This segment originally aired on In the Moment with Lori Walsh on SDPB radio. The following transcript was autogenerated.
Lori Walsh:
If you are getting nervous about the economy, now is a good time to check in with your emotions.
Here are highlights about why you might be feeling uncomfortable about your investments. On Friday, the government closed Silicon Valley Bank. On Sunday, New York regulators closed Signature Bank. California-based Silvergate was also recently shuttered. All that happened in one week.
That probably has nothing to do with your portfolio, but national news about a run on a bank makes people nervous.
Meanwhile, inflation numbers continue to cause pain in the pocketbook, and the Federal Reserve further signals about corrective action to slow inflation. That kind of adjustment has thrown markets into a tantrum before.
Add all this to what we might have learned or internalized about investing and about gambling, and you might feel the urge to make decisions based on those complex emotions and not what's actually in your best interest.
But hold on. Is investing done right really gambling?
Let's bring in our financial therapy expert. Rick Kahler is a wealth advisor and international thought leader in the financial therapy movement. He's based out of Rapid City and he joins us frequently to unpack the emotional impact of money and markets. Rick Kahler, welcome. Thanks for being here.
Rick Kahler:
Thank you. How much time do we have today?
Lori Walsh:
Well, we're building on a foundation of years of Rick Kahler segments!
Some of this has nothing to do with your investments, other aspects of it does. We're going to zero in on this idea of investing versus gambling. Because I think a lot of people, especially from South Dakota, kind of grew up not being sure if what they were doing was financially safe — how do you evaluate that risk? Where do you want to begin with just that distinction?
Rick Kahler:
Oh, my. Well, let's just go with that distinction because that's something that we hear a lot. 'Oh, investing in the stock market is just like gambling.' And like so many things, we try to make things over-simplistic because that's what our limbic, our emotional brain wants to do because it takes more energy to think. And I'm not being condescending with that statement. I mean, it's actually researched that the thinking happens in the cerebral cortex and the reacting happens in the limbic system, which is way faster and much less effortful. So we really do have to unpack what is investing and what is gambling. And so there's lots of variables here.
And if we want to get into the weeds a little bit, when we gamble, the odds of losing, your odds of losing are always 100% when it comes to gambling. That's the way the games are constructed. Blackjack is the best game to play because over time you'll only lose 1 or 2%. One of the worst games to play is keno or the slot machines where your chance of losing is up to $50 for every $100 you play.
Lori Walsh:
Okay.
Rick Kahler:
When you look at the stats on the stock market, the chances are 96% you're going to win, if I can put it that way, over a long period of time. And the average earnings are somewhere between 7% annually.
Now, let's contrast the best gambling odds of losing only 1% over, let's just say 10-year period of time, or the chances of 96% of earning 7% over that same 10-year period of time. I mean, there is no logical comparison.
Lori Walsh:
And yet we say things like, "Oh, you're rolling the dice, you're rolling the dice there." Where does that all come from? Is it just that simplification, like you said, or is it also the collective memory of people who lost everything in the 30s, say. How much of this anxiety comes from wisely remembering our history lessons?
Rick Kahler:
You said this in your opening, and I should have said it. So when we invest "done right," these are the odds, 96% that you're going to come out with a very nice return. Okay, so that would suggest that we could do investing incorrectly. And when we do investing incorrectly, it's not investing at all. So we have a terminology problem. A person can gamble with financial vehicles. So when we invest, it's long term. It's a buy and hold. Anybody can invest long term successfully as long as they get into an index fund.
But if we're going to day trade, which is trading stocks every day, in out, in out, buy, sell, if we're going to sell short stocks, and I'm using some terms that can get pretty technical, but that's selling a stock we don't own, and yes, that's possible to do, if we're going to buy what's called naked puts options in shorts, which is, again, pure speculation, if we're going to play the futures market, if we're going to play the cryptocurrencies market, and you notice I'm using the word play, not invest — all of these are speculating, all of these are gambling.
So it's absolutely possible to speculate or gamble in financial securities. And I'm saying that as opposed to the stock market because there's many markets that we can gamble in. And quite frankly, I'll bet the odds at blackjack are better than some of those odds.
Lori Walsh:
Interesting.
Rick Kahler:
It is emotional. And we've talked a lot about this. Classic economics say that human beings make decisions that are in their best interest 100% of the time.
And somebody can just be in my office for one day and probably conclude that there's something wrong with that thinking. I find that markets are highly emotional. And the sphere of contagion that we're talking about today, which is panic, that starts on a roll. If everybody starts taking the money out of banks, of course, the whole banking system will collapse. Is that logical? Absolutely not.
Lori Walsh:
Sure.
Rick Kahler:
But is it based in fear, terror, panic of individuals? 100%.
Lori Walsh:
Which brings us back to, you'll "win" or you meet somewhat of the goals of your investment a high percentage of the time, but not every day. I mean, you're going to see that your investments went down because of what's happening in the market.
So let's say you're sitting at dinner tonight and you're trying to decide what to do and you just lay those emotions on the table. Should you just say to your financial partner, your spouse, for example, or your business partner, "I'm nervous, I'm feeling scared, and that's okay, but now we're going to figure out what the right thing to do is." Where would you begin with a conversation like that?
Rick Kahler:
Right where you did.
Lori Walsh:
I've been listening and paying attention!
