Unknowns Are Scary - REMIX | Series 10.1

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Welcome to the Enjoy More 30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

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Hello and welcome to the next series here on the

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Enjoy More 30s Family Finance podcast, REMIX for Rising Rates.

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In 2022, there have been really significant declines across

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pretty much every major asset class through the end of

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October. With rates rising, interest rates rising

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significantly for the first time in really a long time, it can be

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a very unnerving experience for people that are dealing with it,

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which is pretty much everyone out there. This series is going

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to attempt though to help you with that. Going back and

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re-mixing a number of past episodes that I've presented to

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help you emotionally navigate these more turbulent times. Each

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week, I'll be re-mixing a different episode, bringing what

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I would say is probably a timeless concept into the focus

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of the present day situation. So as always, before I begin,

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please share and like, please leave reviews. I'd love to reach

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and help as many young families out there just like you.

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Today's first episode is re-mixing all the way back to

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the very beginning. Season one, episode one, Unknowns are Scary.

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When my son Noah, if you remember was just a couple of

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days old, we brought him home from the hospital. And we

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started to notice these little blistery bump type things around

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his diaper line. And you know, at first we just thought it was

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an irritation from the diaper. Babies have super, super

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sensitive skin. They're red and blotchy all of her when they're

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born. But after 2, 3, 4 started to pop up, we kind of started to

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realize that this is maybe something more than just diaper

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rash. We came to this realization during the night so

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we left a message for the pediatrician, because we wanted

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to go in and see them the next day. That night, though I could

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not sleep at all. I was tossing and turning, my mind just

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wouldn't shut off. It was wondering just what was wrong

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with him. You know, you go on the phone, you start looking up

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everything on the internet, and there's just a whole box of

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scary that pours out at you. And so it was a very, very difficult

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night. Now the next day, we get the appointment with the

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pediatrician. They have us come in and they diagnosed it as

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something called impetigo, which is a bacterial infection. And

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it's not a good infection to have by any means. But if you

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know you catch it early, you get a prescription Neosporin kind of

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a thing. And now you handle it. And this poor little boy who's

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just been born is great throughout the whole process, we

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have him laying on our laps, no shirt on, rubbing the ointment

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on him holding up his hand, so he can't touch it. And he's just

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sleeping there with his arms straight up in the air. So he

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was fantastic. But you know, once that night happened, I

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wasn't scared anymore. Not because the difficulty was over.

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It was it was still difficult, we still had to go through and

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get him back to better. However, I knew what I was dealing with,

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right? I knew the name of it and I knew the treatment that was

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required to have him be better. The same thing is true when it

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comes to personal finance.

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What you need to know is that the unknowns from a finance

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standpoint or a personal finance standpoint, they work in a lot

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of the same ways. So if you don't know where you are, and

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you don't know what you need to do to fix it, that's pretty

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scary, right? And that's true for anything across the board.

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And what makes it even worse. A lot of times when it comes to

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finances is we don't even know what we don't know. So Noah had

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a rash. It was a visual element. I could see that there was a

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problem. Finances don't always work that way. And if they do

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work that way, it's sometimes because it's got so late in

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dealing with the issue that now we're trying to play catch up.

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So when we see our accounts in the context of this year, you

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might have your accounts dropping 20, 25% or more,

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perhaps, depending on how you're allocated. It can be really

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scary. Like, why is this happening? I've heard words

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thrown around, like interest rates and inflation but that

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doesn't all of a sudden magically tells me what's going

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on and makes sense. Like, oh, okay, interest rates right now I

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get it now. I'm fine with my account dropping so

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significantly. So why don't we start off today with an

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explanation on how interest rates and inflation could

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possibly tie to what you may have seen in your investments?

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When inflation is too high, the government starts to get worried

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about that, you know, the economy could get a little out

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of control. They want it to grow, for sure but they want it

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to grow it more of a controled, let's say steady rate. They

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don't want the train, so to speak, to speed up too much and

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get going off the tracks. So what do they do when they say

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hey, inflation is too high, the economy's running too fast. What

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do we do? They raise interest rates. Why? Because it makes it

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more expensive for companies and individuals to borrow money. If

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it's more expensive to borrow money, they won't have as much

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money to spend. Think like if you go to the store and they

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offer you a credit card. If they give you 0% financing versus 10%

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financing, you're probably going to spend more if they offer you

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the 0% right? So less spending overall slows down the economy.

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So when interest rates go up, it's generally viewed as bad for

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the economy. I mean, they are doing it to slow down the

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economy, right? So that would make sense. The stock market

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then sees this information and says, hey, it's probably going

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to be harder for companies to borrow money to grow their

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businesses with these higher rates. That probably means

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profits won't be as high as we expected. And stocks may sell

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down like they have this year. When stocks sell down, though

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you have that other area of your portfolio, right? Bonds, fixed

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income, they are more conservative, they will help us

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balance out those losses. And that usually tends to be true;

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the bond part of your portfolio if you have one is not there to

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increase your returns. It's there to provide stability in

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the years where the stock market decreases.

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In the 2008 financial crisis and the 2020 pandemic, bonds did

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hold up considerably better than stocks. However, this time

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around, the reason for the losses were rising interest

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rates. They weren't a global pandemic, they weren't a

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financial crisis. This year, it was inflation and those rising

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interest rates. When rates go up, bonds go down. So if you

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think about it, they have this reverse relationship. If you

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personally owned a bond that had a 4% interest rate, and now

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interest rates go up and new bonds are offering 5%, Which one

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would you prefer; your 4% bond or the higher 5% bond? The 5%

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one, right? So when the rates go up, the 4% bond is now worth

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less. In 2022, then thus far, both the stock and the bond

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portions of most portfolios have been in decline, as there has

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been that lack of balance.

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So hopefully, you know, that helps a little bit in connecting

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the dots together for you, at least at a starting point in the

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series. Maybe at least makes you know a little bit more sense why

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when you hear inflation and interest rates, how those

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connect together, and how that may be connected to your

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portfolio, depending on how you have it put together. Does that

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make you feel better about seeing your accounts go down

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now? Nope, you know probably not. Just like me finding out

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that the name of Noah's infection was impetigo didn't

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instantly make me feel better. But at the same time, it was a

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little less scary for me now than when it was completely

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unknown to me. Maybe now instead of saying "why is this happening

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to my portfolio", you can say, "I kind of get why this is now

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happening to my portfolio."

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And next week's remix, Stocks Lead, Don't Follow, we are going

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to dive a little bit deeper into our perspective now and how to

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deal with it. While I can really only give specific advice for

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people to take with clients that I know as you know, I can't give

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advice to somebody's situation I don't specifically know any more

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than a doctor can prescribe a drug to a patient they've never

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met. What I can try to help with is the perspective element in

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the way that you're looking at this, across the broad spectrum

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of achieving your goals, right? Investments are there to help us

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achieve our goals, not just to have a big number on a piece of

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paper. So we want to remember that money is just that tool,

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these coins, these papers, these numbers that we see on our

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screen. Feeling that security, feeling that we're on the way to

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achieving our goals and happy experiences we want to have with

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our families. That is the real end game in all this and so

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that's where I'm going to try to help you.

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As always, please remember to review and share for others and

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if you need any help, don't hesitate in reaching out. I

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probably have helped someone just like you. Until next week.

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Thanks for joining me today and I look forward to connecting

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with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax, or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor, Member FINRA/SIPC.