Season 1, Episode 14: What do I do with a big chunk of money and how do I know how risk tolerant I am?

Different ways to invest an inheritance and how to assess, and manage, your fear of the market's ups and downs

Getting a whole pile of money is the dream, right? But what the hell are you supposed to do with it? What if you invest it all and the market goes down the next day?

Freak out!!

Or not. Sara shares a couple different approaches to investing windfalls for both the strong-willed and faint of heart.

Also, we didn't come up with a Cosmo quiz for figuring out how "risk tolerant" you are, but we should have. It turns out, there's only one key factor...and it involves the ability to close your eyes, plug your ears and sing, "La la la la la".

This week, the one thing Women on the Verge of a Financial Breakthrough can do TODAY to take the first, or next, step towards building a strong financial future is looking at the progress you've already made in your investing journey.

Ask us your dumb investing and finance questions on our Ask Us page!

Music by Bad Bad Hats and Devmo.

Transcripts for Episode 14: What do I do with a big chunk of money and how do I know how risk tolerant I am?

 Music intro by Bad Bad Hats

Caitlin Welcome to women on the verge of a financial breakthrough podcast where we're figuring out finance one dumb question at a time. I'm the dummy, I'm Caitlin, and I'm a coach and a mediator in the Bay Area and.

Sara I'm Sara Glakas, I'm an investor advisor and founder of Black Barn Financial and the Austin Women's Investing Group, which you can find on Meetup.

Caitlin So when I met Sara that 2014, if you had told me that I would one day co-host a podcast about investing or personal finance, it would have been like telling me I would be doing it like Middle Eastern scripture analysis from cave paintings like the subject area that was so remote to my understanding of the world, anything I had known up to that point. But I took her Investing for Beginners class, and I'm catching up a little bit. So this podcast is your invitation to join me.

 Music transition by Bad Bad Hats

Caitlin OK, before we get started, there's only one more episode in our first season, we want to cover so many things and our second season like sustainable investing, crypto, whatever the hell that is, credit scores, life insurance, estate planning and so many other topics with guest experts in these fields. But in order to make that happen, we need sponsors, so we need your help. If you could leave a rating or a review, or wherever you listen to this podcast and text or email to like three people, three women in your network, or that you just met that you think could really be helped by getting some financial and investing knowledge that would be such a help to us? OK, thanks so much.

 Music transition by Bad Bad Hats

Caitlin OK, Sara, today is a fantasy that can turn into a problem. Let's see if that makes sense. The fantasy getting a big chunk of money like a pile of money at your feet that like we're all think like, yes. Best case scenario. Unexpected pile of money. But then quickly after the anxiety. What to do? I mean, I know what I would do is just like I think I graduated from Shoe Box, but keeping it into a savings account or something where I can look at the number regularly and feel really excited about it. But ever since meeting you, you sort of ruined that fantasy of just having it in a savings account and feeling just super proud that I have that money. So what do what someone supposed to do if they I'm assuming it's like inheritance that would be the most usual thing are like selling a house or something where unexpectedly or maybe it's expected you end up with a chunk of money. And with I'll let you answer in a second, but I'm still talking.

Sara  Just keep going. You got it.

Caitlin Well, why that makes. OK, so the easy answers like you should invest it, but that's this big chunk of money, and we know that on a day to day basis, the stock market goes up and down. And I know we're not supposed to be looking at it. But if I just put $50000 in it on Monday, you can bet I'm looking on Tuesday just to be like, Oh, good for me. And then it tanks. And I don't know if I'll recover from that. And I know the worst case scenario is that I take it all out because I've done this podcast with you. But I'm just curious, what is your advice? Is that what we just have to stomach and do? Like, just put it all in there on Monday and then not look again for 15 years? Like, what is the the financially savvy thing to do with that pile of money?

Sara I want to hear a little bit more about what you think. Like, how long do you think you would leave this windfall like in the bank, like in a bank account, so you can just admire it and analyze about it and make all these plans, but not actually do anything like how how long do you think it would take you?

Caitlin Like, oh, forever. No, what you just said was exactly right, like I put it in and be like, I'm going to be very deliberate and smart about the way that I invest this money. I'm going to come up with a perfect plan that's fail proof. So this will like double triple, quadruple my money and look at what I can accomplish. And as it turns out, I will never, ever be able to come up with a plan that's perfect, like just the stakes are so high then that I'll be so overwhelmed and anxious about it that I'll do nothing. And then 15 years later, I'll meet someone like you. That's like God. if you run the numbers you could have made like, Oh,

Sara Let me get out my financial calculator and tell you what you could have had over the last 15 years.

Caitlin Yeah, a jerk like you would've  just shamed me.

Sara I am a jerk.

