Frugal Living: Investing During Uncertain Times (Part 1)

Frugal Living is back with Season 5! In the first episode, Jim speaks with a financial advisor about investing in uncertain times. Check out Frugal Living on Apple Podcasts, Spotify, Google Podcasts, Amazon, Anchor.fm, iHeartRadio, or anywhere you go to find podcasts. 

Inflation remains the key word of the year. But what does that mean for everyday investors? Jim answers this question with advice from an expert. He talked with Andy Wang, a financial advisor at Runnymede Capital Management and host of the popular financial podcast, Inspired Money.

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How do you invest during uncertain times?

According to Andy, the answer revolves around limiting risk. Consider your investment strategy. Don’t panic. Once you’ve made a plan, stick to it. That even applies during catastrophic events. While we might be too young to remember similar market conditions, none of this is unprecedented.

To hear the full interview, listen on Apple Podcasts or Spotify. Or, read the full transcript below. Looking for discounts on insurance and financial services? We’ve got deals for that.

Read a Transcript From This Episode

Jim:
This is Frugal Living. <music> If 2022 had one unifying financial theme, that theme might be inflation. I’ve been wondering recently what kind of information do you need to know when you wanna think about investing during uncertain times. That’s why I found Andy Wang. He’s a financial advisor and the host of Inspired Money. Our conversation centers around investing in turbulent times. How do you invest for inflation? I wanted to find someone who knows a lot more than me to talk about it. I loved this conversation and I hope you do too. Here’s me and Andy Wang.

Andy:
I’m Andy Wang. I’m a financial advisor at Runnymede Capital and host of the Inspired Money podcast.

Jim:
This year is pretty strange in terms of the markets. Inflation was already something we had to consider. And now it seems to skyrocket with an invasion in Europe. And I was hoping you could shed some light onto what we need to be thinking about as investors during this time.

Andy:
I think that there are no easy answers, like, in my career. And I’ve been doing this for over 20 years. I’ve been fortunate to, you know, be living and working in an environment of relatively low inflation and haven’t had to deal with that. You know, meanwhile, there have been countries in South America–specifically, I guess examples would be Venezuela or Argentina–that over the years, citizens have had to deal with that. I mean, you get your paycheck and you’re trying to exchange that for US dollars or you’re trying to buy your groceries or gas as soon as possible because if you wait a few days, your money is worth less.

As an American here in New Jersey, you know, we have been trying to talk to investors who are older than us. I turned 50 years old yesterday. I feel like, “Okay, I’m not a young guy.” And my kids keep reminding me that. But you know, I’ve been talking to my dad who founded Runnymede Capital. My brother and I now run this fee-only financial advisory firm. And talking to my dad, talking to some of his counterparts who have been investors longer than us, specifically through the 1970s. You know, we’re trying to ask them if we’re in a period of sustained inflation, what does one do? And I don’t know that they have clear answers for us other than when they look back at history, they say, “Well, I really remember that period.” Many of, like, my dad’s generation, that’s when they were starting their careers. It was, like, late sixties, early seventies.

In the 1970s, you were having a bear market every couple years to the point where the mutual fund industry almost disappeared because there was so little interest in owning stocks that the industry almost dried up. And looking back, it’s kind of funny. We joke because, like, Bank of New York today is so well-known as a custodian and processor of a lot of the things that go on behind the scenes for funds. And the joke is that they just had done it and they never stopped. The cycle was such that many service providers disappeared. And then the Bank of New York was still there. I think the bank is very proud of that given their long history. I mean, one of the oldest banks in America founded by Alexander Hamilton. And it was really a frugal approach to running their business that they’re proud of. It allowed them to survive the Depression and to last over many, many market cycles.

And of course, you know, things change. But I have a little glimpse into that history because my dad worked at the Bank of New York for 20 plus years. He was director of research. He ran the research department in the 70s and then in the 1980s, he managed their pension fund as well as outside clients. He was president of the bank’s money management subsidiary, Beacon Capital Management before founding his own company. So since your show is about frugality, like, there are organizations that are proud of their frugality.

When my dad started his career there, he laughs looking back saying that, you know, there were, like, holes in the carpet. They needed to replace things and they didn’t, and we’re proud of it. They’re like, “This is why we survived through the Depression.” And they had rotary phones for the longest time. They didn’t even have touch-tone dialing and the employees would laugh. They’re like, “Oh my gosh, it takes us so long just to make phone calls because we have to wait.” Not until Irving Bank combined with the Bank of New York, that’s how they got their touch-tone phone technology. So there’s some pluses to frugality. Like, when you’re watching how much you’re spending.

