What to do with your money now

A one dollar U.S. bill with market data

Tess Vigeland: We are devoting the rest of the program to your questions about what is going on with the markets and this economy. Last Wednesday, we conducted a live call-in to address your specific worries about your retirement plans, your jobs, your bank accounts.

We assembled a roundtable of experts to help us out. Chris Thornberg is an economist and the founder of Beacon Economics. He joined me at the studios of station KPCC in Pasadena. Ron Lieber writes the "Your Money" column for The New York Times and joined us from our bureau in New York. And Carl Richards is a certified financial planner and founder of Prasada Capital Management. He joined us from station KPCW in Park City, Utah.

I started by asking Ron to address this week's big buzzword, volatility. I wondered whether this week was somehow different from every other roller coaster we've been on.

Ron Lieber: Well, it's always a little bit different than it was last time. But if you're gonna play around in the stock market, you have to expect stuff like this to happen sometimes. Either you have faith that over time it's going to deliver the returns that you need, above and beyond what a bond would or cash would, as it has historically. Or you don't. And in the mean time, you've gotta live with the volatility.

Vigeland: Alright. Carl, what are you telling your clients these days?

Carl Richards: I think the time to make decisions about how to act during periods of extreme volatility was before we had it. You don't learn how to use a parachute after you've jumped out of the plane. So hopefully, you had a plan going into it. And if that's the case, then stick with your plan.

Vigeland: Well, I'm sure we're going to get some calls asking that direct question, if you haven't planned, what do you do? But before we get to that, Chris is our token economist on the panel. I do want to ask you, there are a lot of comparisons being made to what happened three years ago in the fall of 2008. People predicting that we're going into a double-dip recession or saying that we actually never came out of one. I know you don't have a crystal ball, but is this deja vu?

Carl Thornberg: Not really. It is easy to look at these numbers and assume it means we're going to have another recession. But as the panelists have already alluded to, this sort of market volatility is not unknown, and in fact, sort of the long-running jokes in economics is that the stock market has predicted nine of the last five recessions.

Vigeland laughs

Thornberg: My feeling is is that this is one of those four. That is to say that the fundamentals of the economy are not good, but they're not bad either. For an economy to go into a recession, where it's actually contracting, there has to be some sort of shock, there has to be some sort of external driver. And boy, I've looked across all the numbers I looked at and I don't see where it is.

Vigeland: And the debt ceiling wasn't it.

Thornberg: The debt ceiling was absolutely not it.

Vigeland: Alright. Well, we'll talk so more about this as we go along. But now let's go to the phones and Nayhal is with us from Flushing, N.Y. Hi there.

Nayhal: Hi. How are you?

Vigeland: Very well thanks. How are you going these days?

Nayhal: I'm OK.

Vigeland: Yeah? So what kind of question can we answer for you?

Nayhal: Sure, I was just wondering if volatility, is it gonna stick around or is it eventually gonna fizzle out?

Vigeland: I'll direct that one back to you Chris. I know we've already established that you don't have a crystal ball, we have no idea what's gonna happen in the future. But it does seem like this is an era of volatility, period.

Thornberg: Yeah, well we have to be a little cautious about that. As noted, there's been lots of up and down in the markets over the years. However, I would say, even over the last year and a half, you've seen a U.S. economy that's been sort of dawdling along, been in a very slow recovery, and yet, despite that, the financial markets have been booming along. So in a very real sense, it seems to me that this is almost more of a correction, and the volatility si wrapped around the correction, rather than something new and fundamental to the market.

Vigeland: So we're all gettin' really way over excited and at some point, that just has to pull back.

Thornberg: Exactly. Again, the market was way ahead of the curve.

Vigeland: Then, Carl, let me ask you, as a financial adviser, how do you counsel your clients on how to deal with this kind of volatility -- if it is the norm?

Richards: Well, again, I think it goes back to making plans long before these experiences happen. So one of the big problems with volatility is it's volatile, right? We don't know when it's coming and often, we have these periods of extreme volatility after periods of relatively benign market behavior. And so it seems like such a shock. In terms of advice we give, our advice doesn't change that much. When we sit down to build a long-term financial plan, you should incorporate these types of market events because they're embedded in the data you're using for the plan. So therefore, when they come up, they shouldn't necessarily be a surprise. So in reality, what's happening, it's not like clients aren't nervous. You get a phone call, it's almost more reminding people that we've already had this discussion, why don't you come in, let's review some of the facts and assumptions that we made, make sure we still feel comfortable with them, maybe we need to make some changes. But, for the most part let's just stick with the plan.

