All The Election Things | Millennial Money Matters

Description

We have a newish president in office, again. With Donald Trump winning his second non-consecutive term, Kelly and Derek delve into what that means for our wallets. On this episode of Millennial Money Matters, we guide you through Donald Trump's economic policies and how they will impact the stock market, the bond market, future tax rates and we even discuss a hot new Google search item: Tariffs. Check out the episode to see how you may be potentially impacted by Trump's economic policies.

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

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Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek.
Speaker #1
Hey, everyone. Welcome back.
Speaker #0
Welcome back. We kind of have an exciting episode this week where we're going to be talking about a lot of stuff that's happened in the world in the last couple of weeks.
Speaker #1
Yeah. It's election season. So rightfully, we have our new president-elect. So we wanted to talk about... He's talked about all these policies, a few of them that he's actually talked about. And what do they mean for you individually?
Speaker #0
Yeah, there's been a lot of buzzwords. I think that I've heard the word tariff more in the last two weeks than I think I've heard in my entire life. Maybe like history class in high school was the last time we were talking about tariffs. But here we are, 2024, tariff is the buzzword. Yeah,
Speaker #1
Mr. Trump loves tariffs.
Speaker #0
Yeah,
Speaker #1
we love-Let's talk about that today.
Speaker #0
But there's been a lot of chat about tariffs, tax cuts, interest rates, the feds, economic policy, foreign policy. And I think there's a lot of questions for people about like- okay, cool. We hear about all of this. We know this is all going to alter the economy in some way or another. But like, how does that impact me as a person, right? I'm an individual. I want to talk a little bit about, right, how does that impact us? Because, right, what am I worried about? I'm not worried about tariffs from China. I'm worried about paying my child care bill, paying for like T-ball signups start in a month. I'm worried about that. We're worried about our kids'529 plans. You know, our worries are a little bit different. And you know, do we have to worry about some of this policy? Is it going to help us? Is it going to hurt us? And I think that's what we're going to dig into today.
Speaker #1
Yeah, I always talk with clients, you know, there's, to me, there's two economies, right? There's the economy, writ large, and then there's your economy. So I think our connection today is what's going on in the economy that can potentially impact you personal economy, right? That's we're going to really dive into.
Speaker #0
I love it. I love it. That's a great like segue into this, right? Your personal economy. I've never thought of it that way. We talk about budgets. We talk about a lot. But your personal economy is, yeah, it's how you run your personal finances and all the different impacts of it. What a great thought.
Speaker #1
That's what I'm here for. All right. I'll see you later. Yeah.
Speaker #0
Derek is done now. Derek is done now. Oh, you've sort of just blown my mind with sort of that concept that, yeah, it's your personal economy. All right. So what's our first topic? What are we going to talk about? I'm here to just ask questions, not to give answers. That's what Derek's for today. Yeah.
Speaker #1
It sounds good. So I guess most of my show today. Well, I think the big news that we saw immediately was the impact on the stock market. You just mentioned to me how now you're all a multimillionaire now because the stock market went up.
Speaker #0
It felt good for a few minutes. I was like, oh yeah, there's a lot going on there. But I was saying to Derek before we started recording that stocks going up really quick and going down really quick are both nerve wracking to people who kind of have a financial savviness. And when you see your stocks or your investment accounts blow up, you're like, oh, that's good. But and like, what happens next? And same with right when we watch them like blockbuster drop, you have the same feelings. You're like, oh, no, I do.
Speaker #1
That can't be good. Like that can't be good either way.
Speaker #0
Either way. So I am feeling a little that can't be good because what goes up must come down.
Speaker #1
Yeah, generally. So one of the things that I think people. don't necessarily always understand about the stock market in general is they are a leading indicator and they try to be forward looking. So they're not looking at like, all right, what has happened and we're going to react based off of that. They're trying to think, okay, this event is happening. How are we going to price that in in the future? Right? So they're assuming Trump is going to be really good for stocks. And there's a couple of things that he's mentioned that would probably you know, go along with that. So the first thing is he's talking about cutting the corporate tax rate.
Speaker #0
Oh, yeah. So big companies love that.
Speaker #1
Yeah. Well, because I mean, think about just a dollar less that you have to pay to someone else that you can use to either reinvest or buy back your own stock or give your shareholders in dividends. Right. So he's proposing going from 21 percent to 15.
Speaker #0
That's a big difference.
Speaker #1
And yeah, keep in mind that before he got an office the first time, it was at 35 percent. So this is. this is a huge cut from when he even first was a president.
Speaker #0
Wow.
Speaker #1
So it's a big drop,
Speaker #0
right? That's a big difference.
Speaker #1
Yeah. So, I mean, 6% doesn't seem like a lot now, but, you know, look over that. And one of the things that I kind of saw this chart, it was talking about, like, what do they do? And a lot less companies after the first, you know, tax cut borrowed less. They bought back more of their own shares. So, like I said, they kind of, once again, just frees up dollars. So anytime you free up dollars for a corporation to use however they want, they're going to either typically reinvest it, hopefully. I mean, that's the thought. process there. They're going to buy back their own shares, which helps the stock price. Doesn't really help anyone else unless you're a shareholder. Or they're just going to increase their dividends. So that's generally what companies can do with excess cash anyway. what the thought process behind why the stocks are going up.
Speaker #0
Now, just a quick question, just for clarification. That's like the altruistic things they can do with excess cash. But this was also a time period where CEOs and management of companies were making the most money that they've ever made before. So some of that money does end up in the pockets of the personal stakeholders for a large company, right? Like your CEO can bonus themselves out, you know, $45 million instead of $35 million, which doesn't... You know, we're talking 45 to 35 doesn't sound like a huge difference until you're contemplating the entire country's GDP that, you know, that can count for in other places.
Speaker #1
Well, interestingly enough, this is a problem that went back to Clinton. And he actually was probably one of the reasons they solved this because one of the big changes that during his administration was a lot of executives had more salary in some stock. You know, it wasn't a huge mix. Now it's mainly stock. So when you have these. CEOs, these C-suite executives at these large companies making $45 million, but that $45 million is mainly company stock. What are they thinking? We got to drive the stock price.
Speaker #0
We got to make the stock price baller. That's coming in my pocket later.
Speaker #1
Yeah. I mean, yes, there are shareholders that if you are invested in company, you're going to go along with it. Most people don't have $45 million a year of income that they're pumping into the stock either, but they have so much wealth tied up in their own company stock that they are driving a majority of those decisions. I mean, the good CEOs are looking long-term. The bad ones are going to be, how do we take advantage of this right now? And a lot of that is just buying back your own shares. And what that does is, let's just say there's, just easy math, like let's say there's 1,000 shares available out there in the market, and they say, okay, well, we have to pay a dividend of 2% to all these 1,000 shareholders. Well, then they go, like, we're going to buy back 200 of them. So now there's only 800 shares. So now we don't have to pay less in dividends, right? Now we have more money coming back to us. There's lesser shares. There's higher demand for the stock because there's less supply. You know, it's this nice little thing that they can do. They're just using company money and excess cash to reduce the amount of shares out there.
Speaker #0
So it's smart for the company. Yeah.
Speaker #1
Yeah. I mean, it's not the best economic thing, but it's going to be good for shares. That's why you see some people on the other side of the aisle saying, hey, we love to tax buybacks or get rid of them. They're evil. I don't think they're evil. I mean, sometimes a company has to do what they think is best for the company. Yeah. And sometimes that is buying back shares.
Speaker #0
Interesting. Oh, things that you never contemplate. Yeah. You contemplate. Those of us dealing with our own personal economy are not necessarily contemplating that.
Speaker #1
Well, I always say, hey, just in my life, what I've learned is just follow the money. Like, where's the money taking us? And that'll give you the answer.
Speaker #0
That'll give you the answer. All right.
Speaker #1
So where's the pot of gold? And the other thing that people always talk about is the Trump trades, right? Because they want to think, okay, now what industries are going to be more impacted by Trump than by Biden? So a lot of people are trying to guess. So some of the big sector winners were financials, technology, energy. And then. And outside of the sector, so sectors are part of the economy where it's like, hey, we're looking at the technology companies, for example. Then there's what's called small cap companies. So these are not the big boys in the block. These aren't, you know, Apple, GE, all those folks. These are the generally more startup companies. They tend to have more debt, but they do less overseas. And if he's talking about implementing some of these tariffs, which we're going to get into later, that's typically going to be better. Probably they're thinking that's going to be better for local companies that do majority of their business locally in the United States. So that's why small caps went up. And the other thing he's been championing lately has been cryptocurrencies. He went from not understanding it to still not understanding it, but at least now championing it in general and saying, hey, look, crypto. So if you look, crypto has gone up and he's even talked, I've heard, about buying some crypto for the government. Oh. Sort of like reserve.
Speaker #0
Oh, so we're like totally legitimizing crypto at this point.
Speaker #1
I mean, we'll see about that if that actually happens. But that's what the crypto folks are betting on. They're like, oh, maybe the government's going to buy some crypto. And that's why the price has shot up like crazy lately.
Speaker #0
Okay. So we're going to buy some dog coin and Bitcoin and...
Speaker #1
Well, Elon's got his right ear, so maybe it's going to be a huge amount of Dogecoin. Oh,
Speaker #0
Dogecoin. What? I can't. Okay. All right. All right. I'm listening.
Speaker #1
Follow the money, Kelly.
Speaker #0
Follow the money.
Speaker #1
Yeah. So that's kind of what's going on with the stock market. So the stock market, writ large, has kind of said Trump's going to be good for the stock market specifically.
Speaker #0
And that's why the reactions are very positive right now. Yeah.
Speaker #1
And that's why they shot out of a can right after he was elected. right? So what they're doing, they're trying to price in future growth. Now, the question is, is that future growth sustainable? Like, where do we go from here? Are we going to go up? Because, you know, everything he says is going to come true and the economy is going to boom and tax rates can be nothing, you know, or are we getting ahead of our skis? And that's the question. No one of us really know for sure.
Speaker #0
No, we'd be, we'd be Warren Buffett, right? We'd be gajillionaires and sitting on our pot of money if we knew the answer to that. But I do think, you know, I said it right at the beginning, like, what goes up? always comes down and not necessarily Volitally, well it kind of volatile because that's life we're living right now, but like I always feel like initial reaction is always extreme. And then there is some settling that happens, right?
Speaker #1
Yeah. Well, you want to think of like water, because water seeks its own level. And the level that it seeks is going to be based on earnings when it comes to stocks. So short term news, long term, they're going to look at, all right, is this company actually making money for us? Cool. We're going to give it more money so they can make more money for us. It's going to be more valuable, right? So if they're not earning a good enough amount of money. then it's gonna you're gonna have those drops it was kind of the same thing that happened during covid right like all those we were projecting all like all the uh what was the exercise bike and blanket peloton peloton everybody wanted their pellets and everyone bought a peloton it's like this is gonna go on forever the stock shot up and then what happened people actually started going to gyms now yeah and now people like can't give away their pelotons exactly so that that crashed like that didn't sustain itself it's you know it sought its own level there because the earnings weren't keeping up with stock price so that's one thing we need to be worried about The other point I would make is there was a lot of Trump trades back in 2016 which didn't work out. Like if you had to guess, Joe Biden, Trump, right? Who would have been better for oil stocks?
Speaker #0
Yeah, I would have said Trump all day long.
Speaker #1
All day long. Biden was much better for oil stocks.
Speaker #0
Interesting.
Speaker #1
So sometimes we assume these things are going to happen because someone's president, but there's so many other factors that are going on outside of the president's control that are going to impact the stock price.
Speaker #0
Yeah. And that, you know, my only real relation to that is interest rates, because that's life that I live, is that people are always like, oh, well, what's happening? And why are interest rates going up? And sometimes interest rates go up due to the United States'own economic factors. But sometimes it's outside factors. It's what's happening. Like the word Ukraine had a big impact on interest rates. Like it is outside factors that we cannot predict. And I think that's probably one of the messages here is no matter what. Trump or any other president does or does not do, there are pieces of this puzzle that are just completely outside of anyone's control. They're happening somewhere else.
Speaker #1
Yeah. My advice for the stock piece of this is don't go crazy with the Trump trades. If you're a long-term investor, stay long-term invested. He's only been president for four years. He's probably going to have control for two on the Republican side. So not all this stuff is going to come to fruition, and it's not going to come right away. just have a long-term outlook with a lot of these stocks and don't over go crazy over waiting one or the other if you want to you know do a little bit of your fun stuff on the side go ahead and do it just make sure it doesn't impact you totally financially your long-term plan yeah um and then and then kind of think maybe you should probably jump into bonds because that's kind of what we had mentioned with interest rates right because that's you know you're in the mortgage business and what did you see with mortgage rates they must have gone down because the other thing that kind of just slipped in this week was the fed dropped the rates the fed dropped the rates again yeah that last that it was it
Speaker #0
The week of the election, I can't even talk because I'm so overwhelmed contemplating it, was like a wild week in interest rates in that we had the election news that we were waiting on, which we knew was going to have a large impact on interest rates. And that was immediately followed by a Fed meeting. That was kind of a controversial Fed meeting. I don't want to say controversial. I guess that's the wrong word.
Speaker #1
No, say it. We need more views. It's so controversial. It was crazy.
Speaker #0
Fed meeting. There was just a lot said in that Fed meeting. And so we actually watch interest rates drop initially and then we watch them spike back up and then we watch them drop. And honestly, we're seeing daily a lot of volatility in the bonds on the interest rate side. So I think it's, again, a lot of people thought that, you know, as soon as the election happened, rates would settle down. But again, there's more stuff at play than just an election. And I think that's one of the tricky parts in bonds and in interest rates is it's not just one thing that's impacting us. It's a lot of little things.
Speaker #1
Well said. And one thing I would add to that is also the bond market tries to be future looking. So they're looking at a lot of these policies and saying, okay, if we do all of these things that we're talking about, what's going to happen with the deficit? Is it going to go up or down?
Speaker #0
Yeah.
Speaker #1
That's going to go up. Okay. So now, because we base a lot of the rates on the 10-year treasury, and they're saying, okay, well, the deficit goes up and there's maybe some potential inflation coming down the pike, which we'll probably talk about later. Should rates be higher or lower? So they're like, oh, it's a little riskier because all this inflation and all this debt is going to happen. So that's why rates shot up, even though the Fed has dropped the rates.
Speaker #0
Yeah. And the other thing that happened with that, too, is what is more important than whether or not the Fed drops the rates is the actual commentary from the Fed meeting. So that's the stuff that has a bigger impact on us. And there was some commentary from that Fed meeting from our Lord and Savior Jerome Powell. lenders love and or hate him depending on the day. But he had some commentary that did make it sound like some of the future cuts that we thought we were going to get, we may not be getting. And so the bond reacts to that kind of somewhat drastically. So we think that was also some of the spike that happened where rates went back up again is cool, you dropped the rate right now. But if you said you think you're not going to drop it again, or you might raise it, then all of a sudden everything reacts accordingly. So it's not necessarily about what's happening in that moment. And a lot of people don't realize, too, is all the speculation around if the Fed is going to drop the rate or not is generally baked in to any given bank's mortgage rates for weeks in advance. Like we knew we were going to have this rate drop from the Fed. So that had already been baked in because when you're locking an interest rate, you're locking it for 30 days, right? So if we think you're going to drop it within 30 days, 30 days prior that the rate is going to be impacted by it. So it's not necessarily something that's hitting that day. It's really already been discussed, looked at, vetted, and baked right in.
Speaker #1
Yeah, because they want to try and predict what's going to happen because they don't want to have set a rate and say, hey, look, it's going to be 5% and the rate goes up to 7. Yeah. I mean, extreme, but that's not where they want to be. So they're going to look ahead and they're thinking, OK, there's what happens at the Fed meeting, which is what they cut rates, and then also what. the Fed says.
Speaker #0
Yeah, what they say. Their words are very important.