The lesson, I guess, is living within your means gives you tremendous flexibility because longevity’s on your side. Like, you’re not worrying about running out of funds and running into problems. I guess I didn’t answer your question. Looking back at inflation, I think that one does have to consider, like, what does your portfolio look like? And maybe you do need to own some commodities. Maybe you need to own oil. Maybe you need to own gold. And there are always gold bugs.

And in my career, I’ve met many people–guys who are now in their seventies and eighties. They still love oil. They love energy. They know it well, they study it a lot. But, you know, throughout history it’s, like, it’s always cyclical. So it’s very challenging to try to forecast, like, where our oil price is going. It’s kind of a fluke that you have a war, like Russian invasion of Ukraine. It’s like lighting a fire. And the volatility is pretty crazy. I mean, having to live and invest in a world where you don’t always know what the future’s gonna be, I guess it goes back to the very conventional wisdom of the importance of being diversified and not having all your eggs in one basket. But I guess spreading your investments such that even if there are unforeseen scenarios that you can be okay.

Jim:
There’s a lot to think about in that response. We hear often time in the market beats timing the market. And that ties pretty well into what you’re saying with your dad’s business. They survived because they kept their nose down. They kept working and they didn’t spend extravagantly. You talk about the importance of frugality and you talk about diversifying investments. The one thing that hurts a little bit to hear as, like, a, not a young investor by any means. I’m 36. The entirety of my adult life, like, I thought, “Hey, we, we went through it in 2008. I’ve seen a recession. I’ve seen some tough times in the market, but I’ve never seen anything like this.” It’s a little bit reassuring to hear you say, you know, you haven’t either. You gotta ask others with more experience than you.

But the entirety of the advice that I’ve gotten that’s really worked for the entirety of my investing career has been, you know, broad market ETFs. Just, you know, don’t try to guess. Like, you don’t have enough time to research the companies you need to research. You have another job. Just invest in the market. That’s painful right now. That’s a painful spot to be in. If we wanna start looking into commodities, where do you start?

Andy:
Well, I think that if you are a, like, passive indexed investor owning the S&P 500, you still have some exposure to energy. And I don’t have the figures off the top of my head, but it’s, like, the percentage of the S&P that is technology, like, that has changed a lot over the last 20 years. Even energy, I’m sure that represents a lot less of the S&P than it did years ago. But there’s energy in there. You’re gonna own Exxon. You’re gonna own some of the premier names in energy. So you’re kind of covered that way. I think it’s like, “Do you need more than that?” And every investor has to look at, you know, what is your investment approach? Because one thing that I love about investing is that there’s not one right or wrong way to do it.

You’ve seen throughout history so many different investors succeed with many, many different approaches. Some are short-term oriented, some are long-term oriented. Some are very specific. Like, I’ve met guys, all they do is invest in banking stocks. Like, they know the banking sector and they feel like they have a leg up on understanding what the economic cycle is.

Are we in a recession? Are we coming out of a recession? Will banks be benefiting where interest rates going? So there are many ways of doing it. I think that in owning the S&P 500 and just sticking to that, that is a methodology. And part of that methodology is that you have to resist, like, the emotional fear and pain of difficult times. And we’ve had a really long stretch, right? It’s been since 2009. We’ve had some disruptions in there, but not as severe as 2008 or back in 2000 when we had the internet bubble burst.

So I would say that it’s been this very long bull market. And people have seen that in their 401k accounts growing, their personal investment accounts growing. So I think that that still works. I think there are some concerns in 2022. Namely, it’s this inflation. And there’s a lot of discussion about the Federal Reserve and other central banks globally.

So the European Central Bank, Bank of Japan really being, like, the big three. There are others, of course. But looking at the three, they’ve been able to maintain this low interest rate policy in the face of a pandemic, in the face of the financial crisis, just to keep, sort of, the economic engine going and to keep financial markets supported. What if this inflation that we’re seeing continues, right? Especially when you have a war that is adding to this. Like, I got gas last Sunday. My wife went in the morning to Costco and paid like 3.56 I think. I went at 6pm. It had already gone up 20 cents. And that was at Costco, which is 20 to 30 cents lower than everywhere else. So, like, we’re seeing this drastic, noticeable increase in fuel cost that impacts us.

