← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1812: Ask Farnoosh: How to Recession-Proof Your Investments, Career and Spending Power
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- [00:00]
Farnoosh Torabi
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Let me guess, we're still thinking about tariffs. We're still focused on the market mayhem. No surprise there, right? We're recording this episode just days after the latest tariff announcements which sent markets and many of our feelings on a bit of a roller coaster. So stay tuned. In this episode, we're gonna meet one of my favorite voices in wealth management, Maggie Johnreau. She's gonna help us all breathe a little easier. Maggie's a financial advisor and partner at Johnreau Wealth Management and she spends her days coaching clients through exactly the sort of stu we are worrying about right now. And we're going to get into it. Things like what will tariffs mean for our everyday spending power. How long is this market volatility going to last? Smart investing strategies if you're approaching retirement and how to prioritize saving versus investing. Especially for those of us who are worried about a potential layoff this year, Maggie also breaks down some of the emotional traps that we may be falling into, things like regret, aversion, loss, aversion herd mentality, and how to avoid them so we can stay the course we're going to bring on Maggie very soon. First, though, I just want to go over some of the headlines that I've been following this week. First off, Wall Street Journal talks about how Americans are rushing to buy a lot of things. Televisions, soy sauce, Lululemon, workout gear. My husband just bought a new iPhone. And the reason? Tariff threats. Of course, according to the Journal, consumers are not taking any chances given that economists believe tariffs will likely raise prices that we pay for clothing, electronics, cars and so many other goods. And Mark Cuban, if you follow him on Blue sky, that's the new social media platform. He's the billionaire business guy and TV personality on Shark Tank. He's suggesting that people go out and stockpile from toothpaste to soap anything. He says you can find storage space in your house for replenish your inventory. He says even if it's made in the usa, brands are going to jack up their prices and blame it on tariffs. Look, I love Mark Cuban, but this is not the time to be racing to Walmart with fear in our eyes and in our hearts, okay? And I said as much on MSNBC when they had me on last week to talk about all of this turmoil. I said, look, be strategic when you're shopping, not reactionary, stocking up a little bit on the things that you know you are going to use, whether that's toothpaste, household items, that's smart. But hoarding toothpaste, that's not saving money. That's just shopping with anxiety. You know, the best hedge against inflation or tariffs isn't shopping, isn't spending. It's earning more. It's investing smart. And yes, okay, it's spending, but it's spending with intention. Another article this week that caught my eye, my husband actually texted it to me in our family group chat. It's this Zillow is under siege. Business Insider has the scoop. So apparently Zillow might not be showing all the homes for sale anymore. Have you noticed this? So there's these big real estate brokerages like Compass, and they're increasingly doing this thing called pocket listings. It basically means that they show a home to their own private network of agents and buyers before placing it on Zillow or Redfin. And sometimes it never hits those sites at all. This is kind of a big deal because for a long time the national association of Realtors had rules saying that once a home was publicly marketed, even if it was just a social media post, it had to be added to what's called the mls stands for Multiple Listing Service. That's a database where real estate professionals share information about properties for sale within a specific region. But now those rules have softened and brokerages are getting bolder about these off market strategies. Critics say this could hurt buyers because we might never even see certain homes for sale. But agents say it gives sellers more privacy and control. And I think it just means that in this market we need to work with agents who have a handle on the market. They know other agents, they get the scoop. But I can see where potential buyers right now who are already frustrated with the market, losing out on bids, losing out on