Speaker #1
So they're trying to read into that. And if they're reading into it and saying, okay, because they're very data driven and they've been a little slow to move. So they're going to say, okay, well, if these policies are inflationary, should we be cutting rates as quickly as we plan and plan on doing? Yeah. So they're going to maybe slow roll it because basically the expectation was we do a 50% cut and then a 25% and then maybe another 25% before the end of the year. Yeah. So basically dropping it down by 1% before 2025 hits. Who knows what's going to happen with that one. So that's a little bit more up in the air than previously expected. And that's why the rates have also shot up because they're trying to, once again, predict.
Speaker #0
Exactly. What is going to happen here? And the other thing, too, just as a quick aside for those listening, if you're not familiar, when the Fed drops the rate by, say, 1%, that does not mean mortgage rates are dropping by that amount. So that is a slow, I think we've talked about a little bit in past episodes, but it's like a slow trickle into mortgage rates. It is not a one-to-one. So. So the Fed dropping by a quarter point does not mean your mortgage rate is now a quarter point lower. Not how it works. There's a lot of other factors that come into play with your interest rate. But just know that, that it's not. Feds don't cut rates and then your mortgage rate is cut by the same amount. We get that question a lot.
Speaker #1
I'm sure. Yeah. And it's just there's a lot that goes into these things. It's not like, oh, boop, boop, boop. One thing, one happens. Here we go. Should we move on to taxes?
Speaker #0
Yeah. Let's talk about taxes because everybody loves to talk about taxes. It's my favorite topic. I hate it.
Speaker #1
Well, this was as my like me. put my financial advisor hat, we're always talking about all these other things that's going on in the market to me, or the election. And to me, the one big thing was what's going to happen with this massive tax bill that Trump passed that was set to expire. And for those that don't know, the Tax Cuts and Jobs Act basically was going to, a few main categories are going to be impacted. So first of all is your income tax rate. For most folks, it would, if they just let them expire and nothing happened, tax rates would go up about 3% depending on your tax bracket. So that's one. So nor taxes. All right. So long-term capital gains rates would stay about the same. So that wouldn't be changed. Standard deduction, which everyone's kind of, no one itemizes really right now. So that would be cut in half. So more people would potentially start itemizing. So there'd be more planning along that. The SALT tax was capped at $10,000. That would be removed. So if you were moving to itemizing and you had a big house with a big interest payment and a big tax payment, you could deduct more of it. So a lot of people would be happy about that. The child... tax credit would have been cut in half. The mortgage interest deduction would change as well. And then some of the big one for those that are dying, the estate tax would be cut in half as well. So it would be at $13.6 million now, down about five, just for inflation. So it could be around six by the time then. So there's a lot of big changes that would happen if they just let it expire. Now, what we think is going to happen is Trump said, basically, we're going to keep these deductions moving forward. So we're going to kind of make everything permanent. as permanent as permanent can be in congress yeah it's not that permanent but a little permanent yeah so the good news is for everyone the tax rates are going to stay the same so they're not going to go down you're probably going to hear tax cuts tax cuts tax cuts um no they're just going to extend them so you're already living in the tax cut you're just going to get to keep it for longer yes yes you're staying in the same depth of water you're not going higher or lower okay i like all these water references they're delightful thanks i guess i saw aquaman the other day right yeah uh so for for a lot of people and and what i would say is um We got these tax cuts coming or tax extensions coming, I should say. So what do we do for planning? And what we really want to think about is where are we today versus where are we historically and what's going on with the debt and where do we think we'll be in the future? So Kelly, I'm going to do some trivia. Okay. I did not prep her for this.
Speaker #0
I'm not prepped at all.
Speaker #1
It's okay. You'll get it wrong. It's okay. What was the highest marginal tax rate?
Speaker #0
I don't even know what that means. You spoke Spanish there. Okay, thanks. All right.
Speaker #1
So right now it's 37%. So if you make the most amount of money. you're going to tax for every dollar you make you're going to tax 37 cents okay so what do you think the highest one ever was 56 56. uh you're you're very wrong okay i just made it up that's all it's fine uh it's it was 94 so you made a dollar 94 cents went to the government.
Speaker #0
Okay. All right. That was not a great time.
Speaker #1
Well, that was right after World War II. So we had a thing to pay for. We did.
Speaker #0
We did. We had a very expensive thing to pay for.
Speaker #1
Tanks and cigarettes back in the 40s to pay for. Right. So if you look at that. tax rates are basically historically low. They haven't been this low since, I think, before the Depression. And then we have all this debt. Like, where do you think taxes are going to go?
Speaker #0
Yeah, they're going to go up because we got to pay for that debt.
Speaker #1
Well, you know, a reasonable person would say that. I don't know if we have a reasonable government that would ever pay for that, but who knows? So let's say that that does happen at some point in the future. So when it comes to planning for you specifically, you know, we want to think about things like, OK. a Roth conversions more in play. We should be putting more money in Roth that's not taxed now, that is taxed now, but won't be taxed later. These are a lot of the conversations you want to be having with your CPA and your financial advisor because all these tax things right now are going to still be in play.
Speaker #0
right so you want to keep taking advantage of these low rates now i'm making blank faces at derek because this is where things start to sound like for me like a little a little anxiety inducing but i i get the message right for like okay the average consumer in their own personal economy because i'm sticking to the personal economy um this doesn't all have to be bad as long as you're thinking forward and i think a lot of people think right now what's best for me right now but you really need to be thinking what's going to be best for me like future Kelly, what's going to help future Kelly as opposed to Kelly today?
Speaker #1
Right. Because most people are taught to just save taxes, save taxes, save taxes, right? Because no one likes paying a high tax bill. It feels good when your accountant says, hey, look, I got you a $5,000 refund. You got a $3,000 refund. You're like, this guy's the best.
Speaker #0
That's my free monies.
Speaker #1
But what if you're paying 24% today, in the future, you're paying 35%. That's not a good tax plan. That's not a good tax plan. You really want to kind of think about, okay, if I stuff all this money in a pre-tax bucket, pay a lower tax rate today, but now I've got this tax time bomb coming later on, and I'm going to be taxed at 35% later.
Speaker #0
That's not the best plan.
Speaker #1
That was not the best plan long term.
Speaker #0
Long story short, taxes don't have to be good or bad. Either way, they're different for everybody, and you need to speak to your professional who knows your personal financial situation to determine the best way to combat where your money's going.
Speaker #1
Exactly. But if we're thinking logically about this, Tax rates are most like my best guess is that tax rates will not be lower than they are today.
Speaker #0
Okay. All right. I'm down with that.
Speaker #1
So use that for what you will, but talk to your professional about it. So that's one way I would look at the taxes for you. And the big other T we're talking about is tariffs.
Speaker #0
Tariffs. This word, man, I told you like, I'm not, this is this like the Boston tea party, weren't we? I don't even know. I'm making stuff up. But like, tariffs are a word that you hear very quite rarely that has it is the buzzword of 2024. If you were to say like, Kelly, what is the word of 2024? It would be tariffs.
Speaker #1
Yeah. And you know what? You know what the funny thing is? You know what the Google search for tariffs? I don't even want to know. After the election, not before. After.
Speaker #0
So after people already made their choices. Okay. Yes. Cool.
Speaker #1
So the search results or the search queries went up 1650 percent.
Speaker #0
Because it's a word that's been used a lot, but we don't all know what it means.
Speaker #1
And then the question who pays for tariffs is 350 percent.
Speaker #0
So who? Okay, Derek, who? pays for tariffs?
Speaker #1
You're looking at them. You and I do.
Speaker #0
We pay for tariffs. Yeah. I thought other countries paid for tariffs. Isn't that what we're being sold right now?
Speaker #1
Well, technically, they do. Okay. But anyone running a business knows that if my cost of goods go up, or let's say my labor goes up, whatever, my prices go up, I'm going to pass that off to the consumer, as we saw during the whole inflationary area a couple of years ago.
Speaker #0
Oh, yeah. Things got expensive, so everything got expensive.
Speaker #1
Yeah. The supermarkets were just eating at cost. the car companies weren't just saying, Oh, we're just going to sell the Ford at the same exact price. We're going to make the price go up during COVID lumber went up like crazy. Right. Um, so basically what's going to happen is let's say you've got, um, an item that costs a hundred bucks. Let's say it's a drill, right? A hundred dollar drill. Now, depending on where it comes from, basically the plan or the thought process is, all right, we're going to. We're going to put 60% tariffs on Chinese goods and 10 to 20% on other trade partners throughout the world. So pretty much everyone else. Everyone else. So, all right, let's use a drill from China versus a drill from Mexico, let's say. That's 20%. So that $100 drill from China now potentially becomes about $160 because they're just going to pass that. China would pay this 60% tariff to the US, but then the consumer now says, okay, now my drill costs $160 roughly, right? And same thing now that drill from Mexico is going to cost $100. 10 or 120, depending what the tariff is. So you get a pretty big increase. The thought process beyond that, too, is like, hey, we want to bring manufacturing back.
Speaker #0
Yeah, which I get. I get that in the consumer standpoint, right? As we've been encouraged for years, right? Buy Made in America and buy Made in America. Read your labels. Where are things coming from? And it's a valid conversation about the quality of goods, the safetiness. The safetiness? Is that a word? That's a real word, yeah. Okay, great. the safetiness of goods, where things are being manufactured, that sort of travels that some of our goods go on, right? That like a product can have a material that's sourced in one country that's then sent to another country, and then it's processed partially in that country, and then it moves to a third country, and then more of it's processed until it finally ends up in our hands, and that's like convoluted and expensive. This would maybe combat a little bit of that.
Speaker #1
Yeah, and that's the theory behind it. It's either, hey, we're going to use this as a bargaining chip or we're going to try and get some manufacturing here. But Trump did put some tariffs on the first go-round and manufacturing actually decreased.
Speaker #0
Okay.
Speaker #1
So they've not proven that tariffs are one for one. Hey, we're going to bring things over here because, I mean, you still have to build. Let's say you don't have a drill factory here. You're going to have to build a new factory. That's going to be expensive.
Speaker #0
Is it worth it to just pay the extra $60?
Speaker #1
I just pay the extra $60, right? That's kind of what you're thinking of too.
Speaker #0
I didn't contemplate that. Right. Yeah. So it's not just a matter, right. So it costs $60, right, for your $100 drill is now 160. Cool. You can manufacture it here in the United States. If there is not a facility to do that, is it more cost beneficial for a company to pay the $60 or to build the plant?
Speaker #1
And the other thing is, well, two, two points, right? Tariffs can be temporary. We have no idea how long. So if you're going to plan out, all right, I've got to build a factory. It's going to take me three to five years to build this factory.
Speaker #0
Oh yeah.
Speaker #1
What if the tariffs are gone by then? Okay. So is that a smart business decision, right? The other thing that a lot of people realize, so the Tax Cuts and Jobs Act, that's going to have to go through Congress. Congress has to approve that.
Speaker #0
Okay.
Speaker #1
Presidents have a pretty much carte blanche power to implement tariffs.
Speaker #0
So that is a given that's going to happen?
Speaker #1
That depends. I mean, I don't know if the 60% is going to happen. I have no idea, but there is a greater likelihood that a president can implement a tariff. Okay. And they can change the tax code.
Speaker #0
Interesting. We're getting presidential history lessons too. I love it. I'm here for this.
Speaker #1
Yeah. So that's one thing to think about. So I mean, basically, depending on what study you're looking at, and I've come across, but they're saying generally the extra cost to most Americans is going to be between $2,500 and $3,900 extra a year.
Speaker #0
Okay. Wow. So not insignificant in your personal economy.
Speaker #1
No. So if we're combining the two tax cuts and inflation, let's say we're going to get from tariffs, you're probably looking at a net negative of still $2,600. Okay. So even with the tax cuts extending out,
Speaker #0
you're still not ahead at all. But if you make a lot of money, you might be ahead, right? If you're getting corporate tax breaks and all of that stuff. So it does depend a little bit on where your personal economy falls in the range of personal economies.
Speaker #1
Yeah, well, so surprise, surprise, the people on the low end of the personal economy are going to be in much worse shape because of the tariffs than the people on the high end. Yeah. Because they're going to get less of a benefit from the tax cut and they're going to get more impacted by the increased prices.
Speaker #0
Increased prices. But a tariff is not the same as inflation.
Speaker #1
No, a tariff can cause inflation. It can be like a root cause of it.
Speaker #0
Okay, but it's not the same. So we could see a decrease in inflation because that's what we're trying to do with an increase in tariffs. And that could maybe even equal out. So we may see not a price difference in our goods.
Speaker #1
that would be yeah once again it's all good independent like you know economies are complicated yeah like you just do one thing like even the 60 example may not exactly work out exactly like that right um but you know we get 17 and a half percent of our goods from china yeah so that's that's a lot well and i know like if you're and i i would venture to guess we're
Speaker #0
talking right this is the millennial show we're talking to millennials millennials probably get more of their goods from china than other maybe other generations before ours because we are the amazon generation where we love to amazon things and a lot of the stuff from amazon is purchased from overseas that's part of why it's so inexpensive that's kind of the model of of amazon is inexpensive goods from other countries so that may be different than your parent or grandparent who's like Maybe going to a local economy, something we could talk about in another episode, but going to local mom and pop stores and things made in America. And it is a little bit of a different there's a bit of a generation gap there.
Speaker #1
Yeah, exactly. And the thing about whether these are good or bad policies is not up for me to judge. But one of the things I'd say, we have to start with the notion that there's no perfect policy out there.
Speaker #0
Yeah,
Speaker #1
absolutely. Right. So something's going to help some segment of the population. It's probably going to negatively impact another segment of the population. There's just no like, oh, wow, we did this policy and there's rainbows and unicorns and everyone's winning.
Speaker #0
Everybody's happy.
Speaker #1
Everyone's, yeah. Yeah. Babies are crying with happiness. Yeah. It's not applicable in real life. So we'll see the impacts of this stuff. We'll see how much will actually get done. I mean, with them controlling basically the Republicans were controlling about everything. They're probably going to get most of their wish list done. I mean, I've kind of noticed, I don't know if you have, but almost every president gets kind of one big bill that they can push out. So I'm curious to see which one it is. Is it going to be the tax cuts? Is it going to be something else? Because that's generally kind of their quote-unquote legacies, right? Like what do they do? Like Obama was the ACA. George W. was tax cuts. Trump's first one was tax cuts.
Speaker #0
is this next one gonna be tax guns yeah we don't know we don't know and i think the other thing too is from like a lot of people have a lot of feelings about this election so let's first off say no matter what side of the aisle that you sit on your feelings are valid um and i also think that the emotions that come into play with an election especially this particular election are make it really hard to look at data and fact right well can i tell you like a crazy stat yeah um so
Speaker #1
Republicans, if they're Republicans are in office, they see the economy is 16% better or worse, depending if they're not. So they swing 16%. Democrats tend to swing 9%. So just depending on who's in office and if you support them or don't support them is going to color how good you think this economy is, regardless of how actually good or bad it is.
Speaker #0
Interesting. And that, I guess, makes sense to me. And it makes sense, I think, regarding a lot of the... conversations that were happening leading up to this election. But yeah, I think for those of you who are out there listening, I think the biggest thing as far as your money is concerned is don't just sit and wait for things to happen to you. Don't just sit and wait for tax cuts to... Again, if you think these things are great or you don't think they're great one way or another, your finances are going to change. You need to take care of it.
Speaker #1
Well, to me, these are things you want to pay attention to, but the things you do on the margins. At the end of the day, you should still save on your 401k plan. Yeah. You still get your company match. You should still manage your cash flow. You should still pay attention to taxes. You should still make sure you have an estate plan. That has nothing to do like, yeah, these things change. Maybe you're a person God bless you. Maybe you have $10 million and previously you were like, I'm good. But now it may drop to below $10 million and maybe you need to do some estate planning from a tax standpoint. Those are the people that are going to be more affected by anything. But at the end of the day, you're going to want to do your personal economy things. keep making money, keep working towards a promotion, keep saving, keep investing, do all the things that you should be doing regardless of who's in office.
