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A Wiser Retirement®
277. Tariffs, Trump, and Turbulence: Making Sense of Market Mayhem
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Tariffs, fiscal policy, and market volatility have become growing concerns for many investors. In this episode of A Wiser Retirement® Podcast, we unpack what tariffs are, how they work, and how current market conditions may affect your investment portfolio.
Related Podcast Episodes:
- Ep 263: Trump’s Economic Policies: Tax, Tariffs, and More
- Ep 268: Top Financial Mistakes and How to Avoid Them
Related YouTube Videos:
- Investing for Income vs Growth in Retirement: Finding the Balance
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Welcome to Wiser Retirement Podcast
Speaker 1you know, if companies move here, I think that's good for everybody. But also the other countries could say hey, we're going to put a higher tariff on your goods and that hurts any exports that we do, and so there's just a lot of unknown other than you're going to have short-term pain. Welcome to the Wiser Retirement Podcast. Are you curious about the current market mayhem? I am Casey Smith. Today I'm joined by Senior Financial Advisor Shana Theriault. Each week we bring you practical advice on retirement, investing and planning for your financial future. Don't forget to subscribe to the podcast wherever you're listening. Let's get started.
Speaker 3Hello Shana Morning. How are you?
Speaker 1Doing good man Late nights.
Speaker 3Yes, late nights fielding phone calls and watching reactions and all the things right.
Understanding Trump's Tariff Strategy
Speaker 1Yeah, these are crazy times right now. In fact, this is not even our planned episode, so we decided to throw this out there for our listeners to understand what's happening and tariffs and the markets and everything that's going on. Andrew's working hard cleaning up some rebalancing that we did yesterday in the portfolios. We'll get to that near the end and why that's important. So you and I have experienced all of this. For me, a little bit of the dot or the dot-com burst that was when I was coming onto the scene in my career and then they had the financial crisis, followed by a little bit of scary stuff with Enron, followed by so many other things that came after that. September 11th, I guess, is another.
Speaker 3Yeah, I was like it's the dot-coms Enron, september 11th, financial crisis and then COVID, right, right yeah, there's always some dips in there and different things, but these are so this is another, could be a major one.
Speaker 2Yep.
Speaker 3We were looking at it the other day and it was like this is the fourth largest three-day drop in history.
Speaker 1Yeah, I think that's what Andrea had mentioned in passing. I want to be like the season captain here. That is very calm, and I am, but it's hard to be calm when other people are kind of, you know, starting to freak out a little bit about all this and and so much is so. Much of this is political, which is something we've been trying to avoid, intersecting politics along with economics, and this is one of those cases where it's definitely crossing, because it was created by a political party and their ideology of what they want to shape America to be Right. And then you have the only other.
Speaker 1They were not not handling the gas price, gas price situation very, very carefully and people had to pay a lot more of the pump than they had to. I was like huh, that's another time where politics and things economics intersect, but it's always temporary and anybody who's lived a life knows that you go through seasons and when you're in a season, there's a tendency to think that you're all going to be here, uh, forever. This is the way it's going to be the rest of my life, and that's not. That's not how it is no in reality.
Speaker 3So no, I mean in reality, just in general. It's like you're either heading towards a storm in the storm or coming out of a storm right, and so that's the only thing. We can't guarantee returns, we can't guarantee anything, but what we can guarantee is that something is going to happen. Nobody can foresee it sometimes. Nobody saw COVID, nobody saw 9-11. So we don't know what's going to happen, but we know that something will happen at some point.
Speaker 1You just have to be prepared for it, which we'll talk about that later in the episode. So first of all, I don't want to assume that anyone even understands what a tariff is and how they work.
Speaker 3I don't think most people do actually.
Speaker 1But everybody's an expert right now. Everybody's an expert in tariffs. I get a lot of my research just comes from walking around and I was down at Sun and Fun this last weekend and that's a huge air show, fly-in air show down in Lakeland, florida and I started asking some of the exhibitors. I said, hey, how are these tariffs going to affect you?
Speaker 1And it was interesting, at least in the aviation side there's not a whole lot that's manufactured overseas. Now the Boeing and Airbus were not there, but when it comes to Cessna and Pipers and and Kodiaks and and and a lot of the parts for autopilots and things like that, oddly enough a lot of that stuff is manufactured here. So I was, I was interesting, that interesting those kinds of conversations that they just didn't feel like it would really affect them, other than people being concerned and just not doing anything, not buying or yeah, or people just cutting back on travel and expenses because you know watching their portfolio go down or being nervous about things, right, cut back and so that hurts the airline industry, right so all right.
Speaker 1so what are trump tariffs? Um, so let's look at it this way. So imagine that you're buying a toy from a store. Normally that toy costs $10, but because it's made somewhere far away, like China, where it's cheaper to produce. Now Trump says, hey, if that toy is not made in America, I'm going to add a $2 tax on it. So that's a tariff. So something coming in from overseas hitting our markets, and that tariff fee is slapped on whatever's coming from other countries.