opportunities, there's a supply shortage. This is going to make it even harder for some of those potential buyers to break through, even just arrive at the first step, which is to see what is out there. But again, this is why you need to work with a really good agent. That was always the case. And now, especially in case you missed any of our episodes this week on Monday, we talked about the silent struggle of success. My friend Dr. Judith Joseph has come out with her highly anticipated book. It's called High Overcome youe Hidden Depression and Reclaim youm Joy. The Forward is by Mel Robbins. You may know Dr. Judith Joseph. She's a renowned psychiatrist, a researcher, she's all over the media. And this book is putting a name to what so many high achieving and outwardly successful people are feeling on the inside, which is that they are not feeling joy. They are not feeling meaning in their lives, even though their resum are super polished. We talk about the roots of this and how we can work our way through it. And then on Wednesday, the future of work and why employers, some of them, are preferring AI over hiring college grads. Dan Schabell, who's a workplace expert, New York Times bestselling author, joins us. He's been tracking workplace trends for over a decade and more recently, the impact of AI on the job market. Very timely. Be sure to check that out. Okay, we're gonna bring on Maggie very quickly. But first, just wanna say thank you to our reviewer of this week, Tiffany, who left Review earlier this week calling the show consistent and calming. Tiffany, you're gonna get a free 15 minute phone call with me. If you want, just email me Farnouche@somoneypodcast.com you can direct message me on Instagram. Folks. Here's her review. It's so sweet. She said I started listening to so Money during COVID as a way to gain control over my finances in uncertain times. Now, five years later, we're facing a similar anxiety inducing financial climate and Farnooche is still there consistently guiding us through it. I've learned so much from her that this time around I feel far more equipped to handle challenges and plan for the future. The fact that she puts out three episodes a week is a true testament to the value and dedication she brings to her audience. Tiffany, thank you so much. I'm happy to hear that you've stuck with the show for these many years and that it has helped you stay steady during these turbulent times. And today we're going to continue to learn how to do just that. Maggie Chandra, welcome to our Friday session where we deep dive into people's questions. And you can guess almost what all the questions are going to be this week.
- [09:06]
Maggie Johnreau
Does it start with the tariffs anxiety?
- [09:10]
Farnoosh Torabi
We are recording this on Wednesday, April 9th. This is airing on Friday and I don't expect much to change. Although our president is waffling. He's what is harder, I think for humans and the markets is uncertainty. It's harder to be uncertain than to know that you're doomed. Right. It's harder because now he's saying, well, I'm going to delay the tariffs, the strictest ones, that there's going to be a 90 day pause. And we saw a rebound today in all the indices, Dow S and P, nasdaq, not that I'm really tracking because you know, the best investors, they just move on with their lives. They commit to an investment strategy and they move on with their lives. Right?
- [09:56]
Maggie Johnreau
Yes, absolutely. So what I'm revisiting with my clients and with other folks that are reaching out is really more behavioral finance work rather than investment work. Created a plan, let's stick with it. And I think that there's a bunch of biases that people just fall into.
- [10:18]
Farnoosh Torabi
Like what? Tell me, because you said that of all of your clients there's like a small fraction, whether it's now because of the tariffs or other instances where there has been a lot of volatility in the market that they exhibit. Once again these behaviors. Tell me what they are because I think through this a lot of people will feel seen totally.
- [10:38]
Maggie Johnreau
And that's how we Revisit them. Right?
- [10:40]
Farnoosh Torabi
Yeah.
- [10:40]
Maggie Johnreau
So the first one is. It's called regret aversion. So it's just this natural desire to avoid regretting a decision, whether that be selling out too late and you've hit this bottom or not buying in on the dip. You hear that, right? Where things are on sale. Regret aversion. Big one.
- [10:58]
Farnoosh Torabi
Should I buy?
