130: How To Overcome Your Emotions During Volatility

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0:42That's why America's beverage companies are sharing more information about our ingredients at GoodToKnowFacts.org. No spin, no judgments, just the facts straight from the experts for more than 140 beverage ingredients. Visit GoodToKnowFacts.org. Hey everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by Public.com. This week's episode is all about preventing you from having those knee-jerk reactions every time the market sells off and your portfolio goes down. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million.

1:23I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. So Robert, what are we going to be talking about in today's episode? In this week's episode of the Rich Habits podcast, we're going to teach you the three strategies we personally used when building our millions that kept us on course during times of economic uncertainty and stock market volatility. Last week, the Bureau of Labor Statistics revised the May and June's jobs reports down by over 250 ,000 jobs.

1:58That's a quarter million jobs we thought were created during the last few months that were just pixie dust. When this information was shared to the public, the markets went crazy as investors ran for the hills. The Fed is now expected to cut rates during the month of September with an 80 % chance being priced in by the markets right now. And by the slew of DMs and comments we've received, People are freaking out about what's going on in the markets, and we're here to break it down for you. So as you all know, we love sharing our personal strategies and ideas when it comes to building wealth. Robert and I have amassed millions over the last couple of years, and it was not by accident.

2:35So we're going to share with you all a couple tips here, three specifically, as how we approach overcoming our own emotions during market volatility. So, Robert, before we share our strategies, though, I want to walk down memory lane. Facts are our friends and they help us navigate the future. Now, of course, historical data and averages aren't always going to predict the future, but they can certainly help us navigate what could be around the corner. So I want you guys to truly understand the facts I'm about to lay out for you. The S &P 500 sells off 3 % or more every one and a half to two months on average.

3:11Every two months or so, you get a three to four or 5 % sell off in the S &P 500. Now, sell-offs of 5, 6, 7, 8%, right? That happens every three to four months on average, with the last one occurring in April. And we very well could be approaching one as we speak. But regardless of that being the situation, I think it's really important for people to understand this is par for the course. Having a 3, 4, 5, 6, 7 % corrections in the index funds in ETFs we have as the base of our financial portfolios is normal. If investing was easy, everyone would be successful. We wouldn't have people like Warren Buffett amassing billions of dollars over their life because they figured out how to perfect it.

3:52So Robert, why don't you just dig in a little bit more for me? Yeah, I want to take a moment and make sure everyone understands what Austin just shared. Market-wide sell-offs of 5 % or more happen every three to four months, so it should be no surprise. There should be no shock. There should be no awe or fear or none of that. So when your portfolio sells off by 5, 7, 10 % twice a year, there's no historical reason to panic or run for the hills. This is par for the course. If markets only went up and to the right, everyone would be rich and what would you need us for? But our reality is they don't.

4:29Humans are emotional creatures, but today that all changes. So Austin, let's dig into our first strategy so we can break all this down for everyone and we can get everyone to ooza a little bit and really just go with the flow and understand that volatility is part of the game of building wealth. 100%. So the first strategy that really helped me invest toward my future during times of volatility was understanding I could only control the controllables, right? We can't control the performance of the stock market, but we can control our monthly budget, how much we decide to invest on a weekly or monthly basis, where we invest our money, and our long-term plans for our retirement.

5:12So here's a great example. During the year of 2022, we experienced a bear market. The S &P 500 and the NASDAQ 100 sold off by 30, 35, 38 % or so. It was a bloodbath. Now that's nearly a 40 % decline in the indices, not to mention names like Netflix, Shopify, and Meta selling off by 60, 70, 80%, right? Single stocks in people's portfolios were selling off by more than 50 % regularly. So when we're faced with prolonged volatility or even volatility in nature and general underperformance in our portfolios, it's important not to focus on those percentage gains or losses or the ups and downs and in circles, but instead focus on what you can control.

