Episode 62 – Finding calm when the stock market goes down
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Well, it’s April of 2025 and we know that there’s been a lot of uncertainty recently about the stock market. So, we thought it’d be a good idea to do an episode about this. But even though the market is low, that doesn’t necessarily mean that you should be panicking. As the saying goes, buy low, sell high.
So, if the stock prices are low and you could buy stock now, one way to think about it is that you’re buying stock or an index fund while it’s on sale. But there obviously is a lot of, market volatility going on right now. So welcome back, Malia, to the podcast. Can you just kind of explain to us a little bit about market volatility and why it’s so important for people to understand it.
Malia
Yes. Thank you, Jenny, and thanks for having me back. I think that right now we know there’s a lot going on in the world. Just everything that’s happening. And it’s definitely impacting the market as a whole, which can be a really scary thing when you’re relying on this money for your future. And you log in and you see that your balance has taken a tank and it doesn’t feel good, which then when we start talking about those feelings, it can lead to really impacting your decision making about your financial future.
And so that’s why I think it’s so important to recognize that, yes, there’s a lot going on the market. We all see the news. Things are dropping. We’re closing in the red. We log on, we see our balances, we see those negative numbers. And it really leads to those feelings of, “oh my gosh, what can I do?” And those panic moments.
And that’s why I think it’s important that we have a step back and have this conversation about, you know, you can’t control the external factors in the world. You can’t control any of those things. The only thing you can control is the decisions you make and how you respond and react. So I think the first thing I wanted to talk about a little bit is this idea of loss aversion.
It is very natural for us to look at the current state in the current moment and see everything’s looking terrible in the world is on fire, and we’re losing money and feel like that’s the permanent state and not take the step back and realize maybe we’ve had a lot of gains over time in our account, maybe your balance is still double what you even put in.
And so talking about how the concept of loss aversion is basically we feel loss a little more harder than we would feel an equal amount of gain. It’s why FOMO works as a marketing technique.
I like to give the example of gambling. If you took $500 and bet it all on black and you won a thousand bucks, and that feels super amazing, and then you go bet some more money and you lose $500. A lot of people think of it as, “oh my gosh, I’m down $500. I lost so much money.” Well, no, you’re actually still up $500. You’re walking out with a thousand when you only put $500 in.
So again, this idea of loss aversion, the feelings are normal. They naturally lead to panic. And that can really impact our decision making and how we react with our investments. And Jenny, you know, you mentioned kind of like buying things on sale. That’s another way to look at it too, is how can you kind of see that it doesn’t have to all be doom and gloom in this situation.
Seth
I’m sure both of you have been getting lots of questions from people about the market and where things are at. I’ve talked to a number of people about this, and I actually ran some numbers to think about that, buying things on sale. So, if the if the market goes down 20%, you’re actually buying 25% more shares. If the market goes down 50%, you’re actually buying double.
And the way I was thinking about that is like, because I always buy running shoes, that’s all I buy. I buy running shoes; if my running shoes are 50% off, I get to buy two pairs instead of one pair. I’m spending the same amount of money I would have on one pair, but since it’s half off, I’m buying two pairs. So, if the market goes down 50% on buying twice as much, it is hard to think about in that way sometimes.
One of the questions I actually wanted to ask both of you: how frequently do you actually look at your account?
Jenny
Ooh, maybe, maybe once a month? Yeah.
Malia
That’s pretty good. I honestly try to look at it only once a year when I maybe do some rebalancing. I got into the cycle of looking a little too often. And, you know, these days I had to go into my account the other day for some other reason to update something, and I was like, oh gosh, just close out.
Don’t look at it. But I also recognize I have the luxury of being on the younger end of the spectrum where I can say, and I can know, I don’t need this money for another 20, 30, 40 years, whatever it may be. And I can just not think about it and not have to worry about it.
I have a friend who checks hers daily and I tell her, stop doing it. It’s not your Robinhood account and it’s not your day trading account. You need to stop that. All it’s doing is making you feel bad and inciting those feelings of panic, unless you’re going on to increase your contribution. So, you get those double running shoes like you were saying, Seth. Then you can go on a little more frequently.
Seth
Yeah, I think that’s actually exactly right. Trying to figure out how to set up a system for yourself. So that way you can stick to those rules, whatever they are. Malia, I love the idea of once a year because then you’re looking at your overall balance. You’re looking at your rebalancing. How are my assets allocated the way? Do I want to shift what I’m investing in?
