Episode 262 - The Power of Steady Advice in Unsteady Markets With Dana D’Auria

I'm great. Thank you for having me.

Yeah, I think anybody in the investment field right now, but on the other side of it, how do you really trade against this anyway, right? I mean, what chief investment officer is out there saying, 'Yep, I've got the magic formula. I know what you need to do.' I mean, we're all kind of saying the same thing, right? Like, stay the course. Take a deep breath. Keep calm and carry on. I don't know anybody who's really trying to time this market, right?

Well, as a starter, be on the phone with a client, right? There's so many surveys that say, 'Look, what they're looking for from you now in a time like this is communication. They want to hear from you.' So, I love that there's so many advisors here, and I really respect the fact that they took the time because they're on the phone with the clients throughout the course of all this. And everybody's going to remember, I think, where they were when we had these big spikes, right? Look at what happened Monday. You have a false report that there's going to be a reprieve on these tariffs. The market skyrockets. It turns out to be false. Market drops, right? And so, I was on stage Wednesday, and I was kind of showing a graph of this to talk to advisors about why, hey, look, there's no way you're going to time this. And literally as I'm on stage doing this presentation, the advisors are in their seats getting the news that there's going to be a reprieve. It was crazy. You can't, what do you do around this? You communicate with your clients like crazy. You try to get them to stay disciplined. Look, you also do want to make sure they're in the right kind of portfolio for volatile times. From our perspective, be diversified. There's this argument out there: 'Hey, look, in bad times, correlations all go to one. So, how is diversification really helping me?' But that's a very narrow view, right? In that moment, sure, everything looks bad because systematic risk is such a big part of the overall risk, but zoom out a little. Look at it from a standpoint of months, a year, a couple of years. That diversification matters, and you don't want to be concentrated in the worst place in volatile times. So, stay diversified, be at the right risk tolerance, and then stay the course.

Well, 2008, of course. 2008 was a rough period. In fact, I referenced it too because one of the things we talk about a lot here are customized solutions. And one of the big ways you want to customize is tax, right? If you have somebody who's in an SMA, for example, are you taking advantage of a time like this? There was no worse conversation I've heard in my career than clients in '08 who not only had their portfolios drop dramatically but they had a tax bill. Those clients, it just so happened that what they were invested in, there were cap gain distributions that year, and it's unfathomable almost, right? How am I having this massive cap gain distribution when the portfolio lost all this money? But of course we know that's absolutely possible at a fund. So, I think advisors looking back on the experience of the past, '08's a good one, COVID's a good one, and the lessons we took from that are applicable here.

Yeah. At the end of the day, it's a consumption tax, right? It's a tax put on this import, and it requires the consumer, whether it's the buyer who's then going to pass it on to the end consumer, to pay this tax, and it has the specter of raising the cost. So, we just got through a period of pretty bad inflation, right? It was kind of V-shaped, upside-down V-shaped. Maximal increase and then it came down pretty fast, too. But everybody's very weary about inflation. So in the midst of that, to then put a bunch of taxes on imports that we all rely on, you're raising the specter of another big price increase. So that's very concerning. We came into this year with this expectation of a big bull market, that this administration was going to be really pro-growth, pro-business, and also that they cared a lot about inflation. And so I think everybody knew tariffs were coming. That was well signaled. But I think the breadth, the magnitude, caught everybody off guard, and now you're saying, 'Okay, now we got to rewrite this whole picture we had, and this could seriously hurt growth, right?' And what that means, of course, is we could have a price increase. At the same time, we're wiping out a lot of the growth story. And then you're looking at potentially stagflation. You're looking at the Fed trying to figure out: do I cut rates to battle the encroaching recession that would have unemployment, or do I keep rates where they are because I got to keep inflation at bay? So it's obviously very difficult for markets. And I think the other point I would make about this volatility, the uncertainty, the sentiment factor, is that the precedent is that the executive branch can kind of set these tariffs at will, and that's what makes this a little bit crazy and nerve-wracking. In the morning we could do one thing, and by the afternoon we could get more news, and there's really no governor on it.

Yeah. Look, the message is one thing, right? What people are doing is quite something else. Not everybody has an adviser providing some ballast in the relationship. The investing public and investments at large, a lot of people are paid a lot of money to try to figure out the right thing to do, and the 'right thing to do' can be very much a trading mentality, not an investor mentality. So, very different messaging depending on what your engagement with capital markets really is. But for advisors who are here at our conference, for the most part, the stay the course message is the right message.

Yeah, there's a difference in opinion about what the Fed thinks it's going to do and what the markets think the Fed's going to do. The markets certainly think the Fed put is back on the table. We're going to get more rate cuts. They're going to have to accelerate. There's even some concern that maybe they're already behind the curve given the magnitude of what this could be. Notwithstanding, we've got this sort of temporary reprieve. But I'm more in the camp honestly that I think this Fed has been slow to act. They've demonstrated that, and I think this one is going to be no different, right? I think they're going to take their time and look and see: are these tariffs destroying demand or are they raising prices? Because if they're raising prices, we're not excited about cutting.

Thank you.