5:55How much are you investing on a weekly or monthly basis? I can't control the stock market's performance in the short term, but I can control how much I invest in the short term. And tracking that performance and investing is super important because if you don't track it, it didn't really happen, right? For example, you can say to yourself, let's go. I just invested$500 this month. That's$45 more than I did last month. I'm doing a great job. Or I invested in my Roth IRA this year. I didn't do that last year. I'm doing a great job. I increased my 401k contribution up to the match this year. Or recently, I'm doing better now than I was before, despite what other market volatility could be going on behind the scenes.

6:34Being able to see that progress and what you can control as an investor is incredibly important. We always talk about volatility is going to be here and understanding that their$4 cost averaging as the solution to that is key. And it's not just investing more in tracking your progress, but it's investing in the right things. Austin and I are big believers in index funds and ETFs. And historically speaking, these types of investments have delivered 10 % to 12 % total returns over the last several decades. And no matter if you're buying during times of volatility, like in 2022, or at all-time highs like we're seeing right now, it's always a wonderful idea to be a net buyer of assets.

7:16We talk about this all the time, and it's just so important for everyone to follow along and really understand these points and these strategies as you move forward in your wealth building journey. And that leads us into number two today. Be careful when owning high beta stocks. There's two types of stocks, high beta and low beta. You might be asking yourself, what's beta? Well, beta can be defined as how much a stock underperforms or overperforms their benchmark index like the NASDAQ or the S &P 500. For example, low beta are traditionally utility companies and healthcare companies, very stable and predictable, whereas a high beta stock is usually a technology company or a biotech company who are usually unprofitable but growing like a weed and very speculative.

8:06High beta stocks, as you can imagine, move up or down way more than their benchmark index during times of volatility. The NASDAQ may decline by 1%, while these high beta stocks would decline the same day by 4 % or 5%. Those are some dramatic swings in your portfolio. So if you find yourself as someone who has a lot of those in your portfolio and you're freaking out about volatility, maybe you need to reassess your risk tolerance or change your holdings to realign with your existing risk tolerance. You are someone, though, that wants to own those high beta stocks because historically speaking, right, when you choose the right ones like Palantir, you can dramatically outperform the markets, you need to be prepared.

8:49So if you want to do those things, have at it, just make sure you're going into that with an understanding of what could happen. You should not have to be in a situation where you're losing your mind when your investment goes down by 20, 30, 40 % in a couple of weeks and be surprised by it. That shouldn't be surprising if you are owning these high beta stocks. These high beta stocks are volatile in nature and usually not something that I hold on too much in my own portfolio. I've got a bucketed category. It's like my high risk bucket specifically. It's called long risky. It's these risky names that I'm invested for for the long term.

9:20And it makes up about 20 % of my own portfolio. So it's not like this is my entire portfolio. These names that go up and down by 30 % in a week. Palantir is a great example, right? Robert's talked about this one for years. Fun fact, Palantir has sold off 20 % or more by four times since their IPO. Those 20 % sell-offs are normal for high beta stocks and would be considered a bear market and red flashing lights for the indices and ETFs we talk about. So by understanding the difference of like expectations, right? Laying out expectations with your investments. Ask yourself, am I investing into a high beta stock or a high, you know, risky stock or risky investment?

9:59If yes, then I need to expect volatility. And if I'm not accustomed to, or I'm not expecting that, and if that's not normal for me, then one, I need to just take a step back and not own that stuff because it makes me freak out. Or two, maybe I need to carve out a small portion of my portfolio to be exposed to that volatility. Because again, when the indices move up by more than 1 % in a single day, that's a big move, right? The S &P right now, I'm looking at it's up only about 73 basis points. So not even three quarters of a percent. That's a pretty big move in a single day for the S &P. We're on the flip side.

10:31If we see a Palantir or a Shopify or one of these high beta stocks up by, you know, 73 basis points, whatever, we'd say, oh, well, that's not, didn't really do much today, right? When it goes up by four, five, six, 7%, that's what we are accustomed to. So just understand your expectations for your investments. And if you are doing this high beta, high risk investing, do it with a small portion of your portfolio after you've built your base and do not run for the hills when you experience a 20, 30, 40 % correction in a week or a month or a quarter, because that is normal, right? That's not normal for the S &P.

