The Economy is RUINED?!

Is Trump going to ruin the economy? There are a lot of people who seem to think so, and they think that everything that we’ve built over the last decades and centuries will be undone by one person. Is this true? Is Trump going to ruin the economy? A number of clients and other people whom I’ve talked to are unsure: “Hey, do we need to change our retirement plan based on what’s going on?” “Do we need to change our investment strategy based on what’s going on?” Today, although I have some notes and graphs that I’ve pulled together to share with you, I’d like to share some unscripted thoughts.

Biases

Real quick. Just want to share my biases. I voted in every election since I was 18, but I have not voted for either of the major presidential candidates in the last three elections. I did not want any of them to become president. Personally, I only believe in voting for people. I actually want to be a president if I continue to vote for the lesser of two evils. I think that’s how we keep getting worse and worse options every cycle. And so I am not a fan of the current president. I wasn’t a fan of the last one, or the one before that, or any of the other candidates that went up for Office. So just so you know where I’m coming from, I’m pretty apolitical.

There’s certain things I agree with on both sides. In general, I believe in electing people to take care of politics for us, so that I can focus on things that are more important to me, like my faith, my family, my business, helping people, my friends, those types of things. And so I do not follow the news hardly at all. A couple things when it refer when it directly affects my business, I’ll obviously follow that, but otherwise I leave it alone.

Knowledge & Experience

So, there are a lot of things that you probably know that I don’t know. And one thing that I have found kind of annoying about the dialogue on politics is that it seems like both sides think the other sides are idiots, and that they just don’t know anything, that they’re they don’t have the full picture. They’re biased, or whatever else. The truth is, or one thing that I think has really helped me to understand more where people are coming from is, the realization that your beliefs, what you believe about the world, about what has happened, what can happen, is based on your knowledge and your experiences, as are mine. And one thing that I’ve realized is that if I had the same knowledge and experiences as you do, I would probably believe the same things, or likely.

Maybe you can also concede that if you believed what I believed, or that if you had the experiences I have, and have the knowledge that I have, that you may also believe as I believe. And so the question becomes, since you have your knowledge and experience and I have mine, how can we share those in a way that hopefully both gets us to a place where we’re better off? And so I just want to, because it’s my job to help people retire successfully and stay successfully retired, to share some of my knowledge and beliefs with you, to help you be a better investor through all the craziness that’s happened.

Knowing the Future

There are a lot of reasons why people are concerned with what’s going on. When I watch the news, sometimes I get concerned about what’s going on, but we need to make sure, how does what’s going on affect our real investment strategy? And that’s what we want to talk about today.

There’s one other record that I want to set straight. I don’t know what’s going to happen next, and neither does anyone else.

There are a lot of people out there that are absolutely convinced that they know the future, that they know what’s going to happen, that they know the outcome of where all this is going. Therefore, we must do this: you should get out of the market; you should invest in foreign equities instead of in the US. Therefore, this, therefore that, because this is going to happen, and no one knows the future, I don’t, you don’t. No one does, and the people who claim to are fooling themselves.

We can only believe about the future. We cannot know about the future because we don’t know what’s going to happen.

An Email from A Potential Client

I had someone reached out to us to say, “I’m considering hiring you as a financial planner, but I want to know what are your thoughts are around this political climate and investing all those things.” So I gave him a we had a 15 minute call, and then I sent him my book so he could read that. And then I followed up with him via email to get his thoughts on the book and my beliefs. He sent this email back, which I think is just a good indication of where a lot of people are right now. He said,

“Freeman, I don’t think you’re a nut job (which I appreciated him acknowledging), but I don’t think we agree on the likely outcome of this current political situation. This is not normal. Does not even begin to cover it. When I keep hearing the market always recovers over X years. Just look at history. All I have to say is, what did the market do the last time we had a president who imposed massive tariffs on completely random and arbitrary ways, fired a huge slice of the federal workforce, cut another massive amount of spending on federal help to state and local governments, and effectively take over the federal government by fascist means?

That’s right. You can’t answer that question, because it has never happened before in this country, the real answer, I’m afraid, is not going to be not good at all.

I’m writing back only because you took the time to write and ask. Thank you for checking in on me. In more sane times, I would have been quite interested in having you manage our retirement funds, but the way things are today, I need to do it myself. I usually do some research, not in stock and bond market history of this country, but also what has happened throughout history and other places.”

This Time is Different

I’ve had a lot of conversations like this with people. I just thought that was a good way to sum it up, that we’ve never seen these things before. And I think for a lot of people, they are getting frustrated with people like me, who are like, Oh, but look at history. Look at the long term. You know, pull back all these things like this has never happened before.

This is unprecedented.

We don’t know what’s going to happen and and it’s true. Let me say this loud and clear: this time is different. This time is unprecedented. We’ve never gone through this before. Just like we had never gone through COVID before, just like we had never gone through the great financial crisis and a housing crisis before, just like we had never had a .com bubble burst while also having terrorists attack the World Trade Center. We had never gone through that before. We’d never gone through oil shocks before. We had never gone through hyperinflation before. We had never gone through the Cuban Missile Crisis before.

