hey guys it's Joseph and Tasha from one big happy life so the stock market took
a bit of a dip over the past two weeks and so we are going to be talking all
about that and how much money we lost in this video
before we start talking about
the stock market let's talk about our giveaway as most of you know we are
celebrating reaching 20,000 subscribers by giving away two free personal
coaching sessions one for personal finance and the second one for starting
your YouTube channel the links for those will be dropped down in the description
box but you can also pop on over to our website one big happy life calm and
enter there okay what is the stock market well generally it is the place
where stocks bonds everything like that is exchanged bought and sold so if you don't
know what stocks and bonds are be sure to check out our investing 101 series
where we explain all that so what is a stock market crash and why does it
matter so there's no official definition for stock market crash and what's
happened over the past couple of weeks is more properly termed as a stock
market correction and that's where the market drops ten percent within a short
period of time and the idea behind a correction is that sometimes the stock
market gets a little too hot grows too fast and stocks become overvalued so
what a correction does is bring those stocks more in line with their actual
value unless you are very close to retirement or dependent on the stock
market for your income then it's probably not going to matter a whole lot
to you how much did the stock market drop and why so the market as measured
by the S&P 500 index and if you don't know what that is check out our
investing 101 videos dropped seven point two percent in February and as far as
how much we lost so we lost about five point six percent or fifteen thousand
dollars and the reason why we did not lose as much as the market drop is
because we have a diversified portfolio that includes a mix of stocks bonds and
REITs r e i t s's which are real estate investments why did the drop happen this
is one of the instances where too much good news can be bad news
so employment is good wages are going up and that can lead to prices going up as
well that's inflation and if the economy goes
too fast and gets too much inflation we're gonna get higher interest rates
and to tap the brakes on the economy and that's what everybody is afraid of those
higher interest rates the same is true for the bond market interest rates are
going up there which starts making bonds look good as an investment compared to
the stock market because they're safer and so some people are saying well hey
I'm just gonna sell the stock market and then buy some bonds because those are
safe and they're earning a pretty good rate right now now these reasons are
basically speculation so the takeaway that we want you to have from this is
really no one really knows why so don't really worry about the headlines too
much okay that's the true secret and to help ease your mind about those crazy
headlines we're going to talk about the instances when these market dips don't
matter so number one when you plan for these market dips to happen which you
should be doing when you're doing your projections about how much you need to
save for retirement and your expected rate of return you want to use a rate of
return that accounts for historical market fluctuations so for example we
use 8% as our expected rate of return over the next 30 years which is how long
we have until traditional retirement age now historically the market has grown at
an average has had an average rate of return of 10% to put that 8% into
perspective the S&P went up approximately 12% in 2016 and almost 22%
in 2017 so you can see that that 8% accounts for those crazy high years by
2017 and then also these drops like what we recently experienced that were just
7% and for reference our portfolio went up 10% in 2016 and then 18 percent in
2017 and they're a little bit lower than the S&P because we have a mixture of
stocks bonds and real estate so the second reason why these kinds of
fluctuations aren't doom and gloom scenarios is because of dollar cost
averaging and so that is where we're all making these investments over a long
period of time normally with our paychecks so that's
like every every about every month right and so when the stock market is high
we're buying fewer shares of stock because it's expensive and then when
it's low we're buying more shares because we're using the same amount of
money and it's cheaper well so that means that
average those together the price that were paying for stock is somewhere in
here and so as it goes up well then we make money and as it goes down we're not
losing as much so it all helps out even if the stock market goes up and down and
doesn't actually go any higher we can still make money just because of that
buying fewer high more low now here are where dips can cause problems number one
when people panic because they see the market dropping and so then they're
trying to beat the market and time the market and they end up buy high and
selling low that's how you lose money another reason is if you're close to
retirement or you are in retirement and depending on actually selling parts of
your portfolio to pay for your living expenses well that means that a huge dip
like this is going to really hit how much money you make in the year and if
you're about to retire well you're about to be living on that value of the
portfolio so this is why as you get closer to retirement you should start
transitioning to safer investments that are not so volatile all right so now
let's go through a list of ways that you can make investing less risky
number one start early the earlier you start the longer your investment
timeline the less money you'll have to save in the long run and the easier it
is for you to weather the fluctuations because your dollar cost averaging will
have a longer period of time to work next is you want to make sure that
you're participating in your employer's retirement plan and get all of the
employer matching to your contributions that you possibly can
because that's a hundred percent rate of return instantly third you'll want to
keep as much of your money as possible so take advantage of tax advantage
investment vehicles like your 401k or Roth IRAs also pay the least amount in
investment fees that you can that means no high front and back end loaded mutual
funds you are going to also want to diversify so you when you're young you
might have a hundred percent stocks but it's always a good idea to have broad
market exposure stocks bonds real estate so that dips in one area or the other
won't hurt you overall next you will want to use conservative estimates for
your projections as we mentioned before we use 8% for our rate of return and we
use 4% for our withdrawal rate for our nest egg now some people argue for even
more concern numbers than that like a 6% average rate
of return and a 3% planned withdrawal from your nest egg and the one good
thing about being conservative is it's great because you might end up hitting
your goals faster than you expect it if the market outperforms but if it you
know stays on course with your conservative estimate then you're still
good and you also want to save more than you think you might need so let's say
that you're thinking hey well I need a million dollars there is absolutely
nothing wrong with the saving up enough money to get to 1.2 million dollars or
if you say hey well I need to say $500 a month go ahead and say 550 because that
gives you a little bit of cushion just in case lastly do not suffer through
life just waiting to get to your golden years to retire I see a lot of people
doing that like just kind of saying well I'll just buckle down and I'll just
sacrifice now and then I'll reap the rewards later you don't have to do that
you don't have to live that way like for example Joseph and I we plan on
having enough a big enough nest egg in our early 40s to be able to retire
early at a lower cost of living area so that is a possibility for us but in the
meantime just in case the markets don't perform the way we want them to we are
both in jobs that we love in a house that we love in an area that we love so
we are creating lives that we love now even while planning for a different
lifestyle that we also want to have in the future so do not settle for just
suffering through life right now take the steps today to make your life
something that you enjoy today so that if something does happen with the
markets and you're not able to retire right when you want it to it's not going
to be the absolute end of the world well we hope our video put some minds at ease
over the this little tiny dip so don't even worry about it alright guys see you
next time right okay Oh thumbnail we gotta look like
do I have a cute cry face on it that's definitely gonna be an out take
What is this? I don't know. It's my. . . Bad markets. Ninja chop.