11:07If we saw 40 % correction in the S &P, things are bad. Well, to click back on Palantir just for a moment, for the people that didn't have a knee-jerk reaction and they did not sell during those times of 20 % pullbacks since the IPO, they would have enjoyed a 27X on their money just by staying the course in that stock, in that sector, and by believing in their long-term investing thesis. That's what we're trying to achieve here today is to get everyone to understand things happen, volatility happens, but if you understand what you're investing in and you have a long-term thesis, all the money is staying steadfast.

11:46That is where you build the wealth and that is how you win in these markets. Now, if you are someone who's a long-term investor, you're focused on building wealth over a long period of time, we cannot recommend Public.com enough. Public.com is an investment platform that focuses on long-term wealth building. No gambling, no day trading, none of that crazy stuff. If you're serious about investing toward your financial future, it's time that you open up an account on Public.com. On Public, you can build a multi-asset portfolio. Think stocks, bonds, options, cryptos, ETFs, and more. And Publix artificial intelligence isn't just a feature that's built into the platform.

12:22It's woven into the entire experience. So you get those portfolio insights and earnings call recaps. Publix gives you smarter context at every touchpoint of your investing journey. And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers. Let me say that again. A 1 % match on IRA deposits, transfers, and 401k rollovers. Fund your account in five minutes or less at public.com forward slash rich habits. Paid for by public investing. Full disclosure in the podcast description. So our third strategy that we personally follow when handling and overcoming this emotional burden of volatility is focusing on the fundamentals.

13:05The only reason we invest in stocks is because we understand them. We believe in the companies and we have a hunch as to where they're headed. Sometimes their stock prices get completely disconnected from the underlying fundamentals of the business. Revenue growth, margins, profits, future investments back into the business. And by following the day-to-day stock price, instead of zooming out and focusing on quarterly and annual progress of those fundamentals, how has revenue trended? What are their margins? How is that cash flow and profits, right? focusing on the long-term fundamentals and not the short-term day-to-day stock price movement is how we will be able to stay steadfast, stay invested, and focus for the long-term.

13:47It really helps you build that volatility muscle that all of us have to eventually build if we ever want to be successful investors. And we've been saying for a very, very long time, when in doubt, zoom out. And that's never been more effective than during times of volatility like recently. Every day in my DMs and in the Rich Habits Network, people see a headline, the stock drops 10 % or more, and they want to run for the hills out of fear when they should instead focus on the three to five year growth of the sector and their long-term vision of the management team of that company. We're all going to make mistakes, but you'll never become a successful investor unless you can zoom out from the day-to-day price action of the stocks and ETFs and focus on your own long-term retirement planning.

14:34So remember, the three most important strategies for overcoming that emotional burden that happens whenever we see volatility in the markets include controlling the controllables. I'm investing more this month than I did last month, more this year than I did last year. No matter what the markets are doing, I'm doing better myself. I'm controlling what I can control. I'm careful about the number of high beta stocks that are in my portfolio because I know high beta means high risk. And those names go up, down, left, and right by 20, 30, 40 % sometimes. And that, if that's not for me, I need to make a change.

15:05And then finally, I'm focusing on the long-term fundamentals of these businesses. How did Meta or Microsoft or Amazon or these different companies, how did they perform? Are their revenues growing? Are their profits growing? What is happening in this business, even when their stock price might not be doing that great. How is the underlying business doing? Those are the three best strategies that have helped us amass millions of dollars of wealth over the last several years. And I'm sure if you all are able to really understand them, hone in on them, they will help you over the coming decades as well.

15:38I really enjoyed filming this episode because we see it every day in the Rich Habits Network. I see it on Instagram, TikTok, the messages. Anytime there's this clickbaity headline or the markets decline or there's a presidential tantrum, I feel like just people automatically get fearful and then they start to panic. And if this episode can change that for many, many people out there, then we've done good because I just find that in my history of doing this for 30 some years, that the more you stay steadfast and you stick to the plan, the better off you're going to be and the higher your returns are year over year because you're not getting in and out with every fearful headline and you're not really concerned with the day-to-day price action.

