080 The Stock Market is CRAZY ... With Opportunity

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Hey there. The stock market has been crazy. Is a recession coming? Is inflation stopping? Interest rates going up? What does it mean to you? Here's the deal. A lot of opportunity. In this video, I'm going to walk you through where we're at, what we're doing, and what you can do to not only protect yourself, but to prepare yourself for the opportunity that's coming your way. I'll see you in the video.

This is the Affluent Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom because that's what it really means to be an affluent entrepreneur.

Hey there. Welcome to this special episode of the Affluent Entrepreneur show. It's so good to be in here. I thought I would.

Do this special episode because we have been on a crazy, crazy ride. We had the feds raise rates by a half a percent, 0.5 the other day, and then the markets reacted positively and the markets jumped over 900 points that day. Then the very next day Yesterday, they slid 1200 points. And they're down. As we do this, we're down another almost 300 points right now. So we have gone up 900 points. We've gone down almost 1500 points within 48 hours. You know, 72 hours here. We'll see where it ends today. But I wanted to have this conversation around this because I think.

There'S a lot of uncertainty and there's a lot of negativity. There's a lot of pessimism. There's a lot of things going on with the volatility. But I also want you to understand that there's a lot of opportunity coming your way and there's Some things you need to do to protect yourself. There's some things you need to do to prepare yourself. But I want to give you an idea of where we are, how I see the market, the economy, and the things that may affect your business, your wealth, your money, your future, your peace of mind, and everything helps. Here's the thing, like I said, the markets are crazy. I've got some notes here. There are recession concerns. We've got inflation that they say is at 8 and a half percent. Okay, they say it's at 8 and a half percent, but. But the real inflation, the inflation that you are experiencing is greater than eight and a half percent. Because, you know, the idea here is inflation is things are costing more. And they are measuring inflation based on a metric that includes what they call shelter. But their measure of shelter, housing, is not a measure of housing price increases. It's equivalent rent. And what they're doing is they surveyed homeowners to see what would they rent their house for. Well, this is an opinion. It's not what the market's driving. And it. And we know that real estate in some markets have gone up, you know, 15, 20%.

And that's in there. You've got the oil and gas in there. So the true cost of living has gone up probably more than 8.5%. The way we experience it, the way it lands in our life, you've got interest rate hikes. The Fed has said that to anticipate more interest rate hikes through the end of this year. They gone 25 basis points. So that's 0.25. Then they just did 50 basis points, 0.50. So that's a total of 75 basis points. They are looking to move us closer to a 3% or so rate by the end of the year, which means that you've got a couple more hikes. We just don't know when, we don't know how much. At one point there was the thought that maybe they'll be at a more aggressive 0.75, but they didn't. And they indicated that, you know, they probably aren't considering a 0.75 without drastic things. So here's the thing. Let's just talk a little bit about the Fed reserve and what they are, how they do things, what, what it means for you. They call it the Federal Reserve Bank. Let me clarify something for a moment because there's a misconception, I think, out there. First off, it's not federal. It is not a government entity. Okay. Second off is they don't have any reserves, they don't have any money.

And third, it's not a bank. So their whole name, their whole name.

It doesn't imply what they really are. What they are is they are. They are adjusting or taking, controlling, if you will, our monetary supply, the amount of money in circulation. And via changing the amount of money in circulation, they start to affect the ability for people to buy, the ability for people to borrow. And directly they affect our economy. So they set interest rates and they set monetary policy. That's what they do. And it has an impact on us. And so understand that that's the case. They don't have any money. If they need money, for instance, when they were building their balance sheet to wherever it is, I think it's $9 trillion. You know, when they're building their balance sheet and they're buying bonds, they're buying Treasuries, and they're buying all that, they're printing money to do it. They don't have money in a bank account like you and I. We can't just go and print cash to go buy things. If it ain't in the count, we don't have it. But the feds go and print money, the more money comes into the circulation, that then allows people to. To buy more. So I just want you to understand that I drew a graphic here because I think it'll tell you what's going on. We have been hit with inflation, and they're blaming it on things like Russia. They're blaming it on things like supply chain. They're blaming it on things like.

