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Inside-Out Investing With Mark Biller

MoneyWise

Christian talk radio with Rob West

October 18, 2022

Canadian hockey great P. K. Subban once said, Life is a chess match. Every decision you make has a consequence. Many of the decisions we make affect us far into the future, especially investing decisions. Today we’ll talk with investment expert Mark Biller about a kind of decision-making that yields the best consequences. Mark Biller is executive editor at Sound Mind Investing (SMI), where they’ve made a science out of decision-making. We often think of investing decisions as good or bad. But takes us beyond that mindset with something he calls inside-out decision-making. INSIDE-OUT DECISION-MAKING It starts with a different way of thinking about making investment decisions. SMI teaches members that they can make most investing decisions with little regard for what’s happening in the investment markets. That may sound counterintuitive, but here’s the case for that approach: Start with this question: Where do investment decisions come from for many investors? For many people, their starting point is the impersonal outside world of current events, blog posts or magazine articles, and expert recommendations. We can sum that up to say most investor decisions are guided primarily by outside considerations. As those investors respond to the data constantly coming at them sometimes buying, other times selling their personal inside financial world takes shape. But their thinking is outside-in, meaning that the continual stream of outside information is really what’s driving their thinking and actions. The fact that most people invest this way is largely why we see so much herd behavior in markets, as everyone reacts to the same news flow like those giant flocks of birds you see swirling in the sky. But consider a different approach: Start your decision-making process with inside information. With this model, the focus is on your own financial needs and a personalized long-term strategy designed to meetthose needs. Your buy and sell decisions are based on what’s required to ensure their financial holdings are in accord with the game plan. In contrast to the outside-in model we described a moment ago, this is inside-out thinking, where decisions are primarily shaped by inside considerations. This makes current market info and what the experts are saying largely irrelevant. The outside world of investment professionals comes into the picture only when assistance is needed in executing decisions made in alignment with their long-term plan. For example, if your family has grown to the point that you need a minivan to haul everyone around, you shouldn’t buy a sporty little convertible just because someone on TV or in an ad says they’re hot right now. The main point here is it’s foolish to let this type of outside stimulus steer you into making such inappropriate purchases. Instead, you make your decisions based on your needs at the time, regardless of what the person on TV would like to sell you. A lot of investors have been whipped around this year by the market’s volatility, selling in fear as the market fell during the first half of the year, then piling back in when it bounced this summer, only to watch it dive again lately. It’s much better to be guided by a well-defined strategy, rather than be whipped around by outside-in factors like what the talking heads on CNBC are predicting will happen next. INSIDE-OUT CHECKLIST Here’s a short checklist of questions to ask yourself: 1. Is my financial foundation rock solid? That is, am I debt-free, and is my emergency-savings fund sufficient? If it isn’t, they may need to sell some stock or at least pause contributing to their 401(k) plan for a bit in order to repair the cracks in their foundation. 2. Are my earlier assumptions about my lifetime earnings, retirement and lifestyle goals, health needs, and life expectancy still on track? If in doubt, it’s a smart idea to re-run those numbers. Those results might dictate the need for an inside-out change to a person’s portfolio mix between stocks and bonds. 3. Am I using investing strategies that reflect my emotional tolerance of risk? One caveat here: It’s dangerous making big adjustments to an investing plan during a bear market, so be careful with this one right now. But the goal is to build a portfolio that you can ride through a bear market. That’s a healthy inside-out investing approach. Getting to that point may lead you to reduce your holdings in one strategy in order to allocate more to another. 4. Are my protective boundaries still in place? If not, what adjustments should I make? For example, having more than 15% of your total portfolio in the stock of your employer is risky. In that case, even if you think your company’s stock will do well in the future, it’s probably wise to sell some and diversify by reinvesting in other assets. 5. And finally, am I meeting my giving goals? If not, maybe I should make lifestyle adjustments or sell some investment holdings to fund additional giving. MAKING THE MOST OF A DOWN MARKET Bear markets are scary, and they can be damaging for those in or near retirement. But they’re actually .netpositive for younger folks who continue to invest through market downturns. This is where the beauty of dollar-cost-averaging comes in. When you contribute the same amount each month to your retirement plan, you naturally buy more shares when stocks are down. When the market recovers and stock prices rise, which they always have in the past, you own more shares than you would if you bought in an up market. So the value of your portfolio gets a big boost. If you’re dollar-cost-averaging and have a long time horizon of 10 years or more, you don’t have to fear a bear market. It’s actually helping you accumulate shares at lower prices, which will help you long-term. You can read more about today’s topic in the SMI article, Make Sure Your Investment Decision-Making Is Inside-Out at SoundMindInvesting. org. On today’s program, Rob also answers listener questions: ● Should you give property to adult children before you pass or will it to them? ● How do you determine if you’ll need to take a required minimum distribution? RESOURCES MENTIONED: ● Christian Credit Counselors

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