Every time is different

What causes the crisis to happen is always different. We’re pretty good about learning from our past mistakes and adjusting how we do things the future, but there’s always a new crisis. This time is different. We’ve never seen this before, and we’d never seen any of those other things before, but we still got through it, and we still came out better and stronger on the other side.

Maybe I could look out and see how bad things have happened in other countries? Maybe that’ll happen here. There’s always lots of catastrophizing we could do. We could find worst-case scenarios, or we could look at all the other really bad things that have happened in our country, and what happened in the end? How did those turn out? And instead, put our belief in that ability, that human ingenuity, to push forward, to do better, to overcome obstacles and come out stronger on the other side. That is my preference, rather than catastrophizing about what may happen going forward.

So, yes, the cause is different. This time is different, but the results have always been the same in the past, and I believe they’ll be the same in the future.

Where We Stand

With all the craziness that has happened so far this year, the S&P 500, which I track for podcast purposes, at the end of the year was at 5,881. By February 19, it had gone up to 6,147. Up 4.9%, almost 5% for the year. Then, with a bunch of things that happened, it slowly lost about 8% of its value over the next couple of months. By April 2, it had gotten down to 8.2%, down from the all-time high.

Then Trump announced his Liberation Day and the tariffs right. And over the next three trading days, it lost 13.5%, down 21.6% overall from its all-time high in just three days.

Then he announced a freeze, right? And over the next two days, it gained back 11%, making a big jump, right back up. And it’s been all over the place, but since it closed yesterday, I’m recording this on May 20, and it’s up to 5,963, which is about 3% below the all-time high. But, it is up 1.4% since the beginning of the year. I don’t know when you’re watching this or what it’ll do between when I’m recording this and when it publishes or when you’re watching it, but over the last three months, from February 19, where it peaked, to now, we’re down only about 3%.

Is This Over?

Is this over? I don’t know. Neither does anyone else, right? So we have to go back to first principles. Why do we invest in the first place? So let me just review a couple things for you. Because I think perspective is necessary here.

1. Fixed income averages three to 5% long term. Let’s just call it five. We’ll take the high end of fixed income.
2. Equities average 8 to 12% over the long term. Let’s just call it 10.

So equities at 10%. Fixed Income at 5% which means that equities do twice the return of fixed income.

Because when we’re talking about this: the market is going up and down, would we prefer that the markets not do that for sure? But they do. So what’s the alternative to fixed income equities? Long Term do twice the nominal return of fixed income.

Your Mortal Enemy

But here’s the thing, what or who is your mortal enemy? Some people think it’s Trump. Trump is not your moral enemy. It’s inflation, the doubling and tripling of the cost of everything that you want and need to buy over the next 30 years is your biggest threat.

The fact that all these things are just gonna keep getting keep getting more and more and more expensive. And long term inflation: 3% which means that if fixed income is getting you 5% but inflation is 3%, you’re getting a real return of 2%. If equities are 10% and inflation is 3%, then you can get a real return of 7%.

2% versus 7%.

Which means that the real return of equities is more than three times that of fixed income over long periods of time.

But here’s the thing, the only way to get those returns is to own the best businesses in the world. You have to own them through the roller coaster, through the ups and downs. The market cannot be consistently forecasted, nor consistently timed. We cannot get in and out of the market. We cannot own businesses in the sell them and then own them again, just at the right times. In order to avoid that, you can’t do it. We must own businesses through the roller coaster in order to get those superior those three and a half times returns.

Is the Economy Ruined?

We are not invested in the stock market or the economy, which means the question isn’t, is Trump going to ruin the economy? The question should be, is Trump going to ruin the best businesses in the world? And I don’t believe so. Equity investing is investing in being the co-owners of the best businesses in the world, and the only way we get those premium, superior returns that are three times higher than the real returns of what we could get in the alternative is by riding through things like we’ve seen in the last three months.

That’s the only way. And again, equities long term, 8-12%, how often do those happen? Pretty much never. Here we are showing the last 98 years since 1926. Of all the S&P 500 returns, if it averages 8-12%, how often do they actually hit it? Four times. 4% of the time you’re actually going to see returns that are 8-12%. Otherwise, they’re going to be up 25%, down 14%, x down, y up. All over the place. You can see them here. It almost never does average.

The only way to get above average, those superior returns, is to ride it out. Those returns are the reward for riding the roller coaster. It’s the only way to do it. And sure, with all this Trump stuff and tariffs announcement, are there some insider traders that sold right before it went down and bought in right before went back up. Yep. Did you know that inside information before it happened? Nope. You can’t win that game. Some of those people will for a while. Some of them eventually get caught and go to prison. Whatever. We’re not going to worry about that all we can do is what we can do, which is to ride it out.

