"Most of the big mistakes people make with their investing are due to their emotions," SMI executive editor Mark Biller noted yesterday on MoneyWise Live.
Mark joined hosts Rob West and Steve Moore to talk about investing with what 2 Timothy 1:7 calls "self-discipline" or "a sound mind."
Mark also discussed the historical market pattern called "annual seasonality," and he took several caller questions.
To listen, click the play button below — or, if you prefer, scroll down to read 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. It's produced by MoneyWise Media and Moody Radio.
To ask a question on a future program, call 1-800-525-7000 and mention you have a question for either Mark Biller or Matt Bell of Sound Mind Investing.
Rob West: One of the things we like to do while Mark is here — in addition to exploring and taking your calls and having him weigh in — is to talk about what's been featured in the Sound Mind Investing newsletter. The April edition, Mark, had a great article around "annual seasonality." I thought we could start out today by just having you explain a bit about what you were sharing with your readers.
Mark Biller: Yeah, sure.
Mark Biller: Annual seasonality is really just a pattern that researchers have found goes back hundreds of years and is present across markets all around the globe, but in a nutshell, it really just says that markets tend to perform much better during the winter months, which are November to April, than they do during the summer months, which is May to October.
Mark Biller: Now, we don't put a lot of emphasis on this pattern because it's really a longterm average that doesn't necessarily hold true in any given year, but we did point it out this year because the research indicates that this year's unfavorable summer period could be a little worse than usual. Not to say that people should run off and sell everything, but it was something we wanted our folks to consider if they, at least until recently had been thinking about getting more aggressive with their investments or maybe adding more money to the market.
Rob West: Yeah.
Rob West: We just have about 30 seconds left here, Mark. Obviously, folks need to take the long view, but one of the benefits of knowing something like this could be on the horizon is you almost prepare yourself in advance to be able to weather that storm and repurpose on the long view in anticipation of a downturn, right?
Mark Biller: Yeah. That's absolutely right.
Mark Biller: Being prepared mentally and having the emotional side of your investing game really tuned up is much more than half the battle. That really is an important key. If listeners want to learn more about this annual seasonality topic, that article is available for free on the homepage of our soundmindinvesting.org website.
Steve Moore: All right. soundmindinvesting.org. We'll talk some more. We'll be right back after this.
Rob West: For many of our listeners on MoneyWise Live today, Mark, this is their introduction to you and SMI. I'd love for you just to share for a moment around what you mean when you say "Sound Mind Investing," because this really lines up with the entire purpose of what we do here on MoneyWise Live.
Mark Biller: Sure. The name Sound Mind Investing comes from 2 Timothy 1:7, which is: "God has not given us the spirit of fear, but of power and of love and of a sound mind."
When I joined Austin at SMI almost 20 years ago, I really didn't have any idea just how key that sound mind biblical view was, but I've come to realize that most of the big mistakes that people make with their investments are actually due to their emotions and selling out fear during market downturns especially is probably the most common. That idea of not being driven by fear, but having a sound mind really has turned out to be huge in investing.
Rob West: Absolutely. As we talk about here often, we want the Lord's wisdom as we manage His money. That would certainly be true in this area of investing. We get so many questions day-in and day-out about this topic, so I think often we can buy into the cultural view, which is different from God's view.
What would you say is some of the starkest contrast between God's way of investing versus what we might hear from the world?
Mark Biller: I think that everything really stems from the investor's attitude. As a Christian, you're coming at it from an attitude of seeking God's glory or at least we hope that you are. That really informs everything right on down the list from acknowledging God's sovereignty and trying to apply his principles respecting his priorities. A lot of mistakes that investors make about rushing in before they've addressed really their more basic financial priorities like getting out of debt and establishing savings. They get excited about the investing returns they're hearing about and they're not really prepared.
It's kind of like in the Bible where the men who built on the sand weren't prepared for the winds to come and everything got washed away. We see that when people rush in to invest when they still have lots of debt or they don't have adequate savings. One little downturn, personal downturn, can really wipe all that away.
There's a lot of wisdom that the Bible gives us as you mentioned in the opener here. Trying to apply that in a constructive way and in a purposeful way really is at the heart of that Biblical approach.
Steve Moore: That's Mark Biller from Sound Mind Investing. We're taking your investing calls at 1-800-525-7000. Let's begin by going south a bit, Mount Dora, Florida. Linda, what's your question today for Rob and Mark?
Linda: Hi. Thank you.
Steve Moore: Hi. Yes.