Vigeland: Alright. Let's go to our next caller. And Juan is with us from Fort Worth, Texas. Hi Juan.

Juan: Good afternoon everybody.

Vigeland: What's your question for us today?

Juan: My question is, with this sudden drop in the Dow, is it fool-hearted to jump into the stock market now that prices have depressed somewhat from the values that we saw last week?

Vigeland: Alright, Ron, I'm gonna direct this to you, because I think this is going to be a pattern that we're going to see from a lot of people, which is that they want to make market moves based on what they're seeing day-to-day. Give us your schpiel on that.

Lieber: Sure. Well, let's start by saying there's a lot we don't know. We don't know what he's going to be using this money for, how long he has to hang onto the money, whether he needs the money soon, all of this stuff is important. But let's assume for a minute that it's retirement money and he's in his 20s or 30s. He's got a long time horizon. The problem with trying to all-in at any one particular moment, is that you just don't know what's going to happen in the next seven days, let alone the next 70 days. I'm not sure anyone could've predicted the volatility of the last week, for instance, and the instances that may or may not have caused it. You know, for somebody who has a long time horizon and has money sitting on the sidelines, sure, stocks are whatever they are 15 or 20 percent less than they were a couple of weeks ago. This is a perfectly good time to start, but I don't know if I'd make big bets all of a sudden one way or the other. I might start with 20 percent of my money or quarter of my money, and then parcel it in over the course of many months or a couple years, depending on how long you intend to save it for.

Vigeland: And Carl, that's something that we really encourage people to do, is not to make big, massive moves while the market is doing the same thing.

Richards: Yeah, I know. I mean, again, I hate to sound like a broken record all the time, but I think it's always important to look back and say, "Look: What are my goals? What am I trying to accomplish?" If this money is like Ron mentioned is supposed to be invested for the long term, sure, buying today feels better than buying two weeks ago. But we don't know what it's gonna feel like a week from now. And so, to me, I still love -- Warren Buffet's got a lot of great quotes -- but still of the quote when he said, "The best time is to buy is whenever you have money and the best time to sell it never."

Vigeland: Alright, let's go to our next caller. And Dave is with us from Salt Lake City. Hi Dave.

Dave: Hey, how are ya?

Vigeland: Very well. How are you feeling these days?

Dave: Ah... I've felt better, to be honest.

Vigeland: Probably all of us have. So how can we help you out today? What's your question?

Dave: You know, I'm a pretty typical 401(k) investor, and you know, you prepare for the downs and the ups. But when the downs come, it kinda takes the wind out of your sails. I read something the other day, it was actually on Carl's blog, and he said that the planning process must include a discussion about risk and even include life boat drills to see how you react before you hit the water -- which I thought was a pretty great analogy. The only thing is I don't exactly know what those drills should be, to prepare myself for it.

Vigeland: Alright, Carl, if you are up any sort of creek without a paddle?

Richards: Well, the life boat drill. Luckily, for all of us, if we've been investing the last three or five years, we've already had an experience we can look back on. If you had money invested in 2008, you know what it feels like to live through an event in the marketplace. That's why I get sort of fired up about the idea that this is a surprise. We just went through one of these periods. So, we can look back at those and say, "How did I react then?" And I suggest making these changes, like you allude to Tess, let's make these changes when we're back on the cruise ship, if you will, not while we're in the life boat. But once we get back on the ship, we should take note how we're feeling. If you sold in 2008 and you sold now, it's time to make a different plan.

Vigeland: And in fact, in the New York Times this week, in your blog post, you suggested that people take a video of themselves, talk to themselves, right now, and use that next time we have some sort of market volatility again.

Richards: Well, we did that in 2008. We had people come in who absolutely wanted to pull the plug. We encouraged them, "Hey, why don't we wait just a little while till we're back on the boat. But will you do me a favor? Write yourself a little letter, label it 'When the Dow's back at 13,000, please open.'" And I think the video's even a better idea. Record a little video of yourself. Give it to your spouse, give it to your friend, give it to your parent and say, "Look, when the market's all recovered, please make me watch this."

