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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, well, we can pretty much cover it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, request your wealth analysis by going to www.yourwealthanalysis.com. With me in the studio today, mister David Fransen. David, thanks for being here.
David:Yes. Glad to be here.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. You can text your questions in at any time this week to the number. Save this. Put it in your phone right now. 913-363-1234.
Mike:Again, that's 913-363-1234, or you can email them to hey mike at how to retire on time.com. Let's begin.
David:Hey, Mike. How do you feel about shorting the market?
Mike:I guess it would depend on your phase of life and the risk that you're willing to take. So first off, let's just put some ground rules here.
David:Okay.
Mike:No one can time the market. Shorting the market isn't necessarily timing the market. Right. So timing the market means you're invested in the market and then you're in cash and then you're invested in the market and then you're in cash.
David:Okay.
Mike:Shorting the market believes that the market is expected to go down and you wanna make money on how the market's going down. Are you with me so far?
David:Yeah. So can you give us an example of that? Like, it's either a historical example where someone's done it or just make up one.
Mike:Oh, yeah. I mean, Michael Burry shorted the housing market. But how do you short the market is a very good term. There's some Yeah. Inverse ETFs so you can buy and you'll get the opposite of whatever the index does.
Mike:But technically, shorting the market is when you sell something that you don't have, quote unquote. This is a simple explanation. You sell something you don't have, but you're required to buy back to close the deal. Okay. So let's do a very simple example because the idea of shorting the market conceptually is difficult to understand.
Mike:I don't know why I have a lot of analogies with chickens and eggs. Yeah.
David:You do.
Mike:I do.
David:If it works.
Mike:I I would love a chicken coop.
David:I mean, yeah.
Mike:Yeah. So alright. So, David, let's say that the going rate of a dozen eggs today is $3. Okay. And I think that the, going rate of eggs in the future are gonna be $2.
Mike:I think the price is gonna go down.
David:Alright.
Mike:So I'm gonna sell you a dozen eggs today for $3, but you don't have the eggs. I don't have the eggs. I have just I've sold it to you. Now I've gotta go find eggs, buy them back in so you the transaction's complete.
David:Okay.
Mike:You with me so far?
David:Yeah.
Mike:So if I sell you eggs at $3 and then I go to buy them to complete the transaction and they're $5 Oh. I've lost money.
David:Right.
Mike:But if I sell you eggs at $3 and then I go back to buy them and they're $2 or they're $1 or they're 50¢, I've made money. Do you see how that works? Yep. So the reason why I bring this up is because when you short the market, you have unlimited downside risk. How high is the market able to go?
Mike:To infinity and beyond. Right. How low can the market go? To 0. Yeah.
Mike:So you have unlimited losses when you short the market. Just like if you buy into the market and you hold it, you have unlimited upside potential. Doesn't mean you'll make money. Just like if you short the market, doesn't mean you're gonna make money either. No one knows.
Mike:Right? The future is undetermined. But are you with me so far of the risk that we're taking here?
David:You've gotta be right. You hit your hunch about $2 eggs has to be right. Otherwise, you're losing money, so it's a big risk.
Mike:So with that kind of foundational preference, years ago, I had lunch with some of the most prominent hedge fund managers in New York. If I said their names, you would know them.
David:Okay.
Mike:K? Smartest people on Wall Street. I mean, just absolutely brilliant. And you know what we discussed? And I'm just this kid.
Mike:I mean, I'm not really wasn't really kid then, but I you know, they were 30 years my senior. Yeah. And I just happened to get invited because I guess they liked me enough. Mhmm. And, you know, they talked about how the others missed.
Mike:You know, they shorted the market the wrong time. They went to cash the wrong time that no one really knows what's going to happen in the future. Now these are the top minds on Wall Street. So I mean, these are very successful individuals. And one goes, hey.
Mike:Remember when you went to cash in 1996 because you were convinced this dotcom bubble was about to burst and then it didn't? Yeah. Well, remember what how you didn't short the market in 2,000, and they were just throwing jabs left and right, about how no one really knows. So for a retail investor, as in the average person, if you're listening to right now, chances are you're what they would call a retail investor. Just, you know, good old American trying to make money in the market.
Mike:Nothing wrong with that. But for anyone to assume that you're gonna know more than Wall Street on when to short the market is a bit of a leap. And chances are you might not understand the risk you may be taking. Because when you get to retirement, it's not about getting rich. You should already be rich when you retire.
David:Mhmm.
Mike:It's about staying rich. Shorting the market is a mechanism that you can use to try and get rich. Try being the keyword because it's not a guarantee and there's more risk associated with it. Does the premise make sense?
David:Totally. So I mean, maybe sometimes you get lucky and you do make a lot of money shorting. Other times,
Mike:you don't. I mean, if you've got $5,000,000 and you wanna short the market with $10,000 for fun, that's different Yeah. Than taking half of your money, say, I know the market's gonna go down because you don't know and say, I'm gonna short the market with half my retirement savings. That's a totally different story. Yeah.
Mike:And then you have to account for the emotional factor of when will you accept the losses? Because if the market does keep going up, at what point are you gonna tap out and settle the problem that's at hand? So watch out for greed. Watch out for for that need to keep growing your money. This there's a very difficult behavioral transition when you stop growing your assets and you start trying to maintain your wealth.
Mike:You're trying to preserve your wealth with growth. We've talked about it a 1000000 times in the show. You you do want a growth focused portfolio, but you're not taking the same risk you took in your twenties, thirties, and forties. You're taking calculated risk for growth to offset inflation, to offset future health care expenses, to offset certain lifestyle changes that could happen in the future while acknowledging that you need to also protect some of your money. Yeah.
Mike:There's balance with all things, and that's a very important point. So ask yourself if the market were to double, it's not gonna double in a year. Right? But I'm being hyperbolic. If the market were just to take off, could you afford to take those losses?
Mike:Close the transaction, get out, be done with it, and move on? Or would that have significant negative consequences on your ability to live your life? And ask yourself, how much is enough? How much does it cost to be you? And how much is a year of your life worth?
Mike:Those are some very difficult questions for people to answer because you're putting a price tag on your life, which inherently I think is problematic. But you can say, well, if I had x amount of money, I would be happy. Then if you can do that, what's an extra 100,000 or $1,000,000 in your portfolio when you die? Do you really wanna be the richest person in the graveyard or try to be the richest person in the graveyard? And what did you miss by trying to do that?
Mike:That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility.
Mike:This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.