You set up a pattern for yourself, a ritual, and I actually think it should work, or could work relatively similarly for older employees or people who are already retired as well. I have to take out an RMD once a year, so I’m going to log in and figure out what that amount is. Great. That’s all I need. You know, I’m going to look at my balance and rebalance or how I’m and then I’m not going to look at it again.
What rules can you set up for yourself to help reduce some of that anxiety that, as Malia was saying, is noise and it’s causing you stress on things that you can’t control. What are the things that you can control? I’m sure lots of folks are looking more frequently. And then what sort of rules can you set up?
Jenny, you were talking about, you know, thinking about buying things when they’re on sale. And I get a little bit nervous about, like, the buy low, sell high sort of idea because it’s timing. It’s like you don’t know when high is and you don’t know when low is.
Jenny
That’s true.
Seth
Yeah. It’s tough. But trying to change your mindset: “oh maybe I should increase my DCP contributions now [that] the market is down.” I was talking to another colleague about this and he was kind of feeling a little panicky. And then he actually walked himself through all of those things and he’s like, “but I’m buying things on sale. Maybe I should increase my contributions now.”
And for him, it was a trigger to think about. Am I saving enough? Maybe I want to save more. And it was a nice way to reframe the conversation. Instead of him being a little panicky about it. But once again, he had the luxury of time. You know, he’s in his 40s and thinking like, oh yeah, I want to have more when I’m in my 60s, I’m going to buy while it’s on sale.
Jenny
Yeah. One of the gals that I follow on Instagram [who] also has the luxury of time. I think she’s under 30, but she was kind of pushing this message recently to her followers where she’s like, “hey, you know, the last time the stock market took a dive, you know, I bought a ton of stocks. And then here’s how much it helped me out and I was able to increase my stock portfolio that much more.”
Yeah. And so, she was kind of encouraging people like, hey, you know, now’s the time to kind of if you have. I was like, “I don’t have thousands of dollars, but maybe I throw a couple extra hundred dollars into some index funds.”
Seth
Or increase by 1%
Jenny
Or increase by 1%, my DCP yeah.
Malia
And you’re exactly right about, you know, this buying low. I think it’s important to also just take the step back and realize we’re talking about long term investing. So, if you’re buying it now when it’s on sale, you know, economists, all people with fancier degrees than me, have done the studies and shown that over the past hundred years.
Think about like, our country as a whole and what we’ve been through over the last hundred years and the wars, inflation, a pandemic, all of that chaos. And roughly speaking, stocks have doubled every eight years. So, if you’re buying them now at that discount and you look at kind of over time how this has happened, when you have that power of time, you know, you’re not going to draw for ten, 20 years, then you’re looking at your money’s already going to have gone up.
And to your point, Jenny, that’s exactly what a lot of people say is buying more because you’re not losing shares. They’re just losing value right now. And you’re getting more of those shares or more of those running shoes. So, when inflation goes up and now it costs you three times as much to buy a pair of running shoes, and you have a stockpile that’s going to help you with that in the future.
And the same thing with kind of your stocks you’re buying those cheaper stocks. So, when the market does eventually rebound, it’s going to help you make up for those losses that you experienced over time. But I also recognize we’re sitting here and telling you this. And it feels very different. And it feels very counterintuitive to put more money in when you’re seeing things in the red.
And I just want to acknowledge it. That’s a really real feeling. And it doesn’t always feel good to do it. But there is the method to the madness, I guess.
Seth
Yeah. One of my favorite Warren Buffett quotes is: “when everyone else is greedy, be scared, and then when everybody else is scared, be greedy.”
Jenny
Which point are we in right now?
Seth
Everybody’s scared. So, I need to be greedy and think about how can I invest more? Like Malia said, it might not be the right thing for everybody at the right time but trying to step back. And what are my long term goals? What am I really thinking about?
Malia, I wanted to ask you because before we started recording, we were talking a little bit about the advantages of being young in this situation or younger in this situation. And what sort of conversations are you having with folks who are closer to retirement? Some of our colleagues or other folks that might be thinking that their money is just about to be drawn out, or maybe they’re already retired. I know I’ve been having [these] conversations with my parents. Yeah. What sort of conversations are you having with folks?
Malia
Yeah, it’s not good. It’s a lot of, like you said, the panic and the fear and understandably so. You know, you’ve worked your whole life to get to a certain point and now you’re here and you’re so excited to be going into this new chapter of retirement. And then you see your balance dwindle and dwindle and dwindle.