Vigeland: Let's go next to Melissa in Atlanta. Hi there.

Melissa: Hi, how are you doing?

Vigeland: Very well. What's your question for us today?

Melissa: If I were thinking about refinancing my home, would now be a good time? Just tryin' to get my ducks in a row and I really have no idea where to go.

Vigeland: Alright. Good question. I'm going to direct this to you Chris, because you've done a lot in the area of the economics of housing. And you know, we have seen people write in this week asking not only about refinancing, but about whether they're in the process of buying a house, perhaps they're in escrow -- and they're wondering maybe I just need to drop this at this point. People who are looking at these interest rates, what should they be looking at?

Thornberg: Right. And let me start with, so, six months ago, I made a comment to some of my folks, and I said, look, if you're gonna refinance your house, do it now, because it's highly unlikely that you'll see interest rates this low again ever again.

Vigeland: Oops.

Thornberg: ...Or even lower. No, there was an asterisk on the back of that, and the asterisk said, "Unless there was an unnecessary market panic, which drives everyone into bonds." So you didn't see the asterisk. And that's the key here. Yes, this is a great time to go out and refinance -- and by the way, you're not the only person doing it. Over the course of the last week, there's been a huge spike in mortgage applications; everybody's rushing out there. This is could be a nice opportunity for you, get out there and do it for sure.

Vigeland: What about the folks who basically decided that things were good enough that they were gonna go ahead and look at buying a house at this point. I mean, I've talked to people this week who were at that point. Now they look at just how crazy things have gotten, and then they're like, "Well, maybe I need to wait again."

Thornberg: Yeah, I have my own metaphor. The stock market is the 13-year-old daughter of the world economy. It's the ultimate drama queen.

Vigeland: And you don't want anyone to date her?

Thornberg: Well, maybe that too. But, again, whatever news comes out, it overreacts on the up and on the down. And that's what we're going through right now.

Vigeland: Alright.

Lieber: Tess, can I add something to that one?

Vigeland: Ron?

Lieber: So just one more thing to add there: You may be scared, but think about how scared the seller is that you're gonna walk away. You have an opportunity right now to use what's going on in the background as a battering ram in negotiations.

Vigeland: Nice!

Thornberg: So now you gave it away!

Vigeland: Alright. Let's go next to Doug in Omaha, Neb. Hi Doug.

Doug: Hi Tess. How are you?

Vigeland: Very well, how are things there in Omaha?

Doug: Good, good. I should qualify that.

Vigeland: OK, well how are you going to qualify it?

Doug: Well, I'm in a commission-based sales job, very much related to the home building industry.

Vigeland: Uh oh.

Doug: And my big picture question is: I hear on the radio, TV news about government intervention, should the government stimulate the economy? What is the truth?

Vigeland: Oh, who do we believe? Alright, political question, not something we deal with a whole lot on this program, but I suppose I'm gonna toss it over to our economist. What's your take on intervention and non-intervention?

Thornberg: I think intervention can be a positive thing when it's channeled correctly. For example, much of the focus over the last couple of years in trying to stimulate the economy, has been wrapped around consumer spending, trying to boost consumer spending. The problem with that is when this recession began, people were spending way too much. We had this false sense of wealth wrapped around the financial markets, wrapped around our home values...

Vigeland: Wrapped around credit.

Thornberg: Exactly, wrapped around credit. And as a result, people were vastly overspending. And it's almost as if the government has been trying to maintain the excessive level of spending. That will not ultimately help the economy, because eventually the stimulus goes away and consumer spending is gonna have to fall back down to a natural level. My feeling's always been, if they were going to do stimulus, they should've focused a lot more on things that are going to have more domestic impact. For example, there was big talk of a big infrastructure investment in the U.S. economy. But all said and done, we haven't seen those numbers. I think we do need some degree of stimulus, but I also think that the criticisms about how the stimulus has worked so far are also quite valid. I didn't address your question directly, but as an economist, I'm required to do that.

Vigeland: What do you think Doug? Does that do it for ya?

Doug: I somewhat understand what he's saying, but I guess my question stems from what drives me batty is when I hear things like this, there's the political answer and the economic answer.

Thornberg: Think it drives you batty? I'm an economist. It drives me nuts.

Vigeland and Doug laughing

Vigeland: Alright, thanks for the call. Good question. Let's go next to Deborah in Elk City. Hi Deborah.

