Ep. 132 – Federal Reserve, Inflation and the Economy

Jerome Powell is known to be a proponent of printing money. And as debates on him heading the Federal Reserve come to the surface, you might, as investors, find it easy to be wooed by headlines and make your financial decisions out of emotions (and break away from the numbers game).

In this episode of the Secure Your Retirement podcast, we discuss why investing out of emotions could be a bad idea and why instead, you need to go by the numbers and experience when evaluating the financial market. We also resolve your conflicts on the state of the economy if Jerome Powell becomes the Federal Chairman for the upcoming four years (in short, we’d say it really shouldn’t matter to you as an investor) and how to secure your investment against any possible inflation (if it may).

In this episode, find out:

  • Two aspects of your finance that need to be actively managed right now to secure your retirement: Your investments in the market and your overall retirement plans in the market.
  • The three major categories of finances of the Federal Reserve: Equity, Stocks, and Cash.
  • Why you need to keep your emotions away for effective investing and retirement planning
  • Inflation and the Economy: Why the results of an election are mostly never an indication of how the financial markets will perform
  • How the two of us separate the emotion from the reality of what’s happening in the market
  • Why shift is inevitable in the financial space: While during the pandemic, only large-cap companies like Amazon, Zoom, and technological companies were blooming, now, many small-cap and mid-cap companies have started to recover and thrive too.

Tweetable Quotes:

‚óŹ “For the people that believe printing money is going to produce a good return in the market, that has a lot of people excited. Now, there’s another side that says this idea of printing money is not good, long term. And it’s going to create big time inflation.”– Radon Stancil