Caitlin I feel like the pressure to be perfect in that situation would overwhelm me and like, it might become the worst thing that ever happened to me.

Sara Yeah, yeah.

Caitlin Money. I can't tell how normal I am. I mean, I know enough people that they put off those decisions because they want to do the quote right thing with them. And I think you would agree with doing the right thing. But the problem is you don't wake up one morning, most of the time, just being like, today's the day, I figure it all out. I'm totally confident in my plan and I execute it. So what do we do instead?

Sara Yeah, I mean, I do think that step one is getting your bearings so that like letting it sit in the bank account for some period of time is actually a really good idea.

Caitlin Oh.

Sara Everybody processes, these windfall events in different ways. And certainly, if you've inherited money, you know, there's lots of emotional stuff that comes along with that. So I don't necessarily think that people need to rush into making like making a plan or implementing their plan right away. You know, I've seen people take. Six months, 12 months, sometimes 24 months or even longer to just process whatever has happened to process it and kind of reach a point where they feel like they're ready to move forward. I mean, because I would caution against rushing into something. It's just it's a recipe to be disappointed with a decision that you made. And it's I think it's a recipe to let other people assume agency at the types of decisions that you should be making. So I just want to kind of throw out there that it's OK to wait for some period of time to make a decision about some windfall amount that you receive

Caitlin That is so nice of you. I thought you'd be a total hard ass and be like, Stop, stop feeling so much, just get it in the market. But as you're talking, I realized the vulnerable position it puts you in for like a giving it to someone someone's like brother in law who's like, you heard, is it good with money? And just being like, Oh my god, will you, manage? I'm totally overwhelmed. Often, if it does come with an inheritance like there's a death, just like you're saying, there's a bunch of other things that you're processing at the same time. So you might really just like jump to have someone else manage it for you. And without like being in the mind space to really evaluate whether they're a good person for that job or aligned with what you would want. And then also, like you might just be a little bit more raw and vulnerable. And so your likelihood to like, help people with that money or invest in something because you want to make someone else feel good or something, you might just be vulnerable to doing things with the money that you wouldn't in another state of mind. Is that what you're getting at?

Sara Yes, and that is such a good point is that like whatever and when you receive a windfall, especially if it's an inheritance, you're not probably in any position to be making any type of commitment whatsoever when it comes to this money, right? Whether it's like giving it away, lavishing it on your kids or your romantic interests or your spouse or whatever it is, you know, it's it is just a really emotional time and you shouldn't make investing decisions with your emotions, and so just taking a step back and saying I'm going to take six months and not make any decisions about this money, I think is a really smart thing to do versus rushing into anything, you know, either on the, you know, trying to get it out of your hands as quickly as possible in whatever way that maybe that manifests itself. I think it's a really smart idea to just take just take as much time as you need to kind of gather yourself so that you're making decisions that are really, I don't know, that are as right as they possibly can be for you.

Caitlin OK. Does that mean then you sit in paralysis waiting for the perfect decision for 10 years? And that's OK. Like, when does that the time out that you're like taking the time to let the emotions settle and be in your right mind? Like, Are you waiting for a perfect plan? What are you waiting for? Like your right mind? Yes. Yes. But I'm in my right, I mean let's put it in quotes, in my right mind right now, and I would be totally overwhelmed and a perfectionist in this crazy realm where I have like no reason to think I could do anything perfectly in it.

Sara Yeah. I think you're waiting for that moment where you are not overwhelmed, not completely overwhelmed. You might still be a little bit overwhelmed. So I think it's somewhere in between. I don't know, there's some sort of gray area, right, where I'm not totally overwhelmed anymore. And I know that I can't wait until something's perfect, I have to start moving forward.

Caitlin OK, so what does that look like? And also like moving forward could be that like, oh, you got a surprise like amount of money because like a remote aunt sold a business and you got part of it. So it might not be an emotional time for you. And so you're ready, you're ready to get moving, but you're still freaked out by the volatility of the stock market, which as we know. Do you think this podcast. So what what do you then do knowing that it's a feature, not a bug, but you have this bunch of money you don't want to lose from Monday to Tuesday?

Sara Yeah. So are you jumping ahead to all right, like you've kind of made this general decision to invest for the long run you want to get into the market? What do I do next?

Caitlin Oh, I didn't let you go to step two. I was just so eager to get in the market, Sara. OK, what's step two? You're slowing me down. OK.