Speaker 1So Trump is doing this big time. Right now we have 25% extra on things from Canada and Mexico, 10% more on China, which that actually is going to be higher A 10% baseline on almost everything else imported. So a $10 toy might jump from $10 to $12 to $13, depending on where it's from. So that's how tariffs are affecting. Now, if you go to Walmart and something is made in America, that price wouldn't change. And so what is what it allows? What it allows us to him uh, him to do is level the playing wheel, playing field for American companies where other companies, other products, are being subsidized or have cheap labor. He's trying to make it fair for companies to be able to compete worldwide.
Speaker 3So the goal is to, I presume, have jobs come back here and have more production here.
Speaker 1Correct. So why is he doing it? Main goal First he wants to bring jobs back to America. He thinks if foreign stuff gets pricier, companies will say forget it, we're going to stop shipping from overseas. Instead we're going to build it in Ohio or Michigan. So more American jobs, basically More American cars or TVs. Second, I think his goal is to play with. He's playing tough with countries like China. He says they cheat on trade. So stealing ideas, undercutting prices and tariffs are a way of hitting back. I'll add a third. And so part of the problem is the country. Our country spends $2 trillion more per year than what it receives in revenue and the administration has a two-pronged plan which is to close this budget deficit. In about 20 years, 75% of our tax revenue will have to go just to servicing the debt of our country. That's not sustainable. So that puts social security at risk. It's Medicare at risk. It puts a lot. You know road reconstruction, all these things that you could do.
Speaker 3Any of that I mean that's like an individual having like all this debt and every their paychecks.
Speaker 2They're just going to paying off paying their credit cards Right and the interest on the credit.
Speaker 3Eventually it's like you're not making any headway, like so think of it.
Speaker 1You have no money for food, the essentials right yeah, right, yeah going up to fix this cliff.
Expert Opinions on Tariff Impact
Speaker 1Uh, you do have to have a situation, like we have today, where it becomes politically unpopular. You have a one-term president which, essentially, right now, he's a lame duck president from the very beginning because he's not going. You have a one-term president which, essentially, right now, he's a lame duck president from the very beginning because he's not going to have a second term, so they can't hang that over his head. Right and then in the transition. So the idea is that we apply these tariffs, we would encourage companies to build in America. Then they would eventually move here and you wouldn't have the tariffs anymore. Right, right, things would be a little more level, but you'd have higher payrolls so you could get more through the payroll tax. Theoretically, that's that's. That's. That's the cart way down, the way down.
Speaker 3You have more jobs here and you have more people paying into Social Security. That helps that, right, and then so, yeah, you have more payroll tax, but it's also bringing more jobs here and revenue and workforce and all the things, right.
Speaker 4Correct.
Speaker 3So that helps Social Security in the long run If more people are working, more people have jobs Correct. Right.
Speaker 1But then the other fold of that is with Doge and Elon and all the drama surrounding that. But if we can cut unnecessary spending by a trillion dollars, we can now have a balanced budget. If we get a balanced budget, then what will happen is our credit rating would most likely go up. Credit rating of the US treasuries have been notched down twice in the last 15 years. So Trump came into office. The 10-year note was about 4.75%. I have not checked today, but yesterday it was down to 3.98%. So if that keeps falling, then we can refinance some of our debt at a much lower rate.
Speaker 1What's happening right now is 60% of US debt in 2025, I believe it's in April is going to have to be refinanced. So I'm sorry, 30% of US debt needs to get refinanced in April of this year. So right now that's all from COVID era. It's near 0% to 1.5%. That's now going to get moved. What was almost 5% when he took office? Maybe that's not a huge deal, like on an automobile purchase. When you're talking about trillions of dollars in debt, that is a lot of difference between even 1.5% and 4.9%, right.
Speaker 3Well, and not even like comparable. But to compare it to your own household, there's so many people like, hey, I think I want to buy a house, and they'll look at their interest rates going from three to seven and it's like, wait, no, I don't.
Speaker 2I don't need to do that. It's like double.
Speaker 3So if you think of that's a huge 5% increase on a huge amount of money that you're right.
Speaker 1So another thing, too, is I'm trying to stay away from the soundbites. I'm trying to listen to full interviews, and so anytime I can find a full interview where someone from the Trump administration or someone with opposing views from the administration can talk at full length, then I want to listen to that. And what I find interesting is I don't know that Howard Luckwitz, our commerce chair, has gotten a full shake in all this. So I listened to a full-length interview I actually sent it to our clients interviewed by two Democrats, two lifelong Democrats that did vote for Trump this last time, did not vote for Trump prior, but they were very disenfranchised because they said Kamala should not have been that candidate. They should have had a quick primary, a fast primary. So they felt like they were being forced to vote for this person that would not have been on the ticket otherwise. And so they also are very smart people that are concerned about this cliff, this debt cliff. They're also immigrants, so they oppose Trump on some of the immigration policies. But they had a great interview with Howard, and one thing that I got out of that interview is probably about 30 minutes into it, it's the all-in podcast.