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon Stancil :Welcome everyone to our Retirement in Action. Today we thought we would discuss a topic that we know that headlines the news. Sometimes can be something that make people feel really good, in fact too good sometimes. And they think oh my goodness, this means the market’s going to go straight up, or this is going to make the market go way down if it’s a bad headline. And so we wanted to talk a little bit about a headline. Now we record these a little bit ahead of time but not too far so maybe by the time you hear this, it might be a little off, but no matter what the headline is, the headline. And here’s the headline. Basically Jerome Powell has been nominated for another term as the Fed chair. And so in addition to that, there is also this idea of what’s that going to do to the markets?  
 How’s that going to affect things? Some people really like the idea of Jerome Powell. Why? Well, because he has been a proponent of printing money. He’s been a proponent of trying to say, let’s keep the economy moving aggressively. And so for the people that believe printing money is going to produce a good return in the market, that has a lot of people excited. Now there’s another side that says this idea of printing money is not good long term, and it’s going to create big time inflation. And so we need to be concerned about that. Now, from our perspective when Murs and I are working with somebody, because we help people get ready for and live throughout retirement. We also help people as investment advisors. That means we’re helping people with investing their money in the stock market.  
 So sometimes people go, Hey, with this person or this headline being the Fed chair again, if he’s going to be the chairman of the Fed, is this something I need to worry about? Should we start investing right now in things that are going to be driven by inflation? Or should we be invested now, overly aggressive. If you believe the market’s going to go way up. And basically what they want us to do is forecast out into the future. And so we want to talk a little bit about that today.  
 And so I’m going to kind of pose the question to Murs almost like I were a client and let’s see how Murs responds and how we would respond. So if I’m a client or I’m a person looking at this and I have this conversation with you, Murs, and I go, Hey, look, I heard about this new, not new, but this reappointment of Powell to being to the Fed chair. And it’s exciting, but I’ve also got some concerns Murs. I’ve got concerns that we’re going to have big time inflation. I don’t know when it’s going to happen, but I’m thinking what we should do is today start investing in something that protects me against inflation, but yet still reaps the benefits of the market. What do we do?  
Murs Tariq :Yeah. So, I mean, that’s a loaded question. It’s a common question, especially around the inflation topic and now the headline about Powell possibly having another four years as chairman. And so, what we say to anyone and what I’m going to tell Radon right now is that we strongly believe that two things need to be actively managed. One is the investments in the market need to be actively managed. And then also your overall retirement plan need to be actively managed because there is no way to know what one action is going to do into the markets. It’s very difficult to try to predict an outcome. And so we just don’t believe in doing that. Now, there is a strategy out there that you could say, well, I want to buy this company or this stock, because I believe in the executives of that company. I think they’re going to make that company grow and for that reason, the stock is also going to grow. So I want to buy it. In our opinion, that’s a lot of guesswork.  
 And so the way that we work is basically saying, Hey, what’s happening right now? Let’s not worry so much about what’s going to happen six months from now, or a couple months from now, what’s happening right now? And let’s invest based off of that, knowing that we are more than willing to make a shift if a shift is needed. So if we see inflation continuing to trickle up, like we’ve seen. Everyone’s feeling the pressures of gas prices going up. And we’re about to start traveling as we come into holidays. You’re going to feel the cost of gas, you’re going to feel the cost of groceries. And so that is something that is true right now. We are feeling the pressures of inflation and the question becomes, well, how long is that going to last?  
 We don’t know, but there are certain places that you can be within the market if we see that to continue. We’ll see that from a numbers perspective. So what I always say is let’s explain how Radon and I look at investing in the market. The way that we look at it is we say, Hey, let’s put the entire world of the stock market in a race. There’s a lot of sections of the market, but to make it very clean and simple, you’ve got three categories. You’ve got the equity side of the market, your stocks, you’ve got the fixed income side of the market, which is mainly your bonds and then you’ve got cash. There are other pieces, but those are the three high level. And what we do is we say, let’s put them all in a race together, and let’s see who’s winning that race. And then let’s drill down and participate in those leaders.  
 So you’ve got periods of time. Like right now, equities are heavily winning that race. As we sit here getting closer to the end of 2021, equities have been the majority leader of that race for quite some time now, but there are periods of time that we’ve seen back in 2001, back in 2002, where the bond section of the market is the leader of that race. And so equities were pulling back. If we remember the downturn in 2001, 2002, equities were pulling back, bonds actually trickled up. And so they became the lead over the race. So that was a trigger. Now, this is all very numbers oriented, non-emotional investing that we do, but that was a trigger to shift over into that arena.  
 Go to 2008. Equities were pulling back, bonds were pulling back, cash is never really moving, but by default, because everything else was falling apart, cash became a leader. Once again, another trigger based off of what is happening in the moment for us to say, well, maybe there is a reason to sit in cash for a period of time. On the flip side, the other side of the investing world could say, well, let’s just buy a little piece of every single piece of the market. And let’s just be well diversified. And yeah, if one piece isn’t working, then the other ones will help it out and we’ll have a nice well diversified portfolio, but we’re never going to change that. We’re never going to make corrections based off of what is happening today. And our opinion is just a little different there. We say, well, we would much rather actively manage based off of the information at the time. So if we have inflation and there is a reason to make a shift, we’re always going back to that race.  