So absolutely understandable. There’s a lot of feelings of fear about that. And I think one thing that I like to remind people is just because you’re retiring doesn’t mean that’s the end. You still are going to live for another 20, 30, however many years. If you take your vitamins daily, it could be another 50 years after you retire. I mean, you definitely still have time.
You don’t have to take it all out the day that you retire. You still have time to ride out some of those waves because your retirement money should last as long as you do. So, I think that’s helpful perspective for people to realize, too, is that just because you’re starting to draw on it now doesn’t mean that it’s still not in there being invested and continuing to grow.
And there’s also a lot of different things that people have talked about that you can do, like look at your own personal finances, see what you have saved in cash. Maybe you can put off drawing from your, Deferred Comp or something like that for a little while, see what options you have that are available to you.
But definitely realizing that just because you’re at the point of retirement doesn’t mean that everything stops working for you. You still have time. You still have the ability for things to rebound, and you don’t have to make the decisions now. That’s one of the great things about our accounts is you have a lot of flexibility. Like if you’re a Plan 3 member, you can get that defined benefit, that pension that you can rely on and make some decisions about your other side.
And again, you don’t have to do it all at once. You could say, “I’m just going to take a little bit out and do that and kind of sit on it and see what happens and go from there.”
Jenny
Yeah. And I want to bring up real quick to we haven’t touched on this yet, but I was just talking about this with a coworker where there’s really that pension side. And then the DCP side and my coworker was saying, like, “oh, thank goodness that I still have my pension side, because that’s still guaranteed money that’s not getting affected.” And so they’re like, “well, thank goodness I still have that.”
Seth
Yeah. There’s a floor or a baseline that you can budget around. And I actually think we may do another episode kind of on that topic as well. And market volatility and pensions and how that can interact, maybe bring an actuary back to help explain that to us.
Jenny
Yeah. But yeah, just that kind of reminder that with all this like market volatility, we’re really just talking about those DCP investments.
Seth
Yeah and the Plan 3 investment accounts. Yeah it’s a really good point. And I think I just want to highlight again what Malia was saying, because the conversation I have had most frequently with people is: when are you going to need this money and how much are you going to need when you need it? So, if you have a Plan 3 account or you have a DCP account, you’re about to retire, do you need that entire balance on day one? Probably not. But we do have, you know, people who are retired who want to pay off their debt or they want to pay off their house, or they want to buy a car, they’re going to buy a motor home, or they might have a set amount of money that they do have a plan for.
A really common kind of strategy for retirees is to think about kind of their short-term money needs, their medium-term money needs, and then their long-term money needs. And as Malia was saying, maybe have their short-term needs in cash and their medium-term needs in kind of medium-term risk investments, and then their long-term more in risky investments and not worry about the long-term needs as much knowing that that money is going to go up and down.
The other thing, Malia, as you were talking, I’ve never fully thought about this, but as a person is approaching retirement, something to consider when you’re looking at your investment balance is: could I live off 80% of this? Whatever my account balance is. What would happen if it went down 20% at any given time? Because the market drops of 20% are semi frequent.
And so, trying to keep that mindset of, “oh yeah, maybe all that money isn’t going to be there when I need it, but am I still going to be okay with it?”
Malia
Yeah, and I think especially with our retirement plans, we have options and we’ve done other episodes and I think we’ll probably do more expanding in the future about like the annuity options that are available that you can if it really is just unsettling your heart and you’re losing sleep and you’re like, “I just want to never have to worry about this” and you’re in Plan 3, you can look at something like the TAP Annuity that takes it out of the market and turns it into guaranteed income for you.
And we do have a separate episode that we did about that. Or, on your defined benefit side, for your Deferred Comp, you can purchase additional annuities to increase that benefit. So, you just don’t have to have the heartache anymore. I’ve seen where balances go down $10,000, but when you look at the grand scheme of how much it is, and if you were to annuitize that, it might only be a difference of 20 bucks in your monthly benefit with the market going down.
But it looks like a lot when you’re seeing it in your account and you’re seeing it go down. But when you’re spreading that out over a lifetime, it may not be as big of an impact as you think. And so that’s something for people to also consider as well, is that we have these options for you. If you’re like, “my heart can’t take this wild ride,” and you just want to be able to put it into your benefit or something like that. For those that are nearing retirement or in retirement, still have those options available to them.