16:26So I think that's why this is such an integral episode, getting people to really understand that at all levels mindset and being able to control your promotions is key to leading a successful life as an investor. I couldn't agree more. I'm so grateful that we have people that listen to some of these strategies that have worked for us and we're able to provide these strategies for everyone and share with them what has helped us get through times of volatility and has allowed us to really train up that volatility muscle. Now, with that being said, quick shout out to Neos Investments. If you guys aren't aware, Neos offers ETFs that seek high levels of monthly income with a keen focus on tax efficiency while providing core portfolio exposure across equities, fixed income, real estate, cryptocurrency, and cash alternatives like T-bills.

17:14Their ETFs may be especially interesting for investors looking to generate tax-efficient monthly income inside of their investment portfolios. Their funds also may serve as a compelling income-focused alternative or complement, like in my own instance, to many of the investments already in your portfolios. Now, Robert, quick shout out here. I got to tell you guys, I'm making$835 a month is my passive income that NEOS funds are paying me. I've got SPYI, QQQI, and BTCI. I've got about$20 ,000 in each of those, and I'm making almost$1 ,000 a month in passive income. It's insane. So same here. And if you're looking to add passive income focused ETFs to your portfolio, consider learning more about NEOS ETFs at neosfunds.com.

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18:32NEOs investments are distributed by Foresight Fund Services, LLC. So with that being said, let's now jump into the Q &A section of this episode. As a reminder, you can ask us any question you'd like. Just DM us at richhabitspodcast on Instagram or email us at richhabitspodcast at gmail.com. And we've actually got a couple here. We've got one email and two DMs. So we're trying to keep it scattered about, not trying to neglect anybody here. So our first question is from James R. James says, hey guys, I've been a huge fan for the last two years and I've done my best to incorporate the habits and lessons you've bestowed on the community.

19:06Last year, my wife and I were both laid off in July. Lots of financial details in between, but 13 months later, I've finally been offered a position that includes a base salary, a commission, and a car allowance. My car is a Mazda CX-5. It's 10 years old with 140 ,000 miles on it, and it needs some work. The air conditioning doesn't really work when it's over 95 degrees, and I live in Texas, so I got a few more months of that. I'll probably need new brakes and tires before the year's over, as I'll be putting quite a few miles on this car driving through my designated territory. That said, I will be receiving a car allowance of$750 a month.

19:41I'm tempted to use that money to purchase a used truck or SUV with lower miles as I'm in sales in the heavy equipment industry and I'm driving a lot. I've looked at leases, however I'm unsure of the wear and tear I might put on and not to mention higher than average miles could be used. I don't think a lease is a good idea right now, but would love y 'all's perspective regardless. So here's my question. Should I try and ride it out on my Mazda as long as possible and use the car allowance to pay down my consumer debt? or should I take advantage of it, trade in my used car as a down payment, and purchase a designated work vehicle?

20:14Then, when my commissions begin to come in, I can pay lump sums to my consumer debt and invest with my commission money. I'd see myself at this company for a few more years. Thanks again. Good question from James here, Robert. What's your take on this? I want an allowance. Where's my car allowance, Robert? Yeah, my take is get the new vehicle. You've got a new job. You want to make a great impression. You don't want to be worrying about breaking down in the middle of the Texas heat. You don't want to be worrying about pulling up to an important client meeting and you're running late because the car overheated because it's got a million miles on it.

20:47I would say take the car allowance, get the new vehicle, trade in the one that's having its issues, really get off on the right foot in this new position, impress the company, really crush it. But then as soon as you start to see those commissions, soon as you start making the big bucks, lunk it down, get the consumer debt paid off, get yourself back on track and get moving on the Roth IRA and the bridge account. I think you're spot on because, yeah, could you piecemeal together some repairs on the Mazda, maybe make it another year and pay down some debt? But the problem is that year is going to be wrought with stress, probably some breakdowns.