Perspective

And the best way I know to do this is to have strong beliefs in the final outcome, even if we can still be concerned about what’s currently going on. So I think it’s important, perspective matters. So it’s important to to when we zoom in on certain things, we can be very scared. Again we’ll see the chart of what’s happened over the last five months, and it looks really scary. Huge drops, giant downturns, upturns, very volatile, all these things.

But if we zoom out, because people love to do this with graphs, and when you just look them up, they’ll always show it, just within the last few with these huge ups and downs. But if you look back and start the scale at zero, it doesn’t look nearly as scary. It’s a little bit of wiggling up at the top. It’s not like we’ve lost all this value; not like the whole world is ending.

The News is NOT Your Friend

And so it’s important to zoom out, to have that perspective, and to realize one more thing.

The news, particularly political news, is not your friend. It’s not here to make you a better investor. It’s not here to make sure that you retire successfully. News exists to sell ads. That’s its business model. How can we get people trained on our content, so that they view our ads, so that we can make our money. Particularly, political news is a dangerous form, because it’s there to sell ads and it’s there to win elections. They don’t give a rip about how well you do as an investor, or whether or not you’ll be able to retire on time. They don’t care. In reality, they just want to make the other political candidate look as bad as possible so that you’ll get out, so that the market will go down.

If you asked “Would you take the market getting cut in half if it meant that Trump would get ousted? Would you take that?” Many people would say yes, especially those in control. They would have your retirement assets cut in half if it meant getting rid of their political enemy.

So, they don’t care about you and your success investing. Don’t let their lack of care about that make you a poor investor.

“Where Was This?”

Some people say, “Well, hey, it’s easy for you to say that now, where was this video back in early April? When all the craziness was going on, when the market was ending, or when the world was ending, the market was plummeting. Where was your positive video?”

Now, it’s easy to make one at the end. When that was all happening, I was too busy to make videos because I was actively working with my current clients, helping them turn this tragedy into a triumph. We threw hundreds of thousands of dollars into the market while it was down. Did I perfectly time the bottom? No. Did we get a bunch of clients to put in on the day that it was at its lowest? Yes, and the day before and the day after. So was it all perfectly timed? No, because I’m not perfect. We can’t perfectly time the market. But a whole bunch of my existing clients threw money in when it was 20% down, and now they’ve made all that back, and then some.

We were looking at this not as the end of the world, but as an opportunity to do something better. That’s where I was spending my time in the middle of that. But I’ve been on record on this for a long time. The only way to win long term is to take these temporary declines and ignore them, and instead focus on the permanent advance of the best businesses in the world.

Riding the Roller coaster

Lastly, if you can’t ride the roller coaster, then you probably just need to get off.

If you can’t stomach a 20%-25%-30% downturn, then you probably shouldn’t be an investor at all. Take your 2% real rate of return and run out of money. That’s your other option.

If you want to ride the roller coaster, but it’s really hard to stay invested, because nothing in our brains makes us want to stay invested while it’s all going down, if you want to ride, but you don’t know if you can, let me drive. I have always thought that my primary role. Getting people invested and keeping them invested so they can earn that superior return.

Stay The Course

If you’re watching this and you’re a client, thanks for your trust in me. Keep trusting in me. Keep trusting in the plan. It has always worked. We believe that it always will. It’s just a matter of time. Will always be proved right in the end, that’s why I love my job, and so just keep the course. “Stay the course.” Keep trusting me, and we’ll get through any other downturns that we see coming up here.

If you’re maybe like to be a client or just like, hey, this is actually encouraging, this actually different way of looking at things. Click here to schedule a call where I’d be happy to discuss how we might partner together to make sure that you can turn the next triumph tragedy into a triumph, and retire successfully and stay successfully retired.

Are We Prepared?

So Is Trump gonna ruin the economy? I don’t know. Does anybody else?

Is this year gonna turn out a terrible year where it ends up 40% down? Not sure.

Is it going to end up like 2020 where the market went down 35% in 33 days and ended up being very positive for the year? Maybe, kind of looking like that. Really choppy, February, March, April, and things are kind of already back, and maybe it still ends up 15% up for the year. We don’t know. That’s not the point. The point is having a plan, sticking to it. In the plans that we create, we plan for this. I’ve said, I’ve told the clients over and over, and this is going to happen. We’re going to see these downturns. Are we prepared?

You cannot wait for the political climate or economic client to be perfect for you to retire. So don’t build a plan that requires a perfect world. You will never be able to retire. So we create plans where you’re good no matter what we plan for all of this, and we’ll keep staying the course. Hopefully, that’s encouraging to some of you. If you hated all that, then this channel is just probably not for you, and I wish you the best. Otherwise, stay the course.

If you want to hear a little bit more about how dangerous news can be, you can listen to one of our OG original podcasts I did way back in 2021 about how journalism is not your friend. Click here. Otherwise, we’ll see you in the next one. Cheers.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.