- [10:59]
Maggie Johnreau
Will I regret not buying? Will I regret not selling? Another one is loss aversion. So it has been scientifically proven that losses are far more painful than gains are pleasurable. We run away faster from a or from pain. Then we run towards pleasure. You could have looked at your portfolio last year and been up or your retirement account or whatever and been up 20% and you'd be like, oh, that's nice. 20% monster return. That's not the average. But yet we are less excited or less reactionary to these really great returns and far more reactionary to the pain that we're feeling right now. The last two are herd mentality. So following what everyone else is doing or following with the news or whatever is frequently talked about. I can't tell you how many people ask me about Nvidia in the last six months, even though they might not even know what Nvidia does. Right. Just because the headlines were talking about it a lot. And recency bias. So thinking that these bad events or these recent events are going to continue forever. And what we always know is that everyone thinks that what we're going through, whether it was Covid or it was World War I, which by the way, was called the Great War, they never thought another one could happen. Right. We always think it's the worst thing that could happen to us and it's going to continue forever. And history doesn't always repeat itself, but it rhymes is the saying. Right? It probably won't happen forever. Right. And so we have to stick with our plan and not make emotional decisions, but rather stick with exactly what we've discussed coming into this moment, because that's going to help you not make an emotional decision.
- [12:31]
Farnoosh Torabi
Would you say that the exception to this is those investors that do need to tap their investments in the next few years. How long do you think this volatility is going to shake things up to the point where you would say, okay, well, I do want to be able to retire in three years, and I know that now I'm not pulling out all that money from my 401k, but I do want to preserve a portion of that and not be super exposed to equities to Some extent. What is the strategy for that person?
- [13:02]
Maggie Johnreau
I think that you should expect volatility for the next couple of years. The market is really having these knee jerk reactions to any sort of headline. Right. You mentioned going into today markets were down because of tariffs and the announcement and now they're up again as 3pm today because of another announcement, another headline. So what you should do is plan your approach using a three bucket strategy. So your short term bucket, and I'm saying anywhere for a year to two years depending on how risk averse or how conservative you are, how many other sources of income you have. So let's say put a year to two years into that high yield savings account or that money market. Then you have your intermediate bucket and this is something that you're going to be tapping, let's say in about five years. That might be something with some bonds paying you income and interest, maybe some dividend paying stocks because again you might be needing that income in the next couple of years. But then you still need to have that long term bucket which is probably going to be all stocks or something more risk on. Because if you're retiring today, I hope you live a very long life and that life will probably be 30 years and you still need to outpace inflation which might go up due to tariffs and you still need to outpace your spending. And so your long term bucket should still be really focused on growing. But that short and intermediate term bucket is something you should be thinking about right now as you enter retirement.
- [14:22]
Farnoosh Torabi
Is there a percentage breakdown? So if your retirement, average retirement, let's say 30 years, 25. 30 years long health, assuming a healthy life, assuming also you're starting retirement around 60, 65. I need this money to last me 30 years. The first five of those years I can't take on too much risk.
- [14:41]
Maggie Johnreau
Yeah, more so your personal situation. But I still can give you some rule of thumb numbers. So let's say you just need to figure out how much you're spending every single month and make sure you're really honest about that. Make sure you account for taxes or things that you're paying only once a year. Sometimes I find that those are omitted in a budget analysis. And then you're going to want that amount per month. Multiply it by 12 for a year or more. Multiply it by 24 for two years. That amount should be in your high yield or money market. Right. Then the medium term bucket, five years, I would think the same thing. How much do I need for a year's worth and multiply that by five years and that at least should be in that medium term bucket, if not a little bit more, again depending on your risk tolerance, and then the rest may be taking on a little bit more risk. The reason I'm using five years as a kind of a general rule of thumb is when we look back at every recession throughout history, the worst one was obviously the Great Depression. The markets during the Great Depression took about four years to recover back to where they started. The second worst recession was 2008. The markets took about two years to recover back to where they were. So if we're thinking worst case scenario was Great Depression, I think five years is a very reasonable number to keep in that middle term bucket because again, a lot of good has been implemented since the Great Depression. Right? We have the Federal Reserve now, which helps us through recession. So I don't anticipate another four year recovery. And remember, the market tends to recover before the rest of the economy does. And when we're talking about your retirement accounts, they're invested in the market. So headlines might not feel good, but markets might already be recovering.