You know, like the pandemic. But those aren't the direct impactors of inflation. They are more a result of what's going on with the monetary policy. And so I want you to understand what's caused our inflation here. So I'm gonna. I'm gonna jump to my iPad now. I have a little bit of a drawing here that you can see. What's caused it, is this is in order to keep our economy moving, the Federal Reserve was dropping interest rates, okay? So they were lowering interest rates. What that does is that allows people to borrow more money. And it's important for you to understand this because when you understand it, then you'll understand what you need to do with your portfolio, your wealth, your money, and all of that stuff. And I know that this is economics, and you're going, oh, my God. But these are the things that if you truly want to build wealth, you need to understand the principles of what's going on. So they Dropped the interest rates, which meant that it's easier and cheaper for people to borrow money, businesses to borrow money, and that means that they could put more product, more things out there, they could buy more things. So when we have interest rates down, and then number two, you couple that with them printing more money.

To put money into circulation, you now have the ability, like I said, to buy more things. And so people start buying and the demand for goods, the demand for services goes up. Now pandemic hits, we have a break in supply chain. So at the same time, even if the demand ramped up in normal times as fast as it did, we probably wouldn't have had the ability to sustain ourselves with the supply that we had on hand, because it wasn't planned for. But now you couple it with an interruption in the supply chain with increased demand. Now you've extended it out and you cannot satisfy the demand. Well, supply and demand, it shows that when demand goes up and supply goes down, it starts to drive prices higher, hence inflation. Okay? So what happens is that supply is down. We can't get enough stuff produced in time to satisfy the buying. And what that does is it drives prices up. And in order to try and keep things rolling and keep the economy moving, what do they do? They keep dropping interest rates. We went to zero. We couldn't go any further. We could go negative. Japan tried. It didn't work out so well. All right, My point is, is this, in my opinion, we are in an interest monetary inflation. Now, the concern is this, in order to fix this, what do they need to do? And we've seen it, what do they do? They start to increase interest rates.

So they increase interest rates. And what they announced is in June, they'll start buying back. I mean, they'll start shrinking their balance sheet. So they're now going to suck money back out of the economy. So there's less money. The expectation is that there would be less buying. Okay, and now we start to stabilize or bring down the inflation rate from what they're quoting of 8.5% to, to where they want to be is somewhere between 2 and 3%. Okay. Problem is, is that this has a high likelihood and risk of pushing us into a recession. And in fact, the definition of a recession is two consecutive quarters of negative GDP growth. Two consecutive quarters of negative GDP growth. Well, they just announced that GDP growth in the last quarter was a negative 1.4%. That means that we've got one quarter under our belt. Is it possible that we end up in a recession? Yes, it is. What does that mean for you? Okay, recession. Now, we could be in a recession temporarily. We did that in 2020, or it could be an extended recession. This is the thing that we need to be aware of in dealing with this. Because on one side, inflation is a silent tax. On the other side, recession.

Is a more burdensome thing because employment starts to get affected. Our ability to buy things and afford things is affected because we start to lose jobs and recession stays too long or too deep. We could end up into a deep recession or a depression. So that's the thing. But remember I said at the beginning, it's not all bad. More millionaires are made during these types of times than any other time. Now, I am not saying to take advantage of.

People being hurt. That's not, that's not where I'm coming from. People will get hurt if we end up in a recession. There's, there's no way about it. Most people, unless you're, you know, following me, following the show, you're educating yourself. Most people are not prepared if we have a downturn. Most people are not prepared for the inflation. Most people are not prepared with their money. This is why I do the show. This is why we're, we're doing this is because I want you to be prepared. The greatest thing that you can do at this stage in your life, no matter what age or stage it is, given the situation that we're in, is to build your financial literacy. Because as you educate yourself, as you learn more, you'll be able to cope, you'll be able to navigate, you'll be able to mediate, you'll be able to move through things because you will be informed and you're not just along for the ride. Okay, so there's a couple things that I want to tell you to do. But before I want to give you some hope here, I'm going to show you some charts.