Deborah: Hello.

Vigeland: How are you doing today?

Deborah: Just fine, thank you.

Vigeland: Alright, how can we help you out?

Deborah: My husband and I have been in the process of negotiating to buy a second small business. And so whenever the U.S. credit rating was downgraded last week, we kinda took a big gulp, because here we are talking to the bank and we're wondering, "Oh my goodness, now what is the interest rate gonna be for us?" And then the Fed says, no, no, no, we're not gonna raise interest rates. And so we're kinda confused. Should we kinda look at it like buying a house? Well, if interest rates are high, go ahead and buy the house and in a couple years, when interest rates go down, you can refinance it. You know, we feel like we're in limbo.

Vigeland: Can I ask what kind of business this is?

Deborah: Well, it's a liquor store.

Vigeland: Oh! You'll be in business forever.

Richards: I'd be going long with liquor, I think.

Thornberg: Pray for market volatility.

Vigeland: Well, bearing in mind that we can't give you a whole lot of advice -- I mean, we haven't seen a business plan, we don't know all the details -- but I will tell you that Chris was rolling his eyes while you were talking.

Thornberg: Yeah, your question was really about interest rates. So let's focus on that. First of all, the Fed doesn't set long-term interest rates; the bond market does. And similarly when S&P talks about upgrading and downgrading certain types of debt, that's a recommendation; it doesn't actually drive anything. So what you should be looking at are the actual numbers. And here are the actual numbers: Interest rates are going down. So the bond market apparently doesn't think whatever S&P says is realistic and I tend to agree with the bond market.

Vigeland: Yeah, in fact, everybody bought bonds on Monday morning.

Thornberg: Exactly. Because obviously stock market volatility pushed people in that particular direction. So from that basis, this is a very good time to borrow, buy some sort of business. By the way, let me throw this out there as well: You should consider small business loans. The SBA has a bunch of very good products for people trying to buy or start small businesses. Make sure you talk to your banker about those products as well.

Deborah: OK.

Vigeland: Thanks for the call. I'm gonna go to the Twitter feed now. And Musa tweeted me from New York. He says, "I'm losing 20 to 40 percent of my portfolio." I'd like to know what he's in at that point, because the market has not gone that far down. His real question, he's asking is gold safe? Is gold not a big big bubble. Ron, I know you have written about gold and nothing wrong with having it in your portfolio, but there are a lot of gold bugs out there, right?

Lieber: Exactly. Look, we don't know what he has in mind, but if he's thinking about selling everything he has and investing in anything 100 percent whether it's gold or oil futures, it's never a good idea to go all-in in any investment. Particularly one that's had an incredible run-up like gold. Look, I have no idea what gold is gonna do over the next three or five years.

Vigeland: If you did, you'd be on your private yacht in the Caribbean

Lieber: And it would have gold faucets, yes. But it's almost never a good idea to have too much of your net worth tied up in a single investment, particularly one that's had such a great run. You're basically doubling your risk there.

Tess Vigeland: Now back to our call-in, recorded on Wednesday. Our guests were economist Chris Thornberg, New York Times columnist Ron Lieber and financial adviser Carl Richards. Our next call came from Stuart in Wisconsin.

Stuart: Hello, how are you?

Vigeland: Very well, how are you doing today?

Stuart: Very very good.

Vigeland: Well, I like to hera that.

Stuart: Yes.

Vigeland: But you have a question for us.

Stuart: Similar to the caller before who was talking about whether or not she should go in and buy this small business. And this kinda goes more to the economist: How many people like her does he think, out there, and I'm affected by the volatility in the markets, which may be kind of hindering them from going out and making those investments?

Thornberg: That's a good question. If I may boil your question down, what you're asking me is how important a role does psychology play in our economy.

Stuart: Exactly.

Vigeland: 100 percent?

Thornberg: Not as much as you might think. You know, our best measures of confidence, say the Consumer Confidence Index, are actually not terribly good indicators.

Vigeland: Don't they survey like 200 people or something somewhere from the University of Michigan?

Thornberg: Yeah, and 20 years ago, it was a decent indicator, because 20 years ago when they asked you that question, you really just thought about your job, your company, your life.

Vigeland: Was that pre-CNBC?