Speaker #0
Keep paying for baseball, keep putting money in your child's e-wallet for the Scholastic Book Fair. That's the biggest racket ever.
Speaker #1
My son last year bought the Guinness Book of World Records. He spent like $35 on this like 400-page book of Guinness World Record thing.
Speaker #0
I'm impressed that at least it was a book, Derek. I have to have... So it is book fair week at my children's school. You have to load money into this e-wallet. Don't worry, it's fake money that you can't get back. So once it's loaded in there, they got to spend it. Everybody got a set amount. And I have to have a conversation with my children that you have to buy at least one book.
Speaker #1
What do they buy instead?
Speaker #0
Calculators, journals, sticker books. My son last year bought like one of those like rocks that you dig dinosaur fake plastic dinosaur fossils out of. That was $17. A little metal tin that looks like an iPhone filled with pencils. We find like... the garbage a stitch poster those of you i have a daughter who loves stitch disney stitch and we bought a stitch poster so we have to have a conversation every year how much money did you put in this fake wallet okay i put thirty dollars because that's like a good it sounds like a lot of stuff for this yeah well they do that's the trick with it though is they do and i i started off getting ten dollars but like a lot of the books are like eleven dollars so i realized that wasn't enough and then My daughter, the first year, came home with a calculator, which she spent all her money on. So now, again, it's a discussion. You have to come home with a book and you can use it. But that's the stuff that you have to worry about, I think. And your personal economy is the little things. I want to have enough money to be able to do that. Not everybody does or not everybody has planned for it. But you can listen to all of this information that we're giving you. You can take what makes sense for you. But your personal economy, and I'm like latching on to that concept, Eric. I'm here for it. Your personal economy is the most important thing for you.
Speaker #1
It is. At the end of the day, you know, I've made money when Trump was in office. I've made money when Obama was in office. I've made money when Biden was in office. And I've done poorly at times with all of them. And generally, the economy at... you know, as a whole didn't really matter as much. It was kind of more about my business personally and what I was doing.
Speaker #0
And your personal financial decisions that you're making during those times.
Speaker #1
Right, right. So I mean, yeah, there's gonna be some things in the margin that will impact you financially. You know, we're not gonna get into the other stuff. But you know, for the most part, you control what really happens to you. And that's the main message I want to get here. These are things we want to be aware of. I think we want to know, okay, now we know what a tariff is. Great. What can I do about it? Honestly, not much.
Speaker #0
Yep.
Speaker #1
If you have a tax cuts and jobs act, we could probably do some more planning around. Yeah,
Speaker #0
I would agree with that. Awesome. Well, thank you for joining us in another episode and we will see you next time.
Speaker #1
See ya.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Welcome to "Millennial Money Matters," your essential guide to navigating the world of finance as a millennial. Hosted by Kelly Turner, a mortgage loan officer, and Derek Mazzarella, a financial advisor, this podcast offers straightforward, practical advice on managing your money.

Kelly and Derek tackle topics like budgeting, student loans, real estate, and investing, breaking down complex financial concepts into easy-to-understand tips. Each episode delivers actionable insights and real-life stories to help you make smart financial decisions and secure your future.

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek.
Speaker #1
Hey, everyone. Welcome back.
Speaker #0
Welcome back. We kind of have an exciting episode this week where we're going to be talking about a lot of stuff that's happened in the world in the last couple of weeks.
Speaker #1
Yeah. It's election season. So rightfully, we have our new president-elect. So we wanted to talk about... He's talked about all these policies, a few of them that he's actually talked about. And what do they mean for you individually?
Speaker #0
Yeah, there's been a lot of buzzwords. I think that I've heard the word tariff more in the last two weeks than I think I've heard in my entire life. Maybe like history class in high school was the last time we were talking about tariffs. But here we are, 2024, tariff is the buzzword. Yeah,
Speaker #1
Mr. Trump loves tariffs.
Speaker #0
Yeah,
Speaker #1
we love-Let's talk about that today.
Speaker #0
But there's been a lot of chat about tariffs, tax cuts, interest rates, the feds, economic policy, foreign policy. And I think there's a lot of questions for people about like- okay, cool. We hear about all of this. We know this is all going to alter the economy in some way or another. But like, how does that impact me as a person, right? I'm an individual. I want to talk a little bit about, right, how does that impact us? Because, right, what am I worried about? I'm not worried about tariffs from China. I'm worried about paying my child care bill, paying for like T-ball signups start in a month. I'm worried about that. We're worried about our kids'529 plans. You know, our worries are a little bit different. And you know, do we have to worry about some of this policy? Is it going to help us? Is it going to hurt us? And I think that's what we're going to dig into today.
Speaker #1
Yeah, I always talk with clients, you know, there's, to me, there's two economies, right? There's the economy, writ large, and then there's your economy. So I think our connection today is what's going on in the economy that can potentially impact you personal economy, right? That's we're going to really dive into.
Speaker #0
I love it. I love it. That's a great like segue into this, right? Your personal economy. I've never thought of it that way. We talk about budgets. We talk about a lot. But your personal economy is, yeah, it's how you run your personal finances and all the different impacts of it. What a great thought.
Speaker #1
That's what I'm here for. All right. I'll see you later. Yeah.
Speaker #0
Derek is done now. Derek is done now. Oh, you've sort of just blown my mind with sort of that concept that, yeah, it's your personal economy. All right. So what's our first topic? What are we going to talk about? I'm here to just ask questions, not to give answers. That's what Derek's for today. Yeah.
Speaker #1
It sounds good. So I guess most of my show today. Well, I think the big news that we saw immediately was the impact on the stock market. You just mentioned to me how now you're all a multimillionaire now because the stock market went up.
Speaker #0
It felt good for a few minutes. I was like, oh yeah, there's a lot going on there. But I was saying to Derek before we started recording that stocks going up really quick and going down really quick are both nerve wracking to people who kind of have a financial savviness. And when you see your stocks or your investment accounts blow up, you're like, oh, that's good. But and like, what happens next? And same with right when we watch them like blockbuster drop, you have the same feelings. You're like, oh, no, I do.
Speaker #1
That can't be good. Like that can't be good either way.
Speaker #0
Either way. So I am feeling a little that can't be good because what goes up must come down.
Speaker #1
Yeah, generally. So one of the things that I think people. don't necessarily always understand about the stock market in general is they are a leading indicator and they try to be forward looking. So they're not looking at like, all right, what has happened and we're going to react based off of that. They're trying to think, okay, this event is happening. How are we going to price that in in the future? Right? So they're assuming Trump is going to be really good for stocks. And there's a couple of things that he's mentioned that would probably you know, go along with that. So the first thing is he's talking about cutting the corporate tax rate.
Speaker #0
Oh, yeah. So big companies love that.
Speaker #1
Yeah. Well, because I mean, think about just a dollar less that you have to pay to someone else that you can use to either reinvest or buy back your own stock or give your shareholders in dividends. Right. So he's proposing going from 21 percent to 15.
Speaker #0
That's a big difference.
Speaker #1
And yeah, keep in mind that before he got an office the first time, it was at 35 percent. So this is. this is a huge cut from when he even first was a president.
Speaker #0
Wow.
Speaker #1
So it's a big drop,
Speaker #0
right? That's a big difference.
Speaker #1
Yeah. So, I mean, 6% doesn't seem like a lot now, but, you know, look over that. And one of the things that I kind of saw this chart, it was talking about, like, what do they do? And a lot less companies after the first, you know, tax cut borrowed less. They bought back more of their own shares. So, like I said, they kind of, once again, just frees up dollars. So anytime you free up dollars for a corporation to use however they want, they're going to either typically reinvest it, hopefully. I mean, that's the thought. process there. They're going to buy back their own shares, which helps the stock price. Doesn't really help anyone else unless you're a shareholder. Or they're just going to increase their dividends. So that's generally what companies can do with excess cash anyway. what the thought process behind why the stocks are going up.
Speaker #0
Now, just a quick question, just for clarification. That's like the altruistic things they can do with excess cash. But this was also a time period where CEOs and management of companies were making the most money that they've ever made before. So some of that money does end up in the pockets of the personal stakeholders for a large company, right? Like your CEO can bonus themselves out, you know, $45 million instead of $35 million, which doesn't... You know, we're talking 45 to 35 doesn't sound like a huge difference until you're contemplating the entire country's GDP that, you know, that can count for in other places.
Speaker #1
Well, interestingly enough, this is a problem that went back to Clinton. And he actually was probably one of the reasons they solved this because one of the big changes that during his administration was a lot of executives had more salary in some stock. You know, it wasn't a huge mix. Now it's mainly stock. So when you have these. CEOs, these C-suite executives at these large companies making $45 million, but that $45 million is mainly company stock. What are they thinking? We got to drive the stock price.
Speaker #0
We got to make the stock price baller. That's coming in my pocket later.
Speaker #1
Yeah. I mean, yes, there are shareholders that if you are invested in company, you're going to go along with it. Most people don't have $45 million a year of income that they're pumping into the stock either, but they have so much wealth tied up in their own company stock that they are driving a majority of those decisions. I mean, the good CEOs are looking long-term. The bad ones are going to be, how do we take advantage of this right now? And a lot of that is just buying back your own shares. And what that does is, let's just say there's, just easy math, like let's say there's 1,000 shares available out there in the market, and they say, okay, well, we have to pay a dividend of 2% to all these 1,000 shareholders. Well, then they go, like, we're going to buy back 200 of them. So now there's only 800 shares. So now we don't have to pay less in dividends, right? Now we have more money coming back to us. There's lesser shares. There's higher demand for the stock because there's less supply. You know, it's this nice little thing that they can do. They're just using company money and excess cash to reduce the amount of shares out there.
Speaker #0
So it's smart for the company. Yeah.
Speaker #1
Yeah. I mean, it's not the best economic thing, but it's going to be good for shares. That's why you see some people on the other side of the aisle saying, hey, we love to tax buybacks or get rid of them. They're evil. I don't think they're evil. I mean, sometimes a company has to do what they think is best for the company. Yeah. And sometimes that is buying back shares.
Speaker #0
Interesting. Oh, things that you never contemplate. Yeah. You contemplate. Those of us dealing with our own personal economy are not necessarily contemplating that.
Speaker #1
Well, I always say, hey, just in my life, what I've learned is just follow the money. Like, where's the money taking us? And that'll give you the answer.
Speaker #0
That'll give you the answer. All right.
Speaker #1
So where's the pot of gold? And the other thing that people always talk about is the Trump trades, right? Because they want to think, okay, now what industries are going to be more impacted by Trump than by Biden? So a lot of people are trying to guess. So some of the big sector winners were financials, technology, energy. And then. And outside of the sector, so sectors are part of the economy where it's like, hey, we're looking at the technology companies, for example. Then there's what's called small cap companies. So these are not the big boys in the block. These aren't, you know, Apple, GE, all those folks. These are the generally more startup companies. They tend to have more debt, but they do less overseas. And if he's talking about implementing some of these tariffs, which we're going to get into later, that's typically going to be better. Probably they're thinking that's going to be better for local companies that do majority of their business locally in the United States. So that's why small caps went up. And the other thing he's been championing lately has been cryptocurrencies. He went from not understanding it to still not understanding it, but at least now championing it in general and saying, hey, look, crypto. So if you look, crypto has gone up and he's even talked, I've heard, about buying some crypto for the government. Oh. Sort of like reserve.
Speaker #0
Oh, so we're like totally legitimizing crypto at this point.
Speaker #1
I mean, we'll see about that if that actually happens. But that's what the crypto folks are betting on. They're like, oh, maybe the government's going to buy some crypto. And that's why the price has shot up like crazy lately.
Speaker #0
Okay. So we're going to buy some dog coin and Bitcoin and...
Speaker #1
Well, Elon's got his right ear, so maybe it's going to be a huge amount of Dogecoin. Oh,
Speaker #0
Dogecoin. What? I can't. Okay. All right. All right. I'm listening.
Speaker #1
Follow the money, Kelly.
Speaker #0
Follow the money.
Speaker #1
Yeah. So that's kind of what's going on with the stock market. So the stock market, writ large, has kind of said Trump's going to be good for the stock market specifically.
Speaker #0
And that's why the reactions are very positive right now. Yeah.
Speaker #1
And that's why they shot out of a can right after he was elected. right? So what they're doing, they're trying to price in future growth. Now, the question is, is that future growth sustainable? Like, where do we go from here? Are we going to go up? Because, you know, everything he says is going to come true and the economy is going to boom and tax rates can be nothing, you know, or are we getting ahead of our skis? And that's the question. No one of us really know for sure.
Speaker #0
No, we'd be, we'd be Warren Buffett, right? We'd be gajillionaires and sitting on our pot of money if we knew the answer to that. But I do think, you know, I said it right at the beginning, like, what goes up? always comes down and not necessarily Volitally, well it kind of volatile because that's life we're living right now, but like I always feel like initial reaction is always extreme. And then there is some settling that happens, right?
Speaker #1
Yeah. Well, you want to think of like water, because water seeks its own level. And the level that it seeks is going to be based on earnings when it comes to stocks. So short term news, long term, they're going to look at, all right, is this company actually making money for us? Cool. We're going to give it more money so they can make more money for us. It's going to be more valuable, right? So if they're not earning a good enough amount of money. then it's gonna you're gonna have those drops it was kind of the same thing that happened during covid right like all those we were projecting all like all the uh what was the exercise bike and blanket peloton peloton everybody wanted their pellets and everyone bought a peloton it's like this is gonna go on forever the stock shot up and then what happened people actually started going to gyms now yeah and now people like can't give away their pelotons exactly so that that crashed like that didn't sustain itself it's you know it sought its own level there because the earnings weren't keeping up with stock price so that's one thing we need to be worried about The other point I would make is there was a lot of Trump trades back in 2016 which didn't work out. Like if you had to guess, Joe Biden, Trump, right? Who would have been better for oil stocks?
Speaker #0
Yeah, I would have said Trump all day long.
Speaker #1
All day long. Biden was much better for oil stocks.
Speaker #0
Interesting.
Speaker #1
So sometimes we assume these things are going to happen because someone's president, but there's so many other factors that are going on outside of the president's control that are going to impact the stock price.
Speaker #0
Yeah. And that, you know, my only real relation to that is interest rates, because that's life that I live, is that people are always like, oh, well, what's happening? And why are interest rates going up? And sometimes interest rates go up due to the United States'own economic factors. But sometimes it's outside factors. It's what's happening. Like the word Ukraine had a big impact on interest rates. Like it is outside factors that we cannot predict. And I think that's probably one of the messages here is no matter what. Trump or any other president does or does not do, there are pieces of this puzzle that are just completely outside of anyone's control. They're happening somewhere else.
Speaker #1
Yeah. My advice for the stock piece of this is don't go crazy with the Trump trades. If you're a long-term investor, stay long-term invested. He's only been president for four years. He's probably going to have control for two on the Republican side. So not all this stuff is going to come to fruition, and it's not going to come right away. just have a long-term outlook with a lot of these stocks and don't over go crazy over waiting one or the other if you want to you know do a little bit of your fun stuff on the side go ahead and do it just make sure it doesn't impact you totally financially your long-term plan yeah um and then and then kind of think maybe you should probably jump into bonds because that's kind of what we had mentioned with interest rates right because that's you know you're in the mortgage business and what did you see with mortgage rates they must have gone down because the other thing that kind of just slipped in this week was the fed dropped the rates the fed dropped the rates again yeah that last that it was it
Speaker #0
The week of the election, I can't even talk because I'm so overwhelmed contemplating it, was like a wild week in interest rates in that we had the election news that we were waiting on, which we knew was going to have a large impact on interest rates. And that was immediately followed by a Fed meeting. That was kind of a controversial Fed meeting. I don't want to say controversial. I guess that's the wrong word.