Speaker 1About 30 minutes into it is where it really starts, howard Lugwitz. By the way, he ran Cantor Fitzgerald. His sons are running it now. The only reason why he didn't die on 9-11 is because he was walking his son to school that day. He lost over 600 of his employees at the top of the World Trade Center, and so he's been a lifelong Democrat as well, and I guess he lives in New York. Trump was too, I guess, for all sake, in fact, I think everyone in the cabinet Trump's cabinet has been and was a lifelong Democrat up until the last few years.
Speaker 1But the point of all this is in the interview listening to him, they really want to get this balanced budget done. They really want to lower the US Treasury yield, want to lower the US Treasury yield, and so they're trying to make America economically sound again is what the process is Now. How they're doing it, I think is crazy, because they're turning the world upside down in the process, and for everyday people, even myself, to follow every possible angle on this is a full-time job in and of itself, and I will say that the media doesn't understand it, even CNBC. They have guessed on that. I'm thinking none of that's correct what you just said, but it's somewhat maddening. It's somewhat maddening. I believe that it's temporary, but we already have interest rates lower. We already have cheaper gas. That's a start, I guess, to all this. But anyway, let me get back to our list here so we don't lose anybody in the process.
Speaker 1So how do these tariffs hit everyday life? So it's $2 extra for that toy right. Remember we were paying $10. Now we're paying $12 for it. But it's also your groceries, your clothes, car parts, anything imported can cost more. Most of the things that I'm reading show that the price creep could be 5% to 10%.
Speaker 1Trump argues that you win in the long term. Part of that Luckwitz interview says his deal with Donald Trump is like hey, trump, I'll help you do this as your Commerce Secretary, but if we achieve a balanced budget, I want you to push forward with no income tax below $150,000 a year. So if you make less than $150,000 a year, you pay no income tax because the country could afford it at that point, because we'd have this balanced budget, we'd have a tariff revenue coming in. But here's the reality. You know, if companies move here, I think that's good for everybody. But also the other countries could say hey, we're going to put a higher tariff on your goods and that hurts any exports that we do. And so there's just a lot of unknown other than you're going to have short-term pain.
Speaker 1I think it's no. I think it's no accident that they didn't do this till April, because they, because most financial institutions kind of, work on a quarterly basis, so they're able to get the first quarter through. Why wouldn't they have done this on February or March, you know April 2nd, because now we have a full quarter to rebound, so these financial institutions are not hit as hard. That's, I mean, that's me reading between the lines. No one's actually said that. So if the tariffs also do not cause inflation to continually increase, it causes a one-time bump in inflation, so you could have a tariff implied that product costs more, but that process, that process is not going to keep rising. It's not like what we experienced for the last four years where everything just kept steadily increasing over time, right. So, and then it also gets very complicated, because if you look at a Ford truck right now, like 45% of it or thereabouts is actually from overseas, is overseas parts.
Speaker 2Wow.
Speaker 1There's an article in the wall street journal that sometimes a car can cross borders three times, as it's being made between Canada and Mexico.
Speaker 3You think that's so inefficient and costly?
Speaker 1You would think, but I think the labor is so cheap in other places that that maybe it's worth it.
Speaker 3I mean I remember, I mean, what was it like a decade ago when they really started outsourcing labor? I remember it was like a huge shift that happened.
Speaker 2Yeah.
Speaker 3And the plants were being shut down and it was like all of a sudden, all of people that I knew, we started calling call centers overseas, and you know what I'm saying. I feel like it was like a decade ago I don't know exactly when it was, but I remember it was a huge shift where so many jobs went overseas and all of a sudden, we were dealing with you know people it's not necessarily bad, but it takes away jobs here and I remember that and people were laid off and then.
Speaker 3So it's like everyone's worried about the doge workers, which you know, obviously, but maybe they'll have more jobs if there's more jobs available here to go to.
Speaker 1Well, the government jobs I would argue the most is government jobs there. Shouldn't have people employed there anyway.
Speaker 3Right, exactly, they don't need to go somewhere to work.
Speaker 1They even found that the government has 11,000 Adobe subscriptions and not one single login in the last year. I mean there's so much waste out there 11,000. I mean I turn my Adobe subscription off sometimes. I'm like I don't know. I never use this thing as much anymore. I don't have to create PDFs. Other people do that now. Right, maybe I'll just turn mine off. I can save that $25 a month. There's a government that probably paid the most money ever for a subscription times 11,000.
Speaker 3Right.