- [16:21]
Farnoosh Torabi
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- [20:47]
Maggie Johnreau
Yeah, so you want to protect your foundation first. That's your emergency fund, which we typically say three to six months worth of living expenses, but maybe you want to extend that to a year's worth, right? Depending on how long you think it would take your industry to recover. Make sure you have a health insurance plan, both now while you're employed, but also what are you going to do if you do lose your job? Often folks can go on cobra, but COBRA is much more expensive. I'd Expect to pay about 2x what you're currently paying for health insurance. So you want that as part of your emergency fund and then focus also on debt payments, especially high interest credit card debt, and bringing that down while you're employed. Those are the things that you should be focusing on while you're still employed. If you're worried about a potential layoff. If you can manage those three components and a layoff happens, then you're going to prioritize flexibility. Try to drown out the noise of what you should be doing right is buying the dip or maxing out your 401k plan instead of trying to be perfect, allow yourself flexibility and continue to do something because a small, consistent and automated contribution to your retirement accounts is still going to be better than nothing. And if you were to choose one retirement or college savings, I would prioritize retirement savings because you could borrow for almost anything in life except for retirement. And I've had clients say to me, yeah, but I love my job, I'm going to work forever. You might not be able to, right? It might not be in your hands. Maybe you'll get sick or maybe you have to move. There's things out of our Control. So, you know, first I'd prioritize emergency fund, health insurance, debt payments and then your 401k, even if it's a small amount. And then maybe some of your other goals such as college planning or investment accounts in a layoff situation. And one other thing to think about too is catching up. Right. So maybe when you get a new job and there's a sign on bonus that could be a great way to catch up of any investments that you might have missed during the layoff period. And then the last thing is revisit your financial plan or maybe take the time to create one now because if you. I don't suggest not adding to your retirement for a long period of time. But for many people, one year of not adding to their retirement, if they're young enough does have enough Runway to make that up. Right. Like not adding six months or for one year because you've been laid off typically won't mean that you won't be able to ever retire. But you really need to do a financial plan to understand that.
- [23:14]
Farnoosh Torabi
Yeah, I remember I was speaking with a neighbor in town who had been laid off. He had notice of the layoff like they were like in a month that will be your last day. So he. And he has a partner who has a job and they have savings. So he had all a lot of his bases covered. He said he maxed out his 401k while he could because he's like, I won't have access to this when I leave in a month and I will get a match. And so I'm just gonna do it. And maybe it's a little painful, but I won't regret it. I thought that was smart.
- [23:51]
Maggie Johnreau
I thought smart. He's in a good situation where his partner can support them and cash flow. But if you can do. That's a great idea. Even clients that are retiring often will try to do something like that too because they know if they're retiring in June, they'll try to Max out their 401k because it's the last time they'll be able to do that. So that's a great strategy.
- [24:12]
Farnoosh Torabi
Yeah. Let's talk about these tariffs for a moment and just tell me basically how they will affect consumer spending power and our investment. So right now the market is reacting to the expectation of these tariffs hitting global markets, right? Yep. And then let's say in a month they do, or in 90 days or whatever they in full blast. How is it manifesting in our consumption and our consumer power? We've heard About Yale Budget Lab talking about, this is going to cost families an average of 3, $4,000 a year extra on just the basics. And then our investments, how will it hit the investments?