Speaker #1
No, say it. We need more views. It's so controversial. It was crazy.
Speaker #0
Fed meeting. There was just a lot said in that Fed meeting. And so we actually watch interest rates drop initially and then we watch them spike back up and then we watch them drop. And honestly, we're seeing daily a lot of volatility in the bonds on the interest rate side. So I think it's, again, a lot of people thought that, you know, as soon as the election happened, rates would settle down. But again, there's more stuff at play than just an election. And I think that's one of the tricky parts in bonds and in interest rates is it's not just one thing that's impacting us. It's a lot of little things.
Speaker #1
Well said. And one thing I would add to that is also the bond market tries to be future looking. So they're looking at a lot of these policies and saying, okay, if we do all of these things that we're talking about, what's going to happen with the deficit? Is it going to go up or down?
Speaker #0
Yeah.
Speaker #1
That's going to go up. Okay. So now, because we base a lot of the rates on the 10-year treasury, and they're saying, okay, well, the deficit goes up and there's maybe some potential inflation coming down the pike, which we'll probably talk about later. Should rates be higher or lower? So they're like, oh, it's a little riskier because all this inflation and all this debt is going to happen. So that's why rates shot up, even though the Fed has dropped the rates.
Speaker #0
Yeah. And the other thing that happened with that, too, is what is more important than whether or not the Fed drops the rates is the actual commentary from the Fed meeting. So that's the stuff that has a bigger impact on us. And there was some commentary from that Fed meeting from our Lord and Savior Jerome Powell. lenders love and or hate him depending on the day. But he had some commentary that did make it sound like some of the future cuts that we thought we were going to get, we may not be getting. And so the bond reacts to that kind of somewhat drastically. So we think that was also some of the spike that happened where rates went back up again is cool, you dropped the rate right now. But if you said you think you're not going to drop it again, or you might raise it, then all of a sudden everything reacts accordingly. So it's not necessarily about what's happening in that moment. And a lot of people don't realize, too, is all the speculation around if the Fed is going to drop the rate or not is generally baked in to any given bank's mortgage rates for weeks in advance. Like we knew we were going to have this rate drop from the Fed. So that had already been baked in because when you're locking an interest rate, you're locking it for 30 days, right? So if we think you're going to drop it within 30 days, 30 days prior that the rate is going to be impacted by it. So it's not necessarily something that's hitting that day. It's really already been discussed, looked at, vetted, and baked right in.
Speaker #1
Yeah, because they want to try and predict what's going to happen because they don't want to have set a rate and say, hey, look, it's going to be 5% and the rate goes up to 7. Yeah. I mean, extreme, but that's not where they want to be. So they're going to look ahead and they're thinking, OK, there's what happens at the Fed meeting, which is what they cut rates, and then also what. the Fed says.
Speaker #0
Yeah, what they say. Their words are very important.
Speaker #1
So they're trying to read into that. And if they're reading into it and saying, okay, because they're very data driven and they've been a little slow to move. So they're going to say, okay, well, if these policies are inflationary, should we be cutting rates as quickly as we plan and plan on doing? Yeah. So they're going to maybe slow roll it because basically the expectation was we do a 50% cut and then a 25% and then maybe another 25% before the end of the year. Yeah. So basically dropping it down by 1% before 2025 hits. Who knows what's going to happen with that one. So that's a little bit more up in the air than previously expected. And that's why the rates have also shot up because they're trying to, once again, predict.
Speaker #0
Exactly. What is going to happen here? And the other thing, too, just as a quick aside for those listening, if you're not familiar, when the Fed drops the rate by, say, 1%, that does not mean mortgage rates are dropping by that amount. So that is a slow, I think we've talked about a little bit in past episodes, but it's like a slow trickle into mortgage rates. It is not a one-to-one. So. So the Fed dropping by a quarter point does not mean your mortgage rate is now a quarter point lower. Not how it works. There's a lot of other factors that come into play with your interest rate. But just know that, that it's not. Feds don't cut rates and then your mortgage rate is cut by the same amount. We get that question a lot.
Speaker #1
I'm sure. Yeah. And it's just there's a lot that goes into these things. It's not like, oh, boop, boop, boop. One thing, one happens. Here we go. Should we move on to taxes?
Speaker #0
Yeah. Let's talk about taxes because everybody loves to talk about taxes. It's my favorite topic. I hate it.
Speaker #1
Well, this was as my like me. put my financial advisor hat, we're always talking about all these other things that's going on in the market to me, or the election. And to me, the one big thing was what's going to happen with this massive tax bill that Trump passed that was set to expire. And for those that don't know, the Tax Cuts and Jobs Act basically was going to, a few main categories are going to be impacted. So first of all is your income tax rate. For most folks, it would, if they just let them expire and nothing happened, tax rates would go up about 3% depending on your tax bracket. So that's one. So nor taxes. All right. So long-term capital gains rates would stay about the same. So that wouldn't be changed. Standard deduction, which everyone's kind of, no one itemizes really right now. So that would be cut in half. So more people would potentially start itemizing. So there'd be more planning along that. The SALT tax was capped at $10,000. That would be removed. So if you were moving to itemizing and you had a big house with a big interest payment and a big tax payment, you could deduct more of it. So a lot of people would be happy about that. The child... tax credit would have been cut in half. The mortgage interest deduction would change as well. And then some of the big one for those that are dying, the estate tax would be cut in half as well. So it would be at $13.6 million now, down about five, just for inflation. So it could be around six by the time then. So there's a lot of big changes that would happen if they just let it expire. Now, what we think is going to happen is Trump said, basically, we're going to keep these deductions moving forward. So we're going to kind of make everything permanent. as permanent as permanent can be in congress yeah it's not that permanent but a little permanent yeah so the good news is for everyone the tax rates are going to stay the same so they're not going to go down you're probably going to hear tax cuts tax cuts tax cuts um no they're just going to extend them so you're already living in the tax cut you're just going to get to keep it for longer yes yes you're staying in the same depth of water you're not going higher or lower okay i like all these water references they're delightful thanks i guess i saw aquaman the other day right yeah uh so for for a lot of people and and what i would say is um We got these tax cuts coming or tax extensions coming, I should say. So what do we do for planning? And what we really want to think about is where are we today versus where are we historically and what's going on with the debt and where do we think we'll be in the future? So Kelly, I'm going to do some trivia. Okay. I did not prep her for this.
Speaker #0
I'm not prepped at all.
Speaker #1
It's okay. You'll get it wrong. It's okay. What was the highest marginal tax rate?
Speaker #0
I don't even know what that means. You spoke Spanish there. Okay, thanks. All right.
Speaker #1
So right now it's 37%. So if you make the most amount of money. you're going to tax for every dollar you make you're going to tax 37 cents okay so what do you think the highest one ever was 56 56. uh you're you're very wrong okay i just made it up that's all it's fine uh it's it was 94 so you made a dollar 94 cents went to the government.
Speaker #0
Okay. All right. That was not a great time.
Speaker #1
Well, that was right after World War II. So we had a thing to pay for. We did.
Speaker #0
We did. We had a very expensive thing to pay for.
Speaker #1
Tanks and cigarettes back in the 40s to pay for. Right. So if you look at that. tax rates are basically historically low. They haven't been this low since, I think, before the Depression. And then we have all this debt. Like, where do you think taxes are going to go?
Speaker #0
Yeah, they're going to go up because we got to pay for that debt.
Speaker #1
Well, you know, a reasonable person would say that. I don't know if we have a reasonable government that would ever pay for that, but who knows? So let's say that that does happen at some point in the future. So when it comes to planning for you specifically, you know, we want to think about things like, OK. a Roth conversions more in play. We should be putting more money in Roth that's not taxed now, that is taxed now, but won't be taxed later. These are a lot of the conversations you want to be having with your CPA and your financial advisor because all these tax things right now are going to still be in play.
Speaker #0
right so you want to keep taking advantage of these low rates now i'm making blank faces at derek because this is where things start to sound like for me like a little a little anxiety inducing but i i get the message right for like okay the average consumer in their own personal economy because i'm sticking to the personal economy um this doesn't all have to be bad as long as you're thinking forward and i think a lot of people think right now what's best for me right now but you really need to be thinking what's going to be best for me like future Kelly, what's going to help future Kelly as opposed to Kelly today?
Speaker #1
Right. Because most people are taught to just save taxes, save taxes, save taxes, right? Because no one likes paying a high tax bill. It feels good when your accountant says, hey, look, I got you a $5,000 refund. You got a $3,000 refund. You're like, this guy's the best.
Speaker #0
That's my free monies.
Speaker #1
But what if you're paying 24% today, in the future, you're paying 35%. That's not a good tax plan. That's not a good tax plan. You really want to kind of think about, okay, if I stuff all this money in a pre-tax bucket, pay a lower tax rate today, but now I've got this tax time bomb coming later on, and I'm going to be taxed at 35% later.
Speaker #0
That's not the best plan.
Speaker #1
That was not the best plan long term.
Speaker #0
Long story short, taxes don't have to be good or bad. Either way, they're different for everybody, and you need to speak to your professional who knows your personal financial situation to determine the best way to combat where your money's going.
Speaker #1
Exactly. But if we're thinking logically about this, Tax rates are most like my best guess is that tax rates will not be lower than they are today.
Speaker #0
Okay. All right. I'm down with that.
Speaker #1
So use that for what you will, but talk to your professional about it. So that's one way I would look at the taxes for you. And the big other T we're talking about is tariffs.
Speaker #0
Tariffs. This word, man, I told you like, I'm not, this is this like the Boston tea party, weren't we? I don't even know. I'm making stuff up. But like, tariffs are a word that you hear very quite rarely that has it is the buzzword of 2024. If you were to say like, Kelly, what is the word of 2024? It would be tariffs.
Speaker #1
Yeah. And you know what? You know what the funny thing is? You know what the Google search for tariffs? I don't even want to know. After the election, not before. After.
Speaker #0
So after people already made their choices. Okay. Yes. Cool.
Speaker #1
So the search results or the search queries went up 1650 percent.
Speaker #0
Because it's a word that's been used a lot, but we don't all know what it means.
Speaker #1
And then the question who pays for tariffs is 350 percent.
Speaker #0
So who? Okay, Derek, who? pays for tariffs?
Speaker #1
You're looking at them. You and I do.
Speaker #0
We pay for tariffs. Yeah. I thought other countries paid for tariffs. Isn't that what we're being sold right now?
Speaker #1
Well, technically, they do. Okay. But anyone running a business knows that if my cost of goods go up, or let's say my labor goes up, whatever, my prices go up, I'm going to pass that off to the consumer, as we saw during the whole inflationary area a couple of years ago.
Speaker #0
Oh, yeah. Things got expensive, so everything got expensive.
Speaker #1
Yeah. The supermarkets were just eating at cost. the car companies weren't just saying, Oh, we're just going to sell the Ford at the same exact price. We're going to make the price go up during COVID lumber went up like crazy. Right. Um, so basically what's going to happen is let's say you've got, um, an item that costs a hundred bucks. Let's say it's a drill, right? A hundred dollar drill. Now, depending on where it comes from, basically the plan or the thought process is, all right, we're going to. We're going to put 60% tariffs on Chinese goods and 10 to 20% on other trade partners throughout the world. So pretty much everyone else. Everyone else. So, all right, let's use a drill from China versus a drill from Mexico, let's say. That's 20%. So that $100 drill from China now potentially becomes about $160 because they're just going to pass that. China would pay this 60% tariff to the US, but then the consumer now says, okay, now my drill costs $160 roughly, right? And same thing now that drill from Mexico is going to cost $100. 10 or 120, depending what the tariff is. So you get a pretty big increase. The thought process beyond that, too, is like, hey, we want to bring manufacturing back.
Speaker #0
Yeah, which I get. I get that in the consumer standpoint, right? As we've been encouraged for years, right? Buy Made in America and buy Made in America. Read your labels. Where are things coming from? And it's a valid conversation about the quality of goods, the safetiness. The safetiness? Is that a word? That's a real word, yeah. Okay, great. the safetiness of goods, where things are being manufactured, that sort of travels that some of our goods go on, right? That like a product can have a material that's sourced in one country that's then sent to another country, and then it's processed partially in that country, and then it moves to a third country, and then more of it's processed until it finally ends up in our hands, and that's like convoluted and expensive. This would maybe combat a little bit of that.
Speaker #1
Yeah, and that's the theory behind it. It's either, hey, we're going to use this as a bargaining chip or we're going to try and get some manufacturing here. But Trump did put some tariffs on the first go-round and manufacturing actually decreased.
Speaker #0
Okay.
Speaker #1
So they've not proven that tariffs are one for one. Hey, we're going to bring things over here because, I mean, you still have to build. Let's say you don't have a drill factory here. You're going to have to build a new factory. That's going to be expensive.
Speaker #0
Is it worth it to just pay the extra $60?
Speaker #1
I just pay the extra $60, right? That's kind of what you're thinking of too.
Speaker #0
I didn't contemplate that. Right. Yeah. So it's not just a matter, right. So it costs $60, right, for your $100 drill is now 160. Cool. You can manufacture it here in the United States. If there is not a facility to do that, is it more cost beneficial for a company to pay the $60 or to build the plant?
Speaker #1
And the other thing is, well, two, two points, right? Tariffs can be temporary. We have no idea how long. So if you're going to plan out, all right, I've got to build a factory. It's going to take me three to five years to build this factory.
Speaker #0
Oh yeah.
Speaker #1
What if the tariffs are gone by then? Okay. So is that a smart business decision, right? The other thing that a lot of people realize, so the Tax Cuts and Jobs Act, that's going to have to go through Congress. Congress has to approve that.
Speaker #0
Okay.
Speaker #1
Presidents have a pretty much carte blanche power to implement tariffs.
Speaker #0
So that is a given that's going to happen?
Speaker #1
That depends. I mean, I don't know if the 60% is going to happen. I have no idea, but there is a greater likelihood that a president can implement a tariff. Okay. And they can change the tax code.
Speaker #0
Interesting. We're getting presidential history lessons too. I love it. I'm here for this.
Speaker #1
Yeah. So that's one thing to think about. So I mean, basically, depending on what study you're looking at, and I've come across, but they're saying generally the extra cost to most Americans is going to be between $2,500 and $3,900 extra a year.
Speaker #0
Okay. Wow. So not insignificant in your personal economy.
Speaker #1
No. So if we're combining the two tax cuts and inflation, let's say we're going to get from tariffs, you're probably looking at a net negative of still $2,600. Okay. So even with the tax cuts extending out,
Speaker #0
you're still not ahead at all. But if you make a lot of money, you might be ahead, right? If you're getting corporate tax breaks and all of that stuff. So it does depend a little bit on where your personal economy falls in the range of personal economies.
Speaker #1
Yeah, well, so surprise, surprise, the people on the low end of the personal economy are going to be in much worse shape because of the tariffs than the people on the high end. Yeah. Because they're going to get less of a benefit from the tax cut and they're going to get more impacted by the increased prices.
Speaker #0
Increased prices. But a tariff is not the same as inflation.
Speaker #1
No, a tariff can cause inflation. It can be like a root cause of it.
Speaker #0
Okay, but it's not the same. So we could see a decrease in inflation because that's what we're trying to do with an increase in tariffs. And that could maybe even equal out. So we may see not a price difference in our goods.
Speaker #1
that would be yeah once again it's all good independent like you know economies are complicated yeah like you just do one thing like even the 60 example may not exactly work out exactly like that right um but you know we get 17 and a half percent of our goods from china yeah so that's that's a lot well and i know like if you're and i i would venture to guess we're
Speaker #0
talking right this is the millennial show we're talking to millennials millennials probably get more of their goods from china than other maybe other generations before ours because we are the amazon generation where we love to amazon things and a lot of the stuff from amazon is purchased from overseas that's part of why it's so inexpensive that's kind of the model of of amazon is inexpensive goods from other countries so that may be different than your parent or grandparent who's like Maybe going to a local economy, something we could talk about in another episode, but going to local mom and pop stores and things made in America. And it is a little bit of a different there's a bit of a generation gap there.