Speaker 1So there's no doubt that I mean we haven't really cleaned house since the Clinton administration. The last administration to go through and say, hey, we need to eliminate waste was Bill Clinton and Al Gore. That's how long it's been since we've cleaned house. And when he did it, he and Newt Gingrich are working together when right now, democrats are not for efficiency and cutting out 11,000 subscriptions that aren't used, which is ridiculous. What's happened is a long time ago. I don't want to drive into these. I could have a whole podcast just on this topic.
Speaker 1A long time ago, we decided that the world trade order was going to be the new thing. The whole world is going to be one world government, maybe one currency, all these things that people envisioned. And if you look at the budget or the trade deficits across the world, there is no trade deficit. We're the only ones with the trade deficit. Everyone else has a surplus. So what's happened is we spend $2 trillion a year, probably on stupid stuff, but at the same time, we are financing the entire world at the detriment to our economy long term, and people don't see that.
Speaker 1People think very short term. Can I buy this car? Can I buy this house? Can my kids go to this school. Is my life better than it was a year ago or four years ago?
Investment Strategy During Market Volatility
Speaker 1We don't think, even in personal finances I mean, maybe at our wealth management firm people are thinking more ahead, or else you wouldn't come to a wealth management firm. But that's not normal. That people have a connection with a wealth management firm. So people are not thinking about the consequences of us financing the world for the rest of our lives or for the rest of our country's history. We, you know they're going to put us out of business is what's going to happen.
Speaker 1It's kind of like having children that never leave home but are costing you 30, 40, 50, $60,000 a year and you're like, okay, I can pay this, I can pay this, I can pay this. And then now you're getting older and now and now you have some of your own expenses that are coming in, and now you're trying to cover everybody, to keep everybody happy. And that's kind of where that's the world that we've been operating in and it's been okay, but but we are very close to all this coming home to roost and it's going to be at the expense of only the U? S economy, and so that that that's the part that it's hard. As a planner you see it, but as as I think of everyday person, you don't necessarily see that, you don't understand that.
Speaker 2So, that's.
Speaker 1That's the problem that's trying to be, that's trying to be solved, and you know, I also too. All this is changing very fast and and and the news and all this I don't know that Trump actually wants is expecting to keep these tariffs on. I believe that there's going to be some negotiations. We already have a long list of people that want to meet with Trump down at Mar-a-Lago. I believe that he probably ends up having some type of a summit. Vietnam has already offered zero for zero, so no tariffs on either side. So that's a now level playing field. That's another thing too. In all this is like I've understood.
Speaker 1Finally, me, I was late to the game on this one, but you think we have free trade with the world. We don't have free trade. It's not free trade if you have these tariffs Right. So a zero zero is truly free trade with the world. We don't have free trade. It's not free trade if you have these tariffs Right. So a zero-zero is truly free trade.
Speaker 1Now, obviously, vietnam not a whole lot comes from there, but we get a lot from China, and they're the ones that are. They don't have a whole lot of leverage in this. Their economy has been tinkering on the brink for a while now, and so I think something will happen. I think positively. I think that today, as we're talking, we're coming off one of the two worth trading days. Futures are pointing higher. I think people are going to realize that this is all going to play out to be in the favor of US stocks in the end, but right now it's just very scary. I mean, there's going to be short-term pain. We've already experienced that. We have a tremendous sell-off. The S&P is right there, flirting in bear territory. Small caps are already in bear territory. Small caps are already in bear territory. Long-term outlook is really all over the place Right now. We've got a couple of prominent people I follow that think that this is the beginning of something that's going to make America just amazing, amazing powerhouse, manufacturing powerhouse, economic powerhouse. And then there's three other people that I follow that think that this is going to develop into a deeper crash. If you look at you know. So I'll throw out some names.
Speaker 1Um one I don't watch his show, but I I do listen to some of his commentary. He's a very smart guy. Jim cramer from cnbc he's more. He's more entertainment at night, but in the morning, uh, in the morning hour. Uh, some of the things he writes Morning Hour. Some of the things he writes have a lot of validity to it. He's always been pro terrorists. He thinks that how the world trades with the US right now is very costly to the US, so he's pro. He thinks all this is great long term, but in the short term we're just gonna have some pain. But short term, as in like maybe six months. Jamie Dimon you know he's been very supportive of the terrorists, but only apply to certain countries, not this blanket tariff thing. I think what Trump did was basically say okay, I'm placing these huge tariffs on everybody. You guys think about it and when you're ready to talk about it, come see me in Florida.
Speaker 3Right.