Thornberg: Exactly. Because what you get now is just a feedback effect. Whatever is being screamed on the news network that morning, it's fed back to those surveys. So it's hard to say. Clearly, psychology does play a role out there, but measuring it is difficult. And there's something else to keep in mind. Right now, everybody is freaking out, but these periods tend to drift away reasonably quickly from a business perspective. In a couple weeks, this is gonna be history. Obviously, that wasn't the case in 2008. But in 2008, there were much more profound things going on in the U.S. economy. We had the unwinding of the real estate bubble, we had the collapse of Lehman, we had a massive recession that was just kicking into gear. This time around, there really are no profound problems with the U.S. economy. And what that in mind...

Vigeland: But what about jobs, the housing market? Those are awfully profound.

Thornberg: No, but they're improving, slowly.

Vigeland: Very slowly.

Thornberg: But they're improving. So everything says we are in the midst of a continued slow recovery. And that means that once this correction's behind us, things will start to smooth out. My guess is, as always, as a forecaster -- and my snake bones and the dust I'm throwing in the air over here -- three or four weeks, this is going to be behind us and whatever psychology was there will be removed and the screaming heads on 24-hour news are going to have to go out and find something else to scream about.

Vigeland: Alright, you heard it here first. Mark is with us next in Warwick R.I. Hi Mark.

Mark: Hello, hi.

Vigeland: Hi there. What's your question for us today?

Mark: So I was considering buying a house until Thursday. And now, I'm wondering if I should take the money I saved and put it into the stock market to save for retirement, since I haven't done that yet.

Vigeland: OK. Earlier we were talking about how this is not the time to make really rash decisions like that with your money. And Ron, really, again, the lesson here that we keep saying over and over again is that it's not the time to make massive moves and big decisions. You gotta take it slow, no matter what's happening on a day-to-day basis.

Lieber: Right, but the thing about the situation that the caller is in... The first thing I'd ask, if he hasn't saved for retirement yet and he's relatively young, I'd want to know if his employer is matching the contributions. Because, if so, he needs to be saving for retirement and getting that match and buying a home if that's important to him. But you know, the thing to remember right now is that it looks like interest rates, mortgage interest rates are gonna be pretty low for a little while longer. And it looks like we can't be sure that housing prices are probably gonna not rise too quickly if they rise at all any time soon. So unless this is an A+ opportunity and a very best school district or whatever your parameters are, you can probably wait another couple of months and it's probably a good idea to start saving for retirement now, when compound interests can work for you that much more quickly. But you know what, it may not be an either/or.

Vigeland: Alright. Thanks for the call Mark. Let's go next to Michael in Flagstaff, Ariz. Hi Michael.

Michael: Hi, how are you doing?

Vigeland: Very well. How are you doing today?

Michael: Good, good. I wanted to know how the change in the debt rating would change the typical investor in the U.S.

Vigeland: You mean investors in bonds?

Michael: Investors in bonds, yes.

Vigeland: Chris, you want to take a stab at that one? Is that gonna make any difference?

Thornberg: Again, look at the numbers.

Vigeland: Yeah, everybody went into bonds.

Thornberg: Everybody went into bonds. If you take a step back, keep something in mind. The decline in the rating was AAA to AA+. If you actually sat down and sort of looked at AAA v. AA+ bonds, the difference in interest rates is very small. It really doesn't make all that big of a difference from an interest rate perspective.

Vigeland: Let me ask you then, when we're talking about the downgrade, so many people feel like that was the cause of what has happened with the stock markets this week. Would you say it was more of a catalyst that this correction, which is what you're calling it, would've happened anyway, something else would've triggered it?

Thornberg: Yeah, when you have this much dry tinder on the ground, it takes any spark to set it off, and in the case of the stock market, that spark could be completely imaginary.

Richards: And Tess, one thought that I think sometimes gets missed in this whole sort of Fed policy of keeping short rates really low at least, the flip side of being excited about low interest rates for your house, maybe your grandmother is maybe living on a quarter of what she was five years ago.

Vigeland: Well, you know, this is actually a question that's come into our inbox several times this week, which is particularly since the Fed announcement on Tuesday, what are people supposed to do to get some sort of bang for their buck at this point? The stock market was the answer over the last couple of years, and now nobody wants to go there. Is there any safe place where you can get more than a quarter percentage point. Ron?