Sara Well, I mean, step two is information gathering, right? So it's when you talk to investment professionals or you listen to some awesome podcasts

Caitlin Women on the Verge

Sara Yeah, and you start getting you start getting a plan together. And hopefully that plan is something like this is how I envision life. This is what I envision life being like for the next 10, 20, 30 years. These are the short term things that I want to do. These are the medium term things I want to do, and these are the long term things that I want to do. And assuming that you come up with some long term goals, and for most people, it's something like retirement or whatever that looks like for people. That long term piece is where, like the stock market comes in right or other other types of risky investments. So, you know, figuring out of this windfall amount, how much is set aside for my future self where I can take advantage of that compounding that we've talked about in past episodes. And then it's go time right where you have to figure out, OK, I have $500,000 and I got

Caitlin Oh my god. This is getting even more exciting. I was thinking 50, you're going 500. OK. 

Sara Oh, I'm going five hundred. Yeah, OK.

Caitlin Yeah, yeah, yeah. Dream big. This is more than I've ever had. It's more money than I feel comfortable with, but I know that I don't want it to sit in cash. I know that I want it to grow. You know, over a long period of time. And so, you know, now, how do you deploy that now, how do you get that into the market? That's your question, right?

Caitlin It is. And I guess I'm just so excited. You gave me permission to be like, OK, I'm taking one really good trip first. Like that, dividing the money into categories of like, you know, immediate so, you know, pay the mortgage, blah blah blah. And then some medium term thing like it's some big milestone event in my life next year. I'd love to take a great trip. But then like, let's think about retirement. Like, how can I grow this money beyond those more short term and medium term needs? So then I might be working with less than the windfall, but I've made a very conscious decision about what I'm allowed to use right now and what I really need for the future. And that could be because you're a little bit behind where you'd like to be in your retirement savings or you're like, I was going to live at this level in retirement, but maybe I can live at like high high penthouse level retirement, you know, or like, you know, moving up in the elevator. Yeah. So what does that look like? Yeah.

Sara I mean, so once you basically have the investing plan, you kind of have two choices, right? On one extreme side of the spectrum is you take this $500,000 and you just chuck it in the market. You chuck it in the market on Monday and you walk away on Tuesday and you just let the market do what it does. So usually what we call that is lump sum investing where you take a lump sum of money and you invest it all at once. There's some evidence to show Vanguard did a white paper on this, you could probably Google Vanguard white paper lump sum investing. They looked at, you know, all these different time periods and found that most of the time. Lump sum investing is actually the right choice financially, or you just want this whole big chunk of money and you plop it in the market and because the stock market tends to go up. That would give you. In most cases...if that makes sense.

Caitlin So.

Sara How do you feel about that option though?

Caitlin I feel like it's what I expected you to say because you keep saying we're not allowed to look at the stock like put your money in, but don't like just turn away and then you can come back in like 10, 20, 30 years. So I feel like it's what I expected you to say. Now, whether or not I could actually do it because of knowing the volatility of the market like, I would have to turn off all news like the lead up for that day when I press the button or make the call or whatever. It would be like a serious cocoon event where I'm just like la la la la la la la. I'm just doing it, and it'd be a mind over matter thing. So I guess that's what you're giving me the confidence to do. I know that the general trend of the market is upward and that if I have a longer time horizon, I will generate the benefits of that no matter what the daily fluctuations are. That said, that's what I say to get an A in your class. What I'm thinking is, are you fucking kidding me? I put that five hundred thousand dollars in, and the next day it's down to four hundred and thirty thousand dollars. Like I, I will never unknow that. And in 10 years I won't remember. Like, Oh, I put in 500,000 and today I have seven hundred and fifty. I'll remember I lost $70,000 in one day. What? What would it have been like if I had invested in Tuesday instead of on Monday?

Sara Yeah, yeah. So no one actually does lump sum investing. As far as I can tell, for that exact reason, like we're all too chicken and it doesn't matter, like if the odds are in your favor or not. Nobody really does that. So on the other side of the spectrum,

Caitlin Oh my God, I passed that test?

Sara You know? Well, yeah.

Caitlin I mean, I mean, I'm just as crazy as everybody else. That's the test that

Sara Yeah, you picked what everybody would have to be picked, which is not that, please just dump all of my money in the stock market on Monday.

Caitlin Right, right.

Sara So the other way is something called dollar cost averaging. So this is actually something that if you contribute to a 401k or some sort of employer sponsored plan, you're already doing this. It's the idea that you instead of investing all at once, you break up your contributions into smaller chunks and you invest slowly over time. So really, what you're what you're really doing is you are, you're deferring taking risk. You're deferring it into the future, right, instead of taking all the risk today. You are a kind of layering in to the stock market and to that riskiness over time.

Caitlin OK, wait, breakdown. What is it called again? I know you've said dollar cost averaging. OK, I get five hundred thousand. I'm ready to do something with $500000 on January 1st. What is dollar cut like? Lump sum is January 1st. I log in to Vanguard and I push the button and it buys the stocks I want or the index fund that I want. Dollar cost averaging, what does that look like on January 1st?

