MIKE TOWNSEND: Sometimes, I feel like the single most common feeling I have as an investor is that I missed out on something. Again.
Whenever I catch the hot topic on the financial news channels or read the article on the latest stock that's on a rocket ride to the moon, it's invariably not something that I own. Most of the time, it's not a company I've even heard of.
I am not a trader. I'm a long-term, buy-and-hold investor who mostly uses mutual funds and exchange-traded funds. I have a number of individual stocks, most of which I have held for timeframes that are best measured in decades.
I think that makes me particularly susceptible to FOMO―the fear of missing out.
Right now, the stock that everyone is talking about is Nvidia, which briefly became the world's largest company by market capitalization earlier this month before pulling back. Full disclosure: I am not going to retire next week because I knew three years ago and put my life savings in Nvidia stock.
Read the news right now, and it can feel like Nvidia and a few other mega-cap stocks are the only companies performing well.
But I saw a fascinating chart the other day. It showed the 10 best performing stocks year-to-date among the S&P 500® and the Nasdaq. Topping the S&P 500 list are two technology companies―Super Micro Computer, which wasn't even in the S&P 500 four months ago, and, no surprise, Nvidia.
But what struck me was the fact that the companies holding the third, fourth, and seventh spots on that list were energy companies. Also on the list were two companies, Eli Lilly and General Electric, that were founded in 1876 and 1892, respectively.
Among the Nasdaq top 10 performers year-to-date are four healthcare companies, as well as companies from the financial sector, the consumer discretionary sector, and the industrials sector.
The breadth of top performers really surprised me. And it made me wonder if I understand what's going on in the market at all.
Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to.
In just a few minutes, I'm going to welcome Kevin Horner, senior manager on the Trading Services Education Team here at Charles Schwab, to join me for a discussion about what he sees going on the market. Kevin's the opposite of me as an investor―he's been a trader for more than 27 years, and he spends his days really looking at the data about what the market is doing and trying to figure out why and what it means. I'm genuinely excited for this conversation because one of the main attributes of being an experienced trader—which Kevin is—is the ability to keep your emotions out of it and focus on the data. So Kevin is going to talk with me about what he sees in the data right now, so whether you are a veteran trader or just an ordinary investor lamenting your latest miss, like me, I think you'll find it interesting and helpful.
But first, here are three things to know about what's going on in Washington right now.
Number one is taxes. I've talked on previous episodes about how 2025 will see an enormous fight over taxes, because all of the 2017 tax cuts are set to expire at the end of 2025, including the lower individual income tax rates, the higher standard deduction, and the higher amount of assets that can be inherited without triggering the estate tax. While that battle won't take place until next year, a lot of energy is being spent now by both parties discussing various ideas about tax changes, beyond just the expiring provisions, that could be included in a giant bill next year.
Earlier this month, former President Trump added another tax proposal into the mix, when he said at a campaign event in Nevada that he wanted to end taxes on tip income. Trump has been saying in recent campaign events that he will make eliminating the tax a top priority in his first days back in office should he win in November, but, of course, only Congress can make changes to the tax code, so that promise might not be easy to keep.
Like a lot of campaign proposals, there was something of a sense of the former president just throwing something out there. But this one has caught on a bit. Last week, four Republican senators introduced legislation to eliminate income taxes on tips by allowing a 100% deduction for workers for any of their tip income. A similar bill that would exempt tips from both income and payroll taxes has been introduced in the House of Representatives.
Not everyone is on board. The Committee for a Responsible Federal Budget, a nonpartisan Washington think tank, estimated that eliminating income and payroll taxes on tips would raise the federal deficit by $150 to $250 billion over the next decade―a data point that could be a big stumbling block. And that doesn't take into account the concern that workers might try to increase the amount of income they classified as tip income in order to take advantage of such a change. It's also unknown how a change would affect Americans' feelings about tipping, which polls show has become an increasing area of frustration to many people even before this idea attracted any attention.
Democrats have argued that raising the minimum wage for tipped workers is a better approach for increasing their take-home pay without negatively impacting the federal deficit. And even some Republicans are pushing back on the idea, observing that helping tipped workers isn't fair to other low-wage employees who don't earn tips.