Lieber: Well, I think the safest thing to do is to earn more. We forget that sometimes, right? We're trying to eke out yield where we can, but Rahmit Sethi of IWillTeachYouToBeRich.com is harped on this theme again. He's written about it and you know, if there's some way that you can figure out how to earn an extra couple hundred dollars a month by doing some work on the side, that can actually make an appreciable difference. And you know, it isn't the easiest thing for a 77-year-old to do. It isn't the easiest thing for a 37-year-old to do. But that maybe the best shot you have if you're not willing to take on additional risk.

Richards: Well, and Tess to your direct question too, I think people need to be really really really careful when you're trying to, we refer to it as "stretch for yield," when you're looking for that "oh my gosh, my CD's only getting 1.5 percent. I need something more. Oh look, here is a product someone's trying to sell that yields 5.5 and they said it's just like a CD!" If it yields 5.5, it's not just a like a CD.

Vigeland: As always, if it looks too good to be true, it is. Alright, let's go next to Juana in Santa Fe, N.M. Hi Juana.

Juana: Hi!

Vigeland: How are you doing today?

Juana: Not too bad. And I just have a very general question. OK, I have a 401(k) and usually, they have those little pie charts to show your asset mix should be. And you know, since the whole economy has done a back flip, I was wondering if those kinda little tables and things are gonna change. Or is it still conventional wisdom, it's the same kind of belief? I'm just curious, because I keep waiting for some big news to come through, oh everybody's philosophy has changed, because you know, the world has changed.

Vigeland: Ron, let me through that to you, because I think there have been a lot of questions about kind of conventional wisdom. People have asked those questions over the last three years, you know, does buy-and-hold no longer apply? Is asset allocation somehow different now than it was even five years ago? What's your answer to that?

Lieber: I'm not sure it's going to change a lot any time soon. I mean, you know, you have people who are outliers who are saying you need to be majority in commodities or you need to be 100 percent in bonds, because that would have worked if you had divided it this way or that over the last 20 or 30 years. But, the past doesn't predict the future, and the only thing we know with reasonable certainty is that stocks do return more than bonds and bonds do return more than cash. And the reason why they do is because they're riskier. Now that's not to say that it's the right answer for you. Because if you don't like the risk, then you should do something that's less risky. The only problem with that is it means you're gonna need to work longer or you're going to need to save more. But that may be the right answer for you.

Richards: Tess, I just can't help myself from jumping in on that one question. I think the question -- and Ron hit it on the head is -- that those charts are sort of a shortcut. This idea of risk tolerance, to me, is I think one of the silliest ideas that was ever created by the financial services industry and that's saying a lot, right? I think the idea that we should make decisions based off of some 10-point questionnaire about risk tolerance makes a bunch of assumptions. Number one, that risk tolerance exists. Number two, that it doesn't change. My point is focusing just on risk tolerance is I think is a recipe for disaster. I think the better way to approach that asset allocation decision is based on a plan where you determine how much return do you need to make these goals work? After you've determined that, you say, OK, that means I'd have to have this much in equities. Then you go say, "OK, time for a lifeboat drill. If I had that much in equities, I woulda felt this way in '08. Oh, I don't like that." Well, then you go to what Ron said, work a little bit longer, save a little bit more. We led people down this risk tolerance questionnaire path far too long. It's better to make that decision based on how much you need to make your plan work.

Vigeland: And finally, we have Greg from Troy, Maine. Hi Greg.

Greg: How are you doin' there?

Vigeland: We're doing great, how are you doing?

Greg: Good, good. Well my question is sort of a little bit more nuts and bolts-y, and that is, who exactly is doing all this massive selling of securities? I don't know anyone who woke up the other day, and said, "Oh my goodness, the United States had a AA rating and I'm going to have to fire sale out my IRA." You know, I work pretty hard for my money and it really is disappointing to see it go into the dumpster every time someone feels the sky is falling.

Vigeland: Good question and I'm going to direct this to you Chris, because I think it brings us right around to the very beginning of the conversation that we had here, which is about volatility. And the fact that people feel there's such a lack of control that even if they're doing everything right, they're subjected to these huge traders who move in and out of the market without a thought to all the individuals that they're affecting.

Richards: But that's why you get paid for it. And with that in mind, you always have to keep something in mind, is that we always talk about the market as if it's some sort of...

Vigeland: Blob.

Richards: Abstract, you know, numbers that pour down from the heavens. And it's not. It's made up of a bunch of guys...