Speaker 1And that's very like a Trump type negotiating style. You know, diamond sees a potential of supply chain chaos, maybe persistent inflation issue, and that we need to have higher tariffs in order to keep things here in the US in some cases. I think he was talking about AI type things at that point. There's a JP Morgan strategist that I follow. He has a bearish warning. He's not predicting anything particularly rosy over the next year. He's worried about a correction, high market concentration and political turmoil pointing together, meaning the top companies that are in the S&P. He says triggers could trigger a sell-off. This is obviously old news. It's already triggered a sell off. But the damage could be significant if Trump doesn't blink and negotiate something with these, with these countries, what they call quantitative concern. Trump's tariffs 25% of Mexico, extra 10% on China are not cheerful. They say they think it hit the estimate or the 5% hit to the S&P's fair value with every 5% tariff hike cutting earnings by 1% to 2% per share. So if that's a 2% to 3% earnings drop, earnings per share drop and that's how we calculate stocks values, what the earnings per share is. So they're saying that this could reset the market to be lower.
Speaker 1Bill Ackman he's a head fund manager he is more. He's calling it an economic nuclear winter. If they persist, suggesting they could tank markets, spark a global recession. He's just spooked by the scale and speed. He thinks the Trump strategy might backfire, hammering consumer prices and corporate profits, with Wall Street feeling the heat very quickly. His plea has been moderation. I hope Trump dials it back Now.
Speaker 1You got to remember where some of this comes from. So when I listen to anything from Bill Ackman, a very large hedge fund manager, he's a hedge fund manager, so he's always going to be doom and gloom, because if he's not doom and gloom, he can't get people to stay invested in his fund, which is supposed to help you in the doom and gloom. So you have to be very careful as you listen to this Larry Fink. He thinks he's just going to cause a lot of inflation going forward. He thinks he's just going to cause a lot of inflation going forward. He's more negative than Bill is. Quite frankly, larry probably has an ax to grind. Larry's a big environmental social governance guy. He was very heavily involved in the last administration. And I'm not a Larry Fink or BlackRock fan just because I feel like they duped investors with their ESG agendas, adding millions and more money to their revenue coffers at the expense of shareholders or the fund holders who bought into those strategies. But he's obviously not big on that.
Speaker 1And then UBS came out. The chief investment officer, I would say that she's like skeptical hope. She's skeptical of a prolonged trade war given Trump's obsession with the stock market performance. So she thinks that Trump's obsessed with what the stock market does during his administration, more so than any past president that when he sees all this pain at some point he'll say, all right, we got to, we got to stop losing money in the stock market. Her hope is that Trump backs the stocks off before they skid too far, avoiding a deep, deep economic wound. I think I'll also add here that if you look at academia, most academia doesn't doesn't support any tariffs, any additional tariffs, and I'm not sure, sure, I'm not sure why that is. I mean, academia obviously operates in a vacuum, but you'd have to be able to also see. If you're an economist, um, you'd have to also see that you can't continue the path that you're going down so and you're not going to be able to cut costs of the government.
Speaker 3I mean you just got to give them less money.
Speaker 1We're seeing the pain already. People are burning Teslas because they don't want a balanced budget. They just they don't like the fact that there has to be cutbacks. So I don't know, it's, it's uh, it's. It's a crazy situation. I, I hope, I hope that the Trump administration wins, because if they don't win, there's going to be a lot of this chaos for absolutely nothing in the end.
Speaker 2Right.
Speaker 1So I hope that there's a balanced budget. I don't think that this is much different than any other crisis, though in the end, no, we still have to solve the 20 year problem. But I don't, I don't see this. This is not. This is not a different catalyst than COVID. It's not a different catalyst in the financial crisis when it comes to how you manage assets and how do you win through all this. Yeah, if you're listening and you're still working. The last two days have been a tremendous buying opportunity, because you're now back to February of 2024 prices.
Speaker 3Yeah.
Speaker 1Which is amazing. You think how much we've fallen in the last couple of days. You think that, oh my gosh, this is horrible. We're nowhere near the COVID bottom. Nowhere near it.
Speaker 2No.
Speaker 1We're nowhere near the financial crisis bottom, which was 6,500 on the Dow. We're still around 37,000 right now. Yeah, still overvalued, obviously. As I'm recording this this morning, the futures are up 1200 points, so other people think that stocks are cheap, right.
Speaker 3Yeah.
Speaker 1But I think that's what I want my listeners to take home is that there are so many opinions on this. There are so many opinions, but in the end, it's no different than where we were with COVID. It's no different than where we were with any other crisis, because there's always varying opinions and it's how we react to these. If you're still working, this is an opportunity to buy shares cheaper.
Speaker 3Yeah, and you're dollar cost averaging in your 401k hopefully. So you're adding money there. But if you have money on the sidelines, add a bit more.
Speaker 1So your dividends get paid by the share, not by the price. So when something falls and you can buy more of it, you're going to get more revenue now in the future because you've got a better price.
Speaker 3You've got more shares per dollar.
Speaker 1Right, and so that's how you have to think about these situations. If you're still building wealth, that these are buy-in opportunities.
