Investing in a recession | About That

um we had a show about the recession

earlier this week it was on on Tuesday

not that we know exactly when it's

coming but but most experts agree a

recession might hit early next year so

we had sat down with a financial

counselor Jessica Morehouse and spent

most of the program going through how to

financially prepare for a recession now

if you missed it

you should just go back and watch it

right now but if you did watch it let us

refresh your memory with some of what

you had to say

it's just about being intentional with

where your money is going if it's it's

you know hindering you from reaching

your goals where else can we look in

your budget to cut back so you can reach

that goal

you need to have a plan and no one likes

the term budget so you can give it

whatever name you want so you need to

track where the money is going to be

able to identify the problem areas

you gotta attack a head-on and you've

got to take a look at everything that's

you know what are all the different

debts categorize and be like okay what

are the interest rates what are the

balances

um and then figure out what's the best

strategy for me

even before paying off debt aggressively

have an emergency fund so the best thing

you could do is to have some cash in the

bank for when something happens because

it always will

so that was just a sliver of our

conversation but at the very end she

said something that I I wasn't quite

expecting about making bigger moves with

your money and mixing it up on the stock

market yes there is risk but it's not

just a it's all risky it's like well it

depends on what where your money's going

and what kind of risk are you taking

there's risk inherent in every form of

investing in the stock market the bond

market but

um you can be calculated about it and

there's lots of ways to mitigate that

risk this can be a great time to

actually get investing

yeah investing in in this economy like

come on right but maybe it makes sense

and and it's certainly worth a follow-up

question or two

or three or four enough that we couldn't

fit them into the last episode so today

part two of my conversation with Jessica

and why investing right smack in the

middle of what feels like the worst time

not to have access to your money may

actually be the best time

entering such uncertain times where

inflation's sort of out of control and

people are struggling to make ends meet

and you're saying that those very same

like rsps that I've got a little bit of

money tucked away into that are tanking

right now and I'm watching them tank in

real time yeah that now is the time to

put more money in you're like why would

I put money into a loser doesn't make

any sense yeah okay the stock market the

bond market goes up and down I think the

biggest thing that I can share with

people is don't Focus so much on a short

time frame you need to zoom out and take

a look at what's happened the past

several decades let's talk about that

because it's a critical point about the

stock market if we take the S P 500

which tracks 500 large companies in the

United States and if we only look at the

last year well it looks pretty

disastrous right down 25 but let's look

at the five year and all of a sudden

okay we've seen crashes before for and

end to end we're not down anymore now

let's look at the tenure

okay we're starting to get a sense of

perspective right and the 20-year

it's even clearer that these huge

crashes happen but if you give it enough

time markets bounce back happens every

time okay back to Jessica you need to

actually invest when things are bad

that's how you take those opportunities

but you've got to be strategic you got

to be you understand what you're

investing in I'm not saying just buy

this individual stock because it's down

it may not be a good investment but you

need to be really methodical and you got

to be patient but it's hard to think

that forward it's so hard especially

when you're younger like I can't think

past next year but how you build wealth

is staying invested consistently being

boring and simple about it for decades

okay so here's the other thing about

investing that I I liken it to

it's like you you walk into a casino for

the first time ever and you don't know

how any of the games work yep and my

first question is what game do I play

what do I invest in so I know a lot of

young people especially got so many

messages in 2020 and 2021 about

picking some hot stocks like Tesla was

all the rage cryptocurrency nfts and I'm

like oh my gosh if you're just starting

out that is not where you start because

those are very risky and you should

really know what you're doing and you

can lose some money one you know key

principle of smart investing is making

sure you don't put all of your eggs in

one basket and so that's why investing

in a fund where you're investing in

hundreds if not thousands of companies

you're spreading your money around and

lots of different baskets that's a great

way to start investing because when you

say fund like what do you mean it's like

a basket of Securities a security by the

way is just a financial asset that you

can trade on the open market like a

stock or a bond we'll get into that in

just a little bit but there's lots of

different ones there's mutual funds

there's also exchange traded funds

secretary gated funds closed ones

there's lots of different funds okay me

again if your brain just exploded that's

okay uh let's get you cleaned up and

then let's explain what we're talking

about here so a fund uh like Jessica

said it's just a bunch of stuff it could

be a bunch of stocks a bunch of bonds or

maybe even a mixture of the two a mutual

fund is a bunch of stuff that you buy

into with other people so you all pool

your money a professional money manager

then takes all of that money charges you

a fee and then picks a mix of Securities

that you all invest in together

an exchange traded fund that's another

big one that you mentioned so an

exchange traded fund an ETF is just

something that you can buy and sell it's

a fund that you buy and sell yourself so

on an exchange on a market so it's like

buying stock except you're buying a

bundle of them and often these are

heavily Diversified sometimes with

hundreds or even thousands of products

inside what's more both mutual funds and

ETFs can be what are called index funds

so you've heard about how sometimes like

a person's salary can be indexed to

inflation which just means that the

salary Rises along with inflation

well you can buy index funds which are

Bunches of stocks and bonds that are

indexed to a particular market so for

example one of the oldest exchange

traded funds ETFs out there is called

the spider it's an index fund that

tracks the s p 500. so all it's trying

to do is to match the ups and downs of

the market as a whole and these are

generally considered pretty solid pretty

boring but pretty productive places to

put your money because over a long

enough period of time markets as a whole

tend to go in Just One Direction

and in theory I guess if the index fund

is tracking the general trajectory of

whatever fund it's indexed to or

whatever thing it's indexed to

what you said earlier is really

important here that the markets always

go up exactly so so you're just

I think of index investing besides also

typically their

easy to invest in they have much lower

fees which is more money in your pocket

lots of those active managed funds or