- [24:59]
Maggie Johnreau
So the first thing is that, in short, tariffs likely will make things more expensive. I studied economics in school in my master's program, so this is where the geeky side of me comes out. But just simple math, it doesn't make sense for us to try to produce everything in our country, right? There's this theory in economics called the theory of comparative advantage, right? And so essentially what it means is even if you can produce everything in your country yourself, right, which is what tariffs are encouraging, right? Just bring everything back home. You probably shouldn't because there are finite resources, right? We only have so much time, we only have so much labor, we only have so much materials to go into what we're producing. So by producing everything, you're not producing what you're best at, right? What you're most efficient at or what your labor force is best at. And it's been proven time and time again that what's better is for each country to specialize in what they're most efficient in making and then trade. By doing this, there's more out there for people to buy globally. And when we're trading, your country actually ends up with more stuff for people to buy. So using that theory, tariffs, if they are encouraging more production to come home, if that happens, you will likely see less supply, right? Because our finite resources are going to a lot of different things. And if there are 20 people that want to buy an iPhone and only 15 phones available, the folks that are willing to pay the highest price are going to get the phone, inevitably driving up prices. And we saw that in Covid, right, when we couldn't get car parts sent here because they were made abroad. All of a sudden, new cars were incredibly expensive and the used car market was more expensive because there just wasn't enough cars on the market for everyone that wanted to buy them at the time. The other thing is, right, that's the piece that I think less people are talking about. The one that more folks are talking about is just simply the fact that, okay, you're going to slap a tariff on a country that's importing into your country, they're going to pay it. And so it's essentially another revenue source for the government. Right? However, most likely that company is not going to just eat that cost, but they're going to pass it down to their consumer, to the person that's buying the product. And so essentially you're going to end up paying more for the product. So it's a double whammy here, depending on how you're looking at it. And really it's a tax in one way or another another for U.S. consumers. Right. It's no different than if the government just raised taxes on us. We're still paying more out of our pocket. Our money is, isn't going as far. But from a marketing perspective, it's not a tax on the consumer, it's a tariff on a company. But more likely than not, they're going to pass that expense down to us, reducing our power to buy things so things will be more expensive, our economy might slow down is ultimately what the fear is.
- [27:45]
Farnoosh Torabi
I was hanging out with family members recently and one of my cousins, she is in retail. She is a designer in retail, not clothing, but more like consumer products. If you ever walk into Target and like the $10 aisles, like you walk right in and it's like everything here is under $10. All that stuff's made in China. And her company produces a lot of that. They're an American company, but they source it in factories in China. She was in Shanghai recently on the heels of these tariffs with the intention she and her company to go and find new ways to produce these products and work with the Chinese. She said, I want everyone to know that the Chinese are lovely like the workers. They want to make this work. The governments are fighting, but the actual workers and the actual producers out there, like, this is a lose lose. Right? Everybody gets that. She's like, we want to do our best to not pass this price down to the customer target, by the way. And some of these big box retailers, they have told her already, this is your problem. We are not raising prices the same $3 with tchotchke that we sold that you made last year, last month. That needs to happen again. I don't know how you do it. So how she's doing it is she's, she and her team going to China, finding these factories who would split the cost of the tariffs with them or eat some of the tariff and in it. And she said those kinds of factories though, they're the more up and coming. The workers need to be retrained. So we're going to invest in going there and training them. This is the effort that's happening behind the scenes to make it. So you and I feel less pain around this. But I thought that was an encouraging thing to some extent that there is. While the news covers it like These countries are battling and there it's a trade war. But at the end of the day, like, like everyone's going to lose. So why not try to find these ways to work together and circumvent these tariffs? Not like they have. It's got to get paid.
- [29:52]
Maggie Johnreau
Yep.
- [29:53]
Farnoosh Torabi
But it's. They're trying to find ways to give and take behind the scenes. We'll invest in your workers to train them. We're saving you money on that front. So let's like have you guys pay some more of the tax.
- [30:05]
Maggie Johnreau
Yeah. And similarly, I know some folks that same thing kind of work in a heavily import export industry with China. And they said that their particular company has an extra margin that they have baked in because we forgot but. Or many of us might have forgotten. But in 2020 there were also tariffs imposed on Chinese companies and those never went away. They still exist. A lot of manufacturers did see the writing on the wall saying this is if Trump was reelected, which he was. This is not something that's going to go away. Fact of the matter is, Biden did not decrease all those tariffs either. They stayed. And you know that. I think there are some mar built in to some of these companies that knew that this was going to be an ongoing issue. But also how big are those margins? How much can they eat? To your point, if the tariffs get really big, at some point, something's got to give and probably the only way to pay them is to increase prices and pass down the consumer. But you're right. Maybe in the shorter term or the smaller tariffs, hopefully we don't see a massive price increase. And something to note is that the price increase is going to be a kind of a one time thing if it happens. Right. It's not like it's going to keep increasing every year presuming that tariffs stay level. So it might be something that we feel one time we'll adjust our budget, we'll adjust our expectations and then moving forward that will just be our new reality. So again, this word is going to come up. But the Federal Reserve will call it transitory inflation, which we heard in 2020. But it's really going to be this one time kind of shock to the system and then it will level out. Right. There's a lot of things that got more expensive in 2020 when inflation increased that really never went back.