Speaker 4Are you curious why annuities keep coming up as a potential investment option? People are often told that annuities can effectively mitigate investment risks and help secure their financial future. However, annuities often benefit the salesperson and might not be the best choice for you as a consumer. To learn more about the various types of annuities, the negatives of owning them and better investment alternatives, we have a free ebook on our website just for you To download our ebook. Buyer, Beware, why Do they Keep Trying to Sell you that Annuity? Simply click the link in the episode notes or visit wiserinvestorcom slash guides. Now let's get back to the show, to the episode.
Speaker 3Well, and some of the questions we get, right Casey, is well, I'm retired now and so what do you do with that? And so and I know everyone hates to hear this it's we stay the course. That's why we put together a plan, so we don't sell stocks when they're down. So you know, if you're in retirement, the way that we manage money and many managers do as well. This is why it's important to understand make sure you're allocated properly during these times. You know you have a two-year cash bucket. That's where you're taking withdrawals from your account and you have the money set aside for two years, and then, on top of that, you have fixed income. And so the way that that works is that you know you just start spending from that cash bucket. You know, maybe you have sources of income from Social Security, maybe you have a pension, maybe you have rental properties, but you have all this income, and then whatever the shortfall is is you're taking from your portfolio. So there's a portion that should just be ready for your withdrawals for two years is how we look at it. And then there's a portion that's in fixed income, that's not participating in the market, and so, if you need to, you then go into the fixed income. So the whole point is is that you never have to sell a stock when it's down. So when we go into times like this because we sometimes we don't know when these things are going to happen what we can tell you historically in Casey's and I career, it's something is going to happen. I promise you something is going to happen. We don't know what it is, but you have to be prepared for that, either for a buying opportunity if you're still working, or have the money to live off of while you weather a downturn, and so you know, then you're living off that fixed income in cash. So that way, you're not, you know, having to sell a stock.
Speaker 3Now, 08 and 09 was different because everything was down, including bonds, and so that's why it felt scarier. I think of all the market short declines, that was the scariest one. And then you were losing jobs and losing your homes. So all of that was the scariest time, in my opinion. And so this is where we say, ok, stick to the plan. We're not selling stocks when they're down, and when they rebound, then we fill back in those buckets, for lack of a better word.
Speaker 3There's also other things you can do during this time. So making a small shift to rebalance a little bit, if you do have money on the sidelines, even in retirement you have that fixed income bucket I was talking about. Maybe you make a little shift because stocks have declined and shift a little bit Not all of it, because it's money we want to stay safe to live off of if we go into a larger decline or a longer period of time, like it happened in 08 and 09. But you know period of time, like it happened in 08 and 09. But you know, maybe shift a little bit. There's also taking tax losses. So this is an opportunity in taxable accounts to harvest tax losses and take those tax credits against future gains. So looking at that and I don't know that it's the right opportunity yet because everyone's doing their taxes right now and sometimes it's better to see you know closer mid end year.
Speaker 3But thinking about when markets pull back, that's my favorite time to do Roth conversions too, if it makes sense for you. That's a very personalized thing. It depends on your other income. Right now it may be hard to differentiate just because you know we are so early in the year and you may not know what your income is going to be for the year. So, but this is those times is I remember in 08 and 09, it was great making Roth conversions right, and that's where they lifted the rule where you could spread the taxes over two years and they lifted the income restriction of a hundred thousand. So there are still opportunities, even if you're retired, to take advantage of market decline. So it's not all bad.
Speaker 3But the biggest thing is just making sure that you don't react emotionally and you don't sell when it's down because you can't stomach it, because you can never recover from that.
Speaker 3This is when we have to say okay, this is when you I know you hate this stay the course. But this is the reason that we do what we do and you do stay the course and you wait it out. That doesn't mean you don't make little shifts in between or take advantage of a little things here and there that could make you know a three 5% difference potentially, depending on what you're doing. But you cannot just time the market because you have to be right twice. If you try, if you sell, you have to know when to get out and when to get back in, and I have watched unfortunately not at our recommendation I've watched people turn their their net worth into half of what they had just because of an emotional couple day trades. So it's really truly staying the course. That doesn't mean we don't get worried and we don't like what it looks like it's on paper, but it's having a plan and following through with that plan.
Speaker 1I think when you start moving to cash, at that point you're just gambling. Yeah, it's stressful, you have to be right, it's up like what?
Speaker 3It's going to be up 3% at the open today, potentially. Okay, what if you sold yesterday Cause you were like oh gosh, I can't stomach this, and now you're missing the upside. You're really then. You're really stressing yourself out.
Speaker 1If you sold at the open yesterday, you sold when the market was down 1500 points points. Within the first hour it was up 430. It closed kind of flat. But then yeah, if today holds, we'll see what happens.
Speaker 3But it's a long-term investment.
Speaker 1You have to be right on the exit and you have to be right on the re-entry. A lot of people in 2000 and late 2009, 2010, they had a million dollars and now they had half a million dollars and if they had left their money in, they'd have a million dollars. Yeah, so it's it's at this point, yeah, absolutely.
