Transcript:

Mr. Mibach: Welcome to the Four on 2. I’m Mike Mibach

Ms. Arnold: And I’m Keba Arnold. While stock markets rise and fall, today in our Money Monday segment we’re breaking down the recent market correction after that huge drop this summer and we’ll explain how it impacts your money. Today, we’re welcoming back Mitch Tuchman. He is the Managing Director of Rebalance. Mitch, thanks for being here with us.

Mr. Tuchman: Thanks for having me, Keba.

Ms. Arnold: The last time you were here was a scary time. It was late August, markets were down some 10%, there was a market correction, but now you are back with us today to say things are “back to normal” as you call it. It was quite a ride.

Mr. Tuchman: Well, let’s say that the S&P is back to where it began the year. I don’t know what “normal” is, but drops in the stock markets, or “corrections” as they are called are definitely to be expected. We’re back to normal in the sense that the market has recovered, kind of, on schedule.

Ms. Arnold: So Mitch what lessons did we learn when it comes to our retirement account—you know, when you start seeing those numbers drop you think, “Oh my gosh, what should I do” and you want to hold on to your money. What lessons did we learn?

Mr. Tuchman: I think the main lesson people need to learn is that these corrections are like weather. Like your weatherman just reported, we have storms. It happens. You can’t panic, like I said to you on the show when I was last on and we were talking about this during the stock market fall.

Ms. Arnold: Right, you did say that.

Mr. Tuchman: You can’t panic; the reason is that it is a normal pattern for the stock markets. If you do react to it by trying to get out, you are really going to cause yourself a lot of heartburn down the road.

Ms. Arnold: Mitch, what are some takeaways—you know when do you pay attention and when do you ignore?

Mr. Tuchman: The key is that you need to have a retirement portfolio that allows you to pay no attention to corrections. You need your investment portfolio to be set up so you don’t think about it and that’s part of the key. If you have a lot of risky things going on in your portfolio, like owning individual stocks or owning expensive risky funds, then you are going to worry when you have a correction, because you may not recover. At my firm, Rebalance retirement investment portfolios are built like all weather vehicles so we don’t really worry about market corrections. There is a lot of reason to worry, if you are not prepared for these occurrences.

Ms. Arnold: So, it is having it set up a certain way to begin with?

Mr. Tuchman: Right.

Ms. Arnold: And if you need that help, either what, contact a financial advisor or try to figure it out online?

Mr. Tuchman: Right, but here is the key, stock market corrections happen every couple of years. In the last 65 years they have occurred in half of those years. A correction means that from the height, the market goes down by greater than 10%. It usually takes about 7 months to correct, but you just can’t respond to them. You just have to ride them out. The stock markets move so fast, like in the last 20 years if you missed the biggest 30 day moves in the market instead of getting a 9% return you got under 1% – you can’t try to do this in a timing fashion.

Ms. Arnold: So, but Mitch what happens, I get it if you are still young in your 20s, 30s or even 40s, what if you are closer to retirement (late 50s or 60s) and you are seeing these corrections happen should you respond differently depending on where you are at towards retirement?

Mr. Tuchman: Yeah, of course, they always say, “Put some more bonds in the portfolio”, but that’s more about emotion. See the thing people forget about is …

Ms. Arnold: It’s hard not to be emotional right, it’s your money, your retirement.

Mr. Tuchman: Well, the reason people who are older tend to relax a lot about this is that they have ridden these stock market ups and downs a few times, so they know you don’t have to worry about it.

Ms. Arnold: True, good point.

Mr. Tuchman: And you haven’t lost money. If you own the entire U.S. stock market through an index fund – a low-cost index fund – then you are really saying is the U.S. falling apart? If the U.S. is worth 5% less this week than it was 2 weeks ago have you lost 5%? If your house is down because we’re in a recession, have you lost money on your house? No, it’s just the evenflow of the markets.

Ms. Arnold: It’s the evenflow, don’t be emotional, make sure your portfolio is balanced?

Mr. Tuchman: Yeah and don’t own stocks. I suggest all retirement investments begin with big index funds. Index funds own all of the stocks in the market and that’s how you protect yourself because the U.S. economy has never fallen off on a correction and never recovered. The U.S. economy always recovers.

Ms. Arnold: Right. Mitch Tuchman, Managing Director of Rebalance. Mitch, thank you.

Mr. Tuchman: Thanks, Keba.