Sara Yeah. So maybe it's something like I'm going to take. $10,000 and invest it every week for 50 weeks. And no matter what. No matter if the market's up or the market's down, I'm going to invest $10000 every week and it's a schedule. And so it's it's meant to be a system, first of all, it's a system to kind of get over the edge. I don't know that the the shock of dumping all of your money into the stock market at one time and the other benefit is that if you imagine this $10000 that you're putting into the market periodically, the market's going up and the market's going down from week to week with that $10000. If the price of stocks goes up, you buy fewer shares with your $10000. Right?

Caitlin ...OK. Yeah.

Sara And if the stock market goes down, you buy more shares with your $10000.

Caitlin Oh, OK.

Sara So over time, it allows you to put... of stock in order to purchase more shares than maybe you otherwise would have had you done the lump sum investing.

Caitlin OK. Let me get this because I. OK. You kind of break even in a way because you absorb fewer of the losses and you but you can take advantage of more of the gains because your dollars are stronger when the market is lower. So that seems like an obvious reason to do it, like you're less at risk each time with smaller amounts of money. But you said Vanguard shows in most cases, lump sum is actually better because in that case, that whole lump of money would be doing stuff for a whole year instead of this drip drip drip over the year.

Sara Exactly, exactly. Most of the time the stock market goes up over a one year time period. So you would have had your whole the entire $500,000 growing at 7% or whatever the entire year.

Caitlin So which might offset that big lot, this potential big loss you might face in those first few days where you're watching attentively to see, you know, my getting rich quick yet? And you notice, in fact, you're not getting rich quick, you are losing money. But that in two weeks and three weeks and four weeks, that huge continent of money then starts to pick up some steam and you can't compensate for the steam. Well, my God, this is a crazy metaphor of five hundred thousand dollars build up with drip drip drip of ten thousand over a year long period.

Sara Yeah. I mean, I would say that benefit of dollar cost averaging in this case over lump sum investing. The benefit is behavioral. Right? It's that most people can't tolerate the idea of seeing a huge dollar loss in the first few weeks or months of investing. And so if if you are like most people, then that's where dollar cost averaging comes in and it feels a little bit more like a system. It's a little bit more like building a habit or working a muscle. Yeah, it feels like the stakes are lower. I mean, because they are, the stakes are lower. You're mitigating some risk. But you know, there's a chance that your you'll give up. You'll get up returns over that first year, but for most people, it's worth it, right? Like it just gives you a chance to get in the market, get your feet wet and not get completely overwhelmed by, I mean, something like we're experiencing right now and is the end of February. Twenty twenty two. And it's been like a shit show for lack of a better term in the stock market. And so if your dollar cost averaging, you would maybe have put in what, forty or fifty thousand dollars of your $500000 this year so far? You would have been buying at lower and lower prices going into the end of this month, and you'd probably still feel pretty good about having four hundred fifty thousand dollars in cash.

Caitlin God, I would just also, I mean, there's no way to get around the psychological stories that would like, Oh, why didn't I put all that money on that low day you that low day in retrospect, like God, I should have just put the rest of it in that day, OK? What I'm I love. I never thought about 401ks that way, but I get it. Well, and most of us are too dependent on our paychecks to just be like, Oh, I'll just put $12,000 in my 401k at the end of the year instead of, like a little bit monthly. Breaking that down. So I get that you're saying that's like usual, that's the common sort of manifestation of dollar cost averaging is the way that we contribute to our retirement accounts. That's exactly what we're doing. But I think of that way as the limitation is how much money we have available at any given time to put into those accounts.

Sara That's totally true. Yes.

Caitlin And in this case, we have all the money available, but knowing our human psychology have to manage ourselves in a way. So the obvious question here, Sara, if I gave you. I mean, it's too hypothetical. OK, if you inherited five hundred thousand dollars tomorrow, would you do the lump sum or would you do dollar cost averaging?

Sara I don't even want to say it is. Actually, this actually did happen somewhat recently. And I lump summed it. I just I I chucked it all in on one day.

Caitlin Why didn't you want to say it?

Sara Why didn't I? I don't, because I feel like my I feel like my my risk tolerance and understanding of risk is so different from the way most people view it that I don't want to seem like a bad influence on people.

Caitlin Well, whoa. Whoa, whoa. OK. I appreciate that. I only want to hang out with positive influences. But what? It's because of your your knowledge that you're doing that. Like, you don't think of it as like bringing it to the poker table. You have concrete evidence that that is a solid way to invest. And so you do it. You're putting your money. Oh my God, you're putting your money where your mouth is. Literally, that is the only time I can use that expression in a literal way. Correct?

