Familiar with our organization lerna is a learning and development organization we're based out of san francisco california but we are located nationwide and have a global audience we are committed to helping individuals learn the skills needed to thrive in the workplace and we work with organizations and companies to improve company culture and build scalable training programs i know i see some familiar faces and uh names uh well not faces yet but names that are coming in the the panelists and uh participant group so those of you who.
Are coming back for more i love to see those and those of you who are new i'm happy to welcome you here we host these events um every other friday i'm at 8 30 pacific standard time and again we're on a mission to make professional development resources and learning more accessible which is why we host these three free events these events are a way for us to connect in community um across the zuma verse right and a way for us for you to get a flavor of some of our content as well as our special um guests like kevin that we're having today um a couple of housekeeping items before i.
Pass mike over to kevin um this session is being recorded and will be available in our off-site community at a later time we'll share a little bit more about what off-site is and all that sort of stuff at the back end of the presentation but for right now i would like to introduce and and read a little bit of information um about kevin here so that you can familiarize with this wonderful gentleman before he gets into his presentation uh kevin is founder and financial planner at aligned financial planning focus on helping charitably inclined.
Individuals business owners and donors of non-profits align their money with their personal values which i just love that kevin launched his career in financial planning in 2008 in the midst of the great recession so good for you kevin i love that you uh dug right in when times were rough although it was a difficult and uncertain time he was able to learn through that unique period and now uses that experience with his clients kevin's involved with big brothers big sisters of san diego county as a board member mentor and speaker with a degree.
Overcome economic uncertainty and focus on what really matters i invite you all to sit back relax enjoy i am going to upload a handout i did put this in um the notice the events notice on our webpage but i'm going to go ahead and put that in the chat here as well as kevin's going to reference it and i'm going to stop sharing my um screen here and allow kevin to go ahead and share his and get started so if we can just in the chat share a little bit of love and welcome for kevin that would be great and kevin take it away.
Thank you so much mickey and thanks everyone for tuning in today i'm excited to be sharing some some thoughts um mickey said to sit back and relax there will be some of that but there's also going to be some some interactive pieces as well that that will require some involvement um we will start with a fun disclosure in the finance industry of course there's always disclosures so gener general information only not.
Intended to be advice uh this person is is way too excited for a disclosure at 8 30 in the morning on a friday but i guess it's uh interesting material so the agenda we're going to start with talking about what's most important in life we're going to get into uh just kind of what's happening in the world right now there's a there's a lot going on some best practices and even some things to avoid during times like this and then you know the the title is.
Focusing on what really matters so that's getting into some values and goals and then we'll talk about some next steps as well so we're gonna jump right in i know it's uh friday morning but we're gonna start with some some deep thoughts and there's three questions i'm gonna um uh pose to you just think about it i'll give you a few moments just uh to think about those responses for for your life but the first one and then i'll preface this by saying there's this whole movement of financial planning called life planning there's uh.
The kind of the godfather of life planning is a guy by the name of george kinder so these questions actually came from him under that practice but the first one is if you woke up one morning and had all the money you needed for the rest of your life what would you do with your life so i'll give you about 10 or 15 seconds just to just to think about that question and how it applies to you the next question is what if you learned that you only had five to ten more years to live.
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What then would you do so now we're talking about a shorter timeline
What would change in your life and as you can guess the last question is is even shorter so what if you learned that you had a rare disease and only had 24 hours to live what did you not get to do or what did you not get to be.So i know these are very deep questions not only for a friday morning but but just for starting out on this webinar but i just want to get you in that mindset of focusing on what is most important in your life it's easy to get caught up with work and all of life's demands but if you think of it in this frame it's really boiling it down to what if you only had one more day left to live how would you spend that day and more importantly what did you not get to.
Accomplish so um be thinking in that mindset now we're going to do a big shift and talk about the current environment and then we're gonna we're going to come back to some more of the the life planning conversation so obviously there's a lot going on in the world we have the russia ukraine conflict which is a tragedy in and of itself but it's also having a ripple effect on the supply chain and oil and you know a lot of a lot of.
Different areas we have you know we're either in a recession or potentially going into a recession depending on how you look at it so obviously a lot of uncertainty there i'm sure you've seen inflation prices at the pump and grocery stores and everything else i mean a lot of businesses are raising prices either because their prices have gone up or because they're able to and they can just blame it on inflation but we're we're seeing you know inflation we.
Haven't seen in decades we've had a stock market correction this year because of these other things um and you know the fed has been raising interest rates the the stock market has been coming back the last couple of months so if you've seen any of your investment statements those have probably come back in value but we're still down overall for the year and then we have midterm elections as well coming up this year which just adds a little bit more to to the bottom.
So that i don't want to spend too much time on the current situation obviously there's a a lot of variables and a lot of things going on in the world but what i want to focus on number one is what are some best practices to help navigate what's going on and then also what can we control and what should we be focusing on um you know we can't control wars and conflicts and the stock market and recessions and things like that but there's certain things we can do to help navigate.