Last time that we've had market drops like this. Okay, so this is going back to our 2008 crisis because I think this is a little different. But if you look at this now, we're looking at October 8, 2007. Okay, October 8, 2007. And we're at a high here. Okay, at, let's see, the Close here was 14,000. This is the Dow Jones Industrial. And this is just before the 2008 crash. Now you'll see that what does it do? It dive bombs here. It ends up so far down, it's down here that it gets mixed up in the other. The, the volume bars down there. And so what ends up happening? Let me just move to the next chart. You'll see this is on the same chart. On March 2, 2009, we hit a bottom. So we started at 14,000, and here we are at 6,600. Okay, so that's what happened. People were freaked out. This was the 2008 situation. But if people ran for the hills, if they ran in fear, they missed the opportunity. The opportunity is, is in here as much as it's really hard when you see people running past you. They're running for the hills, and you're going to run towards the hills. Okay, this is one of the things that you need to have a strategy, you need to have an understanding, and you need to have a plan to do this. Because watch what happens now. I'm going to take us out. This is that March date when it tanked. And then going from there. Let's do this in Green in 2010. So the last one was in 2009-2010. We now put ourselves back up to 11,000. So we went 14,000 down to 6,600, back up to 11,000. Point being is that the market in the long term will recover. We need to be prepared to, one, take advantage of the opportunities to sustain ourselves in the process. Three, to have the liquidity, the patience, and the mindset to not allow our emotions to get involved. Let me give you another example. Okay, let's go to our time at the pandemic. Okay, this was a quick one. This was a quick one. If you blinked, you missed it. But here we are in February of 2020. February of 2020, pandemic hits. And we just dropped like a rock, just straight down. Okay. And we start out at, at, let's just see, close was 29,400. So we started out at 29,400. We drop like a rock to down here. This is March 2nd. So February 10th to March 2nd, we dropped from 29,000 and dropped down to below 20,000. Okay, we lose one third. But look what happens afterwards. People jumped out of the market. They thought things were, were going wrong. And look what happens afterwards. If you sold here, you lost this, if you panicked. So in the end, we ended up back up here. Well, now let's look at what happened in these last two days. These are the last two days, not including today. Okay, this is the day we went up plus 900 points. And this is the day that we went minus 1200 points. Okay, this kind of stuff freaks people out.

But where are we going to go from here? I don't know. But I know that in the long term, we recover. I know in the long term there's opportunities. I know that when stocks go on sale, good companies, good indexes, good ETFs, good investments are still good investments. They just go on sale. And as we continue to stay in the game, we grow. Real estate.

Okay, the real estate may, may go on sale, interest rates going up. There's a lot of opportunity. So what do you need to do? These are the things that I want you to focus on. You can get caught up in the media, you can get caught up in all the hype, you can get caught up in all the emotions of the market, the ups and downs. And I've done shows on the emotions and allowing your emotions to take hold of your financial decisions and is a mistake. I've talked about this. So first things first, I want you to take a long term view. You saw it, you saw what happened in 2008. And I can show you repeatedly in history, okay? 2008, 2020, we're in the same, same boat now. We're in a decline. You know, do we think we're going down to zero? No, we're not going to zero. Could we go further? Certainly we could. Okay. Does that mean that we're going to hell in a handbasket? I don't think so. But if you're not prepared, if you haven't done what I'm going to tell you to do, then you can get hurt. You can get hurt worse than you may have now. This is scary for people that are like my age, I'm 60, going to be 61. It's kind of scary because you don't have this huge Runway for the recovery. What if the recovery is five years?

So you need to be smart about your plan, your portfolio, your asset allocation, your diversification and the things that you're doing. So first things first, long term view, okay? I want you to look through a long term lens. Second, I want you to look through an investor's lens because an investor is a long term investor. That means we buy good investments, we buy good companies and we hold for the growth. We know that in the short term you're going to have those ebbs and flows. But a good company is a good company, okay? A good company is a good company. A good index, a good etf, they are good. And we're going to, we're going to continue to see, see that growth. So number two is to have an investor's mindset. Number three, have a plan. Do you have a financial plan, a strategic financial plan. Not a plan for recession, not a plan for inflation, but a financial plan that will sustain you through the ups and downs. If you don't, we need to get a, a, a financial plan in place. So you are operating to a plan. When you have a plan in place, you have the ability to remove the emotions from your financial decisions, from your money decisions. You have the ability to direct your choices based on a thought out strategic plan and not the whims of fear or greed. Hopefully that makes sense. Number four, you need to have liquidity during these times. If you want to take advantage of the opportunities that are come, they're going to come. You want to have liquidity. That means I need you to focus on how do you scale your income, what can you do right now, this week, next week, to start to bring in more income, to start to. Whether it's a side hustle, whether it's getting into digital products or an online program that you, you sell, taking your knowledge out there, whether it's going around your house and finding stuff you're not using and, and selling it to get some liquidity. It gives you peace of mind. It gives you the ability to sustain yourself if there is a recession and to take care of yourself. It gives you the liquidity to take into consideration opportunities that come into play. It's the reason that when we talk about the wealth priority ladder and in the affluence blueprint that we say I want to have first at least a comfort cushion, which is $1,500 or one month's expenses, whichever is more. And then ultimately I want to have a peace of mind fund that I think needs to be nine to 18 months, especially for entrepreneurs to have liquidity, to sustain yourself, to have the peace of mind, to know that you can navigate and get through a downturn. You're not freaking out about living paycheck to paycheck. Do you know that something like 28% of people that are making over a hundred thousand dollars a year are still living paycheck to paycheck? There's something wrong with that. Okay, so I want you to look for income scaling opportunities. I want you to start looking at expenses, expense trimming opportunities. I want you to go through your expenses. Do we need this? Are we using this? I want you to give yourself enough margin in cash flow that you have the ability to sustain yourself, sustain yourself for volatility. If you haven't done this exercise again, it might be a painful thing to do, okay, but it's time to do it. It's time to do it because we are going to be in for a bit of a ride for the next little while. Okay. And it's going to stay. Then I need you to stay in the game. Those people that jumped out on the downslide, they were freaked out and they didn't get back in to take the take advantage of the up. So the key is to stay in the game. That means not only are you in and holding, but you're buying on the way. We use dollar cost averaging. I've got money going into the market on a regular basis. We're dollar cost averaging in. Sometimes I'm buying higher, sometimes I'm buying lower, but I'm averaging in as, as we go. And then the last piece is I want you to look at where you are in your portfolio allocation, your diversification. If we look at stocks like Facebook that lost 30% in a day, or Netflix that did the same thing, or Hulu or you name it, in this season, we've had a lot of companies that substantial amounts of value in a day, in a day. The mistake that we make, especially if we're beginning, is that we don't diversify. We pick a company. Well, let's assume that all you had was your money all in Facebook and it lost 30% at one point. Facebook was close to 400 bucks. It's below 200 now. Let's assume that you had all your money to say Facebook's going to the moon.