Linda: I'm 66. I'm wondering whether I should take my Social Security. I'm still working. I'm wondering if I should take...
Steve Moore: I'm sorry. We lost you there, Linda. Are you still there? Okay. I'll tell you what I — I think we've had a phone line problem, but her question was, if I may be so bold: Where should she invest her Social Security and in what? Obviously, we don't have a lot more information than that, but off the top of your head, any basics to be aware of, Mark?
Mark Biller: Yeah. I think that a lot of people in Linda's situation, they get into that full retirement of 65, 66 years old, one of the questions a lot of people face is: Should I go ahead and start taking my Social Security now, or is it better to wait until — if you wait until age 70 or a later age, that Social Security benefit increases by about 8% per year. There can be some real strong incentive to waiting if you don't need that Social Security benefit right away.
Sometimes, people tend to downplay that, but especially in a risky market environment, the guaranteed increases to that benefit, which will last the rest of your life, can be a very appealing option. In a case like Linda's where she's still working, it might behoove her to hold off and wait to start that benefit.
Rob, your thoughts?
Rob West: I was going to ask you a followup on that because I think that's great advice. Y'know, Mark, when you move from the accumulation phase during your working years — you're building wealth, you're putting money away, you're obviously investing in a more growth-oriented fashion — to a distribution phase where let's assuming Linda or somebody like Linda is now living on their assets in this low interest rate environment and given that life expectancy is continuing to rise, where do you recommend they go and how do they allocate those funds differently during that distribution season?
Mark Biller: Sure. Just to put a cap on the Social Security piece, that's another reason why getting a guaranteed increase by waiting on that Social Security benefit is so great because with bond yields as low as they are, any kind of a guaranteed return is fantastic.
As far as reallocating, it is difficult. Thankfully, the Federal Reserve has started raising interest rates, so we're getting a little bit back towards a more normal kind of a yield situation, but it is tough and it's been tough for the better part of a decade for fixed-income investors, more safety-conscious investors. You still have to make that reallocation. You can't afford to have an overexposure to the risky parts of the stock market and so forth — but one of the implications of that is, people have had to readjust their return expectations. In some cases, that means working a little bit longer or at least giving a hard look at their budget to figure out how they're going to be able to make ends meet with lower return assumptions.
Steve Moore: Let's take another call before our break. Todd is in Chicago and Todd, you have a pension-related question, huh?
Todd: Yeah. I hope you can hear me.
Steve Moore: Hi Todd. You with us?
Todd: I'm calling from the car. Can you hear me?
Steve Moore: I can hear you. We have just a couple of minutes if we can try to squeeze it in, all right?
Todd: Yeah. My question is this: I have a pension and our pension is a good one. I'm counting on that pension to pretty much give me income for the rest of my life. I'm 63. But, you hear about pensions sometimes being dropped from companies and so forth. How much should I be depending on that pension for my income here on out?
Steve Moore: Hmm.
Rob West: Let me ask you a couple of questions here, Todd. What other retirement assets do you have, if any, at this point?
Todd: We have a 401(k), about $300,000.
Rob West: All right. As you look at your retirement budget and you think about your various income sources, what percent does the pension represent versus what you might draw down from on the 401(k) or even Social security? Have you looked at that?
Rob West: Okay.
Todd: Actually, our monthly pension is $8,400.
Rob West: Okay. All right. Do you think that's more than half, for instance?
Todd: You mean if I was to withdraw the 401(k)?
Rob West: Yeah. If you were to start to taking the normal distribution, you were to say, live off of the income of the 401(k). I'm just trying to get a handle on how much that pension represents of your overall monthly need.
Todd: Gee. I don't know how to make that calculation.
Rob West: Yeah. No worries. That's fine. Hey Mark, this is obviously a question that people have often where, when we're relying so heavily on a company and their pension or their retirement system or even could be a state or a municipality, is there any concern there as we look about potentially not being diversified in our income sources.
Mark Biller: Yeah. Unfortunately, there is some concern because you are seeing stories now across the country of different groups, different individuals in lots of different states, teachers, and whatnot that are having their pension benefits reexamined and changed some.
As a general principle, the ideal in a case like Todd's here is to try to let that 401(k) or IRA money, any savings you have outside of the system, if you can leave that alone and let that grow as long as possible before you have to start dipping into that, that's the idea, to try to get by on the pension and potentially Social Security as long as possible, but of course, everybody's situation is different.
Again, to minimize drawing on the non-pension savings is the ideal for as long as possible.
