI newsletter has an article about taking the fear out of our investing. I'd love for you to touch on that because that's such a big part of this, especially in a choppy and potentially declining market like we may see in the years ahead.

Mark Biller:
Yeah, absolutely. And you know, just the last week or so, even though stocks were only off about 5% off of the all-time highs at the very worst of the declines yesterday, there's a lot of fear, a lot of fear came and real quick into the market. You can see that in different sentiment measures. So that fear is not far away from many investors today.

And so what this article is really trying to do is just figure out how do we put ourselves in a position to minimize that type of emotional response, 'cause it's almost always counterproductive. When the markets act up and that fear starts to rise, that's when people tend to make their worst financial decisions. So this article is looking at four steps that you can take to try to stay calm and steady through these panicky times in the market.

Rob West:
So, Mark, help us with that. What is the first step to keeping our emotions in check when there is a market correction?

Mark Biller:
Yeah. Well, the number one way to fight that panic, Rob, is to be prepared in advance. And that's why we write articles like this and spend a lot of time trying to prepare SMI members mentally and emotionally for downturns, because they really are inevitable. They come along a little more often than most people think. And while that long-term trend of the stock market is upward, we know that the market regularly hits these corrections, these 10% reversals, those sorts of things, and every single time, they're scary.

So what we talk about in the article, specifically in this regard, is you know, older investors, one way that they can prepare in advance for these market pullbacks is by using a "bucket strategy." They might build right into their process that they're setting aside a couple of years worth of living expenses in savings-type investments, like CDs, things that won't be affected by the ups and downs of the market. And knowing they have that cash reserve can really do a lot to help insulate them from that fear 'cause they know they won't have to dip into their stock investments if the stock market does go down temporarily.

For younger folks, that tends to be a little bit more of a mental, emotional preparation where a healthy understanding of the market's rhythms and the ups and downs — the history of the market and what's normal — can give them a little bit more confidence to hold on during these downturns and not panic and sell. 

Rob West:
Yeah, really, helpful, Mark. And also you talk about having a plan as being a real key to weathering a market downturn and managing our emotions. What does that look like?

Mark Biller:
Yeah, well, having that written investing plan can be such a lifesaver just because staying calm is a lot easier when you can read essentially your own message to yourself that was written when times were calmer, when your head was clear. And you're basically seeing you're reminding yourself of what you decided when, when times were clear and you were thinking about the exact scenario you now find yourself in. And you're basically giving yourself instructions from the past — that when we get here, this is how we're going to respond. And that's so helpful just to clear your head and stick with your plan.

And so that plan needs to spell out those investing objectives and strategies, but also "What am I going to do? What is my process for handling these market downturns when they occur?"

Rob West:
Well, a lot of folks thinking about whether or not they should be investing in the market at this time and where to start. Esther is in Chicago, we're going to begin today with you, Esther. Go right ahead.

Caller:
Thank you for taking my call. Thank you, Mark Biller. I have a question I'd like to know. My husband and I are seniors and we do have some money and, of course, the banks are not paying much. So we'd like to invest. I'm looking into actually Sound Mind Investing Advisory [Services]. But I don't know if I should just do like a little at a time to transfer over the Roth accounts, or just do a whole large amount. So that's kind of where I'm at.

Rob West:
Yeah. And is this — and I'll let Mark jump in here in a second, Esther — but is this your first time to work or consider working with an advisor? Have you been managing your assets yourself prior to this point?

Caller:
We've only been, out of fear, we've only done like CDs. We haven't really had anything invested.

Rob West:
And what have you accumulated in your retirement assets, if you don't mind me asking?

Caller:
Well over $500,000. 

Rob West:
Okay. Very good. So Mark, how would you, for a first-time investor who's thinking about delegating this responsibility, how should she be approaching this?