Speaker 3Yeah, yeah, I mean.
Speaker 1So it's like so it's happening is that people are getting their politics mixed up with their portfolios and what works long term. There there are certainly day traders that can be successful in all this volatility. We're not day traders. We're in charge of getting the client to age 95 without running out of money, and I hate losing with a passion, and so what we do is we look at probabilities of success. What's the probability of success if we go to cash and we're going to re-enter at a certain point?
Speaker 1your probability drops tremendously yep and so it's how you have to build this is. He talked about the cash bucket, but also you have the cash bucket that's your two years worth of expenses. But then you also have the bond market, which flat. Well, actually it's up 3% right now. So you have the bond market. So if you needed money between your cash and the bond allocation, your portfolio, you could probably go a good 10 plus years. And then, we know, over a 10 year period, we know the worst case scenario ever happened in stocks was flat. That's the worst case.
Speaker 3Right, there was two time periods where it didn't recover in 10 years, and it was 11. So I mean really I mean, but normally, market recoveries are much shorter than that.
Speaker 1Yes, less inside two years.
Speaker 3Right.
Speaker 1Yeah, or in COVID, it was like three months.
Speaker 3So if you have the two-year cash bucket, that should get you through. But, just as you said, you can always go into the fixed income without still having to sell stocks. And even still, during some times there's periods of recovery where you could take some off the table and fill it back in.
Speaker 1Yep, correct, and so it's. People just focus on that balance dropping and that's human nature and I totally get it. I do the same with mine. I'm like man, I was up to this point. Now I'm on my way back to this point, but that can get you very short-sighted. It's like walking down the street only looking at your feet. You're going to run square into a pole at some point and probably show up on someone's YouTube channel or social media post right, you don't want to do that. You want to walk down the street looking out and it's hard. It's hard to do that and, honestly, that's why people hire advisors to manage their assets is because they want people to talk sense into them.
Speaker 1So many of my conversations I've had in the last couple of days have been this is your plan. This is why it's still working. Our plan always assumes there's a financial crisis. We're nowhere near anything like that right now, and if you get a rebound in the market, then you get another one. So logging into some of these financial plans that I've seen didn't change the percentage probably says one single bit.
Speaker 3No, change it one single bit.
Speaker 1We've had some people add more bonds to their portfolio because they were nervous about some of the things that are happening. I firmly believe that they'll regret that in 10 years if they stay in that allocation. You can add more bonds. You get more conservative even before this happened, but in 10 years from now, when you look back at your performance, you're going to be really disappointed. And so it's really. It goes back to. It's not even emotional for us. It comes back to math.
Speaker 1If you have this much in stock, if you expect this much volatility, where does that get me in my probability of success long term? And so for most retirees. That's why a 60-40 portfolio works so well. If you have excess wealth, you can go to 70-30 to get that higher rate of return. If you're a nervous Nellie and you can't sleep at night, then that's a different. That's a little different ballgame. That's why we have more conservative allocations because, okay, your, your, your makeup as a person is not able to handle this. So you are already in majority of bonds before this even happened anyway, because you couldn't handle a little hiccups, and that's fine, and there's portfolios built for you. But when you start making knee-jerk reactions based on political news and based on what's happening in short-term volatility. It never ends well. It never ends well. I've met a few people in my lifetime that said oh yeah, you're a part of the financial crisis. We just sensed there was something up, so we went to cash, but they were still in cash when I met him 10 years later.
Speaker 3Right, Cause it's like they never went back in and didn't know when they get back in.
Speaker 1It's like all the doomsday analysts. Yes, at some point you will be right. At some point the market was still off 10 to 20% and and you know what? That's a little healthy it's. You know. For people who who know anything about gardening and which I don't that much I know I'm supposed to prune things right. If things go crazy, it looks pretty. If I don't prune that tree every year, then it's not going to look good for the long term. And that's a lot. What market sell-offs are? It keeps the greedy people out, all the people who borrow money to invest they get. They have to cover that at some point.
Speaker 3Well, and I would argue, if you're in cash, inflation is going to eat you alive. You're negative returning anyway, especially if it's in like a retirement account, because then you take a distribution, you owe tax on that and then you have inflation and the cost of things going up. Well, you're in a negative return situation anyway. So that's not a good position to be in either.
Speaker 1No, no, it's not, it's not. So I think that, um, you know the criticism of financial advisors in these times. Like they didn't do anything. They just told me to stay the course and, and, and you know what I get? I get the emotional comment, the emotions from that comment. Um, but the best thing to do is stay the course and if you've done a plan properly, you have enough cash to be able to withstand having to use your investment money. And that's what advisors are for Good. Advisors are telling you to stay the course. The advisors to say, yeah, okay, yeah, we're going to change your portfolio. Those aren't good people. Those aren't good people because they should have changed your portfolio beforehand, because they should have known your risk tolerance, right.
