What The Wealth Retirement Podcast

Market Volatility: When Half "Want Out" and Half "Want In" — What Should You Do? (106)

• Jonathan Bednar II, CFP • Episode 106

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Market uncertainty triggers two distinctly opposite responses from investors. 

We see some frantically call ready to cash out, while others eagerly seek opportunities to deploy additional capital.

The CNN Fear and Greed Index currently sits around 20 (out of 100), indicating fear among investors. 

For investors wrestling with uncertainty, several critical points deserve consideration. Let's remember, successful investing requires adherence to long-term planning rather than emotional reactions. Market timing demands being right twice – when selling and when buying back in – a challenge that defeats most investors who typically wait until markets "feel good" again, missing substantial portions of the recovery. 

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Thanks for Listening!

Jonathan

Speaker 1:

Market uncertainty, tariffs rate cuts and recession fears what should you do? Welcome back to the what the Wealth Retirement Podcast. I'm your host, jonathan Bettner, certified financial planner and owner of Paradigm Wealth Partners here in Knoxville, tennessee. The market, after back-to-back 20% returns, has been on a roller coaster lately and I'm getting very different calls, two very different calls. I have a group of people that are calling me nervous, thinking about cashing out. I've actually had someone cash out While others are calling me saying, hey, jonathan, what should we buy? I've got some money on the sidelines or I got my bonus check in and I'd love to take advantage of this downturn. So which side is right? And that's why I want to kind of talk about this podcast and I want to break down the most recent market uncertainty, the impacts we're going to have on tariffs, the Fed outlook and then what you should be thinking about with your investments. So the sentiment split, the fear versus the opportunity, is the first thing I really want to talk about.

Speaker 1:

One of the gauges that I like to look at is the CNN Fear and Greed Index, and currently this index sits at 22,. Excuse me, sits at 20. This is March 18th. Sits at 20. This is out of a scale from zero to a hundred, which indicates extreme fear. Now I've seen this as low as seven. That was back in kind of the COVID market collapse. That happened March five years ago. So it is not uncommon for this to be in extreme fear when we have these downturns. But I think it's important to know that the market sentiment in general, a lot of people are nervous about what's happening, and so that leads into this fear, and so that reading gives me a good indicator for knowing what do most people think.

Speaker 1:

I had a client call me about a week or so ago and really just very nervous, not sure what to do, worried about Social Security being completely dismantled and, you know, being stuck with you know four or five hundred thousand dollars and that's all she'll have to live on. And you know what I want to make sure I say is I don't know what happens with Social Security or Medicare or the tariffs or interest rates or anything else. If I had a crystal ball you know what dad and I say all the time is I'd pick the right six or seven numbers on that lottery and I would be out. But I don't have the crystal ball, and so what I like to, you know, try to at least get people to think through is and this is easier said than done but to actually, you know, take a break from some of the news outlets that cause some of the hysteria and just think through some of you know these thoughts and it's even, you know, in my own head. It can get easy to, once you start thinking of something, thinking like I just don't know if what I'm doing is right, or, you know, if this does happen, it could perpetuate this other thing, and so, when you think through these things, sitting there in your own head can be a dangerous place, which is what's really helpful about having a financial advisor. We are a great outlet so that, if something happens you're questioning something, you can call and say, hey, let's talk through. You know this topic and in this case, it's tariffs, it's recession fears, it's, you know, softening employment and softening economic growth numbers softening employment and softening economic growth numbers. And you know, in this case, where this client, you know, was just thinking about Social Security being completely dismantled, I do think there's probably Social Security reform going to happen at some point, but I absolutely unequivocally do not believe that Social Security is going to be completely dismantled and there will be no social security for our seniors. We have too many people that depend on social security and I just can't imagine that that actually gets completely dismantled. So and you know as much as I try to tell her, you know, I just don't think this is a good move. People get tired of seeing it going down and the one thing that they can control is going to cash and that feels good, that scratches the itch, it feels good and, ok, I can live with it from here.