So how does all this fit into the broader tax reform discussion that's coming next year? It's complicated, to say the least.
A Congressional Budget Office estimate released in May found that just extending the expiring tax cuts for 10 years would increase the federal deficit by $4.6 trillion. And that's before any other provisions are added to the mix, like the no-taxes-on-tips proposal.
On Capitol Hill, both parties are actively working to lay the groundwork for next year's tax debate by studying options for additional changes to the tax code that they would like to see as part of any bill.
On the campaign trail, expect to see these ideas as a central part of the debate between the presidential candidates. President Biden has proposed raising the corporate tax rate from 21% to 28%, as well as raising taxes on individuals making $400,000 or more as a way to pay for continuing the lower tax rates for individuals below that level. Former President Trump wants to reduce the corporate tax rate to 20% and extend the expiring individual tax cuts while also adding new ideas like his tips proposal.
Of course, at the end of the day, which of these visions comes closer to reality will be determined by the election outcome―not just the presidential race, but especially the battles to control the House and Senate. Between now and then, expect a lot more jockeying over what will be probably the biggest policy debate of 2025.
Second, the Federal Deposit Insurance Corporation, better known as the FDIC, has been in the news for weeks now. It's one of those agencies in Washington that most people never think about―but it's also one that everyone knows. The FDIC's main purpose is to provide federal insurance on bank deposits. They provide insurance for accounts up to $250,000. And they're the agency that steps in when there is a bank failure. In 2023, they were able to guarantee customer deposits when Silicon Valley Bank, Signature Bank, and First Republic all collapsed.
Lately, however, the FDIC has been in the headlines for all the wrong reasons. An independent report released this spring savaged the agency for maintaining an abusive and hostile workplace environment for years. Martin Gruenberg has served on the FDIC's Board of Directors since 2005, and he's been chairman since the beginning of 2023, following a previous stint as chairman from 2012 to 2018. In the wake of the report and two brutal days of hearings on Capitol Hill, Gruenberg submitted his resignation in May but said he would stay on the job until a successor is confirmed by the Senate.
President Biden recently nominated Christy Goldsmith Romero as the new chair. Goldsmith Romero is currently a commissioner at the Commodity Futures Trading Commission, the CFTC, where she has served since 2022. Prior to that, she spent more than a decade as the special inspector general of the Troubled Assets Relief Program, or TARP, which was the emergency aid program for the financial services, insurance, and automotive industries created by Congress during the 2008 financial crisis. Goldsmith Romero was the chief watchdog to make sure that program was run efficiently and that banks and insurance companies paid back the money loaned to them by the government. She was confirmed unanimously by the Senate twice.
Goldsmith Romero will have a new confirmation hearing before the Senate Banking Committee on July 11, and she seems likely to be confirmed later this summer. She'll be tasked with restoring confidence in the FDIC, a bank regulatory agency that isn't usually in the headlines much but plays a foundational role in supporting the American banking system and protecting individual savings.
There is an interesting second implication to this nomination. Commissioner Goldsmith Romero isn't the only member of the CFTC who is in line for a job change. President Biden also recently nominated Commissioner Kristin Johnson to serve as an assistant secretary of the Treasury Department. Her Senate confirmation process is in the works as well.
But here's the thing. The CFTC is run by a five-member commission, just like the SEC. By law, three of its members are from the party that holds the White House―in this case, Democrats. And the other two members are from the opposite party. Well, if Goldsmith Romero is confirmed as FDIC chair, and Johnson is confirmed as assistant secretary of Treasury, as I expect they will be, then the CFTC will be left with just one Democrat―Chairman Rostin Behnam―and two Republicans. The two Republicans would be able to block anything the chair wants to do. So the CFTC will be effectively paralyzed.
President Biden will need to nominate two individuals to fill those open seats at the CFTC, but I think it is unlikely that those two individuals could get confirmed before the election, Republicans in the Senate, aware that their party could take over the agency if Trump wins the presidency in November, would have no incentive to cooperate on confirming anyone to fill those vacancies until next year.
I mentioned on the last episode that a bill that recently passed the House would give primary regulatory authority for cryptocurrency to the CFTC. That probably won't happen until 2025, if it ever happens, but it's a sign that the CFTC may have a more prominent role to play in the markets in the future. For the rest of this year, however, expect the CFTC to be gridlocked.