Steve Moore: That's Mark Biller. Mark joins us today from the good folks at soundmindinvesting.org. If you'd like to know more about investing basics, Mark is offering a free resource for anyone who visits their website today. It's titled "Seven Key Principles for Christian Investing."
Mark, what do they look for once they come to your website so that they can find this easily?
Mark Biller: Yeah. There should be a bar at the very top of the screen. There will also be a pop-up that comes onto the screen within a minute or so of being on the homepage that'll offer that free report.
Steve Moore: Okay.
Mark Biller: Just have to put in the email address so we can send that to you and you'll have that report.
Steve Moore: Sounds great. "Seven Key Principles for Christian Investing." You're listening to MoneyWise Live. I'm Steve Moore. Rob West right over there on that side. Then, there's Mark Biller. We're all waiting for your calls at 800-525-7000.
Steve Moore: If investing has always confused you a bit, if you're not sure what a mutual fund is or how to buy stocks — or whether your brother-in-law's idea about gold in the Yukon is the best way to go — maybe we can help you today. We are talking investing — not only with our host Rob West, but also with Mark Biller from Sound Mind Investing.
Rob West: Always great to have Mark with us. Before we go back to the phones, Mark, many of the folks that we hear from with investing related questions are wondering about getting into the market now. Whenever we get to a point like we are now where the market has been really a bear, a bull market for the last several years, really moving in an upward trend aggressively, they begin to start thinking, "Maybe I shouldn't enter the market. What if I'm just getting started or I'm starting a Roth IRA or I'm at a new company starting a 401(k)?", whatever it might be. How do you respond to that for folks that have some concern?
Mark Biller: Yeah. That is going to depend to some degree on the person's timeframe. For a young person that's got decades of investing ahead of them, they should just go ahead and get started because a bear market, even if one comes, say in the next six months, we've got tons of research that shows that people who start even right into the teeth of a bear market like that end up doing well as long as they've got enough of a time horizon on the back end, say five to 10 years or more, they're going to do just fine. Where things get a little bit trickier is for the person who is, say, within five years of their anticipated retirement date or maybe somebody who is already in retirement. At that point, I think it shifts a little bit more to — not so much "Do I start investing or not?," but "How do I start investing?"
I think they still need to be investors, but the "How" might change a little bit as we get to the tail end of a bull market. People need to be a little bit more conservative. They need to be looking more at capital preservation instead of growth of capital. Early in bull markets, it's fine to be pretty aggressive, but as you do see this stretch on, it is wisdom to be a little bit more conservative and pull in maybe the stock allocations and the types of investments that you're making.
I think that that's kind of a general rule for folks, but hopefully helpful there.
Steve Moore: All right. Thank you. Hey, let's talk about silver and gold. It's something that comes up regularly, but not a call we've had most recently. Dennis, what's your question regarding silver or gold? Do you currently possess some or are you just wondering whether or not you should invest in it?
Dennis: Yes. I'm wondering whether or not I should invest in silver and gold.
Rob West: Very good. Dennis, tell us a little bit about your investments right now. Do you have other investments in marketable securities? Would this be a new investment? How much are you considering — of your overall investment assets — for silver and gold?
Dennis: I currently have about $28,000 in savings and I have an income of about $4,000 a month. I don't have anything in the stock market.
Rob West: Okay. Very good. Mark, given his situation, living on a fixed income, nothing in the market and has essentially an emergency fund of about $28,000, what would you offer?
Mark Biller: Yeah, I think that silver and gold can be fine investments. Generally speaking, we recommend that they not take up more than about 10% of someone's total portfolio. I wouldn't be real enthusiastic about making them the primary focus of a portfolio of someone's investing, but as a piece of that portfolio, I actually think that they probably make even better sense now than they have in the last several years as people are starting to now, once again, become a little bit more concerned about the possibility of inflation, which is usually a good backdrop for silver and gold. But I guess I would just recommend that they be part of a portfolio instead of the bulk of a portfolio.
Rob West: Yeah. That's a good word. I think especially, Dennis, in this season where you're not accumulating, but you're distributing your assets, you're obviously living off this 4,000 a month, I'd be really cautious about going into silver and gold really as your only investment. Right now, we need to be thinking about stable investments that would likely have a low yield, but could really just supplement your income as opposed to moving into precious metals at this point in your life.
Steve Moore: But guys, I've heard people say, people who are sort of behind the curve, who really felt like they should've started investing 20 years ago feel as though gold or silver is the only way they can really catch up, hoping for the big hit. Is that poor thinking?