I mean, it’s actually impacting our decisions. When I think about, “Oh, should I go drive over to my parents to get something?” I’m gonna wait until I’m closer and have another errand to run over there. I’m not gonna go just to go there because it might cost me five bucks. <music>

Jim
This episode, as always, was brought to you by Brad’s Deals. There’s a community of people here scouring the web for the best deals on everything. The site is B R A D S D E A L S.com.

It’s amazing to think of the real practical circumstances inflation has in our lives. We have a hybrid, thank goodness. And we have one car between the two of us and we drive as little as possible. I filled up when I had a half a tank while it was still $4.59. I’ve never paid more for gas. Now it’s, “Do I need to drive? Can I bike? Can I hold off? Can we do more than one thing while we’re out?”

Andy:
That’s gonna impact the restaurants for sure. I know a lot of casual dining restaurants, they’re gonna see that impacting their sales right away. I have a hybrid too. It’s, like, a bigger hybrid. I have a Toyota Avalon, so it’s not a Prius. But still, I can get, like, 36 miles per gallon. I’ve never filled my tank and paid 50 bucks. That’s what I paid last Sunday.

Jim:
I mean, that’s noticeable. That’s a noticeable thing. And when we think of inflation, we think of that. For any part of our audience who doesn’t think about inflation regularly… I think a lot of people don’t realize we expect inflation every year. We expect a small amount of inflation, 2%, 3%. That’s in the range where we expect to see that and we plan for that. We don’t expect 7%, 8% inflation. And gas prices are one of the many spots where we’re seeing higher prices this year. I think it’s really good to know and really reassuring to hear of someone in the industry say, “If you’re an index investor, you know, don’t fret. You’ve chosen this for a reason. If you continue without pulling out your investments now, you could see a rebound like you saw in 2009 where if you didn’t panic, you looked great two years later.

Your retirement account looked very similar, if not quite a bit better than where it was. And maybe we’ll see that in the future.” It’s just very difficult, especially if you’re nearing retirement and you’re exposed to, you know, a pretty wildly shifting market. I don’t know, like, the idea of an inflation rate to me has always meant I need to plan to save more than I expect for my retirement. Now I’m starting to see, well, inflation is also tied to, you know, the car you drive every day. It’s also tied to whether or not the Fed raises interest rates. We were expecting rates to go up this year. Do you think that’s changed now that Russia’s invaded Ukraine?

Andy:
I think it’s changing quite a bit. And not just in my own expectation, but there are, like, futures that are betting on the number of rate hikes that are gonna happen this year. So in that data, people can look and say, “All right, the market is currently pricing in five to seven rate hikes.” That was, like, maybe a month ago. You know, the expectation for almost a rate hike at every Federal Reserve meeting was kind of realistic. I mean, there were some market strategists on Wall Street–I can’t remember, either JP Morgan or Morgan Stanley–who was expecting seven rate hikes.

I think that looking at the derivatives market that’s already been reduced to, like, three or four rate hikes. And people are starting to talk about the Fed might be lucky just to raise rates twice. So we don’t know what’s gonna happen. And as I was saying, a little bit of the concern is that, “Is the Fed handcuffed now?” Like, the central banks have felt very much under control that inflation hasn’t taken off. So they feel pretty confident in their ability to lower rates to near zero. And then when needed, they can raise rates.

But if inflation is here, like, we don’t know what tools they have at their disposal. Like, do they have other tools that they can use in their toolbox or are they kind of stuck? Like, they’re gonna be rendered helpless too. I think that’s a real concern that, you know, is that cause or reason for some kind of crisis? I mean, you can paint a picture where, you know, the financial system… What happens when things seize up? That’s been the fear in the past. I mean, like, subprime mortgage, that was, like, the financial system seizing up. And could that happen again? We don’t know.

Index investing, I don’t think that that’s broken. You touched on the fact that it’s not the same for everybody. I think that if you’re closer to retirement, it’s much more scary, which is why I think when it comes to investing, you shouldn’t be all or nothing. You know, it’s always about making, like, small turns, small shifts. You try to make small adjustments.