Finally, the third big issue of the week is the biggest moment of the presidential campaign so far: the first presidential debate. President Biden and former President Trump will meet on June 27 at a CNN studio, with no live audience. It's notable that there's a debate this early―it's the earliest ever. In fact, it's taking place before either of the candidates have been formally nominated by their parties. For the past three decades, the candidates have met in the fall in a series of debates organized by the non-partisan Commission on Presidential Debates. This year, with mail-in voting beginning as soon as mid-September in some states, the candidates agreed to move up the timetable.
The two candidates have agreed to two debates―this week's and one on September 10. That's also a historically large gap between the first and second debate, and it could mean that whatever happens this week lingers in the minds of voters for a long time. Usually, there's another debate in a week or two, an opportunity for a candidate that perhaps underperformed expectations to create a second impression. That won't be the case this year.
And one other new element to this debate―each candidate's microphone will be muted when his time expires and it's the other candidate's turn to speak. The goal is to minimize cross-talk and interrupting. I'm fascinated to see how this works.
I'm not going to pretend that there is any connection between this week's debate and the markets, or that any grand public policy initiative will suddenly catch fire as a result of the debate. But it made my top three this week because, well, frankly, it's just about all anyone in the political realm is thinking about. So grab some popcorn and buckle up for what should be a fascinating next step on this wild ride to November.
On my Deeper Dive today, I want to dig into what's going on in the markets right now and what things might look like over the second half of the year. As I said at the top of the show, while the focus seems to be on just a small number of large tech companies, there is a surprising amount of activity going on beneath the headlines.
To help me sort through it all, I'm pleased to welcome to the podcast Kevin Horner, senior manager in Trader Education here at Charles Schwab. Kevin has been with Schwab for 27 years, and he is one of the hosts on the Schwab Coaching YouTube channel, where he hosts a show called Trader Talk in Today's Market segment on that channel. His focus is on helping traders―from investors who want to learn to trade more robustly and investors who want to understand more about the market's movements in general, all the way up to highly sophisticated traders. He spends his days watching the markets like a hawk, so he understands, well, as I like to say on this podcast, what's really worth paying attention to. Kevin, thanks so much for joining me today.
KEVIN HORNER: Great to be with you, Mike. Thanks for having me.
MIKE: Well, Kevin, in the introduction, I spoke to the fact that your focus is on trader education. You're working with clients who want to improve their trading skills, and that includes those just starting out all the way through very advanced traders. But I thought it would make sense first to talk about what constitutes a trader. I'd venture to say that most of us trade maybe 10, 15, 20 times a year but don't consider ourselves traders. So how do you quantify the trading activity levels?
KEVIN: It's a decent question here, Mike, right off the jump. We've considered probably a trader is somewhere between two, maybe four trades a month, which could be fairly limited in scope, right in line with what you were suggesting, maybe 15 to 20, 25 times a year. But it also might be the investor who's trading even less frequently than that, only deploying money to the market when they find that maybe there's been a sufficient pullback to encourage them to do so. But if I was being perfectly frank, I think the takeaway is it's a mindset more than an activity.
MIKE: Well, tell me a little bit about how you dive into the markets to determine what's going on and then how you share that with clients. I mean, what do you look at?
KEVIN: Well, for traders and investors of various timeframes, evaluating, understanding the broad market trends, it's imperative. Our goal during the YouTube segments that I host is to help viewers kind of get that base level of knowledge so that they can make informed and confident decisions. This also means helping them build a process that works for them.
But investors who trade less frequently can get a lot from the webcast as well, such as learning to view things differently, maybe ignoring the noise of the market on which traders are looking to capitalize. So a trader by definition probably wants market noise—that gives action, volatility. An investor doesn't need action and volatility because they're paying attention to things on a much longer-term window.
MIKE: So on your YouTube channel and through other channels, you're reaching a lot of people every day. And when you multiply that across all the brokerages out there, that's a lot of individual traders, right?
KEVIN: Yes, there are hundreds of thousands of individual retail traders out there. That is all of us. Those with whom I speak, those with whom I talk about trading the market, we are retailers, very small fish in a very big pond.