Speaker #1
Yeah, exactly. And the thing about whether these are good or bad policies is not up for me to judge. But one of the things I'd say, we have to start with the notion that there's no perfect policy out there.
Speaker #0
Yeah,
Speaker #1
absolutely. Right. So something's going to help some segment of the population. It's probably going to negatively impact another segment of the population. There's just no like, oh, wow, we did this policy and there's rainbows and unicorns and everyone's winning.
Speaker #0
Everybody's happy.
Speaker #1
Everyone's, yeah. Yeah. Babies are crying with happiness. Yeah. It's not applicable in real life. So we'll see the impacts of this stuff. We'll see how much will actually get done. I mean, with them controlling basically the Republicans were controlling about everything. They're probably going to get most of their wish list done. I mean, I've kind of noticed, I don't know if you have, but almost every president gets kind of one big bill that they can push out. So I'm curious to see which one it is. Is it going to be the tax cuts? Is it going to be something else? Because that's generally kind of their quote-unquote legacies, right? Like what do they do? Like Obama was the ACA. George W. was tax cuts. Trump's first one was tax cuts.
Speaker #0
is this next one gonna be tax guns yeah we don't know we don't know and i think the other thing too is from like a lot of people have a lot of feelings about this election so let's first off say no matter what side of the aisle that you sit on your feelings are valid um and i also think that the emotions that come into play with an election especially this particular election are make it really hard to look at data and fact right well can i tell you like a crazy stat yeah um so
Speaker #1
Republicans, if they're Republicans are in office, they see the economy is 16% better or worse, depending if they're not. So they swing 16%. Democrats tend to swing 9%. So just depending on who's in office and if you support them or don't support them is going to color how good you think this economy is, regardless of how actually good or bad it is.
Speaker #0
Interesting. And that, I guess, makes sense to me. And it makes sense, I think, regarding a lot of the... conversations that were happening leading up to this election. But yeah, I think for those of you who are out there listening, I think the biggest thing as far as your money is concerned is don't just sit and wait for things to happen to you. Don't just sit and wait for tax cuts to... Again, if you think these things are great or you don't think they're great one way or another, your finances are going to change. You need to take care of it.
Speaker #1
Well, to me, these are things you want to pay attention to, but the things you do on the margins. At the end of the day, you should still save on your 401k plan. Yeah. You still get your company match. You should still manage your cash flow. You should still pay attention to taxes. You should still make sure you have an estate plan. That has nothing to do like, yeah, these things change. Maybe you're a person God bless you. Maybe you have $10 million and previously you were like, I'm good. But now it may drop to below $10 million and maybe you need to do some estate planning from a tax standpoint. Those are the people that are going to be more affected by anything. But at the end of the day, you're going to want to do your personal economy things. keep making money, keep working towards a promotion, keep saving, keep investing, do all the things that you should be doing regardless of who's in office.
Speaker #0
Keep paying for baseball, keep putting money in your child's e-wallet for the Scholastic Book Fair. That's the biggest racket ever.
Speaker #1
My son last year bought the Guinness Book of World Records. He spent like $35 on this like 400-page book of Guinness World Record thing.
Speaker #0
I'm impressed that at least it was a book, Derek. I have to have... So it is book fair week at my children's school. You have to load money into this e-wallet. Don't worry, it's fake money that you can't get back. So once it's loaded in there, they got to spend it. Everybody got a set amount. And I have to have a conversation with my children that you have to buy at least one book.
Speaker #1
What do they buy instead?
Speaker #0
Calculators, journals, sticker books. My son last year bought like one of those like rocks that you dig dinosaur fake plastic dinosaur fossils out of. That was $17. A little metal tin that looks like an iPhone filled with pencils. We find like... the garbage a stitch poster those of you i have a daughter who loves stitch disney stitch and we bought a stitch poster so we have to have a conversation every year how much money did you put in this fake wallet okay i put thirty dollars because that's like a good it sounds like a lot of stuff for this yeah well they do that's the trick with it though is they do and i i started off getting ten dollars but like a lot of the books are like eleven dollars so i realized that wasn't enough and then My daughter, the first year, came home with a calculator, which she spent all her money on. So now, again, it's a discussion. You have to come home with a book and you can use it. But that's the stuff that you have to worry about, I think. And your personal economy is the little things. I want to have enough money to be able to do that. Not everybody does or not everybody has planned for it. But you can listen to all of this information that we're giving you. You can take what makes sense for you. But your personal economy, and I'm like latching on to that concept, Eric. I'm here for it. Your personal economy is the most important thing for you.
Speaker #1
It is. At the end of the day, you know, I've made money when Trump was in office. I've made money when Obama was in office. I've made money when Biden was in office. And I've done poorly at times with all of them. And generally, the economy at... you know, as a whole didn't really matter as much. It was kind of more about my business personally and what I was doing.
Speaker #0
And your personal financial decisions that you're making during those times.
Speaker #1
Right, right. So I mean, yeah, there's gonna be some things in the margin that will impact you financially. You know, we're not gonna get into the other stuff. But you know, for the most part, you control what really happens to you. And that's the main message I want to get here. These are things we want to be aware of. I think we want to know, okay, now we know what a tariff is. Great. What can I do about it? Honestly, not much.
Speaker #0
Yep.
Speaker #1
If you have a tax cuts and jobs act, we could probably do some more planning around. Yeah,
Speaker #0
I would agree with that. Awesome. Well, thank you for joining us in another episode and we will see you next time.
Speaker #1
See ya.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

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About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

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Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek.
Speaker #1
Hey, everyone. Welcome back.
Speaker #0
Welcome back. We kind of have an exciting episode this week where we're going to be talking about a lot of stuff that's happened in the world in the last couple of weeks.
Speaker #1
Yeah. It's election season. So rightfully, we have our new president-elect. So we wanted to talk about... He's talked about all these policies, a few of them that he's actually talked about. And what do they mean for you individually?
Speaker #0
Yeah, there's been a lot of buzzwords. I think that I've heard the word tariff more in the last two weeks than I think I've heard in my entire life. Maybe like history class in high school was the last time we were talking about tariffs. But here we are, 2024, tariff is the buzzword. Yeah,
Speaker #1
Mr. Trump loves tariffs.
Speaker #0
Yeah,
Speaker #1
we love-Let's talk about that today.
Speaker #0
But there's been a lot of chat about tariffs, tax cuts, interest rates, the feds, economic policy, foreign policy. And I think there's a lot of questions for people about like- okay, cool. We hear about all of this. We know this is all going to alter the economy in some way or another. But like, how does that impact me as a person, right? I'm an individual. I want to talk a little bit about, right, how does that impact us? Because, right, what am I worried about? I'm not worried about tariffs from China. I'm worried about paying my child care bill, paying for like T-ball signups start in a month. I'm worried about that. We're worried about our kids'529 plans. You know, our worries are a little bit different. And you know, do we have to worry about some of this policy? Is it going to help us? Is it going to hurt us? And I think that's what we're going to dig into today.
Speaker #1
Yeah, I always talk with clients, you know, there's, to me, there's two economies, right? There's the economy, writ large, and then there's your economy. So I think our connection today is what's going on in the economy that can potentially impact you personal economy, right? That's we're going to really dive into.
Speaker #0
I love it. I love it. That's a great like segue into this, right? Your personal economy. I've never thought of it that way. We talk about budgets. We talk about a lot. But your personal economy is, yeah, it's how you run your personal finances and all the different impacts of it. What a great thought.
Speaker #1
That's what I'm here for. All right. I'll see you later. Yeah.
Speaker #0
Derek is done now. Derek is done now. Oh, you've sort of just blown my mind with sort of that concept that, yeah, it's your personal economy. All right. So what's our first topic? What are we going to talk about? I'm here to just ask questions, not to give answers. That's what Derek's for today. Yeah.
Speaker #1
It sounds good. So I guess most of my show today. Well, I think the big news that we saw immediately was the impact on the stock market. You just mentioned to me how now you're all a multimillionaire now because the stock market went up.
Speaker #0
It felt good for a few minutes. I was like, oh yeah, there's a lot going on there. But I was saying to Derek before we started recording that stocks going up really quick and going down really quick are both nerve wracking to people who kind of have a financial savviness. And when you see your stocks or your investment accounts blow up, you're like, oh, that's good. But and like, what happens next? And same with right when we watch them like blockbuster drop, you have the same feelings. You're like, oh, no, I do.
Speaker #1
That can't be good. Like that can't be good either way.
Speaker #0
Either way. So I am feeling a little that can't be good because what goes up must come down.
Speaker #1
Yeah, generally. So one of the things that I think people. don't necessarily always understand about the stock market in general is they are a leading indicator and they try to be forward looking. So they're not looking at like, all right, what has happened and we're going to react based off of that. They're trying to think, okay, this event is happening. How are we going to price that in in the future? Right? So they're assuming Trump is going to be really good for stocks. And there's a couple of things that he's mentioned that would probably you know, go along with that. So the first thing is he's talking about cutting the corporate tax rate.
Speaker #0
Oh, yeah. So big companies love that.
Speaker #1
Yeah. Well, because I mean, think about just a dollar less that you have to pay to someone else that you can use to either reinvest or buy back your own stock or give your shareholders in dividends. Right. So he's proposing going from 21 percent to 15.
Speaker #0
That's a big difference.
Speaker #1
And yeah, keep in mind that before he got an office the first time, it was at 35 percent. So this is. this is a huge cut from when he even first was a president.
Speaker #0
Wow.
Speaker #1
So it's a big drop,
Speaker #0
right? That's a big difference.
Speaker #1
Yeah. So, I mean, 6% doesn't seem like a lot now, but, you know, look over that. And one of the things that I kind of saw this chart, it was talking about, like, what do they do? And a lot less companies after the first, you know, tax cut borrowed less. They bought back more of their own shares. So, like I said, they kind of, once again, just frees up dollars. So anytime you free up dollars for a corporation to use however they want, they're going to either typically reinvest it, hopefully. I mean, that's the thought. process there. They're going to buy back their own shares, which helps the stock price. Doesn't really help anyone else unless you're a shareholder. Or they're just going to increase their dividends. So that's generally what companies can do with excess cash anyway. what the thought process behind why the stocks are going up.
Speaker #0
Now, just a quick question, just for clarification. That's like the altruistic things they can do with excess cash. But this was also a time period where CEOs and management of companies were making the most money that they've ever made before. So some of that money does end up in the pockets of the personal stakeholders for a large company, right? Like your CEO can bonus themselves out, you know, $45 million instead of $35 million, which doesn't... You know, we're talking 45 to 35 doesn't sound like a huge difference until you're contemplating the entire country's GDP that, you know, that can count for in other places.
Speaker #1
Well, interestingly enough, this is a problem that went back to Clinton. And he actually was probably one of the reasons they solved this because one of the big changes that during his administration was a lot of executives had more salary in some stock. You know, it wasn't a huge mix. Now it's mainly stock. So when you have these. CEOs, these C-suite executives at these large companies making $45 million, but that $45 million is mainly company stock. What are they thinking? We got to drive the stock price.
Speaker #0
We got to make the stock price baller. That's coming in my pocket later.
Speaker #1
Yeah. I mean, yes, there are shareholders that if you are invested in company, you're going to go along with it. Most people don't have $45 million a year of income that they're pumping into the stock either, but they have so much wealth tied up in their own company stock that they are driving a majority of those decisions. I mean, the good CEOs are looking long-term. The bad ones are going to be, how do we take advantage of this right now? And a lot of that is just buying back your own shares. And what that does is, let's just say there's, just easy math, like let's say there's 1,000 shares available out there in the market, and they say, okay, well, we have to pay a dividend of 2% to all these 1,000 shareholders. Well, then they go, like, we're going to buy back 200 of them. So now there's only 800 shares. So now we don't have to pay less in dividends, right? Now we have more money coming back to us. There's lesser shares. There's higher demand for the stock because there's less supply. You know, it's this nice little thing that they can do. They're just using company money and excess cash to reduce the amount of shares out there.
Speaker #0
So it's smart for the company. Yeah.
Speaker #1
Yeah. I mean, it's not the best economic thing, but it's going to be good for shares. That's why you see some people on the other side of the aisle saying, hey, we love to tax buybacks or get rid of them. They're evil. I don't think they're evil. I mean, sometimes a company has to do what they think is best for the company. Yeah. And sometimes that is buying back shares.
Speaker #0
Interesting. Oh, things that you never contemplate. Yeah. You contemplate. Those of us dealing with our own personal economy are not necessarily contemplating that.
Speaker #1
Well, I always say, hey, just in my life, what I've learned is just follow the money. Like, where's the money taking us? And that'll give you the answer.
Speaker #0
That'll give you the answer. All right.
Speaker #1
So where's the pot of gold? And the other thing that people always talk about is the Trump trades, right? Because they want to think, okay, now what industries are going to be more impacted by Trump than by Biden? So a lot of people are trying to guess. So some of the big sector winners were financials, technology, energy. And then. And outside of the sector, so sectors are part of the economy where it's like, hey, we're looking at the technology companies, for example. Then there's what's called small cap companies. So these are not the big boys in the block. These aren't, you know, Apple, GE, all those folks. These are the generally more startup companies. They tend to have more debt, but they do less overseas. And if he's talking about implementing some of these tariffs, which we're going to get into later, that's typically going to be better. Probably they're thinking that's going to be better for local companies that do majority of their business locally in the United States. So that's why small caps went up. And the other thing he's been championing lately has been cryptocurrencies. He went from not understanding it to still not understanding it, but at least now championing it in general and saying, hey, look, crypto. So if you look, crypto has gone up and he's even talked, I've heard, about buying some crypto for the government. Oh. Sort of like reserve.
Speaker #0
Oh, so we're like totally legitimizing crypto at this point.
Speaker #1
I mean, we'll see about that if that actually happens. But that's what the crypto folks are betting on. They're like, oh, maybe the government's going to buy some crypto. And that's why the price has shot up like crazy lately.
Speaker #0
Okay. So we're going to buy some dog coin and Bitcoin and...
Speaker #1
Well, Elon's got his right ear, so maybe it's going to be a huge amount of Dogecoin. Oh,
Speaker #0
Dogecoin. What? I can't. Okay. All right. All right. I'm listening.
Speaker #1
Follow the money, Kelly.
Speaker #0
Follow the money.
Speaker #1
Yeah. So that's kind of what's going on with the stock market. So the stock market, writ large, has kind of said Trump's going to be good for the stock market specifically.
Speaker #0
And that's why the reactions are very positive right now. Yeah.
Speaker #1
And that's why they shot out of a can right after he was elected. right? So what they're doing, they're trying to price in future growth. Now, the question is, is that future growth sustainable? Like, where do we go from here? Are we going to go up? Because, you know, everything he says is going to come true and the economy is going to boom and tax rates can be nothing, you know, or are we getting ahead of our skis? And that's the question. No one of us really know for sure.
Speaker #0
No, we'd be, we'd be Warren Buffett, right? We'd be gajillionaires and sitting on our pot of money if we knew the answer to that. But I do think, you know, I said it right at the beginning, like, what goes up? always comes down and not necessarily Volitally, well it kind of volatile because that's life we're living right now, but like I always feel like initial reaction is always extreme. And then there is some settling that happens, right?
Speaker #1
Yeah. Well, you want to think of like water, because water seeks its own level. And the level that it seeks is going to be based on earnings when it comes to stocks. So short term news, long term, they're going to look at, all right, is this company actually making money for us? Cool. We're going to give it more money so they can make more money for us. It's going to be more valuable, right? So if they're not earning a good enough amount of money. then it's gonna you're gonna have those drops it was kind of the same thing that happened during covid right like all those we were projecting all like all the uh what was the exercise bike and blanket peloton peloton everybody wanted their pellets and everyone bought a peloton it's like this is gonna go on forever the stock shot up and then what happened people actually started going to gyms now yeah and now people like can't give away their pelotons exactly so that that crashed like that didn't sustain itself it's you know it sought its own level there because the earnings weren't keeping up with stock price so that's one thing we need to be worried about The other point I would make is there was a lot of Trump trades back in 2016 which didn't work out. Like if you had to guess, Joe Biden, Trump, right? Who would have been better for oil stocks?