Mark Biller: Generally, the Bible warns against the "get rich quick" mentality. It encourages us to be steady plodders. "Steady plodding brings prosperity." So you want to be real careful with that.
Steve Moore: All right, good. More MoneyWise Live after this.
Steve Moore: You're listening to MoneyWise Live. Rob West taking your calls. Also, Mark Biller here today. We thought Mark was going to come on with some great tips. You know, hot stocks, Tesla, Apple, but that's not really who you are, is it, Mark?
Mark Biller: No, it's really not Steve. Sorry to disappoint.
Steve Moore: Okay. All right. 1-800-525-7000. We were talking about silver and gold before the break. We have another silver and gold question, but this one is slightly different. Birdie is in Chicago. What's on your mind today, Birdie?
Birdie: What's on my mind? I heard that the U.S. dollar is not backed by silver and gold anymore. There's another system in place. If that system failed — and I've heard also that things are not going so well with the system that has the dollar where it is — what is a good investment if it's not backed by, the dollar is not backed by silver and gold and if there might be a failure in the other system that's in play, what would I do? What should I invest my money in?
Rob West: Yeah. Sure. Birdie, it's a great question. You point out a good point and you're correct, is that we have a currency here in the United States called a "fiat" currency, which means it's regulated by the government through the Federal Reserve. It's not backed by gold and silver as it once was, but it's backed instead by the full faith and credit of the United States government.
Mark, obviously we hear from people periodically that are saying, "How should I view that?" We see the rising debt levels in the United States and yet we're, in many respects, if not the largest, very close to the largest economy. How do we approach our investing given what we see in the United States right now?
Mark Biller: Yeah, it's a tricky question and you're really hitting at the heart of the argument for gold and silver investments. If you listen to the gold bugs who are very pro-gold, that is a big part of the argument. But I think that the counterbalance to that is to realize it's been 45 to 50 years now that we've been off the gold standard, so it's not like this is a new thing. The United States does have its issues, but compared with most other countries, we're still the best-looking house on a bad block when it comes to currency and so forth. I wouldn't be overly concerned there.
Now, what people can do that do have that concern is to allocate a portion of their portfolio to real assets, things like gold or silver — like I mentioned, have a portion of your portfolio on that is fine. Other real things that you can invest in — rental real estate is one that some people like because it's a real tangible asset.
Now, obviously if anything ever did happen with the value of the dollar that was really catastrophic, the whole system is going to shake and it's hard to really predict exactly what the implications of that would be. But I think that people can maybe protect a little bit by having some of these real assets in their portfolio without going overboard about an imminent collapse of the dollar or something like that. It's also worth pointing out that things like gold are not always super safe in the traditional sense.
If you think back seven years ago, gold was 50% higher than it is today. You can lose money in these "safe" investments as well, which is why you want to keep it all in balance and diversify as we talked about at the beginning of the program.
Rob West: Yeah, that's a great word. I couldn't agree more. The other thing that I would add here, Birdie, is that ultimately you're responsible for what God has entrusted you. You need to make decisions based on the principles we see in God's Word, which is what we talk about here on MoneyWise Live each day.
If something were to happen to the economy, the U.S. dollar, the United States, we can't, there's no control we have over that. What we need to do is be found faithful in following these principles and recognize there are things out of our control that we need to leave to God. But if we do what Mark said and really following diversification, making sure we have a proper time horizon, not getting too emotionally invested, then I think we leave the rest to the Lord, because we don't find our security in our things and certainly not the U.S. stock market — even though I would agree it is the very best place to be in terms of historically the most sound and has shown the most proven results over the long term.
Thank you so much for your call today, Birdie. We appreciate you listening to the program.
Mark, so fun to have you along with us today. Let me just encourage those of you listening to pick up this free resource. We've actually got a link to it at moneywiselive.org — "The Seven Key Principles for Christian Investing." Here's what you're going to get in this free resource: You're going to get Mark and his team unpacking a proven process to understand how you can invest, what God's word says about that and how you can advance God's kingdom through your investing in really a step-by-step approach. Take a time now to download that. Check it out. I think it'll be very, very valuable to you.
Steve Moore: Mark, a great blessing to have you with us as always, sir. I hope you'll come back again real soon. Thanks so much for your time. Mark Biller from soundmindinvesting.org, where he does tremendous work along with the founder Austin Prior and the rest of the staff there. We love what they do, how they do it and the spirit with which they do it. God bless you, Mark. Thanks so much.
Mark Biller: Thanks guys.