- [31:44]
Farnoosh Torabi
Food. Yep. Groceries for the old pricing.
- [31:47]
Maggie Johnreau
We just got used to it.
- [31:48]
Farnoosh Torabi
You brought up the Fed. Do you think that there's two schools of thought on what, where they'll go with rates maybe 3. The one is being that they do nothing. But as far as whether they raise the rates or lower the rates, it could go either direction because it depends on where they're going to be more focused. Right. So tariffs will lead to a lot of potential issues. On the one hand, as we mentioned, as you eloquently explained, rising prices because this is a supply shock to our economy, but it could also lead to a lot of layoffs. We've already seen Goldman Sachs and others come out with lower forecasts for growth in the country this year. Economic GDP growth and a technical recession is two sequential quarters of negative gdp. That's a case for lowering interest rates. But inflation would prompt them to hike up interest rates. Where do you think it's going to shake out?
- [32:42]
Maggie Johnreau
Yeah, I have asked that question to many experts because I agree with you. They have a really hard decision to make. The general consensus on Wall street is that they're going to care more about an economic recession and fixing that transitory inflation because they do believe that inflation, they can't really help that much because it is coming from these policies. Right. And it is going to be a one time shock to the system. But a recession is a greater issue. So the general consensus is if we see a recession, even if inflation is higher, the Fed is likely going to lower rates in order to stop a recession or to stop the bleed, so to speak. That's the general consensus. But as the Fed is not very transparent with what they're going to do, so we'll have to see.
- [33:32]
Farnoosh Torabi
I do appreciate Jerome Powell saying it's a shit show in Fed speak. Basically he's we're not deciding on rates. I mean our decision is no change. Which was the last meeting because he said things are way too uncertain. I think even just admitting that was a breath of fresh air.
- [33:48]
Maggie Johnreau
I think he's been one of the most transparent of, at least from what I can remember. But nevertheless he can't just come out and say things, things so bluntly. But I agree you did say this is way too uncertain and we're just holding for now.
- [34:01]
Farnoosh Torabi
Maggie Johnreau, thank you so much. Tell us where we can find you and learn more from you.
- [34:06]
Maggie Johnreau
Yes, you could follow me on almost all social media at John Drew wealth and then you can find me online. Johnrowealth.com thank you.
- [34:14]
Farnoosh Torabi
And that's our show everybody. Thanks so much for tuning in. Be sure to come back here on Monday. We've got a fresh episode, an interview with Ruthie Ackerman about her new book the mother code. I hope your weekend is so Money banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts and no overdraft fees. Just ask the Capital One bank guy. It's pretty much all he talks about in a good way. He'd also tell you that this podcast is his favorite podcast too. Ah really? Thanks Capital One bank guy. What's in your wallet? Term supply see capital1.com bank capital1 NA member FDIC ever wonder what your lashes are destined for? The cards have spoken. Maybelline New York Mascara does it all. Whether you crave fully fan lashes with Lash Sense Sensational Big bold volume from the Colossal a dramatic lift with falsies Lash Lift or natural looking volume from Great Lash.
- [35:23]
Maggie Johnreau
Your perfect lash future awaits.
- [35:25]
Farnoosh Torabi
Manifest your best mascara today. Shop Maybelline New York and discover your lash destiny. Shop now at Walmart.