Vigeland: And they are mostly guys, I'll point out.

Richards: Yep, absolutely. And a lot of electronics trading programs now, a lot of it isn't even guys, it's just algorithms written by some Russian scientist. And as such, I actually think that the market's gotten perhaps a little too disconnected. Again, you've seen these big run-ups and downturns over the past bunch of years. Six, seven months ago, we had the flash crash. And it all goes back to this idea that volatility is based on human decision making. And when you invest in the stock market, that's what you're taking on and you have to keep that in mind.

Vigeland: Ron?

Lieber: Right. And something else I would add is the fact that when you're in the middle of a volatile moment, it sort of feels like it's gonna last forever. I've been back and forth with the folks at Vanguard about this this week and we've looked at the volatility numbers going back to the mid-90s. And on average it actually hasn't increased so much, which is difficult believe, and I didn't believe it at first. And you know, when you've been kicked in the face in 2008 and you feel like you're being kicked in the face now. But we actually had a very calm period from 2002 to 2007 and it may continue. Look, we don't know what's going to happen, but just because what's happening now feels like an out of ordinary event, doesn't mean that's the new normal and that the game is somehow rigged.

Vigeland: Well then, Carl, let me end with you and maybe talk us through, because I know you've done many many napkin sketches to this effect, talk us through how we absorb that rationally. I mean, maybe our brains know that we're not supposed to be freaking out at this point. But our emotions aren't there. How do we talk ourselves down from the ledge?

Lieber: The problem maybe that our brains do think we're supposed to be freaking out, right. We're trained to get away from things that are causing us pain. If it weren't so, we would've been eaten by saber tooths a long time ago. We need to recognize that it's OK to feel that way. Unless you wake up in the morning and see Warren Buffett in the mirror, you're most likely genetically wired to be incredibly nervous when everybody around you is incredibly nervous. And so give yourself permission to feel that way, but recognize that you shouldn't make decisions when you're feeling that way. Take your time, think about these things carefully, then make a decision.

Vigeland: And Chris is here in the studio with me wants a final word,.

Thornberg: Yeah. Last thing to keep in mind is that asset prices should be based on fundamentals. We forget about that quite a bit. I mean, I was living here in California when home prices were rising 20 percent per year, and a lot of Californians were running around thinking that they were home rich. They counted their wealth in millions, because of all the housing equity they had. And then prices crashed down and they felt terrible, because they lost all that money.

Vigeland: They didn't have that money to begin with.

Thornberg: That money didn't exist. It was a figment of the market's imagination, because housing was never worth that much in California. It was driven up by a bubble.

Vigeland: Your asset is only worth what's in the bank.

Thornberg: Exactly. As an economist, I will also say this: You know they say economists watch the market. I look at my 401(k) once a year.

Vigeland: Really!

Thornberg: There's no point. There's all sorts of studies out there that say people who trade actively underperformed the market. So, when they send me my statement, great. Otherwise, I completely ignore it.

Vigeland: Ron, how often do you look at yours?

Lieber: I can't remember the last time I looked at it. I actually made some adjustments to the funds and I took a close look at it a couple of months ago when I was writing about how bad the fund choices usually are in 401(k) plans. I wanted to review what we have. But I'm basically with Chris. I don't look at my investments that often. You know, the only thing I'm looking at them right now for is to think about whether it's time to rebalance, to buy some more stocks after having sold some bonds and looking at to potentially putting some spare cash to work.

Vigeland: Carl, how often do you look? Well, you're a financial adviser, you must look a little more often than the rest of us.

Richards: Yeah, it's a bit problematic simply because my money's invested the way my clients's money is invested. So if I'm looking for a client, I automatically know what's going on with mine. But we certainly don't make any changes. Unless something changes in my life, not based on what changes in the market.

Vigeland: Ron Lieber is the Your Money columnist for the New York Times. Thank you so much for helping us out today.

Lieber: Good to be here.

Vigeland: And Carl Richards is a financial adviser with the Prasada Capital Management in Utah. He's also the napkin-Sharpie sketcher who's been on the show several times before. You can also find him on the Bucks blog in the New York Times. Thank you.

Richards: Thank you Tess. It was a pleasure.

Vigeland: And Chris Thornberg is an economist and the founder of Beacon Economics here in Los Angeles. Thanks for coming in.

Thornberg: Always fun.

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