MIKE: And that's the important question because even with those impressive numbers, when it comes to what's happening in the markets, it really isn't the individual traders who are dictating the action, right? It's the big institutional traders, the so-called smart money. So who are they, and why do they have so much power in the markets?
KEVIN: Yeah, you're absolutely right. First, it's the power starts from dollars, deep pockets, right? The misconception out there might very well be that the retail investor can move markets, so to speak. And yes, it can certainly be true in certain circumstances for a few individual securities. But by and large, it is the institutional traders—ETF, mutual fund managers, hedge fund managers—they are responsible for these larger shifts in the market trends and behaviors. And part of that stems from the dollars at their fingertips, but also the dollars they devote to researching and understanding these trends over an extensive window of time, Mike. They always look at that really long-run viewpoint. And that's where those trends that shift really provide those in the know, so to speak, the smart money, the opportunity to capitalize on market movements.
MIKE: OK, so you're talking exactly about what I want to dive into because when it comes to the markets, say, this year, the perception for many investors is that this year's market rally has been mostly attributable to a handful of mega-cap stocks. But I'm not sure that's really accurate. Is the rally broadening? How concerned are you about all the churn that goes on beneath the surface? I mean, that's really where you kind of live, right?
KEVIN: Yeah, this is definitely a frequent talking point. We hear lots of headlines on this, but I do like to remind the viewers of the segments I host that talking points, they're just that. And it can be smart to review sector returns to get a better picture of what's going on. Everybody out there knows and is thinking about and talking about Nvidia, and the returns on that stock have been tremendous. And the action beneath the surface often goes unnoticed by those that are just relying on headlines and can certainly be easy to miss.
Let me give you a quick example. At the time we're recording this, the technology sector is now down 4% from the 52-week highs, which puts it at ninth amongst the U.S. domestic sectors―of the 11 of them. So now leadership is in communications and in healthcare. Will it last? I don't know any better than anyone else, of course. But I bring it up and it's notable because it might be different than what our listeners could be expecting to hear. And some of this, Mike, is always going to come back to timeframe. Short-term windows can have an impact on us if we're just looking at headlines, but maybe paying attention to the longer-term window of time, the longer-term trend, is more important.
It can change really quickly. And I think the reminder is quick changes don't necessarily imply significant changes for a longer-term window.
MIKE: Well, every investor right now, as you point out, is keenly aware of how Nvidia has been performing. But how do you think about artificial intelligence more broadly? It feels like a lot of companies are suddenly making sure that the term AI appears somewhere in their name or at least in their goals or their prospectus. Is there any danger that this becomes something like the late 1990s when every company that had "dot com" in its name suddenly became the hottest thing?
KEVIN: I guess we're probably susceptible to that at a certain point, right? It's certainly a great question. We've talked about, just a second ago, the average investor and average trader, they're consuming headlines in lieu of taking the time to dive deeper in their review of the broad market. AI, artificial intelligence, being front and center, it does give long-term investors some of that feel of the dot-com bubble. If you've been trading since 1999, investing since 1999, yeah, that concept of adding "dot com" after the name certainly feels a little akin to a lot of "AI" being present in earnings conference calls, not necessarily in the data, but in the conference calls. We're going to bring it up. We're going to mention it. That does kind of stand out. However, it's probably fair to suggest that our valuations today are not reminiscent of valuations in 1999.That doesn't mean we are not in the beginning or even a different phase of a potential bubble situation, but I bring it up because they are possibly similar, but not identical. And so timeframe and approach to investing can often outweigh these short-term maneuvers we're seeing, but paying attention to what's happening in AI is something we don't want to ignore.
I think being aware that we have the potential of something bigger than what we have recently seen and then recognizing that we may not want to go aggressively into one security as we learn about AI, as we learn that the process of AI is going to broaden out itself. Because of course, while you have AI being seemingly led by Nvidia and nobody else, there's going to be, and there already are, companies supporting AI, supporting Nvidia, that are the so-called picks and shovels for what AI will need as we go forward and continue to build.