even those strategies where you're

buying and selling your own Securities

very high fees this is very easy low fee

and yes when the market goes down your

fund is going to go down when it goes

back up your fund is going to go up is

this where what you were saying earlier

like boring is good yeah

this is where this can be a great way to

invest but a lot of people when they

think of investing like you gave the

analogy of the casino they think of it

as a casino they think of it as a game

they think they need to find all these

opportunities and it can be exciting and

it yeah but I I don't like investing as

if it's gambling I want to invest so I

can make sure I have enough money to

reach my goals to retire one day to

maybe have a cottage one day I don't

know but I want to make sure I'm going

to hit those things and I'm you know

going to possibly sacrifice over and

above return so maybe an active strategy

can get because I want something

consistent and steady and I know how it

works I know what I need to do as an

investor which is continue to invest for

the long term Not freak out not cash out

when the Market's down just keep going

how do you do all this by the way like

like we're like so I decide okay index

funds sound great yeah find something

with with low fees like right as you

were mentioning yeah

where do I go like where do I buy that

yeah so there's there's kind of three

routes you can go for investing in

general you can uh work with a

professional who manages your portfolio

and you can do that with indexing there

are managers that do that you can use a

robo advisor uh so you know there's lots

of ones in Canada now I think maybe nine

or ten or something like that they have

these pre-built portfolios of index

exchange traded funds so there you have

this portfolio is built you do an online

questionnaire so they can determine all

these factors what's the best portfolio

for you then you start investing and

it's very easy set up online you can do

auto contributions or what have you and

they manage it for you or you can do

what's called self-directed investing or

sometimes it's called do-it-yourself DIY

investing you open up a discount

brokerage account and then you can do

whatever you want you can buy individual

stocks buy individual bonds you can buy

fund you could do whatever the heck and

so in all of these cases you can either

go through like your bank for example or

like I mean you see those ads for like

Quest trade and wealth so question is an

example of a discount brokerage right so

why that could be good if you're like

yeah I want to do it on my own great

easy to set up you do it on your own

they don't provide any advice you're

your own investment professional you're

you're the driver of that car

um but if you do want someone to to

manage it to give you advice that's

where you'd want to hire a professional

and then you can also hire a fee only or

advice only financial planner who can

give you that advice but they're not

managing your Investments and I kind of

like that kind of mixture because

they're a little less biased because

they're not selling you something

besides their advice right speaking of

advice this advice that you're giving

must change depending on the person and

and what they're actually trying to

accomplish because everyone's different

everyone's circumstances is different

and when it comes to personal finance

there's no such thing as like one size

fits all so if you have a low risk

tolerance you don't want to take on too

much risk you don't like seeing too much

volatility then you're going to want to

have a bigger portion of fixed income in

your Fuller than equities okay fixed

income Investments versus equities what

is she talking about now well when we

talk about investing equities are just

stocks so shares in a company which rise

and fall depending on how well the

company does and there's risk because if

the company tanks so do your stocks but

when we talk about fixed income

Investments we're trying to eliminate

Risk by investing in things that give a

predetermined steady rate of return so

bonds which are just basically loans are

an example of that if you buy a

Government Bond you're loaning the money

and when payment is due they give it

back plus interest the downside is that

you're not going to get rich off bonds

you sacrifice profits for stability and

so Bonds in general kind of cushion the

volatility so if you have like a 100

stock portfolio it is going to be up and

down if you have 70 stocks and 30

percent you know bonds is going to be

not as bad it's gonna but but you're

also potentially sacrificing higher

returns so in general if you don't have

as long of a timeline you may not want

to take on as much risk because you're

like well I need this money to live off

of so I don't want to be 65 with an

all-equity portfolio and

well we're in a down market and we have

to withdraw money now well my portfolio

is down 30 so like the timing is wrong

so you always want to adjust kind of the

riskiness and that balance of stocks and

bonds to portfolio depending on what

your timeline is and so when you were

talking about a young person even though

it may sound kind of crazy you could

actually be in a 100 stock portfolio and

the reason is you have decades to ride

out those ups and downs so with bonds

less potential to make a lot of money

yeah but safer a little bit safer they

do provide you know yeah a cushion for

volatility they provide income through

interest but yeah you're not going to

earn like if you're in 100 Bond

portfolio you may not be able to

actually retire off that because it's

it's too uh conservative and you're not

going to earn as much as you need you

want something to not just beat

inflation but to earn over and above so

you can reach your goals in the future

so when I started by asking you what

should I invest in that was the wrong

question that's what you're telling me

maybe but that's what everyone asks so I

don't mind

it is a roller coaster though it sure is

like emotionally right like which is why

one of my best tips is to especially if

you're investing long term don't look at

your Investments that often like you

don't need to they're doing their thing

it's not going to help anybody if you

take a look every second on your app

you're just gonna feel anxious and so

especially during this volatile time

like for me I invest I think money

monthly and then I do a little

assessment my little net worth uh sheet

type in what I've got in there and then

I don't look because it just makes me

anxious there's one saying where like

investing is like a bar of soap the more

you touch it the smaller it gets because

people feel like they need to do

something they need to touch it and do

you so maybe if I just move this over

here and sell this and buy this it's

like then now you're you're not doing

the plan that you set out you're making

it up so the best thing you can do is

create that plan implement it stick with

it don't touch it

Jessica can I put you on like speed dial

just like I have another question yeah

it's fine you can text me whenever you

have a question thank you so much thanks

so hey I hope you found that helpful and

you know I'm sure we'll have Jessica

back on the program to talk about all

kinds of uh Financial topics and and let

us know if there are sort of big scary

things that you want us to dive into and

maybe make a little bit more

approachable we're always happy to hear

from you