Sara Yeah. Yeah. I mean, that's how I do it. I also, yeah, I spend so much time managing other people's money. And I always put mine aside and so I don't want to. I don't want to lose track of my system like I don't have. I don't necessarily have time to implement my own system because I'm implementing other people's systems. So the way just to not have it take up any additional bandwidth in my mind is just to do it right. There's nothing to it but to do it. I just put it in there and then back in 20 years, and I have never regretted that.

Caitlin My God, you have a slogan for it. Well, it makes me love you even more that you're sheepish about it because you still want to identify with the common woman who is worried about doing that. So you don't want to identify yourself as part of, like the intellectual investing elite. But of course, you know, that's what you do. So you really understand it, but you are able to get over those psychological barriers and worries and fear, some because of practical reasons like you don't want to lose out on investing just because you've lost track of your system because of your day job. And so it's just like it's a way to make sure it gets done by doing a lump sum in this case, but also because you are so aware of the ways that our psychology make things, especially in the investing world, seem riskier than they are. They amplify some risks and de-emphasize others that might be more important, like the risks for me of investing at all is that I would lose that seventy thousand where the actual risk is waiting so long that that $500,000 stays pretty close to $500,000 instead of doubling, quadrupling, tripling and then I don't have as much as I need when I retire. Am I getting that right?

Sara Yeah. And you make me sound so rational. And therefore,

Caitlin yeah, but that's what this is all about, right? Especially, I feel like that comes up for us again and again that what we the common person, many women who never got an opportunity for this kind of education as we view risk as these things that happen in the short term, I mean, it's sort of like chronic health things or, you know, you're worried about flying in an airplane, but actually, rates for car accidents are higher, just like what we see in front of us. What we're going to experience in the next twenty four hours in the next week, in the next month is much more real to us than the longer term horizon. I feel like this is a common theme in this podcast.

Sara Yeah, absolutely. And just I think just in my my work and this podcast in the classes that I teach, I, I have almost the opposite view like anything related to money. I'm always pushing it out five or 10 years. So the short term is only important in that I need to string a bunch of short terms together to get to the long term. I mean, you know, I do have money set aside for my short term needs, right? So it's we've

Caitlin talked about your high, high yield savings accounts.

Sara That's right. Oh man, my poor high yield savings account.

Caitlin Okay, Sara I. This connects to something that I feel like we've skirted around. We've talked about a little bit, but like how to do a personal risk assessment. And I feel like we need a Cosmo quiz for this and we have not made that. But you know, we can say to people just like, get over yourself, like, go into the market, go full-fledged, go like Warren Buffett tells us like 90 percent stocks, 10 percent bonds, use only index funds. Set it. Forget it. Never look. Like if every single person listening, just followed that advice I feel, having no expertise in this area, that we would be giving solid financial guidelines for people to consider for building their financial futures.

Caitlin So I feel like when someone's deciding how they're going to invest, like we even did it on that Schwab retirement calculator, like what's your level? What's your risk tolerance? What level of risk are you willing to enter the market in? And so we've talked about this a little bit, but I'm curious where you think people should start? Is it in terms of their psychology? Is it their age? Is it their what like how do people figure out what their risk tolerance is?

Sara Yeah, I think it's absolutely starting with. Your psychology and nothing else matters other than psychology, when you're an investor, your age doesn't matter. Well, it does matter, but I think you have to lead with your psychology. And I found what I found is the easiest way for people to envision what their actual risk tolerance is. It's kind of like what you talked about at the very beginning. Take the amount of money that you're investing and then tell me how far you could see it fall before you get very upset or before you want to pull out of the market. And that allows people to envision, like what is a very real scenario, like if you have five hundred thousand dollars. How far could you see it fall before? Like, you don't want to do this anymore and you pull all your money out and you take your money and go home. And for every person, that's a different number. For some people, they might say, Well, I don't want to lose any of it. Like, OK, that's going to lead you to a certain set of investments that you can tolerate, right, and some people will say well. You know, it's not my money any way, I don't feel like it's mine, so if I lost it all, it wouldn't really bother me. Like, I just feel like it's like monopoly money or play money. And so that's a really different risk tolerance. And most people fall somewhere in between, right? Like, OK, if you invested $500000 and you lost $50000, that's only 10 percent of how much does that affect you? You just, yeah. Do you understand that that's probably going to happen? And so you're ready for and it doesn't really bother you. Or is it like a worst case scenario where you're going to feel like you did something wrong or your advisor did something wrong or the market did something wrong? You know, I think that's the most important number for people to know is when you think about the money you're investing, how far? Like, what is your floor?