Quick example, while we all know that Google is the place to go for many search engines right now, right? If you want to look up anything on the web commonly, we even use the term "Google" as a verb these days. But if you selected Google back in 1999 or 2000 and held it all this time, you've done very well for yourself. But what if you selected Yahoo or Netscape individually instead? You might have done OK, but you wouldn't have had the robust returns that you've had with Google, now Alphabet.
And secondarily to that, the likelihood is if you're a user of mutual funds, exchange-traded funds, you already have exposure to the AI area of the market. So you don't necessarily need to overexpose yourself to that area of the market. Again, this is where the diversification of a long-term portfolio becomes imperative and essential to keeping and maintaining that portfolio in the long haul.
MIKE: One of the things about the AI space right now that really strikes me, and maybe I'm speaking a little too personally here, but you feel this FOMO, the fear of missing out that I mentioned earlier. I feel it. I know our listeners feel it. How do you combat that as a trader? Because it can often feel if you just looking at the headlines, if you're just watching the financial news, whatever they're talking about is something I've already missed out on.
KEVIN: The way that I combat it as a trader is I participate, but I do it with amounts of money I'm comfortable losing. The reason for that is that these scenarios can change quickly, particularly those fear-of-missing-out moves. Those are commonly big swings. They can be both directions. Inevitably, they go, Mike, as you just kind of let in, they go against us the moment that I made the decision participate. And what I have learned about that is that, inevitably, the amount of money that I put on the table in such a risky investment is, if it's the right amount, a comfortable amount, then I'm going to be comfy with all the swings that come from it.
But if there's an amount that I've invested, and I am suddenly looking at a loss that far exceeds what I'm comfortable with, I've learned something about myself right there. I should not be investing that amount of dollars into something that can evaporate rather quickly. So for a trader, I'd say they probably lean into the concept of taking a little bite, participating because they want to participate, they want that enthusiasm, that action, etc. But an investor, if you've already determined you're not a trader, chances are you don't need to be participating in FOMO moves. Just step back and remind yourself of who you are. What is it that you that you enjoy about investing, and try not to be lulled into the idea that you're missing something. Chances are you're not. You're very likely already participating in many cases.
MIKE: I will try to take that advice personally to heart. I appreciate that. Another thing that I've gotten really interested in and looking at the market recently is this large divergence between large-cap and small-cap stocks this year. S&P 500 up around 15% year to date. Nasdaq Composite around 20%. Russell 2000 basically flat for the year. It's been down for quite a bit of the year. What is that telling investors, and do you see any reason for optimism about small-cap stocks?
KEVIN: I think the optimistic view of small-cap stocks here starts with a belief that yields, while currently elevated, and we've been told may be higher for longer, that they won't remain elevated in perpetuity. So if that is your belief, then perhaps small caps is an area to keep a close eye on. We've been struggling in this group rather than trending strongly like the S&P 500 or the Nasdaq have been doing, but it would likely require a shift in the 10-year Treasury yield back below the 4% level as an approximation. We're currently in the ballpark of 4.2. Yield has been dropping. That's been helping the S&P 500 and the Nasdaq both, but it just hasn't been helping recently the small caps. And I think it's because we haven't moved through that ledge at 4%, which is kind of a bit of a psychological level for the 10-year yield specifically.
MIKE: You spend a lot of time looking at sectors, and I found this really interesting recently where I was looking at sectors. I brought this up at the top of the show, and I found that the best-performing stocks year to date actually come from a fairly broad swath of the sectors. It's not all IT. So where are you seeing money moving right now in terms of sectors, and what sectors do you think may be appealing as we head towards the second half of the year?
KEVIN: Well, I always love a discussion that encourages us to look directly at the data instead of just kind of flying by what we hear in headlines and so forth. So you're absolutely right. Technology leading the way 27% year to date, but communications right on its heels, 26% up year to date. But our viewers might be surprised to learn that 10 of the 11 domestic sectors are positive on the year, only energy in the red thus far. And picking the group that's going to lead any given year, that's a fool's errand.
We're not trying to do that. I think what's notable about what's going on of late is that we've seen technology continue to lead, but is well off now, about 4% off recent highs. And while we've made that drawdown, that money hasn't apparently been leaving the market. That money's been deployed to other areas of the market, which actually may for many longer-run investors speak to the view that it's a healthy market, healthier perhaps market, than they may have expected.