But we subscribe to the fact that, you know, retirees do have to act differently than a 20 year old. When you have a really long time horizon, you can weather those storms. When you’re close to retirement or you’re retired already, I think that there’s value to being able to sleep better at night in times of uncertainty. So I don’t think it’s a bad idea to have a little bit of cash as dry powder if you’re expecting that there could be volatility in the market. And I think that the first half of this year, I think it’s gonna be pretty tricky. Not only is the expectation for rising rates, right, for the Fed to hike interest rates, which we don’t know how many times they’re gonna be able to do. But they’re saying that that’s the plan. I just think that the timing is bad because had they done it, like, a year ago–I mean, hindsight’s 2020, right?

But if they did it a year ago, even though there was a pandemic but economic growth was still okay. Right now in this year the expectation is GDP growth is going from 7% in the fourth quarter to zero to 2% by second quarter. So you have decelerating growth. I think raising rates into decelerating growth is not the best thing. That’s not good scenario for the stock market. To me, that’s rising risk. And you know, that could explain volatility. It could explain just a normal correction of, like, 20%. And then now you have war and you have all these, sort of, exogenous factors going on, which, you know, make things a little bit trickier.

Jim:
To go back to one of the foundations of the reason we’re talking about inflation and the reason we keep talking about the Fed raising rates. Traditionally, that was a lever they could pull to address inflation. Cutting an interest rate is a good way to give the economy a boost. It’s a great way to get people out there and spending.

The issue now is we can’t cut them any further. We’re at the bottom of the barrel. And it seems like we’ve missed our chance to raise the rate. What you’re saying now is in the face of all these uncertainties, in the face of slowing growth, raising the rates is just gonna add more pressure. It’s just going to make this a more difficult economy to weather. What other tools do we have to get out of the situation we’re in?

Andy:
It’s a good question. I, I think that there’s always a worry because there are critics of, like, the Federal Reserve saying, “Oh, you know, they really shouldn’t have lowered rates to zero.” And then in other countries, I mean, it’s even worse. I mean, on relative basis, right? At least we didn’t see negative interest rates like Switzerland or Japan has seen. I guess it could be worse? But that’s tough, right? Because if you’re frugal for the longest time now, you feel like you’re not being rewarded for saving your money. Because you’re not being paid any interest on your savings in the bank.

The person living frugally isn’t being rewarded. It just seems like for too long, the debtor is being rewarded with a low interest rate and just keep borrowing. But, you know, that can be a dangerous game when things don’t go well. If things go against you and you’re too leveraged, it’s bad for a company, it’s bad for an investor, it’s bad for somebody’s personal balance sheet.

Jim:
It’s bad for subprime mortgages and all the derivatives of those mortgages.

Andy:
Correct. It’ll be interesting. I mean, I think even with all the worries and potentially painting a very, like, negative picture, I think that things in the second half of this year can look rosier already just because it’s just weird with the pandemic. Because you do, like, a year-over-year comparison. And, like, last year your comparison is comparing to the previous year, which was, like, a time of lockdowns. So you just had, like, triple-digit growth numbers compared to, like, everything stop.

And then now you have tougher comparisons because it’s like, all right, now you’re starting to compare to the reopening and things were, you know, growing pretty quickly. Then what? I think in the second half, you can make a case that corporate earnings are starting to grow again. And hopefully the economies are opening up in the US, throughout Europe, Asia. I mean, Asia has had this zero-tolerance policy, speaking about China specifically. That’s been tough. That’s not good for an economy.

As soon as you have a few COVID cases, everything shuts down. That’s not a good way to live for people, but it’s also not a good way for an economy to be functioning. So I hope that there’s, like, further normalization so that things are, kind of, growing more consistently again. And I think that’s possible.

Jim:
Thanks to today’s guest, Andy Wang. And thanks to our audio editor intern, Genny Blauvelt. You can find the show notes and a link to the stuff Andy’s working on at Frugal.fm. Or, find us on social media. We’re on Facebook, Twitter, Instagram, everywhere, just all over the place. There’s so much social! And if you can, it would be incredibly helpful if you like the show to share this with your friends. We wanna reach more people. I like talking to frugal people and I like hearing frugal stories. If you do too, leave us a review on iTunes. It makes a big difference. Thanks for listening.

More About Frugal Living with Jim Markus

To hear more episodes about tips for living a frugal lifestyle, check out all four seasons of Frugal Living. Frugal Living is a podcast for smart consumers. How do you spend less and get more? The show, sponsored by Brad’s Deals, features interviews, stories, tips, and tricks. Jim Markus hosts season five, out now.

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