So i want to start with volatility which is basically just you know prices going up and down especially as it relates to the stock market it's actually a very normal thing so in any period of time that you look at there's always volatility in the stock market we're just seeing uh you know a more extreme version of it now but it's very common and i i don't want to bore you with with too many charts but i will show you this one that i think sums it up really well and this is.
Annual returns of the stock market per year so it starts in 1980 and goes all the way till this year and all the lines so this line across here is 0 so all the bars above the line are positive years in the stock market and you can see pretty good returns as well the lines that go down from zero are negative years in the stock market so the first observation is well there's a lot more positive years than negative.
Years that's a good thing at least historically but the other thing is what's called an intra-year drawdown or decline so these dots down here are the worst point of the stock market during the year and the bars are where the stock market finished at the end of the year so we'll look at uh this is 2021 last year the stock and is it size okay can you guys see it i know it's a kind of a.
Small chart okay so last year the stock market returned 27
A really good year however it was down 5 earlier in the year before getting that 27 return 2020 16 return very good return however look at this number down here negative 34 so we if we rewind the clock this is march of 2020 covid was happening a lot of uncertainty with the virus the market had a huge.Pullback in the first part of the year bottomed out in march had a very strong recovery and actually ended the year positive 2019 29 return it was actually down 7 during the year and i'm not going to go through every year don't worry the last one is 2018 it was actually a negative year for the stock market down six percent however it was down 20 before that this is all at the end of 2018 and so you can see if we if we go back every year.
There's typically almost every year there is a negative drawdown and the market for the most part comes back it doesn't always end positive obviously but you can see historically the performance of the stock market now that doesn't make it any easier to stomach as we're going through periods like this and i'm not saying that it's going to be positive by the end of the year of course that's a possibility but not likely but this just hopefully shows you the.
Volatility of the market and how the market is pretty efficient overall and you know does does generate good returns the second principle is controlling your emotions and behavior now obviously this is easier said than done it's easy to get emotional with with money especially when you're losing money and your account values are going down in value but we can't control the stock market we can only control our response to the.
Market and so it's just managing those those emotions number three is invest early and often there's a chinese proverb that says the best time to plant a tree was 20 years ago obviously we can't go back in time and do that but the second best time is today so if you haven't started saving for the future don't delay anymore start today or start now um investing often is that there's a strategy called dollar cost averaging.
Where you're getting into the market and into investing investments on a regular basis a good example of this is your 401k plan so i'm sure a lot of you have access to a 401k plan this is a way where every time you get paid you have money going into investments and the as the market goes up and down in value you're buying in at different points and if you average that out it typically ends up in a good position because you're buying.
High and you're buying low and you can average it out right now as the market's down you're putting in the same dollar amount through your 401k but you're actually buying more shares because the prices are down so that can be beneficial over time as the stock market eventually comes back you'll you'll be better off so volatility actually can be a good thing financially but it's tough emotionally the next one is diversification so diversification is um you've probably heard the saying don't put all your eggs.
In one basket it's it's buying different types of investments in different types of asset classes i mean and i'll show you in another chart the power of diversification so this here is the asset class returns per year and i'll define some of these because it's it's a little bit tough to see but em equity is emerging markets so that's your smaller up-and-coming economies overseas.
These are commodities so this is uh you know precious metals and agriculture and some of those investments dm equity is developed market so that's primarily europe but that's the larger economies overseas asset allocation is uh call it a 60 40 portfolio so 60 stocks 40 bonds that would be an example of a diversified portfolio fixed income those are your bonds.
Large cap stocks those are us-based but those are your apple and google and amazon the large companies this is cash high-yield is a essentially a riskier type of bond small cap stocks are still pretty large companies but with the stock market there's there's smaller companies a lot of names you you wouldn't even recognize and reits or real estate so all these different types of investments and you can see how they really move.
Around quite a bit from year to year and i'll use em equity as an example it's one of the one of the riskiest asset classes but it still serves a purpose in investing and actually if we look over here at the far right column the the vol that's the volatility this is how risky an investment is and how much it moves up and down so real estate is actually the highest but a close second is this emerging markets equity so if we look at 2007.
And 2009 they led the pack they did really well and this is this is around the great recession so however if you look at 2008 the the year in between they were all the way at the bottom they lost 53 percent of their value during the great recession so you can see how you know oftentimes you know here they are toward the top 2017 at the top 2020 did well so emerging markets are often at the very top or the very bottom you can see here.
2011 very bottom 2018 2021 so a very volatile asset class but still provide you know pretty good returns over time just as an example so that's why you don't want to put all your eggs in one basket and pick one type of investment if we look at this asset allocation this is the kind of the boring return it's right there in the middle there's always going to be asset classes that do better and that do worse but if you have a diversified portfolio.