The concept of modern portfolio theory, taking advantage of our best-performing groups, taking profits, applying to our lesser performers. While we probably as investors do that on a longer-run basis, seeing that happen in a shorter-term scenario for a lot of investors can provide comfort and confidence that the market's healthy enough to continue doing what it's been doing. That said, we're in a very interesting spot right here. We are moving into Q3 next week, and Q3, the third quarter of the year in advance of the election, is apt to bring some volatility with it. And we probably need to anticipate that volatility as we head towards November and remember further that volatility does not imply market reversals or market downtrends, just more action in the market per se.
MIKE: Well, volatility is a great place to continue this conversation because volatility is scary for a lot of people. And for a lot of investors, that means more unpredictability, more risk. It feels like more risk. How do you help people through volatility? I love your definition that it just is more action, because volatility for a lot of people, I think, turns into "the market is going down," and that's volatility. So how do you help people kind of through periods of volatility and particularly anticipating a period of volatility that is likely to come as we head towards the election?
KEVIN: Well, first, let me quickly just define how I would answer that for two types of individuals. Our investors, my hope is that there is nothing to do. And that's really the takeaway. If you're an investor, you're probably unconcerned, or at least we're trying to be unconcerned with what happens day-to-day, week-to-week, the market fluctuations, etc. We're relying and falling back on our financial plan, our recognition we're investing for 10, 20, 30 years. The likelihood is that what happens in any given week in that window of time is not going to have a dramatic impact on the long-run returns that I am striving for. Now that changes for traders. A trader looking for volatility may very well desire nice big swings in the market. That stated, they're still not going to go about it in an unplanned process. So that process needs to include a downside-risk exit strategy, a white flag if you will, the point where we say, "That was wrong. I'm moving on." That's OK.
The reminder that we often share with traders is we make mistakes. We take losses. Traders take losses. In fact, the average trader is right only half the time. So our goal is to build trades properly with a risk opportunity that is one-third our profit opportunity and just work to constantly stick to those levels. And if we do that consistently, we can take losses, small ones, and take big gains. And we can come out ahead, even if we're wrong a lot. That's the goal of the trader. So it all comes back, Mike, whether it's volatility in the markets or a static market, we have to plan those as traders, planned approach and sticking to it. I like to say in my shows, Mike, "Have a plan. You trade the plan." So plan your trade, trade your plan.
MIKE: Really good suggestions on the volatility question, Kevin. But there's a particular source of volatility that I think is on everyone's minds, and that is this election. It's an emotional issue. I talk to investors all the time. I would not characterize them as highly active traders. But it is the number one thing that I'm hearing about right now. History, of course, tells us that the market doesn't really care about the election itself. So how are traders thinking about the election? And probably more importantly, how are traders keeping the emotion out of what is going to be a very emotional election for a lot of people?
KEVIN: That's going to be a challenge for many of us, I would suggest, because there will be emotions involved over the coming months as we parse every comment and look at the debates and so forth.
But if we just go back to the discussion of maybe what moves markets, it's the smart money investors more so than us retailers. And I think that they've been taking an approach that might lean into more of the standard trends that we're seeing every single day, the trends that have been playing out year to date. And I think that they are leaning into, already, expectations for little to no changes, at least as it relates to policy. That doesn't mean a no shift in who could be in charge in the White House necessarily. But I do think it means that they're not likely to concern themselves with it just simply because we've seen over time that elections like this just don't have the subsequent market-moving action. If we were to have questionable scenario play out or an uncertain period play out where we don't have a definitive winner of the election, uncertainty is a negative for the market. But I'm certainly not suggesting that that's going to happen. Just the type of thing that a trader and an investor might want to pay a little bit more attention to. Uncertainty is an issue for the markets. Market does not like it.
MIKE: One of the things that I tell investors all the time is that I actually think the battle for the control of Congress matters more to the markets than who wins the White House. And that's of course, because at the end of the day, it's Congress that is going to actually pass laws that could, you know, advantage this type of company or that type of company or make changes in tax law or whatever it is. So I pay a lot of attention to what's going on in the battle for Congress. And I think in this election in particular, that is very true, because in 2025, we'll feature two potentially huge market-moving policy issues in Washington. One is another debt ceiling fight, and the second is a major battle over taxes. So will traders and institutional investors wait until after the election when you know what the outcome is, we know what the political landscape is in Washington, to start thinking about these big policy issues. Or is that something that's on investors' minds now, even though they may be a year or so away from the actual debate over these issues.
