What just happened?
The day has come, we’re moving on.
The Federal Reserve has lowered interest rates. They went big, too, reducing them by .50%
Yawn.
“Interest rates, you’re talking about interest rates and the Fed again?”
Bear with me. Understanding this is critical right now as you invest your money.
Interest rates are like financial gravity.
You can’t avoid them; they are everywhere and affect everything.
Lower interests make money grow faster.
Higher interest rates make money grow slower.
The Federal Reserve uses them to “steer” the economy.
They have a massive influence on our lives.
Uber, Amazon, Tesla, and many other newish companies we see or use frequently would not exist in their current form without the low interest rates of the 2000s and 2010s.
Every asset you own is valued off of them.
And yesterday, the Fed finally lowered them by .5%.
While they have been prepping us for this day for months, it’s here and signifies the end of a chapter within the economy and markets.
So what?
If you want to be financially free and stable, have a portfolio with growing income, and have a comfortable retirement, you need employed people with lots of money to spend their money with the companies you own in your 401k, IRA, Brokerage Account, etc.
The Fed’s job is to help you do this, and it’s super important.
Because it’s so important, Wall Street and folks, likely myself, endlessly muse about it.
And leading up to yesterday’s announcement, it was a confusing, muddled, drawn-out mess to get to here.
If I were to ask all 11,000+ of you your take on the US economy right now… most of you would probably reference what you’ve heard from the media, take stock of your own financial life, and say, “Yeah, it’s okay.”
The answer is probably not going to be dripping in conviction.
This leads me to a secret that has become abundantly clear to me over the past few years: No one really knows where the US economy is headed, and pretty much everyone in our country has figured that out, from Wall Street CEOs to your teenage daughter, to the Fed to your brother living across the country.
And don’t think you’re not a sideline economist, either.
You probably have picked up on this confusion by simply living and observing life in 2024.
- You read an article about how the economy is headed for an imminent recession and think, “Here come the layoffs.”
- You then talk with a colleague who is investing heavily in some random stock that will “supposedly change the world.” You say, “That doesn’t seem like a recession is coming.”
- You open Facebook and watch a video about how AI is changing everything, and you think, “That’s pretty cool, though a bit scary.”
- You then pass the car dealer that had zero new cars during Covid, only to find it packed with new vehicles. You think, “Huh, that’s different.”
- You pop through the McDonald’s drive-thru, packed with people thinking the same thing… “How is McDonald’s this expensive?”
- You then look at your high-yield savings account and think, “Hey, this is pretty cool; look at all that interest.”
And now, let me tell you about the pros of Wall Street and Washington – the people with all the data, connections, and experience.
You’ll have to take my word on this, but they are no better than you or I.
They have the same questions, just perhaps more eloquently said.
Last week, on our podcast, we discussed a great article on the uninvested yield curve written by a 30-year Wall Street Veteran.
It was a great read but ended with the classic “This is what history says, but this time may be different.”
Ah, “this time may be different.”
If I had $5 for every time I heard that statement in my world of wealth management, I’d be at the beach with my wife and kids, enjoying the easy life.
But here we are, awash in a world of confusion.
From the main streets of the Midwest to the ivory towers of Wall Street, opinions are everywhere, but ultimately, the modern world has never been where we are today.
The playbook for strange times
First, being confused about some of this economic and market stuff is okay.
You don’t need to be the next Warren Buffett to have a comfortable and stable retirement.
You need to know enough about what’s going on to make informed, rational decisions that align with your financial plan.
The problem is not enough people do that.
Confusion is the opposite of conviction.
Conviction means you believe in something strong enough to say no, a lot, for the thing you are passionate about.
Conviction, in investing, is one of the leading indicators of success.
If you know me personally, you know I try to cultivate conviction in every area of life, including my family’s spending, investing, and giving.
You want to invest or invest with someone who has conviction.
Whether you love him or not, Elon Musk is probably the most convicted entrepreneur in this generation.
He’s worth $250 billion.
Warren Buffett has a particular investing strategy from which he has not deviated for decades. Put another way, he’s convicted.
He’s worth $140 billion.
Dave Ramsey has told tens of millions of people the same simple message about debt and money for decades.
He’s probably a billionaire.
It’s okay to be confused, but not to act confused.
Furthermore, you ultimately want to find conviction in your financial life.
If you can’t or have struggled to gain conviction and subsequent progress, hire someone to help you build this.
Here’s how I handle this stuff in real life.
A few times throughout the year, something bad happens in the world that makes my phone ring. I get the “Tom, I don’t know what’s happening. This all seems a bit too crazy. So and so said we’re headed for a recession.”
I respond with this:
“Assuming this person is right, and something breaks, what’s going to come after the breaking, who’s going to win, and how can we invest in that opportunity? If something like this happens, we already have some defensive assets in place.”
People almost always don’t think far enough through a problem. They start with confusion and end with the problem. But rarely do they keep going and ask what happens after the problem, who will rebuild, and what assets should thrive.
Let’s play this out.
Let’s assume the US economy goes off a cliff, similar to the 2008 financial crisis or Covid. The economy and markets will get hit hard, and you will likely lose money. This is a scenario you have probably played out in your head.
But what happens after the damage is done?
Stuff starts growing again.
And new winners emerge that lead us out (think Zoom during the pandemic or Amazon after the Great Financial Crisis).
So what if you had a portfolio built ahead of time that would give you stability during the downturn, which would then give you the opportunity to buy the winners coming out of the downturn?
Sounds like a great idea.
I stay laser-focused on this notion of new winners leading us out with the Fjell team. I take the presented confusion, think through the possible outcomes, and position according to the probabilities of said outcomes.
The finale
Your portfolio and financial life will always be attacked in some form or another.
Why?
Because what it supports is ultimately good.
Good things, like a comfortable retirement, time with your kids, and financial stability, are worth fighting for.
In the context of money, markets, and endless confusion, there will always be the next Amazon, Nvidia, or Microsoft—companies that radically change the world in the face of massive uncertainty.
There will always be safe harbors to keep a portion of your money safe when, not if, hard times come. As investors, dealing with uncertainty and making bold, convicted decisions is the price of entry.
Furthermore, winners write history.
When allocating capital, I relentlessly focus on this fact.
That is how to grow wealth.
I am 100% okay with the fact that no one knows where this is all going.
Look no further than the Fed’s wandering path to lowering interest rates yesterday.
Am I concerned about things right now? Yes.
Are there opportunities that I am pumped to invest in? Heck yes.
Regardless, I keep my eyes down the field, looking for opportunities and identifying trouble spots to avoid.
The Fed has spoken.
They’ve lowered interest rates by .5%.
It’s time to move on and forward.
It’s time to cut through the noise and keep building your financial life with conviction.
See you around.