Caitlin I'm sort of shocked that you're saying this, I'm always shocked by you. I thought you would be like, because what if we reverse that question? Like, How much money do you want to make from it to earn from this? And they choose like five thousand dollars, ten thousand dollars, you know, a million dollars. And that that then could set people's risk tolerance like, Oh, OK, you want to make all that money great. You have a very high risk tolerance then, and you would be happy just to get another five thousand dollars from it. Cool. Then your you have a very low risk tolerance. What's the difference between asking the question those two ways

Sara People always underestimate how much pain they'll feel with a loss. So there's this whole like there's all these studies around loss aversion that and that the pain of experiencing a loss is greater than the pleasure of experiencing a gain. But you don't really know that until it's happening. Right. So oh my gosh, what is that? There's this famous Mike Tyson quote.

Caitlin And clearly, we have a lot of I have so many Mike Tyson quotes at my fingertips.

Sara I know this is you're going to know this one. This one's your favorite as well as mine, I'm sure, which is everybody has a plan until they get punched in the mouth, right? So that's like why? You know, that's what people are going through right now. Again, this is February 2022. The Nasdaq came down 20 percent, and a lot of people are invested in companies that are in the Nasdaq, and the S&P 500 is down 10 percent. There's war in Ukraine. Nobody knows what's going on. Everything is seems very messy. And this is the time when people realize that they overestimated how much risk they were comfortable with, but they didn't realize it until it happened. And then it's too late. So it's really important to really think through how much you can handle and that if that eventuality happens, what are you going to do?

Caitlin Well, isn't there the other question, though, like you're telling me, you're asking me how much I can handle losing, but you're also telling me, don't look. And so I might be able to follow your instructions. Like, there are two different answers for me. Like, I don't want to lose a dollar is the first answer, but the second answer is, yeah, I can follow your rule to not look. Yes. So I'm willing to not look in order to not test what my risk tolerance is because of this leap of faith that I am both willing to make but feel like I have to make to be able to retire. And that, like if I sign up for the program, I have to not look.

Sara Yeah, I love that. I mean, because that's going back to the other side, where how important is it for you to take risk? Hopefully, get the expected rate of return that you're hoping for. Grow your money and end up with less risk in the future, if you know that that's important, but it doesn't. It's not your preference to take any risk.

Caitlin Yeah.

Sara Then what you said is it's a it's a strategy that works for a lot of people, which is just that I would rather not do this, but I don't have a choice. So I'm going to trust the process. I'm going to go about my day. I'm not going to look at it when the headlines are bad and especially not going to look at it because I know this is money for five, 10, 15, 20 years down the road and I I know or expect that things will be really different then than what they are now. So that's like exactly a strategy that a lot of people have to use. It's it's just kind of, you know, putting it in the time capsule and not digging it up until 20 years down the road. And that is very effective for a lot of people.

Caitlin I'm also trying to tie this to our experiences because we've all lost money, right, like there's just, you know, we bought one thing I don't know, even on a daily basis on Amazon, you buy something one day and then it's like ten dollars cheaper the next or something like we've all had these like short term losses were like shed or in this housing market, tons of people, you know, but we haven't all experienced the gains from the stock market in any significant way. So that is how you say it again and again, a leap of faith. So it's not just like we're dummies, we don't remember, we only remember the losses, we don't remember the gains. It's that we haven't had a long enough time horizon or, you know, that's not a fresh enough experience. It's not over yet for us to really embody that win. And so it's yet another leap of faith, like it is a theoretical beneficial outcome we are banking on rather than the hard lived experience of loss and how we know what that feels like.

Sara Yeah, I mean, and I'll say, like most, most companies where you're doing your investing, it's, you know, TD Ameritrade or Schwab or Fidelity or Vanguard. They can show you the chart that over time shows you the difference between the money you put in and the growth of the investments. And it looks like like alligator jaws, like pulling apart. Right? And if you if you just give it five years, which most of us can like, sign up for, like, OK, we can do something for five years. That's usually enough time to be able to see that benefit that you're talking about. And. Just really like understand. All the hard times you have to get through in the market in order to get to five years out and really like hopefully for all of us, that's enough time to appreciate the benefit of doing this, of taking that leap of faith, but then it becomes less of a leap of faith and more of a trend. Right. This is a trend that I'm a part of, not some sort of, you know, prayer that I'm saying and hoping that everything works out. It's like, Oh, yeah, like it did work. It wasn't pleasant all the time and it didn't go straight up. And even if you look over the last five years, right, like we had a 20 percent drawdown in the stock market at the end of 2018, we had thirty four percent in March of 2020, and we're in the middle of a pullback right now. Right?

Caitlin You guys, she's not reading anything. She just knows this off the top of her head. So amazing.