KEVIN: I would hope it's kind of in the back of the mind, certainly not at the forefront. At this point, it's not likely having an impact on anything we're seeing in the market today. Debt ceiling discussions just aren't fun. Obviously, nobody wants to talk about that. The truth is we've always come to an agreement. What we've witnessed historically has been volatility in advance because we don't know what's happening. And again, that brings us back to my key word of the day, uncertainty not being a positive for the market. So I don't know that we're really monitoring it just yet. But as we get to the point of hearing in the headlines, well, we're going back and forth on this, and it's looking less likely today. And now it's looking a little more likely that we're going to have a deal, etc. When we have those discussions, that's apt to bring back volatility to the market. But I do think historically, we've seen cooler heads prevail after being reminded that we're simply, as it relates to the debt ceiling at least, we're just agreeing to cover the debts we've already accrued; we're not taking on more debts. So if we can get to that understanding, I think we're apt to get to a completed debt ceiling conversation and not likely have an impact on the broader markets.
MIKE: Well, Kevin, this has been a terrific discussion, and I want to close with this and really circle back to something that we've been talking about throughout this conversation. You must hear from investors every day who feel like they have been missing out on the hot thing, whether that's Nvidia or another AI-fueled stock. So what's your message to investors who see the headlines and think the only way to succeed in this market is to hit on that next hot stock?
KEVIN: Well, first, I don't think that's the correct view. I will say I agree with you. I don't believe that that's required. But first, beyond that, it starts with determining how you are most comfortable investing. And for many, it can be a hands-off, common-sense approach to long-term and asset allocation and diversification, something we've already discussed.
You could start by having a financial plan. Discuss that with your branch financial consultant. They can help you build this literal playbook to a lifetime of financial well-being. Having that roadmap at your fingertips helps to make the decisions in the moment very simple, right? You're simply referring back to your playbook. You know exactly how you want to act. Now, beyond that, I would also say it's important to consider not changing your process based on how the market is treating you. Allow your own personal circumstances to dictate those things.
I think it's a big process to understand. A lot of investors struggle with this. We get caught up in what's happening today and can't see the forest for the trees. And we tend to get a little uneasy. Why am I not in that? Why am I not doing this? But if you think back once more to having this plan and sticking to it, I think that's where an investor can benefit greatest. And I'll leave you with a quick anecdote, just a quick story. It's about my grandparents. My grandparents grew up in the '50s.
My dad's parents raised a family of 16 on a farm in North Dakota, and they were investors too. They just weren't investors in the equity markets. They were comfortable investing in their property, in their land, and in the farm itself, and they invested further in CDs and bonds and nothing else. But that was their comfort zone, and it led them to be able, even in their late 80s at the time of their passing, to pass money down to the 14 children, which, if you ask me, that would seem to be a near impossibility through a fixed income approach to the market based on everything that we're told every single day. I just love that story, Mike, because it reminds me that we that we, as investors, we're all different, but we can all invest to the level of our comfort and, in the long run, likely be just fine.
MIKE: Well, that's great advice to end with, Kevin. Thanks so much for taking the time to talk to me today.
KEVIN: Mike, I've enjoyed it immeasurably. Thanks so much for having me.
MIKE: That's Kevin Horner, senior manager for Trader Education here at Schwab. You can follow him on X, formerly known as Twitter, @KevinHornerCS and watch him on the Schwab Coaching YouTube channel.
That's all for this week's episode of WashingtonWise. We'll be back with a new episode in two weeks. Take a moment now to follow the show in your listening app so you get an alert when that episode drops and you don't miss any future episodes. And I'd be so grateful if you would leave us a rating or a review—those really help new listeners discover the show.
For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript.
I'm Mike Townsend, and this has been WashingtonWise, a podcast for investors. Wherever you are, stay safe, stay healthy, and keep investing wisely.