Speaker 1:

The other side of the coin is I see people saying Jonathan, some of these stocks are down 20%, the market's down 10%. I see that there's opportunity and I've got this bonus check come in, or I have a little bit extra money laying around that you know I could throw at a certain stock or the stock market and I would like to dabble and take advantage of some of this downturn, and so you know. One of the things I would like to at least say is it is normal to have emotions and be fearful and not sure of what's coming down the pike, and uncertainty is part of investing. But when you sell out and you go to cash, you are exchanging your shares to someone else who is happy to buy those and the accounts excuse me, the securities or the investments or the accounts may continue to go lower, but so far history is our guide. The market has always recovered, and so I think that's what we try to lean on. So the first thing I want to do is just point out the sentiment fear versus opportunity and so every time I'm getting a call about cashing out or nervous about what's going on, I have someone else equally as opportunistic and excited about having a chance to buy it at some of these price points that they haven't seen in a while. So that's the first thing.

Speaker 1:

The next thing I want to talk about is recession fears, and the latest CNB Fed survey shows that there's about a 36% chance of a recession. That's up from about 23% chance of a recession a little while ago. And so, while recession fears have increased, and a lot of that's driven because tariffs have been increased on Mexico and Canada and the EU and China, and so it's going to cost more for consumers to buy goods and services primarily goods, really because there's going to be an additional tax on the things that get imported no-transcript and so because of that, there's some concerns about GDP slowing, or in other words, the way that we are increasing our economy. Every year usually grows at, you know, a 2% or 3% clip really a 2% clip. And you know they were pegging earlier this year to grow GDP at 2.4. Now they're saying we're only going to grow GDP by 1.7. That's still a positive increase, but it's slower than the 2.4 they were originally projecting, and so that's what's caused these recession kind of fears to go up.

Speaker 1:

But I think what's interesting about this and what a lot of people don't think about, they think of 36% chance of recession. My people that are optimistic, the people that are taking cash and saying, hey, I got my bonus, I want to buy some more they're looking at this and saying this stuff's on a discount. There's a 64% chance that we avoid a recession. And so just because we see markets correct, 5% and 10% and even 20% all those numbers are normal. They're uncomfortable, but they're normal Doesn't mean that we're going into recession, and so I think having some of that perspective matters. Recessions are normal, but it doesn't mean the markets absolutely have to crash. Recessions are normal, but it doesn't mean the markets absolutely have to crash. And again, just because we have tariffs and rates still high and slowing GDP doesn't mean we're necessarily going to have a recession.

Speaker 1:

The next thing I want to talk about is rate cuts. So actually there's a 77% chance that there's going to be two or more rate cuts this year for that same Fed survey. And so what this is telling us is the Fed has the ability to cut rates. They've left rates high from a couple of years ago. They were trying to fight inflation, and then the markets actually the market and and economy have actually handled higher rates fairly well, and so they were able to leave rates higher and prevent us from either causing inflation to spike again or causing, you know, this crazy irrational exuberance in markets, real estate, some of that that we need to have, you know, controlled in a way that it doesn't just get out of hand. And so having these higher rates helps keep this economy in check a little bit without things just going totally haywire.

Speaker 1:

And because the economy has been able to kind of withstand these higher rates, we're in a position now that if we do have a recession or we do start to have inflation continuing to fall which we are seeing, or we're seeing potential further impacts from these tariffs the Fed has the ability to cut rates, which will be beneficial to the market, will be beneficial to the economy, be beneficial to big businesses and small businesses as they use debt to continue to operate, and it'll be beneficial for consumers who need loans for lines of credit or refinance their mortgages or any sort of thing that they need to use debt for for their living. So 77% probability of two rate cuts I actually think will be a positive for the market. Now, if we don't get tariffs to pull back, then it may be short lived, but I do think there is that outlet that the Fed has the ability to control turning those on or, excuse me, lowering those rates to kind of spur or give the market and the economy a little bit of shot in the arm, which will be beneficial. So lower rates is obviously a positive for everybody. I think there's a lot of people that could refinance their house, who bought over the last 18 months or so at higher rates, could refinance, get a lower rate and then that provides more cash flow on a monthly basis for them to use to continue to buy goods and services, to increase their cash flow to pay for groceries, to potentially get a new car. That cash flow ends up getting spent somewhere else and that ends up being a benefit to the economy, to stocks, to the market. So those things are beneficial.

Speaker 1:

So what should you know? There's a couple of things I think are important. Number one we've planned for this. If you're a client of mine. We've planned for some of these events. We know that these market fluctuations are normal, that we're not going to see every year up 20% plus, like we've seen in 2023 and 2024. Strategies outlined by sticking to our long-term plan, we position ourselves to act not on emotion, but act on our thought process and thinking through our next step, versus just being reactionary.