Sara It's I mean, it's it's this is my life, right? You know, it's it's telling people that, hey, that's every two years so far, like in these last five or six years, we've gone through this and we're going to keep going through it. But I can also show people how much the market has grown over those five or six years.

Caitlin OK, so let's talk about the two extremes. The people that are like balls to the wall. I know this is for women, but I'm just going to use that expression. I'm going to go high risk like full in high risk. You either have a personality type that's just like, I'm in it for the gamble, whatever, even though we're saying it's not a gamble. But or you can follow my rule from Sara, which is just don't look like be super high risk. And then within index funds, I'm not saying high risk anything else like, I'm very vanilla. This is not some sort of like crypto, whatever. We'll deal with that later. But like hot 90 percent stocks, I'm talking just in terms of ratios like I'm going to go high risk, which means a high ratio of stocks to bonds with the caveat that I'm not going to look, I'm not going to check on it because it's not like I'm bulletproof. I very much know I will absorb those losses and feel sad and remember them forever and blame Sara. So that is like it seems like the two options for high risk or like I really under saved. And so I have no choice, like the forty thousand dollars I have is not going to serve me for my retirement. So they need it needs to go into high risk. Now, the low risk will have to be people that what that like can't obey that rule. Who are biggest risk for taking their money out when the market goes low and therefore kind of losing all of that momentum?

Sara Yeah, I mean, it's it's really tricky, it's like, being a really conservative investor is perfect for people who already have a lot of money and don't need any more. So that's awesome for those people who are in that situation, right? Right. For people who are very conservative and don't have enough to support a lifestyle they expect after they're done working. It's it's tough out there, right? There's, as you know, from our high yield savings account conversation, you're going to get a lot of money in high yield savings account or CD is that's probably never going to happen again. And so you have to figure out other ways to get some sort of return for some people. That's like if you own your home, that can sometimes make up for it, right, because if you buy a house and you pay the mortgage, part of that mortgage payment is forced savings. And then if the real estate goes up in value, that that can be a that's a pretty conservative investment. But it just it gets really it gets really tricky, too, for people who really aren't conservative. There's just not a ton of good options, like some part has to be in something like the stock market. And so you have to. I don't know. It's very challenging, I would say that's probably like the hardest, that's the hardest situation for someone who does what I do is trying to figure out how to get conservative investors enough growth in a way that they can tolerate so that they'll have enough money when they retire.

Caitlin And no matter what, the worst case scenario I'm taking from you is investing your money, watching it and then reacting to the lows by not just buying more, because then you're buying low, but taking your money out because of your fear that it will go lower and then missing the eventual rebound. Is that is that where we get really in a dangerous territory with our risk tolerance like we think it's higher, so we go into the market, but then we're watching way too closely and that we have a fear reaction which then not only makes us lose money, but like by an order of magnitude larger than it would be if we just didn't look and didn't take the money out?

Sara Yeah, absolutely. I mean, and that happens to people all the time. You buy high and sell low. And I totally get it. You know, people are trying to they're trying to thread the needle where market's going down. They jump out with the idea that they're going to jump back in when the market goes even lower. They're going to find some new low to get in at, and then they're going to make they're going to make the money back. But it's nearly impossible to do. I don't know if I've ever met, I haven't ever personally met or met anyone who knows anyone who has successfully been able to do that

Caitlin Right, because they'd be a gazillionaire. I mean, let's talk to Warren Buffett. We'll have him on next season, obviously.

Sara Yeah.

Caitlin But it's the whole point is it's totally unpredictable, right? So even if you have those amazing, you know, intentions, executing them is impossible, right?

Sara They call it, you know, they call it a whipsaw right that you get whipsawed in the market, especially one like now that's very headline driven with, you know, news of war. It's, you know, terrifying. It's terrifying to just be in the world and then to be an investor in the world. And so the market reacts. In it almost always reacts in a different way than you'd expect it to, which is why it's so fun and terrifying, why you get the higher rates of return for being in it. Like that's why you get the higher rates of return is because it's

Caitlin That's your reward for heartburn and

Sara you just have to you just have to tolerate it if you're jumping in and out or reacting to every little thing in the market. I just have a hard time believing you're ever going to make any money, so it's better to ignore it and just let it do its thing. Give it five years.

Caitlin I love that this connects back to the lump sum where you just and that, like the more headlines you hear about the market, or like, the more the financial markets are in the news, the less you should listen. Like you should understand, because it's a huge driving force of the way things happen in the political world and the geopolitical world and of course, and people's like lived realities. But in terms of your personal investing that you have to tune it out if you're going to be high risk and that's all connected with like being a lump sum investor that we all aspire to, like Sara.

Sara I mean, I'm down for my lump sum investment that I made at the end of last year. So let's all just.

Caitlin Wait. Wait, wait, let's edit that part out.