You're you're not going up as high and you're not going down as low you're you're right there in the middle of the pack which is for a lot of people a good way to do it um if you have a question yes a quick question that came in um do you have a cheat sheet for the definitions of all the different type of asset classes or something that you could point people to you know you went through and kind of defined each one of those yeah um i i don't have a a cheat sheet per se i would say you.
Know take a picture of this slide and there's a website called investopedia that has a lot of good information i don't know if they have one page that that describes everything but you can literally just type in you know emerging markets and it will it will have a description of what that is what country sectors you'll typically find in emerging markets um that's probably the best resource i would say just off the cuff but feel free to contact me and i'm i'm happy to.
Uh to look some things up and send it over as well awesome thank you i just put the link to investopedia that kevin mentioned in the chat there perfect okay so moving on the next one is the importance of rebalancing and this is another strategy that works really well when the market is doing very well and also when the market is doing poorly so rebalancing is essentially getting back to the target allocation.
So i'll use that same 60 40 example with a diversified portfolio so call it 60 stocks and 40 bonds if the market is doing really well like we've seen you know leading up until this year you know so 2019 2020 and 2021 like we looked at the market was really strong in those periods of time your 60 40 portfolio might shift to a 75-25 because stocks have done really well and bonds haven't performed you know as as.
Well because they they don't by nature so now you have 75 in stocks when you should only have 60 assuming that you're in that 60 40 portfolio you have to you have to determine which one is is appropriate for you but rebalancing that account would basically be reducing your equities your stocks from 75 down to 60 so we're selling stocks and we're buying bonds to get you.
From a 25 back up to a 40 allocation and so what you're doing is you're actually selling the investments that have done well and you're adding that money to the investments that not not that they've done poorly or underperformed but relative to the portfolio have not done as well so you're getting back in balance if you did that in 2021 you would have protected a lot of those.
Gains and not lost as much in 2022 because you would have been back in line with with your target allocation and conversely it's also important to do when the market's down and what you're doing you know that 60 40 maybe becomes a 55 45 because equities or stocks are down in value so what you're doing is you're actually selling bonds and buying stocks so you're buying stocks now at a discount because the stock market is down.
So that's a little bit over simplified but that's just an example of if you have stocks and bonds in an account the importance of rebalancing and you can do that when you know there's certain things going on in the environment or some platforms will just allow you to do it annually and it will automatically rebalance every year the next one is finances should be aligned with your goals and values this could be investing maybe you only want.
To invest in responsible companies this could be in your savings you determine what your goals are and you want to save in line with your goals it could be the way you spend your money and we have an exercise on that um are you spending your money in line with your values with what's most important to you and it could be with your giving you want to give to worthy causes and you want to align your giving with.
Your with your values as well the next one is take a longer view and of course i have a slide for that as well if if you had money to invest for the next 12 months and you invested all in stocks this is based on historical averages but you could get a 47 return or you could lose 39 i don't love those odds you know you invest a thousand dollars you could have.
Fifteen hundred dollars or you could be down to six hundred dollars um obviously not as extreme if you invest in bonds or if you invest in a this is a 50 50 portfolio but a diversified portfolio is not as extreme but if we take it out to a five year period or a ten year period you can see how not only are these bars getting tighter so that volatility is getting less but they're also moving up so if you invest in all stocks and of.
Course it depends on what stocks you're investing in but all stocks over a five-year period of time you could be up 28 percent annualized per year or down 3 percent i like those odds a lot better and obviously the longer we have to invest the betters the better the numbers look over a 20-year period of time if we look at any 20-year rolling period in history you essentially are not losing money whether you invest in stocks bonds or diversified portfolio so this.
Is the benefit of looking at a longer time frame versus just looking at one year again i don't i don't like these odds of you know so much uncertainty for for just looking at a one year period of time kevin we had a question come in from jenny in the chat about um what are some examples of accounts that rebalance themselves when you're talking about account rebalancing yeah so every every platform is a little bit different um you know there's schwab there's fidelity.
There's betterment there's you know maybe you work with an advisor there's there's a lot of different ways to invest you know something like a betterment has become pretty popular over the over the years and i know they do rebalancing automatically i don't know if it's something you have to select or not but i know that they rebalance and they even do what's called tax loss harvesting where if the market goes down in value they're making trades that can be tax advantageous.
But most most online platforms have the option most 401k plans also have the option where you can rebalance on a a set interval so if if you have a specific question on on where your money is invested i'm happy to to take a look with you um but most i i don't know you know the exact platforms but most online platforms have a version of rebalancing that is either automatic or that you can select on your own.
Great question though and the last one is a selfish plug for for the industry uh realize the benefits of working with a professional so this could be me or somebody like me um and i i didn't include this slide but there's actually something called the advisor alpha which is essentially the extra return or the extra benefit you get on average from working with an advisor and there's a study that was done by.