21:28You're going to have to have a couple shirts in the car because if the air is not working consistently, you're going to be really, really hot. So that's what I would do. I know it's probably not the best move, but I think it's the best move for your current situation. So you get off on the right foot with this new career. Robert, this is a tough one. Half of me wants to agree with you. The other half of me is like, what are you thinking? Because on one side of the equation, he's got this car that's worth probably six, seven,$8 ,000, right? That's what Google is telling me. So to his point, he could put down$6 ,000,$7 ,000,$8 ,000 and then use this car allowance of$750 and borrow maybe let's say$20 ,000.

22:03Now he's got a$25 ,000 car that's a lot more reliable and it's got air conditioning and he doesn't have to change his shirt because he's a smelly person. A lot of things could be better here, right? On the flip side, I heard consumer debt. And when I hear consumer debt, I immediately think of credit card debt. I would much rather see this person drive their totally capable car for the next 4, 5, 6, 7, 8, 9, 10, 12 months, use that$750 a month for the next 12 months,$9 ,000 to pay off existing credit card debt. And then in 2020, let's call it halfway through 2026 or into 2027, then begin to think about, okay, what's my car situation looking like?

22:43Because sure, this person might not have credit card debt. Maybe it's student loans. Maybe it's a personal loan, right? If it's not high interest debt, completely disregard what I'm saying. But if you're paying 25, 30, 35 % interest on credit cards or payday loans, whatever consumer debt that exists out there, James, I really think you should focus on getting rid of that versus I'm going to go into more debt so I can have a better car. Delayed gratification is sort of my mindset on that one. But if that's not the case, and maybe you've got some student loans, maybe you've got a couple of medical bills or whatever's hanging around here, that's four, five, six, seven percent interest rate, then yeah, I mean, use this as a$6 ,000 down payment on a new car.

23:21Don't use all$750 a month. Maybe you can figure out how to borrow, again,$15 ,000 or$20 ,000, which is probably$400 or$500 a month of that payment. Take the other two or$250 ,000, maybe start investing that, maybe use that for the credit card debt. There's a lot of different ways to skin this cat, but the way I don't want to think about it is just to go gung-ho into a lease, get rid of your car, all the money's gone, and now you're driving a brand new BMW. Don't do that. That's not the situation you're in right now, James. My only click back to your response, and I love it, and I agree with it somewhat, is in this particular situation, he mentions high mileage.

23:58He's going to be driving a lot in his territory. So if it was a normal situation where someone works at a bank and they're driving eight miles each way in a normal state like Ohio or somewhere where it's not blazing hot all the time, then I would agree with you. But because of extreme heat in Texas, long hours of driving and high miles, I don't know. It's just a tough, tough scenario. And like you said, either way works, it's all going to be down to personal preference. I'm just one of those people that have always felt that having a higher car expense is worth it for me because I hate having to deal with car servicing and breakdowns and being on the side of the road or any of that stuff.

24:41So that's my takeaway. And that's why this always works so well, because we have two different perspectives on everything. I mean, crazy though. I mean, I've, I've owned cars that had 120, 140 ,000 miles on an SUV in high school that had 140 ,000 miles on it. I had a four runner in college that had 212 ,000 miles on it. My dad's car has got 190, 200 ,000 miles on it. I don't know with these breakdowns and services everyone's all afraid of. I've never been broken down on the side of the road. These are all cars that are, yes, they're all Toyotas. So maybe that has something to do with it. But like, I've just never had that experience with a used car.

25:18When it comes to maybe the Mazdas, you could totally be right, right? This could be a recipe for disaster and he's going to be late to a meeting because his car broke down. But on the flip side, like, does that happen? Is that really a thing? Like, I don't know. We'll see. But I hope that we gave James a little bit of color, a little bit of perspective here as it relates to his situation. And James, thank you so much for listening to the show. We are wishing you the best. Our next question comes from an anonymous listener. We always respect people's privacy, so we will not be disclosing their name.