Rick Kahler:
That seems so simple, and yet it's so powerful because most of us don't talk about our feelings. Most of us are not even aware that I'm feeling scared. I'm feeling fear. The thought is I'm going to become a bag lady. And that is right where to start. Here is what the one-word feeling or feelings, because you can have more than one feeling at any one time. And that in itself can separate the feeling from the action.
And when we can step back and say, "Oh, man, I am feeling so much fear in this market and I'm scared and here's what the money scripts are, here's what the beliefs are, here's how they're tied," that gives us an even greater possibility of getting some distance from the action because the action would be to sellout. Why would we want to sellout? Because we want to bring relief to the feeling.
And when we can name "I'm feeling so anxious right now," that can give us a chance to feel the feeling without having to take the action to relieve the anxiety, which we know most of the time the action is going to not turn out very well.
Lori Walsh:
So here's a good lesson that I will bring to the table. You travel a lot. I don't travel that much, but I do travel. And so I just came back from a trip. I'm on the plane and, like many people, I am feeling anxious about being on the plane, and there's no action to take, right? You can't really, I mean, I suppose you could try to get off the plane, but I don't think that's going to go very well.
So I remember just sitting there in my seat with my seatbelt fastened thinking I just have to feel these awful feelings. And for some reason, they were really intense this particular flight, and I was like, "There is nothing to do but just feel this." And then you know what? They went away. They were done.
Rick Kahler:
Beautiful. Beautiful.
Lori Walsh:
And the feelings passed. And when I got off the plane, I was just buoyant. So you're going to feel it in your body. You're going to feel that fear and that anxiety in your body, and if you can't act or you decide not to act, they will go away. Those feelings will subside.
Rick Kahler:
That is a beautiful example. I can't add much to that because it's so powerful and it's just spot on what the process is.
Lori Walsh:
Thank you.
Rick Kahler:
That's the power. That's the beauty of actually feeling the feeling as versus talking about the feeling or even resisting the feeling by doing something. Now, you couldn't get off the plane very easily.
Lori Walsh:
Right.
Rick Kahler:
But if you were having those same feelings of anxiety because of your investments, you can pick up the phone and say, "Sell everything."
Lori Walsh:
What do you look at as we look ahead to this week? It's a big week this week. We're watching the Fed. What will they do? What will the markets do? We have these three banks that failed. The news can be kind of grim. If you're looking at getting into investing right now, what are some of the things that you need to be aware of with the climate, the political climate, the economic climate right now? Big picture, what do you think?
Rick Kahler:
Yeah, for a person that's thinking about "getting in" with their retirement funds or long-term money, I would not be looking at short term, what's going on short term. If it makes sense for you to be investing, if you invest every month into your 401k, if you're rolling some money out of a 401k in a lump sum, all the research suggests just put it in because in the long term you will be fine.
Nobody knows which market to get in. And of course, when we're talking, when I talk about getting into the market, I'm talking about getting into the markets plural, which would be maybe 10 different markets, bonds, various stocks, international investments, real estate, et cetera, et cetera.
So I would take more of a look at your own personal situation. Does this make sense for me to be investing today this money for a 10-year window?
If it does, then you can take a deep breath and not worry about all the short-term stuff because there will always be short-term stuff, and it's always different this time, and yet it's never different this time, if that makes any sense. Today, the markets are just collectively taking a big yawn.
Lori Walsh:
Yeah.
Rick Kahler:
There's just nothing much happening.
Lori Walsh:
If you're young, if you're a young person, say you're getting out of high school, you're getting out of college, you're establishing yourself, you're deciding what you're going to do for housing and for work, what are some of the emotional pillars that you should build your thoughts around here at this point?
Rick Kahler:
If you're young, it's looking at that long-term horizon. It's looking at making periodic investments. It's looking 10, 20, 30, 40 years down the road at your future. And the short term has just about nothing to do with that. Markets go up, markets go down.
As you said before, that's the nature of markets. Why can you earn 5, 6% over a long period of time in a diversified portfolio when the average on cash, and I say average today because today you can earn just about the same amount in CDs, but that's not sustainable. That's not going to hang around. Typically, you'll earn about what the inflation rate is, which the long-term inflation rate's about 2, 3%.
So typically, in CDs and cash, you're going to earn 3, 4% under a diversified portfolio, you're going to earn maybe 5, 6% under if you put everything into the stock market. Why? Well, because you're taking a risk. And the risk is markets go up, markets go down. They go up more than they go down, but they will go down. And with stocks, they can go down as much as 50% in one year, and that's normal. It's normal.
Lori Walsh:
Okay.
Rick Kahler:
So even at 50% down, it's time to do exactly what you did on the plane and take out all the feelings and be with them, and then stay the course.
Lori Walsh:
Stay the course.
Rick Kahler:
Because in feeling those feelings, what you modeled so perfectly, is they will dissipate. The average difficult emotion has a 45-second lifespan.
Lori Walsh:
It feels like longer ..
Rick Kahler:
Well, if you have a lot of them to get through ...
Lori Walsh:
Oh, yeah. Some of us have more to get through, but once you get through them, it really does feel good. What a relief. Rick Kahler, thank you so much for once again walking us through this. We really appreciate your time.
Rick Kahler:
Thank you so much, Lori. Take care.
Lori Walsh:
Rick Kahler is a wealth advisor and international leader in the field of financial therapy. He's based out of Rapid City. He's a frequent guest on our program. You can find all our conversations on our website at sdpb.org/news.