Jenny
Yeah. Seth, you had a good story about Plan 3.
Seth
I was just talking to a friend who his dad had retired in the last year or so, and my friend encouraged his father to buy an annuity through the state as part of his PERS pension, and how relieved his dad has been over the last few weeks with the market volatility and realizing like, that’s totally not something that he has to worry about at this point because he’s got this guaranteed income.
It is challenging if you’re trying to make that purchase when there is a lot of volatility, you’re not quite sure exactly how much you’re going to be able to purchase in an annuity. But I think, as Malia said, you kind of have to make that decision for yourself. Is that piece of mind worth maybe slightly less of a benefit that you’re going to receive?
I think the other question that people oftentimes have with these investment accounts is they’re thinking about like, “oh, I want to leave a certain amount to my kids. And that’s what I’m going to keep in my DCP account, or that’s what I’m going to keep in my Plan 3 account.” And I think one of the very first rules of retirement planning for people is you first have to take care of yourself. And what do you need to live?
And maybe you purchase an annuity with that amount and then you leave the remainder in that investment account for future you. If you live a really long time, or maybe for your kids or somebody else down the road. So, it’s not always an all or nothing. And I think that’s the other thing that we oftentimes see from people is that they’re thinking about their entire balance, instead of thinking about how the different ways I can carve this up.
Malia, did you have more thoughts on that?
Malia
Well, I was going to say, and to look at their finances holistically. I think you’re, you know, to your point about leaving money to your kids. Many people forget there’s a life insurance policy. Maybe you bought that. You were forced to buy when you were working. That’s going to leave a lump sum of money to whoever your successors are.
And so, look at things holistically. This may not be your only pot of money that you have. It’s your intentions for it. So, I just wanted to remind people of that as well. Oftentimes there’s other sources of income or places that they have money that may come from different things that they may not always be thinking of, and they’re just looking specifically at retirement directly.
And then the other thing I just want to remind people is negative stuff makes great news. Right? And so, you know, obviously the doom, the gloom, the horrors of the market is making really good news. People are reading it. Clearly they’re reading it because they’re calling us. Right? But, you know, take a step back and look at things as a whole.
Go back to like, this week alone, for instance, the S&P 500 fell about 6%. But when you go back and you look at 2008, which was not fun times for the market, one of the big other, great recessions people often refer back to, it looked like it was about like down 57% from its highs over time. And so 5%, 6% feels like a lot right now.
But you look at 2008 and you see how much more it dropped and how much it’s recovered since then and how much people’s balances have gone up. Same thing with during 2020 and the pandemic. We had swings and there were months where some of our funds lost 20%, and then immediately the next six months after they went up 30%.
So again, look at it holistically. Do not look at just a single point in time. Take a look at what has happened over time. Because again, this isn’t your day trading account. This is your long-term investment account. So, you need to look at the long-term history to really understand what’s been occurring.
Seth
So, we’re going to do, I think at least a couple more episodes probably over the next couple of months. On volatility and kind of planning for times of uncertainty. We would certainly encourage listeners to send an email if they have questions of things that they would like us to talk about. Part of the reason we do this podcast is just to encourage conversation.
And as Malia and Jenny both said, we’re having lots of internal conversations about this with coworkers. I’m sure our listeners are having conversations with their coworkers, their family about these sorts of things. And if there’s subjects that you think would be beneficial to have a broader discussion about, please email us at drs.podcasts@drs.wa.gov. We would really appreciate additional thoughts or topics that you’d like us to dive into that you might be feeling a little uncomfortable with right now.
Malia, do you have any closing thoughts?
Malia
No, just thanks for having me here. And again, just kind of reminding people, ultimately, I can’t it say enough: consider this long term. Do not think of it as short term. And also, we’re in it with you. I don’t know if that makes anybody out there feel any better. But, you know, even those of us, like you both said, we’ve been talking internally when I’ve had people call and tell me, I’m like, “I’m right there with you.” I am avoiding my balance like the plague. I understand these feelings that you’re feeling. They’re very real.
But again, at the end of the day, you cannot control everything that’s going on out there in the world that’s impacting the market. You can only control your responses and your decision making. So, take that step back, take that deep breath and make sure you’re making decisions that aren’t based off of emotion alone.
Seth
Thanks, Malia.
Jenny
Thank you.
Malia
Thank you.
[music outro]
Disclaimer
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