TV interview (June 2013) with Louis (Luis) Barajas, a certified financial planner and author, discussing a recent large Dow decline, causes (confidence about Fed and economy), and practical investing advice: focus on goals/timeframes, stay diversified for multi-year objectives, avoid moving money based on daily market swings, prefer fee-only registered investment advisors, and maintain discipline against fear/greed-driven behavior.
Chapters
Well, stocks took a hit last week. The Dow lost more than 400 points. Thursday, the Dow posted its biggest one day drop since 2011.
So the big question, where will the markets go next?
Yeah. Joining us now is Luis Barajas, a certified financial planner. He is also the author of My Street Money. Welcome back to the show. So tell us what happened last week. What caused such a huge drop?
Well, what happened is, let me put it in simple terms, okay. What happened is this is that Kai's my son and he's lost his job and doesn't have any money. So I'm going to help him out. So I'm the Federal Reserve and he's the economy. I'm going to help him out. But then we find out that he's now got a part time job and he's getting back on his feet. That's what's happening to the economy. We actually got good news that the economy is getting better. But what happens is that lack of confidence, right? And so there's lack of confidence in that. Is he really going to keep his job or not keep his job? What eventually is going to happen is Kai's going to get back on his feet, get a full time job and I'm not going to need to help him out as much. And that's what we're heading to. So there was a knee jerk reaction in the lack of confidence in what the Federal Reserve has been doing. Gotcha.
Thanks dad.
You're welcome son.
For all the help.
We're also talking about goals, timeframe. We've got risk tolerance that we're going.
To look forward to, right? So what happened is that people got really nervous, right? We always talk about Wall street and Main Street. That's why I wrote that book called my what People Are Really Thinking About. And here's thing, whenever these things happen, don't pay as much attention to them on the day to day what's going on. Go back and take a look at what were my goals? Why did I put money into my mutual funds and my 401k? Was it for retirement planning? What's the goal? What's the time frame? How long am I investing my money? If you're investing your money for goals that are usually five to seven years or longer, you're okay to be in the market as long as you're well diversified. But if your goals are that I need to put a down payment on a house that I'm going to buy this year or my kids are going to college and I got to write a Tuition check and it should not be in the market. So always go back and look at the fundamentals of how you're investing your money.
Well, I know that when news broke that, you know, the Dow had dropped so much, a lot of folks were trying to figure out how they could move their money. And I said, I'm one of those who's just burying my head in the sand. So that was okay.
Right. And the reason for that is this, is that if you're moving your money around, you're gambling with your money. If you actually have a plan, you're disciplined and you're patient, you're investing your money and that's what you want to do. Gotcha.
And again, you really want to take a look at your portfolio. You want to talk to someone who is close to the markets.
You definitely want to do. If you're going to actually hire an advisor, you want to make sure that they are a registered investment advisor. I'm a certified financial planner and a registered Investment Advisor. But CFPs cannot actually give investment advice. They must be registered investment advisors. And ideally would be to find someone who's fee only, who's not going to charge you commission and is not going to sell you a product. You financial planning is all about a process. It's never been about a product. And that's what you want to focus on.
And is this really a good time for a lot of folks to get into the market that haven't been in there while things are low?
Well, you have these old maxims, it's buy low, sell high if you haven't gotten in. But again, you're going to get in because of the goal that you have, not just because the market's down. You can't predict it. And there isn't anyone out there who can predict the market long term. Right?
Yeah. And discipline as well. Correct?
Discipline, patience. Right. That's what you want all the time. And just again, be focused, don't get caught up with these knee jerk reactions because most of the mistakes that people make are behavioral mistakes, these emotional mistakes based on two things, fear and greed. So stay away from that.
There you go.
Lewis, thank you so much, Amy. Thank you. Always good advice as usual.
Always great advice. We need that. That is scary times, you know, you just never know.
It really is. So again, we love having Lewis here.