Speaker 1:

And it is really really hard to time the market. You got to be right when you get out, but you also have to be right when you get back in, and what I see too often is people wait until the market feels, until it feels good, and what's usually happened then is the market's recovered quite a bit and so they get in, but they get in after they missed a huge run from. You know the investments. And so what I would challenge you to is you to is stick to your long-term plan If you're nervous and you're not sure what the next step should be, or if your portfolio and investments are aligned with your current thoughts and risk tolerance, then it might be time to analyze your risk tolerance and look and see if your portfolio matches what you're willing to. You know risk you're willing to take.

Speaker 1:

Everyone wants as much as they can get on the upside, but then they don't want to lose, and so I actually. I see this time and time again. No one wants to sell. Last year, when the market's up 20%, it's going to keep going higher. I don't want to sell, jonathan, you're crazy for suggesting that. Then, when the market sells off, they're kicking themselves because I didn't sell and now they're nervous. So what I want to challenge you is to be steadfast in your investments and not just get caught in with the euphoria of the market going up because, tried and true, the market will have these pullbacks and they'll have times where we can get back in cheaper.

Speaker 1:

And so if you're in a 80-20 portfolio meaning 80% equities and 20% fixed income and you're more nervous now than usual, maybe it's time for us to revisit and scale back. And that's okay. We can still have allocation to equities, but we have more allocation to fixed income, which I like to call the war chest, which is the place that we can get income for you if you need it, without having to sell out of equity. So I think it's just important to go back and revisit your risk tolerance, your portfolio, your financial plan, to give yourself the confidence that you can weather the storm, and then, if you have more cash, you want to throw at this. Like I said, I've got more and more people that are calling, wanting to take advantage of this. Then you know, consider just dollar cost averaging in, and that's a smart way to not try to time the bottom but pick up a little bit along the way. Maybe you buy a little bit every week or you buy a little bit every month, and that way you're not trying to go in all at once, you're not trying to pick the bottom, but you're comfortable with these buys and you spread it out so that if it does go down a little bit more, you've got some more dry powder you can add to and buy some more. And so I think these strategies are ways that you can feel comfortable about your investment plan and knowing that that plan is in place.

Speaker 1:

Obviously, market uncertainty is nothing. New Headlines will always make things seem way worse than they are, and the key is to focus on your long-term plan and avoid those big emotional decisions. If you have concerns and you want to talk to a financial advisor, you know we'd love to have a conversation with you. If you're a current client and you've got these questions about am I doing the right thing? And you know, should we make an adjustment, you know we are proactively reaching out to our clients but you know, don't hesitate to call us or email us and say, hey, I just got a question. You know, don't hesitate to call us or email us and say, hey, I just got a question. You know, can you help me out with this? We are here for you anytime you've got a question. If you've already got a financial advisor, great, that's awesome. Reach out to them. And if you need a second opinion, you know we're here to help you.

Speaker 1:

But what I want to caution is not letting fear or hype drive your investing strategy. Fear or hype drive your investing strategy. You know, have that plan and let that plan be your guide in how you make investment decisions, both on the buy side and on the sell side, and that way you're anchored to objective thinking and not getting sucked into some of the hysteria and emotion that gets caused when you start looking at headlines in the newspaper or headlines online or headlines on the TV. So, with that said, I hope this was helpful to just kind of talk about what I think is going on and some of the data that I'm seeing out there. Be confident in your retirement. Have a wonderful day. Thanks for joining me on another episode of what the wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this an episode insightful and a light bulb went off, share it your friend, aunt Judy, the random guy in the office who's always talking about investments.

Speaker 1:

Wealth isn't about just that, your chain. It's about our choices, chances and changing our financial futures. The information in this podcast is informational in general in nature and does not take into consideration the listener's personal circumstances. This podcast does not intend to be a substitute for specific and financial, legal or tax advice. You should consult the approved qualified professional prior to making a final decision. Security is offered through LPL Financial member. Finra. Sipc. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment advice offered through Independent Advisor Alliance. A registered investment advisor, independent Advisor, alliance and Paradigm Wealth Partners are separate entities from LPL Financial.