Speaker #0
Yeah, I would have said Trump all day long.
Speaker #1
All day long. Biden was much better for oil stocks.
Speaker #0
Interesting.
Speaker #1
So sometimes we assume these things are going to happen because someone's president, but there's so many other factors that are going on outside of the president's control that are going to impact the stock price.
Speaker #0
Yeah. And that, you know, my only real relation to that is interest rates, because that's life that I live, is that people are always like, oh, well, what's happening? And why are interest rates going up? And sometimes interest rates go up due to the United States'own economic factors. But sometimes it's outside factors. It's what's happening. Like the word Ukraine had a big impact on interest rates. Like it is outside factors that we cannot predict. And I think that's probably one of the messages here is no matter what. Trump or any other president does or does not do, there are pieces of this puzzle that are just completely outside of anyone's control. They're happening somewhere else.
Speaker #1
Yeah. My advice for the stock piece of this is don't go crazy with the Trump trades. If you're a long-term investor, stay long-term invested. He's only been president for four years. He's probably going to have control for two on the Republican side. So not all this stuff is going to come to fruition, and it's not going to come right away. just have a long-term outlook with a lot of these stocks and don't over go crazy over waiting one or the other if you want to you know do a little bit of your fun stuff on the side go ahead and do it just make sure it doesn't impact you totally financially your long-term plan yeah um and then and then kind of think maybe you should probably jump into bonds because that's kind of what we had mentioned with interest rates right because that's you know you're in the mortgage business and what did you see with mortgage rates they must have gone down because the other thing that kind of just slipped in this week was the fed dropped the rates the fed dropped the rates again yeah that last that it was it
Speaker #0
The week of the election, I can't even talk because I'm so overwhelmed contemplating it, was like a wild week in interest rates in that we had the election news that we were waiting on, which we knew was going to have a large impact on interest rates. And that was immediately followed by a Fed meeting. That was kind of a controversial Fed meeting. I don't want to say controversial. I guess that's the wrong word.
Speaker #1
No, say it. We need more views. It's so controversial. It was crazy.
Speaker #0
Fed meeting. There was just a lot said in that Fed meeting. And so we actually watch interest rates drop initially and then we watch them spike back up and then we watch them drop. And honestly, we're seeing daily a lot of volatility in the bonds on the interest rate side. So I think it's, again, a lot of people thought that, you know, as soon as the election happened, rates would settle down. But again, there's more stuff at play than just an election. And I think that's one of the tricky parts in bonds and in interest rates is it's not just one thing that's impacting us. It's a lot of little things.
Speaker #1
Well said. And one thing I would add to that is also the bond market tries to be future looking. So they're looking at a lot of these policies and saying, okay, if we do all of these things that we're talking about, what's going to happen with the deficit? Is it going to go up or down?
Speaker #0
Yeah.
Speaker #1
That's going to go up. Okay. So now, because we base a lot of the rates on the 10-year treasury, and they're saying, okay, well, the deficit goes up and there's maybe some potential inflation coming down the pike, which we'll probably talk about later. Should rates be higher or lower? So they're like, oh, it's a little riskier because all this inflation and all this debt is going to happen. So that's why rates shot up, even though the Fed has dropped the rates.
Speaker #0
Yeah. And the other thing that happened with that, too, is what is more important than whether or not the Fed drops the rates is the actual commentary from the Fed meeting. So that's the stuff that has a bigger impact on us. And there was some commentary from that Fed meeting from our Lord and Savior Jerome Powell. lenders love and or hate him depending on the day. But he had some commentary that did make it sound like some of the future cuts that we thought we were going to get, we may not be getting. And so the bond reacts to that kind of somewhat drastically. So we think that was also some of the spike that happened where rates went back up again is cool, you dropped the rate right now. But if you said you think you're not going to drop it again, or you might raise it, then all of a sudden everything reacts accordingly. So it's not necessarily about what's happening in that moment. And a lot of people don't realize, too, is all the speculation around if the Fed is going to drop the rate or not is generally baked in to any given bank's mortgage rates for weeks in advance. Like we knew we were going to have this rate drop from the Fed. So that had already been baked in because when you're locking an interest rate, you're locking it for 30 days, right? So if we think you're going to drop it within 30 days, 30 days prior that the rate is going to be impacted by it. So it's not necessarily something that's hitting that day. It's really already been discussed, looked at, vetted, and baked right in.
Speaker #1
Yeah, because they want to try and predict what's going to happen because they don't want to have set a rate and say, hey, look, it's going to be 5% and the rate goes up to 7. Yeah. I mean, extreme, but that's not where they want to be. So they're going to look ahead and they're thinking, OK, there's what happens at the Fed meeting, which is what they cut rates, and then also what. the Fed says.
Speaker #0
Yeah, what they say. Their words are very important.
Speaker #1
So they're trying to read into that. And if they're reading into it and saying, okay, because they're very data driven and they've been a little slow to move. So they're going to say, okay, well, if these policies are inflationary, should we be cutting rates as quickly as we plan and plan on doing? Yeah. So they're going to maybe slow roll it because basically the expectation was we do a 50% cut and then a 25% and then maybe another 25% before the end of the year. Yeah. So basically dropping it down by 1% before 2025 hits. Who knows what's going to happen with that one. So that's a little bit more up in the air than previously expected. And that's why the rates have also shot up because they're trying to, once again, predict.
Speaker #0
Exactly. What is going to happen here? And the other thing, too, just as a quick aside for those listening, if you're not familiar, when the Fed drops the rate by, say, 1%, that does not mean mortgage rates are dropping by that amount. So that is a slow, I think we've talked about a little bit in past episodes, but it's like a slow trickle into mortgage rates. It is not a one-to-one. So. So the Fed dropping by a quarter point does not mean your mortgage rate is now a quarter point lower. Not how it works. There's a lot of other factors that come into play with your interest rate. But just know that, that it's not. Feds don't cut rates and then your mortgage rate is cut by the same amount. We get that question a lot.
Speaker #1
I'm sure. Yeah. And it's just there's a lot that goes into these things. It's not like, oh, boop, boop, boop. One thing, one happens. Here we go. Should we move on to taxes?
Speaker #0
Yeah. Let's talk about taxes because everybody loves to talk about taxes. It's my favorite topic. I hate it.
Speaker #1
Well, this was as my like me. put my financial advisor hat, we're always talking about all these other things that's going on in the market to me, or the election. And to me, the one big thing was what's going to happen with this massive tax bill that Trump passed that was set to expire. And for those that don't know, the Tax Cuts and Jobs Act basically was going to, a few main categories are going to be impacted. So first of all is your income tax rate. For most folks, it would, if they just let them expire and nothing happened, tax rates would go up about 3% depending on your tax bracket. So that's one. So nor taxes. All right. So long-term capital gains rates would stay about the same. So that wouldn't be changed. Standard deduction, which everyone's kind of, no one itemizes really right now. So that would be cut in half. So more people would potentially start itemizing. So there'd be more planning along that. The SALT tax was capped at $10,000. That would be removed. So if you were moving to itemizing and you had a big house with a big interest payment and a big tax payment, you could deduct more of it. So a lot of people would be happy about that. The child... tax credit would have been cut in half. The mortgage interest deduction would change as well. And then some of the big one for those that are dying, the estate tax would be cut in half as well. So it would be at $13.6 million now, down about five, just for inflation. So it could be around six by the time then. So there's a lot of big changes that would happen if they just let it expire. Now, what we think is going to happen is Trump said, basically, we're going to keep these deductions moving forward. So we're going to kind of make everything permanent. as permanent as permanent can be in congress yeah it's not that permanent but a little permanent yeah so the good news is for everyone the tax rates are going to stay the same so they're not going to go down you're probably going to hear tax cuts tax cuts tax cuts um no they're just going to extend them so you're already living in the tax cut you're just going to get to keep it for longer yes yes you're staying in the same depth of water you're not going higher or lower okay i like all these water references they're delightful thanks i guess i saw aquaman the other day right yeah uh so for for a lot of people and and what i would say is um We got these tax cuts coming or tax extensions coming, I should say. So what do we do for planning? And what we really want to think about is where are we today versus where are we historically and what's going on with the debt and where do we think we'll be in the future? So Kelly, I'm going to do some trivia. Okay. I did not prep her for this.
Speaker #0
I'm not prepped at all.
Speaker #1
It's okay. You'll get it wrong. It's okay. What was the highest marginal tax rate?
Speaker #0
I don't even know what that means. You spoke Spanish there. Okay, thanks. All right.
Speaker #1
So right now it's 37%. So if you make the most amount of money. you're going to tax for every dollar you make you're going to tax 37 cents okay so what do you think the highest one ever was 56 56. uh you're you're very wrong okay i just made it up that's all it's fine uh it's it was 94 so you made a dollar 94 cents went to the government.
Speaker #0
Okay. All right. That was not a great time.
Speaker #1
Well, that was right after World War II. So we had a thing to pay for. We did.
Speaker #0
We did. We had a very expensive thing to pay for.
Speaker #1
Tanks and cigarettes back in the 40s to pay for. Right. So if you look at that. tax rates are basically historically low. They haven't been this low since, I think, before the Depression. And then we have all this debt. Like, where do you think taxes are going to go?
Speaker #0
Yeah, they're going to go up because we got to pay for that debt.
Speaker #1
Well, you know, a reasonable person would say that. I don't know if we have a reasonable government that would ever pay for that, but who knows? So let's say that that does happen at some point in the future. So when it comes to planning for you specifically, you know, we want to think about things like, OK. a Roth conversions more in play. We should be putting more money in Roth that's not taxed now, that is taxed now, but won't be taxed later. These are a lot of the conversations you want to be having with your CPA and your financial advisor because all these tax things right now are going to still be in play.
Speaker #0
right so you want to keep taking advantage of these low rates now i'm making blank faces at derek because this is where things start to sound like for me like a little a little anxiety inducing but i i get the message right for like okay the average consumer in their own personal economy because i'm sticking to the personal economy um this doesn't all have to be bad as long as you're thinking forward and i think a lot of people think right now what's best for me right now but you really need to be thinking what's going to be best for me like future Kelly, what's going to help future Kelly as opposed to Kelly today?
Speaker #1
Right. Because most people are taught to just save taxes, save taxes, save taxes, right? Because no one likes paying a high tax bill. It feels good when your accountant says, hey, look, I got you a $5,000 refund. You got a $3,000 refund. You're like, this guy's the best.
Speaker #0
That's my free monies.
Speaker #1
But what if you're paying 24% today, in the future, you're paying 35%. That's not a good tax plan. That's not a good tax plan. You really want to kind of think about, okay, if I stuff all this money in a pre-tax bucket, pay a lower tax rate today, but now I've got this tax time bomb coming later on, and I'm going to be taxed at 35% later.
Speaker #0
That's not the best plan.
Speaker #1
That was not the best plan long term.
Speaker #0
Long story short, taxes don't have to be good or bad. Either way, they're different for everybody, and you need to speak to your professional who knows your personal financial situation to determine the best way to combat where your money's going.
Speaker #1
Exactly. But if we're thinking logically about this, Tax rates are most like my best guess is that tax rates will not be lower than they are today.
Speaker #0
Okay. All right. I'm down with that.
Speaker #1
So use that for what you will, but talk to your professional about it. So that's one way I would look at the taxes for you. And the big other T we're talking about is tariffs.
Speaker #0
Tariffs. This word, man, I told you like, I'm not, this is this like the Boston tea party, weren't we? I don't even know. I'm making stuff up. But like, tariffs are a word that you hear very quite rarely that has it is the buzzword of 2024. If you were to say like, Kelly, what is the word of 2024? It would be tariffs.
Speaker #1
Yeah. And you know what? You know what the funny thing is? You know what the Google search for tariffs? I don't even want to know. After the election, not before. After.
Speaker #0
So after people already made their choices. Okay. Yes. Cool.
Speaker #1
So the search results or the search queries went up 1650 percent.
Speaker #0
Because it's a word that's been used a lot, but we don't all know what it means.
Speaker #1
And then the question who pays for tariffs is 350 percent.
Speaker #0
So who? Okay, Derek, who? pays for tariffs?
Speaker #1
You're looking at them. You and I do.
Speaker #0
We pay for tariffs. Yeah. I thought other countries paid for tariffs. Isn't that what we're being sold right now?
Speaker #1
Well, technically, they do. Okay. But anyone running a business knows that if my cost of goods go up, or let's say my labor goes up, whatever, my prices go up, I'm going to pass that off to the consumer, as we saw during the whole inflationary area a couple of years ago.
Speaker #0
Oh, yeah. Things got expensive, so everything got expensive.
Speaker #1
Yeah. The supermarkets were just eating at cost. the car companies weren't just saying, Oh, we're just going to sell the Ford at the same exact price. We're going to make the price go up during COVID lumber went up like crazy. Right. Um, so basically what's going to happen is let's say you've got, um, an item that costs a hundred bucks. Let's say it's a drill, right? A hundred dollar drill. Now, depending on where it comes from, basically the plan or the thought process is, all right, we're going to. We're going to put 60% tariffs on Chinese goods and 10 to 20% on other trade partners throughout the world. So pretty much everyone else. Everyone else. So, all right, let's use a drill from China versus a drill from Mexico, let's say. That's 20%. So that $100 drill from China now potentially becomes about $160 because they're just going to pass that. China would pay this 60% tariff to the US, but then the consumer now says, okay, now my drill costs $160 roughly, right? And same thing now that drill from Mexico is going to cost $100. 10 or 120, depending what the tariff is. So you get a pretty big increase. The thought process beyond that, too, is like, hey, we want to bring manufacturing back.
Speaker #0
Yeah, which I get. I get that in the consumer standpoint, right? As we've been encouraged for years, right? Buy Made in America and buy Made in America. Read your labels. Where are things coming from? And it's a valid conversation about the quality of goods, the safetiness. The safetiness? Is that a word? That's a real word, yeah. Okay, great. the safetiness of goods, where things are being manufactured, that sort of travels that some of our goods go on, right? That like a product can have a material that's sourced in one country that's then sent to another country, and then it's processed partially in that country, and then it moves to a third country, and then more of it's processed until it finally ends up in our hands, and that's like convoluted and expensive. This would maybe combat a little bit of that.
Speaker #1
Yeah, and that's the theory behind it. It's either, hey, we're going to use this as a bargaining chip or we're going to try and get some manufacturing here. But Trump did put some tariffs on the first go-round and manufacturing actually decreased.
Speaker #0
Okay.
Speaker #1
So they've not proven that tariffs are one for one. Hey, we're going to bring things over here because, I mean, you still have to build. Let's say you don't have a drill factory here. You're going to have to build a new factory. That's going to be expensive.
Speaker #0
Is it worth it to just pay the extra $60?
Speaker #1
I just pay the extra $60, right? That's kind of what you're thinking of too.
Speaker #0
I didn't contemplate that. Right. Yeah. So it's not just a matter, right. So it costs $60, right, for your $100 drill is now 160. Cool. You can manufacture it here in the United States. If there is not a facility to do that, is it more cost beneficial for a company to pay the $60 or to build the plant?
Speaker #1
And the other thing is, well, two, two points, right? Tariffs can be temporary. We have no idea how long. So if you're going to plan out, all right, I've got to build a factory. It's going to take me three to five years to build this factory.
Speaker #0
Oh yeah.
Speaker #1
What if the tariffs are gone by then? Okay. So is that a smart business decision, right? The other thing that a lot of people realize, so the Tax Cuts and Jobs Act, that's going to have to go through Congress. Congress has to approve that.