And it went to the earth's core instead. Okay, I'm picking on Facebook, but I'm just saying that when you narrow your investment into a single investment, you increase your exposure to risk. And if it's volatile, you can get damaged badly. But if I invest into an ETF or index or a diversified portfolio or Facebook is just one little piece of it. Even when Facebook loses, I don't get hurt as badly. It doesn't have as much of an impact. So especially if you're at the beginning stages and you don't have critical mass to your portfolio, you need to have a diversified portfolio. The best way to do it is low cost index funds, low cost ETFs. There's ways to evaluate these to make sure that they're right. We talk about them in affluence, blueprint and the criteria. But you, you get in that because they do the diversification for you. Once you have critical mass to your portfolio, then you can start to look at individual companies and stocks. And I just did a, a show episode on what do I look for in a company? That I'll make sure that we hook up at the end of this so you understand what to look for in a company if you're at that stage. But if you're at beginning and you're trying to get some things settled out, no focus on diversified portfolio. So to recap, yes, we have inflation.

Yes, we might get into a recession, don't know.

Yes, we've got interest rates that are going to go up and keep going up. Okay? Yes, it's going to impact all of us. All those things are yeses. That means that you got to look at it through a long term lens. You gotta have an investor's mentality, you gotta have a plan. You gotta build liquidity through income scaling and expense trimming. You gotta stay in the game and you gotta build diversification into your portfolio. Okay? I hope that this helps. I hope that this gives you something where you can settle in and know that these ebbs and flows, these manic swings, if you will, in the market, in the economy and what the media is going through.

Are going to happen. And we happen to be in a volatile, turbulent time right now. This will pass. It will pass. And to the extent that I can help you on this journey, to keep you from making mistakes, to keep you from getting on the ledge and thinking of jumping and all that stuff, man, reach out to me, all right? That's why I'm doing this. That's why the show is here. That's why we're here. It's to help build your financial literacy, your financial journey. Because I truly believe financial freedom is a birthright. The world just ever taught us how to claim it. They made it complicated, they made it complex. And it doesn't need to be, doesn't mean it's easy. But it is simple. We just gotta follow principles, follow rules and make it work. Okay? I hope that this helps you. I hope this serves you. You can watch that market, but watch it without emotion. Know that it's gonna do it. Let's get the plan in place. If you need help or anything, or you need some guidance, reach out to me. I don't sell investments. Just so we're clear. I got no investments, say, no insurance to sell you, none of that. I just wanna sell you on your dreams and the probability and possibility of financial freedom in your lifetime and building legacy wealth because it is your birthright. I hope this serves you. Thank you so, so much. Enjoy the rest of the day and I look forward to hearing from you on the journey until we get a chance to see each other in another episode or another show or on the road, Always, always strive to live a life that outlives you. Cheers.

Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there. Foreign.

And that's it for this episode of Building your Money Machine where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.