Speaker 1So it's the movies and the hype, and CNBC and all these other shows that people are buying and selling, buying and selling. I'm going to sell this and I'll buy this, and it sounds really cool. That's not how you win long term. No, this one, I'll buy this and it sounds really cool. That's not how you win long term. No, and the stats show that. The stats show that, um, 96 of these active managers do not beat the market, and so the best thing you can do is buy the market, get your allocation right, and that's what the planning process is about. So this is when we go back to our plans and we look at our plans and we say you know what we plan for this and it'll be fine.
Speaker 1People who are about to retire you're probably okay too, because you're probably not sitting in 100% stocks. You probably already have a bond allocation and that's how we can start that cash bucket is building off that bond allocation. You'll be a little more heavy stocks until the recovery starts. Once the recovery starts, you take those gains in stocks and you finish building out the retirement portfolio completely. There's no reason to not retire. A simple thinking will cause you not to retire because you'll just calculate something off that balance and not really put it all together in a true portfolio and how this is going to look long term. You can't think simply about this. You have to have a little more understanding of portfolio construction and market long term performance. But I go back to any young person. I mean I texted my kids, I mean they're all 19 years and younger but I said go to your green light cards. Today's the day you move some allowance money and you move that into the stocks, today's the buying opportunity. There'll be millions of dollars every time. You're 65 years old at this point.
Speaker 3Absolutely.
Speaker 1So I just I don't want to make light of the situation. I understand that our client base is probably split 50-50 between Democrats and Republicans, but national debt is a bipartisan issue and we have one party right now that's trying too hard to derail us from an opportunity for this country to be better for our kids, financially speaking, in the future. It doesn't mean that in the future that they go back into debt, but man, what a great opportunity to kind of do a reset. They uh no one talks about when, when trump 1.0 was in, uh he, it was during his impeachment, so that none of this really got covered unless you followed uh economic papers. But he tried to refinance an entire, our entire country debt at one to one and a half percent and if that had happened we wouldn't even be in this situation right now it'd be a very, very, very different situation.
Speaker 1we still have the budget deficit, but we wouldn't have be in this situation right now. It'd be a very, very, very different situation. We still have the budget deficit, but we wouldn't have a national debt climbing the way the way that it is. So there's crazy things that man does, um, not all of it that I would get behind, but, uh, understanding um, the debt issue seems to be something that he, uh, uh, he he's after Um, and, as as a planner, I support not spending more money than you make. But there are a lot of people out there they're all fired up about this and I don't understand why people think that you can keep spending $2 trillion more. I just I don't get it. I don't get it. Even from our own client base. I've gotten some-.
Speaker 3Math isn't math.
Speaker 1I've gotten some emails from our own client base that don't support a balanced budget, and I don't understand it. If you'd be in my office crying at my table, if you were running hundreds of thousands of dollars of cash flow every single year and you saw an income and you didn't know what to do about it. I just don't get it.
Speaker 3And your plan fell off like this you don't make it, you run out of money.
Speaker 1I don't get it.
Speaker 3We would be very worried for you.
Speaker 1Yes, so, yes, the answer is how are you going to handle this? Uh, hopefully, you you've, you've had a plan, the wiser and you you're going to stay the course. Um, and we've already taken. We did rebalancing, starting yesterday. If this plays out, if this is near our bottom, this will actually would have hit it. We were then four days at the bottom during COVID when we did our rebalance. I added 3% to the rate of return to all the portfolios that year because we rebalanced near the bottom. I don't know if we got the bottom.
Speaker 1There is so much more drama to be played out. I'm looking up here now that S&P is up 2.4%. Open starts in a little bit, but it probably won't stick. If history says anything, there'll be more drama. We're going to bounce down here somewhere. But, quite honestly, this all started breaking out, I guess, last Thursday and Friday, and I'd already planned my trip down to Sun and Fun and I spent Saturday and Sunday down there and it was just a reminder to me that you know what, sometimes it's best just to turn the TV off and walk out and go do your life. Just go do your life. If you're not investing in individual stocks and you're sticking mostly to the S&P index funds. Go do your life. Don't let the situation steal your joy. If you feel like it's hitting your career and your business, go work in your business. Go figure it out. Go figure out how to solve the problem. But otherwise, for for normal Americans, go do your thing.
Speaker 1Yeah, it's going to be okay. Yeah Well and if you're young, bye, bye, bye, all right, shauna, good conversation.
Speaker 3Yeah, thank you.
Speaker 1Thanks for listening to our podcast. If you want to reach out to us or comment, you can make comments below, wherever you're listening. Be sure to also check out our YouTube channel A Wiser Retirement and we'll see you guys next week.
Speaker 2Thanks for listening to A Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out.
Closing Thoughts and Encouragement
Speaker 2This episode was produced by Rachel Dotson. This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guests may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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