The Animal Spirits of Wallstreet With David Scranton – January 22, 2017

Guests: Eddie Ghabour, Michael Eastham and Jeff Small
David Scranton: In your case it’s more or less, well you know we’re not going to time the drop maybe you don’t get out completely but the reality of it is you don’t want to play musical chairs and be the guy whose stuck standing, correct?

Michael Eastham: Well, actually I agree with Jeff on that one. I mean I think it’s very important especially if you are of the Income Generation, your baby boomers, you’re in retirement or you’re approaching retirement. Right now you’ve got to focus on long term income and making sure that you’ve got your allocation prepared for that.

David Scranton: So how big could this drop be? Let’s say someone’s fifty years old and they’re concerned about the market drop but they’re not going retire for fifteen years. If you figure like they’ve got time on their side you know they can weather a drop, how big do you think this next one is likely to be?

Jeff Small: The average drop out of the top ten bull markets Dave has been twenty percent. So let’s go to twenty-five because the last two drops that we’ve had were over fifty, if we have one twenty-five percent drop and we (unclear 37:31) out an anemic four to five percent rate of growth. Which is what most talking heads say, that would lower our net experience our net rate of return to under one and a half percent. And most investors, especially from the Income Generation don’t know that so we teach our clients the very first thing on (inaudible 37:46).
David Scranton: One and a half percent under what? Mic if you want to clarify that for our viewers and for the host, quite frankly.

Jeff Small: Sure, well right now the market’s averaging about four percent as a rate of growth. Okay, if it keeps up let’s say the average is five percent the next ten years hypothetically. One bad market year ruins the party, it can lower your actual rate of return, and one bad year ruins it to a sub one and a half percent.

Michael Eastham: But Jeff, if I could jump in there, I mean you know what you’re not taking into consideration is if I’m drawing income when we see that twenty-five percent drop. And I’m having to sell shares in a down market well at the bottom I have to sell you know almost twice as many shares as I did at the top to get the same amount of income. So I’m cannibalizing my principle, even when the market does come back up you’re not going to see the recovery.
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