Speaker #0
Okay.
Speaker #1
Presidents have a pretty much carte blanche power to implement tariffs.
Speaker #0
So that is a given that's going to happen?
Speaker #1
That depends. I mean, I don't know if the 60% is going to happen. I have no idea, but there is a greater likelihood that a president can implement a tariff. Okay. And they can change the tax code.
Speaker #0
Interesting. We're getting presidential history lessons too. I love it. I'm here for this.
Speaker #1
Yeah. So that's one thing to think about. So I mean, basically, depending on what study you're looking at, and I've come across, but they're saying generally the extra cost to most Americans is going to be between $2,500 and $3,900 extra a year.
Speaker #0
Okay. Wow. So not insignificant in your personal economy.
Speaker #1
No. So if we're combining the two tax cuts and inflation, let's say we're going to get from tariffs, you're probably looking at a net negative of still $2,600. Okay. So even with the tax cuts extending out,
Speaker #0
you're still not ahead at all. But if you make a lot of money, you might be ahead, right? If you're getting corporate tax breaks and all of that stuff. So it does depend a little bit on where your personal economy falls in the range of personal economies.
Speaker #1
Yeah, well, so surprise, surprise, the people on the low end of the personal economy are going to be in much worse shape because of the tariffs than the people on the high end. Yeah. Because they're going to get less of a benefit from the tax cut and they're going to get more impacted by the increased prices.
Speaker #0
Increased prices. But a tariff is not the same as inflation.
Speaker #1
No, a tariff can cause inflation. It can be like a root cause of it.
Speaker #0
Okay, but it's not the same. So we could see a decrease in inflation because that's what we're trying to do with an increase in tariffs. And that could maybe even equal out. So we may see not a price difference in our goods.
Speaker #1
that would be yeah once again it's all good independent like you know economies are complicated yeah like you just do one thing like even the 60 example may not exactly work out exactly like that right um but you know we get 17 and a half percent of our goods from china yeah so that's that's a lot well and i know like if you're and i i would venture to guess we're
Speaker #0
talking right this is the millennial show we're talking to millennials millennials probably get more of their goods from china than other maybe other generations before ours because we are the amazon generation where we love to amazon things and a lot of the stuff from amazon is purchased from overseas that's part of why it's so inexpensive that's kind of the model of of amazon is inexpensive goods from other countries so that may be different than your parent or grandparent who's like Maybe going to a local economy, something we could talk about in another episode, but going to local mom and pop stores and things made in America. And it is a little bit of a different there's a bit of a generation gap there.
Speaker #1
Yeah, exactly. And the thing about whether these are good or bad policies is not up for me to judge. But one of the things I'd say, we have to start with the notion that there's no perfect policy out there.
Speaker #0
Yeah,
Speaker #1
absolutely. Right. So something's going to help some segment of the population. It's probably going to negatively impact another segment of the population. There's just no like, oh, wow, we did this policy and there's rainbows and unicorns and everyone's winning.
Speaker #0
Everybody's happy.
Speaker #1
Everyone's, yeah. Yeah. Babies are crying with happiness. Yeah. It's not applicable in real life. So we'll see the impacts of this stuff. We'll see how much will actually get done. I mean, with them controlling basically the Republicans were controlling about everything. They're probably going to get most of their wish list done. I mean, I've kind of noticed, I don't know if you have, but almost every president gets kind of one big bill that they can push out. So I'm curious to see which one it is. Is it going to be the tax cuts? Is it going to be something else? Because that's generally kind of their quote-unquote legacies, right? Like what do they do? Like Obama was the ACA. George W. was tax cuts. Trump's first one was tax cuts.
Speaker #0
is this next one gonna be tax guns yeah we don't know we don't know and i think the other thing too is from like a lot of people have a lot of feelings about this election so let's first off say no matter what side of the aisle that you sit on your feelings are valid um and i also think that the emotions that come into play with an election especially this particular election are make it really hard to look at data and fact right well can i tell you like a crazy stat yeah um so
Speaker #1
Republicans, if they're Republicans are in office, they see the economy is 16% better or worse, depending if they're not. So they swing 16%. Democrats tend to swing 9%. So just depending on who's in office and if you support them or don't support them is going to color how good you think this economy is, regardless of how actually good or bad it is.
Speaker #0
Interesting. And that, I guess, makes sense to me. And it makes sense, I think, regarding a lot of the... conversations that were happening leading up to this election. But yeah, I think for those of you who are out there listening, I think the biggest thing as far as your money is concerned is don't just sit and wait for things to happen to you. Don't just sit and wait for tax cuts to... Again, if you think these things are great or you don't think they're great one way or another, your finances are going to change. You need to take care of it.
Speaker #1
Well, to me, these are things you want to pay attention to, but the things you do on the margins. At the end of the day, you should still save on your 401k plan. Yeah. You still get your company match. You should still manage your cash flow. You should still pay attention to taxes. You should still make sure you have an estate plan. That has nothing to do like, yeah, these things change. Maybe you're a person God bless you. Maybe you have $10 million and previously you were like, I'm good. But now it may drop to below $10 million and maybe you need to do some estate planning from a tax standpoint. Those are the people that are going to be more affected by anything. But at the end of the day, you're going to want to do your personal economy things. keep making money, keep working towards a promotion, keep saving, keep investing, do all the things that you should be doing regardless of who's in office.
Speaker #0
Keep paying for baseball, keep putting money in your child's e-wallet for the Scholastic Book Fair. That's the biggest racket ever.
Speaker #1
My son last year bought the Guinness Book of World Records. He spent like $35 on this like 400-page book of Guinness World Record thing.
Speaker #0
I'm impressed that at least it was a book, Derek. I have to have... So it is book fair week at my children's school. You have to load money into this e-wallet. Don't worry, it's fake money that you can't get back. So once it's loaded in there, they got to spend it. Everybody got a set amount. And I have to have a conversation with my children that you have to buy at least one book.
Speaker #1
What do they buy instead?
Speaker #0
Calculators, journals, sticker books. My son last year bought like one of those like rocks that you dig dinosaur fake plastic dinosaur fossils out of. That was $17. A little metal tin that looks like an iPhone filled with pencils. We find like... the garbage a stitch poster those of you i have a daughter who loves stitch disney stitch and we bought a stitch poster so we have to have a conversation every year how much money did you put in this fake wallet okay i put thirty dollars because that's like a good it sounds like a lot of stuff for this yeah well they do that's the trick with it though is they do and i i started off getting ten dollars but like a lot of the books are like eleven dollars so i realized that wasn't enough and then My daughter, the first year, came home with a calculator, which she spent all her money on. So now, again, it's a discussion. You have to come home with a book and you can use it. But that's the stuff that you have to worry about, I think. And your personal economy is the little things. I want to have enough money to be able to do that. Not everybody does or not everybody has planned for it. But you can listen to all of this information that we're giving you. You can take what makes sense for you. But your personal economy, and I'm like latching on to that concept, Eric. I'm here for it. Your personal economy is the most important thing for you.
Speaker #1
It is. At the end of the day, you know, I've made money when Trump was in office. I've made money when Obama was in office. I've made money when Biden was in office. And I've done poorly at times with all of them. And generally, the economy at... you know, as a whole didn't really matter as much. It was kind of more about my business personally and what I was doing.
Speaker #0
And your personal financial decisions that you're making during those times.
Speaker #1
Right, right. So I mean, yeah, there's gonna be some things in the margin that will impact you financially. You know, we're not gonna get into the other stuff. But you know, for the most part, you control what really happens to you. And that's the main message I want to get here. These are things we want to be aware of. I think we want to know, okay, now we know what a tariff is. Great. What can I do about it? Honestly, not much.
Speaker #0
Yep.
Speaker #1
If you have a tax cuts and jobs act, we could probably do some more planning around. Yeah,
Speaker #0
I would agree with that. Awesome. Well, thank you for joining us in another episode and we will see you next time.
Speaker #1
See ya.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek.
Speaker #1
Hey, everyone. Welcome back.
Speaker #0
Welcome back. We kind of have an exciting episode this week where we're going to be talking about a lot of stuff that's happened in the world in the last couple of weeks.
Speaker #1
Yeah. It's election season. So rightfully, we have our new president-elect. So we wanted to talk about... He's talked about all these policies, a few of them that he's actually talked about. And what do they mean for you individually?
Speaker #0
Yeah, there's been a lot of buzzwords. I think that I've heard the word tariff more in the last two weeks than I think I've heard in my entire life. Maybe like history class in high school was the last time we were talking about tariffs. But here we are, 2024, tariff is the buzzword. Yeah,
Speaker #1
Mr. Trump loves tariffs.
Speaker #0
Yeah,
Speaker #1
we love-Let's talk about that today.
Speaker #0
But there's been a lot of chat about tariffs, tax cuts, interest rates, the feds, economic policy, foreign policy. And I think there's a lot of questions for people about like- okay, cool. We hear about all of this. We know this is all going to alter the economy in some way or another. But like, how does that impact me as a person, right? I'm an individual. I want to talk a little bit about, right, how does that impact us? Because, right, what am I worried about? I'm not worried about tariffs from China. I'm worried about paying my child care bill, paying for like T-ball signups start in a month. I'm worried about that. We're worried about our kids'529 plans. You know, our worries are a little bit different. And you know, do we have to worry about some of this policy? Is it going to help us? Is it going to hurt us? And I think that's what we're going to dig into today.
Speaker #1
Yeah, I always talk with clients, you know, there's, to me, there's two economies, right? There's the economy, writ large, and then there's your economy. So I think our connection today is what's going on in the economy that can potentially impact you personal economy, right? That's we're going to really dive into.
Speaker #0
I love it. I love it. That's a great like segue into this, right? Your personal economy. I've never thought of it that way. We talk about budgets. We talk about a lot. But your personal economy is, yeah, it's how you run your personal finances and all the different impacts of it. What a great thought.
Speaker #1
That's what I'm here for. All right. I'll see you later. Yeah.
Speaker #0
Derek is done now. Derek is done now. Oh, you've sort of just blown my mind with sort of that concept that, yeah, it's your personal economy. All right. So what's our first topic? What are we going to talk about? I'm here to just ask questions, not to give answers. That's what Derek's for today. Yeah.
Speaker #1
It sounds good. So I guess most of my show today. Well, I think the big news that we saw immediately was the impact on the stock market. You just mentioned to me how now you're all a multimillionaire now because the stock market went up.
Speaker #0
It felt good for a few minutes. I was like, oh yeah, there's a lot going on there. But I was saying to Derek before we started recording that stocks going up really quick and going down really quick are both nerve wracking to people who kind of have a financial savviness. And when you see your stocks or your investment accounts blow up, you're like, oh, that's good. But and like, what happens next? And same with right when we watch them like blockbuster drop, you have the same feelings. You're like, oh, no, I do.
Speaker #1
That can't be good. Like that can't be good either way.
Speaker #0
Either way. So I am feeling a little that can't be good because what goes up must come down.
Speaker #1
Yeah, generally. So one of the things that I think people. don't necessarily always understand about the stock market in general is they are a leading indicator and they try to be forward looking. So they're not looking at like, all right, what has happened and we're going to react based off of that. They're trying to think, okay, this event is happening. How are we going to price that in in the future? Right? So they're assuming Trump is going to be really good for stocks. And there's a couple of things that he's mentioned that would probably you know, go along with that. So the first thing is he's talking about cutting the corporate tax rate.
Speaker #0
Oh, yeah. So big companies love that.
Speaker #1
Yeah. Well, because I mean, think about just a dollar less that you have to pay to someone else that you can use to either reinvest or buy back your own stock or give your shareholders in dividends. Right. So he's proposing going from 21 percent to 15.
Speaker #0
That's a big difference.
Speaker #1
And yeah, keep in mind that before he got an office the first time, it was at 35 percent. So this is. this is a huge cut from when he even first was a president.
Speaker #0
Wow.
Speaker #1
So it's a big drop,
Speaker #0
right? That's a big difference.
Speaker #1
Yeah. So, I mean, 6% doesn't seem like a lot now, but, you know, look over that. And one of the things that I kind of saw this chart, it was talking about, like, what do they do? And a lot less companies after the first, you know, tax cut borrowed less. They bought back more of their own shares. So, like I said, they kind of, once again, just frees up dollars. So anytime you free up dollars for a corporation to use however they want, they're going to either typically reinvest it, hopefully. I mean, that's the thought. process there. They're going to buy back their own shares, which helps the stock price. Doesn't really help anyone else unless you're a shareholder. Or they're just going to increase their dividends. So that's generally what companies can do with excess cash anyway. what the thought process behind why the stocks are going up.
Speaker #0
Now, just a quick question, just for clarification. That's like the altruistic things they can do with excess cash. But this was also a time period where CEOs and management of companies were making the most money that they've ever made before. So some of that money does end up in the pockets of the personal stakeholders for a large company, right? Like your CEO can bonus themselves out, you know, $45 million instead of $35 million, which doesn't... You know, we're talking 45 to 35 doesn't sound like a huge difference until you're contemplating the entire country's GDP that, you know, that can count for in other places.
Speaker #1
Well, interestingly enough, this is a problem that went back to Clinton. And he actually was probably one of the reasons they solved this because one of the big changes that during his administration was a lot of executives had more salary in some stock. You know, it wasn't a huge mix. Now it's mainly stock. So when you have these. CEOs, these C-suite executives at these large companies making $45 million, but that $45 million is mainly company stock. What are they thinking? We got to drive the stock price.
Speaker #0
We got to make the stock price baller. That's coming in my pocket later.
Speaker #1
Yeah. I mean, yes, there are shareholders that if you are invested in company, you're going to go along with it. Most people don't have $45 million a year of income that they're pumping into the stock either, but they have so much wealth tied up in their own company stock that they are driving a majority of those decisions. I mean, the good CEOs are looking long-term. The bad ones are going to be, how do we take advantage of this right now? And a lot of that is just buying back your own shares. And what that does is, let's just say there's, just easy math, like let's say there's 1,000 shares available out there in the market, and they say, okay, well, we have to pay a dividend of 2% to all these 1,000 shareholders. Well, then they go, like, we're going to buy back 200 of them. So now there's only 800 shares. So now we don't have to pay less in dividends, right? Now we have more money coming back to us. There's lesser shares. There's higher demand for the stock because there's less supply. You know, it's this nice little thing that they can do. They're just using company money and excess cash to reduce the amount of shares out there.
Speaker #0
So it's smart for the company. Yeah.
Speaker #1
Yeah. I mean, it's not the best economic thing, but it's going to be good for shares. That's why you see some people on the other side of the aisle saying, hey, we love to tax buybacks or get rid of them. They're evil. I don't think they're evil. I mean, sometimes a company has to do what they think is best for the company. Yeah. And sometimes that is buying back shares.
Speaker #0
Interesting. Oh, things that you never contemplate. Yeah. You contemplate. Those of us dealing with our own personal economy are not necessarily contemplating that.
Speaker #1
Well, I always say, hey, just in my life, what I've learned is just follow the money. Like, where's the money taking us? And that'll give you the answer.
Speaker #0
That'll give you the answer. All right.
Speaker #1
So where's the pot of gold? And the other thing that people always talk about is the Trump trades, right? Because they want to think, okay, now what industries are going to be more impacted by Trump than by Biden? So a lot of people are trying to guess. So some of the big sector winners were financials, technology, energy. And then. And outside of the sector, so sectors are part of the economy where it's like, hey, we're looking at the technology companies, for example. Then there's what's called small cap companies. So these are not the big boys in the block. These aren't, you know, Apple, GE, all those folks. These are the generally more startup companies. They tend to have more debt, but they do less overseas. And if he's talking about implementing some of these tariffs, which we're going to get into later, that's typically going to be better. Probably they're thinking that's going to be better for local companies that do majority of their business locally in the United States. So that's why small caps went up. And the other thing he's been championing lately has been cryptocurrencies. He went from not understanding it to still not understanding it, but at least now championing it in general and saying, hey, look, crypto. So if you look, crypto has gone up and he's even talked, I've heard, about buying some crypto for the government. Oh. Sort of like reserve.