Mark Biller:
Yeah, I think it's a great question, Esther — and we're thrilled that you've chosen to check out SMI Advisory. You know, I don't really think that there's a wrong way to do this, to be honest with you, because it really boils down to your comfort level. And, you know, for some folks, I think the process of turning over that portfolio manager to an advisor, it can be like ripping off a band-aid — where it's just easier to just go ahead and do that all at once, determined with that advisor, what the plan is and, and how they're gonna handle that responsibility for you, and then just tear the band-aid and go. But for other folks — it is, it's a big decision and it's a big transfer of responsibility, especially if they've been doing it on their own for a long time.

And so there's nothing wrong with like you suggested maybe doing that and account at a time. "Okay, let's start with this Roth IRA and we're going to turn that over. And this is how I want you to manage that piece." And then a little while down the line, you might turn over another chunk or, or something like that. And there's nothing wrong with either of those approaches.

I think you just want to kind of ask yourself, "Now if I like the approach that the advisor is going to take and I trust them to implement that for me, what is the advantage of me holding onto the other piece? Or should I just go ahead and put that all in at once?" So either way, I think will work for you, Esther.

Rob West:
I think you're making a great decision here, Esther. You know, if the Lord tarries and you're in good health, you've worked hard to accumulate this money — and we want to see it last for decades and yet provide you an income. And that's where an advisor can really help.

More to come on Moneywise Live. Stay with us.


Rob West:
Mark, before the break, we were talking about the importance of having a plan as one way to fight an emotional response to a market downturn. And you said we should write that plan down, and we might even want to take the bucket approach. But it's really important to have the right stuff in those buckets, isn't it?

Mark Biller:
Yeah, absolutely. Rob. We're not just talking "happy talk" here. We've got to actually have the investing side correctly done in the first place. So that's actually, the next step we talk about in the article is making sure that your portfolio is suited to both your age and your tolerance for investing risk.

And that, you know, if you think about that, that's pretty obvious. A 65-year-old investor shouldn't have the same portfolio that a 30-year-old does. And that's why all of our models, and most good advisors, are going to have models that gradually reduce your equity holdings and ramp up your bond holdings as an investor moves through the seasons of their life.

And that is also, you know, knowing that you've got that, that correct age-appropriate asset allocation is going to help you immensely when you get to these market rough patches because it's going to help you, if you're a younger person, to interpret that as "Hey stocks are on sale, this is a good time to buy." If you're an older person, knowing you've got the right asset mix, it's going to help you by knowing that you're the ballast of those bond holdings should really keep the ship afloat through any rough patches there and smooth out the volatility.

So it's really important. You've got to get that investing piece right. And if you're not sure how to do that, if you're not sure how to create a plan like what we're talking about, there are a lot of resources and information available at soundmindinvesting.org that can help you with that process.

Rob West:
Mark, just a couple of minutes left before we have to wrap today. I want to talk about the new SMI Handbook — the new version of it that's out — but first, as it relates to fighting panic, talk for a moment about the spiritual component.

Mark Biller:
Yeah, there's no better antidote to panic than prayer. And prayerfully recalling what God has said in scripture and promised you can help you remain calm and confident. I think of verses like Isaiah 26:3, which says, "You will keep in perfect peace all who trust in you, all whose thoughts are fixed on you."

And we've seen this in practice through the bear markets of the last couple of decades, our members — really just through prayer and meditating on Scripture — being able to follow through on their plans and really have a lot of peace in the midst of market storms.

Rob West:
Yeah, that's great. And we've covered these four steps that you can read about in the article at soundmindinvesting.org — four steps you need to panic-proof your investing: be prepared, write out a plan, build a suitable portfolio, and above all, invite God into the process through prayer.

Mark, as we wrap today, tell us about the new version of The SMI Handbook.

Mark Biller:
Yeah, well, it's hard to believe for us Rob, but this is actually the seventh edition of this handbook. We've sold over a hundred thousand copies of this over many years. And it's really just a practical how-to guide that's going to work whether you're a beginner or an investing expert. And basically, [it] boils all of our wisdom from 30 years down into one resource for you.

Rob West:
Excellent. Mark Biller has been our guest today. You can find the article we've been discussing how to panic proof your investing at soundmindinvesting.org. Mark, great to have you with us, my friend.

Mark Biller:
Thanks, Rob. Always my pleasure.

Rob West:
We'll see you next time.