Sara Now I know I'm I'm waiting. Just like the rest of you, I am patient. Give me five years. Give me 10 years, and then we'll do it. We'll do a podcast, check it, and 10 years to see how my lump sum investing di.

Caitlin And she'll be like, So guys, yeah, yeah. Of course you have to be in the market like everybody else, or you could be totally cavalier about all of it. I'm just like, Oh yeah, do that. What's the big deal? But you have got skin in the game.

Sara Oh yeah. I've got all my skin in the game.

Caitlin That's a different podcast.

Sara That sounds really gross.

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Caitlin OK. Sara, what is one thing a woman on the verge of a financial breakthrough can do today to push forward her financial future?

Sara Yes, so I think one of the questions that I get from people all the time is, well, how are my investments doing or how am I doing as an investor? So the way you find that out is by logging into your accounts and almost every custodian or bank or institution that you'll have accounts with will have something called your personal rate of return. And it might be under the Performance tab or the performance link in your accounts. And that's where they should be able to tell you how your investments have performed over the last one year, five years, ten years. And I like checking in on this just periodically so that you can get an idea of how your investments are doing. What we really want to see is over time, those alligator jaws opening up between the amount of money that you've invested and the value of the accounts over time. Because that's why we're investing. We're trying to have our investments do as much work as possible so that we can grow our wealth over time. So looking at that over long periods of time can just show you why you're doing what you're doing and if when you look for that performance number, you find that it's not really what you expected or you are hoping for higher performance numbers, it'll give you a chance to course correct. Maybe you're in a fund that's not as aggressive as you thought it was going to be, or maybe your asset allocation needs to change, or maybe your risk tolerance has changed. Maybe five years ago when you started investing, you were pretty conservative. And now that you know more, you're ready to kick it up a notch. So going and looking at that number and your accounts, I think, will give you a lot of good information to make decisions going forward.

Caitlin OK, what I love about this is just what you're talking about is that we all have experiences with the losses, and I feel like we really need to savor the wins and get real reminders of the wins that we've either like already experienced or could experience that this seems like such a great way to get that snapshot. Like give your yourself the moment for the endorphins to wash through the cells of your body to have this be like a full bodied pleasure experience of seeing your gains in the market. But it's funny too, because we're saying like, don't check, don't check. And then today we're like, So you should check. So this is different than, like, where is the stock market today? It's looking at a trend over time from the time that you started. And let me just make sure I understand the alligator, the crocodile jaws. The bottom jaw is the money you've put in, and the top one is how much it's grown, like what the balance actual balance is now. And so all that area in between is like how you've taken that little amount of money and made it a bigger amount of money. And so like just some personal pride and satisfaction in that.

Sara Exactly. You got it.

Caitlin But don't then take all your money out of the market. If it's not where you thought it would be or if it scares you, you then can take some time to consider how to rearrange the ratio of your investments. So if you I think when I started, I was at 40 percent bonds and 60 percent stocks because that just felt just as risky as I could tolerate. And then now I'm like 9 10. So you, I think that's what you're talking about course, correcting that, then you can go on. And if you if this is all like blah blah blah blah blah. Call them. Just pick up the phone and call and be like, Oh, I looked at my alligator jaws, or how do I find my alligator jaws? And they will explain that to you and you say, OK, wait, I want to change that. So my ratio is 90 to 10. They can't tell you what to invest in, but of course, that you can say, Well, someone, ie us told you index funds in stocks and bonds. And so you can go from there. OK, I love it. We need to experience the successes. OK, thank you, Sara.

Sara Thank you.

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Sara Hey. Do you have any dumb questions about finance or investing? Send them to us at our website womenontheverge.com

Sara Hey, so many thank you's to Kelly West, a woman on the verge in her own right who took the amazing photos for our album, art and website, helped with our website design, music, audio editing, cheerleading, mental health, everything. Emily Kleinsoerge, our stylist that did our hair and makeup for our photos from Lucy Skyrocket. Lauren Gross and Taylor Gross, who helped us with our graphic design

Sara and our music is by Bad Bad Hats and Devmo.

Caitlin If your partner is making you ask for money, giving you an allowance, taking your money or not letting you know about or have access to family income. This could be economic abuse.

Sara Learn more at thehotline.org or call 1 800 799 safe.

Caitlin So Sara because you're a financial professional, when you have to read a disclaimer for this podcast,

Sara I would actually really love it if you could read the disclaimer in your legal voice.

Caitlin OK. Doing it. This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Music outro by Devmo

Devmo I know the first thing you notice is that I'm covered in gold, the flick of the wrist it could turn a hot bitch cold, to get what you want in life girl you gotta be bold. Now Imma die rich, and I know...