Episode 109: The Market Crash Is Coming – Someday

Transcript

Hello and welcome to the Balanced Wealth Podcast. My name is Jarret Topel. Almost everyone I talk to these days, clients, prospects, friends, and family, say some version of the same thing.

Which is, “The market is definitely about to crash. What should we do.”

We have a madman in the White House, Congress feels completely ineffective, inflation is surging, we are once again at war in the middle east, oil prices are spiking, tensions with China are rising, AI is going to take everyone’s job, and somehow the markets just keep going up.

So, the seemingly obvious conclusion is, something has to give and it is going to happen soon.

And I understand that sentiment. And, to be perfectly honest, in some ways, they are totally right. The market does have to give. But the real question is, when?

There is always a reason the market is about to fall apart, inflation, interest rates, recession fears, pandemics, wars, politics, the Fed. Feel free to pick your crises Du Jour. There is never a shortage of explanations. And they always feel reasonable in the moment. And to be fair, these risks are real and market downturns do happen.

But here is the part people miss. Not only are downturns inevitable, they are actually healthy. Markets need corrections just like forests need small fires to prevent a massive one later. Excess gets cleared out, valuations reset, and speculation gets washed away. That is exactly how long-term markets are supposed to work and stay functional.

And here is the second part people miss. Downturns are also opportunities. If you have bonds or cash, these are the moments where you can buy. You are buying when prices are lower, when fear is high, and when others are pulling back. But here is the catch, it never feels like a good time when you are in it, it only looks obvious after the opportunity has passed.

So, now let’s come back to the danger of predictions. The problem is not that people predict downturns, the problem is timing. If you predict a crash every year, eventually you will be right, that does not make you insightful, it just makes you persistent. After all, even a broken clock is still right twice a day. And, just like a broken clock, although it is possible they are right, I wouldn’t recommend counting on it for planning my day or my life.

The real question is not if the market will decline, it is when, and no one consistently knows that answer. No one!

Now let’s talk about the real cost. Let’s say you move to cash because you are worried. But what if the market keeps going up for years? Now you have missed years of compounding growth and income, and re-entering the market may require buying back in at higher prices. Or, maybe, if you get very lucky, you do avoid a downturn, and for a moment you feel real smart. And then comes the hardest question, when do you get back in.

Because the same people predicting the crash are usually not very good at telling you when to return. This is where real damage happens, not in the downturn, but in missing the recovery. Markets often recover quickly, and many of the strongest days come early, before most investors feel comfortable getting back in. As a result, many people stay on the sidelines too long and miss a meaningful portion of the rebound.

We have seen this over and over again during the last 15 to 20 years, through financial crises, pandemics, rate hikes, and all sorts of geopolitical tension. At every stage, there were confident voices saying, this is it. This is the big one. And yet markets recovered and moved higher over time.

So, this all leads to the question, what actually does work? And, it is not timing the market, it’s time in the market. That does not mean ignoring risk, it means preparing for it.

Have a cash reserve so you are not forced to sell at the wrong time, during a market crash. Own bonds or safer assets so you have dry powder to buy into the inevitable downturns. Build a diversified portfolio aligned with your goals, risk tolerance and time-frame and stick with it no matter your stomach is telling you. And, have a well-defined plan of action in place before the volatility shows up.

Because downturns will definitely happen. The big one is definitely coming. The goal is not to predict them perfectly; the goal is to be ready for them and to take advantage of them when they come.

There will always be another prediction, another headline, another expert saying this time is different. And sometimes they will even be right. But if your strategy depends on perfect timing, you are playing a very difficult and dangerous game.

A better approach is just this simple…

Have a plan, stay invested, use downturns as opportunities, and let time do the heavy lifting.