Expecting Isn't Preparing

In partnership with

Savvy Investors Know Where to Get Their News—Do You?

Here’s the truth: Most financial media focuses on clicks, not clarity. The Daily Upside, created by Wall Street insiders, delivers valuable insights—free. Join 1M+ readers and subscribe today!

Join 1M+ readers and subscribe today!

We’re Back!

After a short hiatus over the holidays, the Random Words newsletter is back. We hope you enjoyed the holiday season with friends and family, and were able to find some time to reflect on the past year and consider the year ahead, amidst what is often one of the more hectic and stressful times of the year for many of us.

Random Words from our sponsor, Public.com

Listen up folks. Time could be running out to lock in a historic yield at Public.com. You can lock in a 6% or higher yield with a bond account. Here's the thing. The federal reserve just announced a big rate cut, and the plan is for more rate cuts this year and in 2025 as well. That's good news if you're looking to buy a home, but it might not be so good for the interest you earn on your cash.

So, if you want to lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade bonds, you might want to act fast. The good news: It only takes a couple of minutes to sign up at Public.com. And once you lock in your yield, you can earn regular interest payments, even as rates decline. Lock in a 6% or higher yield with a bond account at Public.com/InvestingUnscripted, but hurry. Your yield is not locked in until you invest.

Brought to you by Public Investing. Member FINRA and SIPC. As of 9/6/24. The average annualized yield to worst across the bond account is greater than 6%. Yield to worst is not guaranteed. Not investment recommendation. All investing involves risk. Visit Public.com/disclosures/bond-account for more info.

Jason’s Random Words: Snow Day!

I am writing this from the bar in my home, which has a window that looks out over the back yard and the woods beyond. It’s a winter wonderland from my point of view, but for countless others today’s unexpected snowfall — forecasts were for a dusting, and there will probably be 4-5 inches by the time it stops — is a frustrating inconvenience.

Fortunately, snow is common here, so it’s a minor pain, and one that people are prepared for this time of the year. It’s very different in the southeast, which was coated by less snow than we will get today this past week, and basically shut down that part of the world. Here, things will happen as scheduled, with the biggest changes being more grumpy adults and more excited kids.

Expecting something isn’t the same as being prepared

This unexpected event got me thinking about investing (as most things do). Mainly, the difference between how we handle unexpected events we are prepared for, and unexpected events we aren’t prepared for. For instance, in the Sun Belt, essentially nobody has a snow shovel, much less a snowblower or a pickup with a snowplow on the front of it. It’s such a rare occurrence, it’s the sort of event it just isn’t practical to prepare for. In the Northeast and Midwest, snow is a fact of life; unexpected snowstorms happen every year, just like afternoon rainstorms are an expectation in Florida in July.

In the investing world, stock market selloffs are like snow in the northeast. They’re going to happen. The difference, of course, is almost all of us have no ability to predict with any degree of accuracy when they’re going to happen, and a market downturn can upend years of successful investing if it hits at the worst possible time.

There are things we can do to bolster our portfolios and to protect ourselves from downturns:

• Own stocks only with wealth you won’t need for at least five years or more.

• Keep some of your portfolio in cash, but not too much!

  • A little cash is a good way to hedge against your own emotions if you’re afraid of an imminent crash.

  • A little for opportunistic buys during a selloff.

• Keep some of your portfolio in bonds or bond ETFs, even if you’re still decades from a financial goal.

  • Bonds won’t outperform stocks in a bull market, but will almost always hold value during a market selloff.

  • In the new interest rate world, bonds should prove more valuable than cash over the long term.

• Asset allocation (more bonds and cash the closer you get to financial goals, and vice-versa the further away you are) can prevent an unexpected market crash from upending your plans right at the finish line while also optimizing for the probability of the best long-term returns.

Optimizing for returns starts with optimizing for you

I can’t stress enough just how incredible things have been. Since 2010, the S&P 500 has gained 597% in total returns. That’s turned every $1,000 invested into almost $7,000.

And that’s not even from the very bottom of the Financial Crisis crash. If we cherry-pick our way back to March 6, 2009, the market has turned that same $1,000 into more than $11,000. Incredible.

The problem? Most of us haven’t gotten anywhere close to those levels of returns. This is either because we can’t leave a good thing alone (selling winners too early) or can’t admit being wrong (buying losers and not moving on when it’s objectively obvious we should). We also sell when stocks are bargains (downturns) and buy when they’re expensive (near market peaks) and just don’t hold nearly as long as we should.

Moreover, when the market is falling, holding some things that aren’t stocks helps ease both the tendencies to behave poorly, and gives us better tools to deploy when there is opportunity instead of panic-selling because we want to avoid more losses, and we think we can “get back in” at the bottom. The truth is most investors who do this end up sitting on the sidelines too long, missing the bottom and watching stocks return to the bull run while being convinced they’re set to fall again.

If there’s one lesson I have learned over the past couple of decades, it’s that more investors should build a portfolio that’s optimized for their best and worst tendencies as much as to optimize for returns. Simply put, if you can’t hold through a downturn (whether fear of further losses or financial necessity) then you or your portfolio needs to change. There’s no time better than now to optimize your investing portfolio and framework for both yourself, and your financial goals. If you’re not optimized for both, then you’re not optimized for either.

You can do it,

Jason

Tackle your credit card debt by paying 0% interest until 2026

Reduce interest: 0% intro APR helps lower debt costs.
Stay debt-free: Designed for managing debt, not adding.
Top picks: Expert-selected cards for debt reduction.

Learn How To Apply Now