 Who’s leading in that race? If we have issues with the Fed easing up on what they’re doing in the near future, and that starts to send things in a spiral, then we’re going to see it very clearly in the numbers that there could be better places to be. And sometimes, and we’re not afraid to admit it, sometimes the best place to be is in cash like we were back in March of 2020. When we saw that serious drop in the markets, we sat in cash for a period of time so that we could get out of harm’s way and let the markets recover a little bit. Let the numbers trickle back up. And then we got back in. So Radon, I hope that answered your question a little bit. Long story short is we’re not going to make a reaction based off of a headline, which is what the scary thing is right now is there are headlines every single day. Yes, we’re in a scary environment, but we need to stay unemotional and stay active in all aspects of not just investing, but also our retirement plan.  
Radon Stancil :Yeah. I think that, I like to just remind people, anytime somebody asks me a question like I just posed to Murs, I always remind them of events that have occurred where people thought they were going to react to an event. So we can go all the way back to a president change. And it doesn’t matter whether it be a Democrat or Republican or whatever it might be. We’ve lived through these elections. We’ve been there and somebody says that person, if they get elected, the stock market is going to crash. If that person gets elected, the stock market’s going to go way up or different parts of the market’s going to go up. And Murs and I have sat with people time and time again in saying, we should not make decisions based off what we think might happen, because it usually is going to be different.  
 So we used the example of a president change, the president of the United States, a president change. And we were sitting there in multiple of these different changes that we’ve had over the last 20 years. And what happen is a person says, I think this is going to happen. They say, I want to sit on the sidelines. The market shoots up, and then they’re calling us and going, man, I wish I would’ve just stuck with the system. Now I will be very honest for us that is extremely rare. We’re talking a couple of occasions, but when we see people do that, it makes us nervous because we don’t want to see people react that way. Another scenario that we could talk about is a scenario of inflation. Here this year, inflation has gone up and people go, oh my goodness, is that going to make the market pull back?  
 And here we set with a gang Buster year. Another one would be when we got back in to the market after the pandemic. Murs just talked about the pandemic. I will tell you Murs and I never lived through a pandemic. Never had lived through one. And now all of a sudden we’re saying go back in, in the middle of a pandemic and the numbers are going up, and the numbers of the pandemic, of COVID cases. But yet the numbers of the stock market were saying, get back in. Well, we had to do what the numbers told us to do and we got back in and that worked out really well, but you got to separate the emotion from the reality of what’s happening in the market. And that’s why people use somebody like us.  
 Now, whether you have somebody, whoever your somebody is, that’s fine, but people use us because they don’t want to sit there and worry about when to go in, or when to go out, or what to buy and when to buy it. And so we really do work very hard to keep our emotions out of it. And those things can shift. Murs, just speak briefly here before we conclude about one other shift, because I think this is a big one, just to help people appreciate that we’re moving where the market’s moving, about when we closed out 2020, what we were in and what we shift into going into 2021.  
Murs Tariq :Yeah. So like Radon said, there was a period of time there that that we sat in cash because the markets were plummeting, the S&P fell 34%. And we got out well before that. And so we’re sitting in cash. At some point there though the numbers started to trend back upwards and we had to get back into the market. And so we did, but we didn’t just go buy everything that we had before. We had to go look and see, go back to that race analogy. Who’s leading the race? Equities were ticking up. Now let’s drill down further. And within the equity world who is leading that race? Well, think about it. What companies were thriving in the pandemic? You probably used them every single day. One was Amazon and one was Zoom.  
 So your large cap type companies, we don’t go buy individual stocks, but your large cap companies were doing very well. And the technology companies were doing very well. So we aligned the portfolio that way when we got back in, in April of 2220. And that worked for a very long time because the economy was basically shut down and people were not working. And so the small cap and the mid-cap suffered. Now we get to January of 2021 and we saw this shift starting to happen back in December of 2020. January of 2021, we made a drastic shift in the portfolio. Large cap basically had its run up and technology had a huge run up as well. But then in January we saw, and this is the story, but we really saw this in the numbers, the story was the economy started to reopen. People started to go back to work to a degree. We figured out how to work remotely even better.  
 So now the small cap companies, the mid-cap companies started to recover and thrive. So we made that shift from large cap and out of technology, into small cap and mid-cap. And that gave us a very nice run for the first six months of 2021. So that shift is always going to happen. And we’re always seeing, we’re always looking and evaluating, hey, who’s the current leader of the race? And we live by that emotionally and it works out very well and it keeps us out of harm’s way.  
Radon Stancil :All right. Well, we hope this has just given a little bit of perspective about this idea of headlines and emotions. If you would ever want to talk to us about your situation individually, you can go to our website, which is pomwealth.net. The top of the page there on the far right hand side, you’ll see a button that says complimentary introduction call and you can get on the phone with myself or Murs. It’s a complimentary 15 minute call, no obligation. And when you click on that button, our calendar’s going to come right up and you can schedule a call with us. We encourage you to do that. We’d love to be able to get a chance to talk to you. Thank you so much for listening to our show. If you know anyone else who you think might benefit from what you’ve heard today, please share this information with them. Send them a link and say, listen, go check this podcast out, Secure Your Retirement. It’s been helping me think about things and make sure I stay calm. We hope you have a great week. We’ll talk to you again soon.