Speaker #0
Oh, so we're like totally legitimizing crypto at this point.
Speaker #1
I mean, we'll see about that if that actually happens. But that's what the crypto folks are betting on. They're like, oh, maybe the government's going to buy some crypto. And that's why the price has shot up like crazy lately.
Speaker #0
Okay. So we're going to buy some dog coin and Bitcoin and...
Speaker #1
Well, Elon's got his right ear, so maybe it's going to be a huge amount of Dogecoin. Oh,
Speaker #0
Dogecoin. What? I can't. Okay. All right. All right. I'm listening.
Speaker #1
Follow the money, Kelly.
Speaker #0
Follow the money.
Speaker #1
Yeah. So that's kind of what's going on with the stock market. So the stock market, writ large, has kind of said Trump's going to be good for the stock market specifically.
Speaker #0
And that's why the reactions are very positive right now. Yeah.
Speaker #1
And that's why they shot out of a can right after he was elected. right? So what they're doing, they're trying to price in future growth. Now, the question is, is that future growth sustainable? Like, where do we go from here? Are we going to go up? Because, you know, everything he says is going to come true and the economy is going to boom and tax rates can be nothing, you know, or are we getting ahead of our skis? And that's the question. No one of us really know for sure.
Speaker #0
No, we'd be, we'd be Warren Buffett, right? We'd be gajillionaires and sitting on our pot of money if we knew the answer to that. But I do think, you know, I said it right at the beginning, like, what goes up? always comes down and not necessarily Volitally, well it kind of volatile because that's life we're living right now, but like I always feel like initial reaction is always extreme. And then there is some settling that happens, right?
Speaker #1
Yeah. Well, you want to think of like water, because water seeks its own level. And the level that it seeks is going to be based on earnings when it comes to stocks. So short term news, long term, they're going to look at, all right, is this company actually making money for us? Cool. We're going to give it more money so they can make more money for us. It's going to be more valuable, right? So if they're not earning a good enough amount of money. then it's gonna you're gonna have those drops it was kind of the same thing that happened during covid right like all those we were projecting all like all the uh what was the exercise bike and blanket peloton peloton everybody wanted their pellets and everyone bought a peloton it's like this is gonna go on forever the stock shot up and then what happened people actually started going to gyms now yeah and now people like can't give away their pelotons exactly so that that crashed like that didn't sustain itself it's you know it sought its own level there because the earnings weren't keeping up with stock price so that's one thing we need to be worried about The other point I would make is there was a lot of Trump trades back in 2016 which didn't work out. Like if you had to guess, Joe Biden, Trump, right? Who would have been better for oil stocks?
Speaker #0
Yeah, I would have said Trump all day long.
Speaker #1
All day long. Biden was much better for oil stocks.
Speaker #0
Interesting.
Speaker #1
So sometimes we assume these things are going to happen because someone's president, but there's so many other factors that are going on outside of the president's control that are going to impact the stock price.
Speaker #0
Yeah. And that, you know, my only real relation to that is interest rates, because that's life that I live, is that people are always like, oh, well, what's happening? And why are interest rates going up? And sometimes interest rates go up due to the United States'own economic factors. But sometimes it's outside factors. It's what's happening. Like the word Ukraine had a big impact on interest rates. Like it is outside factors that we cannot predict. And I think that's probably one of the messages here is no matter what. Trump or any other president does or does not do, there are pieces of this puzzle that are just completely outside of anyone's control. They're happening somewhere else.
Speaker #1
Yeah. My advice for the stock piece of this is don't go crazy with the Trump trades. If you're a long-term investor, stay long-term invested. He's only been president for four years. He's probably going to have control for two on the Republican side. So not all this stuff is going to come to fruition, and it's not going to come right away. just have a long-term outlook with a lot of these stocks and don't over go crazy over waiting one or the other if you want to you know do a little bit of your fun stuff on the side go ahead and do it just make sure it doesn't impact you totally financially your long-term plan yeah um and then and then kind of think maybe you should probably jump into bonds because that's kind of what we had mentioned with interest rates right because that's you know you're in the mortgage business and what did you see with mortgage rates they must have gone down because the other thing that kind of just slipped in this week was the fed dropped the rates the fed dropped the rates again yeah that last that it was it
Speaker #0
The week of the election, I can't even talk because I'm so overwhelmed contemplating it, was like a wild week in interest rates in that we had the election news that we were waiting on, which we knew was going to have a large impact on interest rates. And that was immediately followed by a Fed meeting. That was kind of a controversial Fed meeting. I don't want to say controversial. I guess that's the wrong word.
Speaker #1
No, say it. We need more views. It's so controversial. It was crazy.
Speaker #0
Fed meeting. There was just a lot said in that Fed meeting. And so we actually watch interest rates drop initially and then we watch them spike back up and then we watch them drop. And honestly, we're seeing daily a lot of volatility in the bonds on the interest rate side. So I think it's, again, a lot of people thought that, you know, as soon as the election happened, rates would settle down. But again, there's more stuff at play than just an election. And I think that's one of the tricky parts in bonds and in interest rates is it's not just one thing that's impacting us. It's a lot of little things.
Speaker #1
Well said. And one thing I would add to that is also the bond market tries to be future looking. So they're looking at a lot of these policies and saying, okay, if we do all of these things that we're talking about, what's going to happen with the deficit? Is it going to go up or down?
Speaker #0
Yeah.
Speaker #1
That's going to go up. Okay. So now, because we base a lot of the rates on the 10-year treasury, and they're saying, okay, well, the deficit goes up and there's maybe some potential inflation coming down the pike, which we'll probably talk about later. Should rates be higher or lower? So they're like, oh, it's a little riskier because all this inflation and all this debt is going to happen. So that's why rates shot up, even though the Fed has dropped the rates.
Speaker #0
Yeah. And the other thing that happened with that, too, is what is more important than whether or not the Fed drops the rates is the actual commentary from the Fed meeting. So that's the stuff that has a bigger impact on us. And there was some commentary from that Fed meeting from our Lord and Savior Jerome Powell. lenders love and or hate him depending on the day. But he had some commentary that did make it sound like some of the future cuts that we thought we were going to get, we may not be getting. And so the bond reacts to that kind of somewhat drastically. So we think that was also some of the spike that happened where rates went back up again is cool, you dropped the rate right now. But if you said you think you're not going to drop it again, or you might raise it, then all of a sudden everything reacts accordingly. So it's not necessarily about what's happening in that moment. And a lot of people don't realize, too, is all the speculation around if the Fed is going to drop the rate or not is generally baked in to any given bank's mortgage rates for weeks in advance. Like we knew we were going to have this rate drop from the Fed. So that had already been baked in because when you're locking an interest rate, you're locking it for 30 days, right? So if we think you're going to drop it within 30 days, 30 days prior that the rate is going to be impacted by it. So it's not necessarily something that's hitting that day. It's really already been discussed, looked at, vetted, and baked right in.
Speaker #1
Yeah, because they want to try and predict what's going to happen because they don't want to have set a rate and say, hey, look, it's going to be 5% and the rate goes up to 7. Yeah. I mean, extreme, but that's not where they want to be. So they're going to look ahead and they're thinking, OK, there's what happens at the Fed meeting, which is what they cut rates, and then also what. the Fed says.
Speaker #0
Yeah, what they say. Their words are very important.
Speaker #1
So they're trying to read into that. And if they're reading into it and saying, okay, because they're very data driven and they've been a little slow to move. So they're going to say, okay, well, if these policies are inflationary, should we be cutting rates as quickly as we plan and plan on doing? Yeah. So they're going to maybe slow roll it because basically the expectation was we do a 50% cut and then a 25% and then maybe another 25% before the end of the year. Yeah. So basically dropping it down by 1% before 2025 hits. Who knows what's going to happen with that one. So that's a little bit more up in the air than previously expected. And that's why the rates have also shot up because they're trying to, once again, predict.
Speaker #0
Exactly. What is going to happen here? And the other thing, too, just as a quick aside for those listening, if you're not familiar, when the Fed drops the rate by, say, 1%, that does not mean mortgage rates are dropping by that amount. So that is a slow, I think we've talked about a little bit in past episodes, but it's like a slow trickle into mortgage rates. It is not a one-to-one. So. So the Fed dropping by a quarter point does not mean your mortgage rate is now a quarter point lower. Not how it works. There's a lot of other factors that come into play with your interest rate. But just know that, that it's not. Feds don't cut rates and then your mortgage rate is cut by the same amount. We get that question a lot.
Speaker #1
I'm sure. Yeah. And it's just there's a lot that goes into these things. It's not like, oh, boop, boop, boop. One thing, one happens. Here we go. Should we move on to taxes?
Speaker #0
Yeah. Let's talk about taxes because everybody loves to talk about taxes. It's my favorite topic. I hate it.
Speaker #1
Well, this was as my like me. put my financial advisor hat, we're always talking about all these other things that's going on in the market to me, or the election. And to me, the one big thing was what's going to happen with this massive tax bill that Trump passed that was set to expire. And for those that don't know, the Tax Cuts and Jobs Act basically was going to, a few main categories are going to be impacted. So first of all is your income tax rate. For most folks, it would, if they just let them expire and nothing happened, tax rates would go up about 3% depending on your tax bracket. So that's one. So nor taxes. All right. So long-term capital gains rates would stay about the same. So that wouldn't be changed. Standard deduction, which everyone's kind of, no one itemizes really right now. So that would be cut in half. So more people would potentially start itemizing. So there'd be more planning along that. The SALT tax was capped at $10,000. That would be removed. So if you were moving to itemizing and you had a big house with a big interest payment and a big tax payment, you could deduct more of it. So a lot of people would be happy about that. The child... tax credit would have been cut in half. The mortgage interest deduction would change as well. And then some of the big one for those that are dying, the estate tax would be cut in half as well. So it would be at $13.6 million now, down about five, just for inflation. So it could be around six by the time then. So there's a lot of big changes that would happen if they just let it expire. Now, what we think is going to happen is Trump said, basically, we're going to keep these deductions moving forward. So we're going to kind of make everything permanent. as permanent as permanent can be in congress yeah it's not that permanent but a little permanent yeah so the good news is for everyone the tax rates are going to stay the same so they're not going to go down you're probably going to hear tax cuts tax cuts tax cuts um no they're just going to extend them so you're already living in the tax cut you're just going to get to keep it for longer yes yes you're staying in the same depth of water you're not going higher or lower okay i like all these water references they're delightful thanks i guess i saw aquaman the other day right yeah uh so for for a lot of people and and what i would say is um We got these tax cuts coming or tax extensions coming, I should say. So what do we do for planning? And what we really want to think about is where are we today versus where are we historically and what's going on with the debt and where do we think we'll be in the future? So Kelly, I'm going to do some trivia. Okay. I did not prep her for this.
Speaker #0
I'm not prepped at all.
Speaker #1
It's okay. You'll get it wrong. It's okay. What was the highest marginal tax rate?
Speaker #0
I don't even know what that means. You spoke Spanish there. Okay, thanks. All right.
Speaker #1
So right now it's 37%. So if you make the most amount of money. you're going to tax for every dollar you make you're going to tax 37 cents okay so what do you think the highest one ever was 56 56. uh you're you're very wrong okay i just made it up that's all it's fine uh it's it was 94 so you made a dollar 94 cents went to the government.
Speaker #0
Okay. All right. That was not a great time.
Speaker #1
Well, that was right after World War II. So we had a thing to pay for. We did.
Speaker #0
We did. We had a very expensive thing to pay for.
Speaker #1
Tanks and cigarettes back in the 40s to pay for. Right. So if you look at that. tax rates are basically historically low. They haven't been this low since, I think, before the Depression. And then we have all this debt. Like, where do you think taxes are going to go?
Speaker #0
Yeah, they're going to go up because we got to pay for that debt.
Speaker #1
Well, you know, a reasonable person would say that. I don't know if we have a reasonable government that would ever pay for that, but who knows? So let's say that that does happen at some point in the future. So when it comes to planning for you specifically, you know, we want to think about things like, OK. a Roth conversions more in play. We should be putting more money in Roth that's not taxed now, that is taxed now, but won't be taxed later. These are a lot of the conversations you want to be having with your CPA and your financial advisor because all these tax things right now are going to still be in play.
Speaker #0
right so you want to keep taking advantage of these low rates now i'm making blank faces at derek because this is where things start to sound like for me like a little a little anxiety inducing but i i get the message right for like okay the average consumer in their own personal economy because i'm sticking to the personal economy um this doesn't all have to be bad as long as you're thinking forward and i think a lot of people think right now what's best for me right now but you really need to be thinking what's going to be best for me like future Kelly, what's going to help future Kelly as opposed to Kelly today?
Speaker #1
Right. Because most people are taught to just save taxes, save taxes, save taxes, right? Because no one likes paying a high tax bill. It feels good when your accountant says, hey, look, I got you a $5,000 refund. You got a $3,000 refund. You're like, this guy's the best.
Speaker #0
That's my free monies.
Speaker #1
But what if you're paying 24% today, in the future, you're paying 35%. That's not a good tax plan. That's not a good tax plan. You really want to kind of think about, okay, if I stuff all this money in a pre-tax bucket, pay a lower tax rate today, but now I've got this tax time bomb coming later on, and I'm going to be taxed at 35% later.
Speaker #0
That's not the best plan.
Speaker #1
That was not the best plan long term.
Speaker #0
Long story short, taxes don't have to be good or bad. Either way, they're different for everybody, and you need to speak to your professional who knows your personal financial situation to determine the best way to combat where your money's going.
Speaker #1
Exactly. But if we're thinking logically about this, Tax rates are most like my best guess is that tax rates will not be lower than they are today.
Speaker #0
Okay. All right. I'm down with that.
Speaker #1
So use that for what you will, but talk to your professional about it. So that's one way I would look at the taxes for you. And the big other T we're talking about is tariffs.
Speaker #0
Tariffs. This word, man, I told you like, I'm not, this is this like the Boston tea party, weren't we? I don't even know. I'm making stuff up. But like, tariffs are a word that you hear very quite rarely that has it is the buzzword of 2024. If you were to say like, Kelly, what is the word of 2024? It would be tariffs.
Speaker #1
Yeah. And you know what? You know what the funny thing is? You know what the Google search for tariffs? I don't even want to know. After the election, not before. After.
Speaker #0
So after people already made their choices. Okay. Yes. Cool.
Speaker #1
So the search results or the search queries went up 1650 percent.
Speaker #0
Because it's a word that's been used a lot, but we don't all know what it means.
Speaker #1
And then the question who pays for tariffs is 350 percent.
Speaker #0
So who? Okay, Derek, who? pays for tariffs?
Speaker #1
You're looking at them. You and I do.
Speaker #0
We pay for tariffs. Yeah. I thought other countries paid for tariffs. Isn't that what we're being sold right now?
Speaker #1
Well, technically, they do. Okay. But anyone running a business knows that if my cost of goods go up, or let's say my labor goes up, whatever, my prices go up, I'm going to pass that off to the consumer, as we saw during the whole inflationary area a couple of years ago.
Speaker #0
Oh, yeah. Things got expensive, so everything got expensive.
Speaker #1
Yeah. The supermarkets were just eating at cost. the car companies weren't just saying, Oh, we're just going to sell the Ford at the same exact price. We're going to make the price go up during COVID lumber went up like crazy. Right. Um, so basically what's going to happen is let's say you've got, um, an item that costs a hundred bucks. Let's say it's a drill, right? A hundred dollar drill. Now, depending on where it comes from, basically the plan or the thought process is, all right, we're going to. We're going to put 60% tariffs on Chinese goods and 10 to 20% on other trade partners throughout the world. So pretty much everyone else. Everyone else. So, all right, let's use a drill from China versus a drill from Mexico, let's say. That's 20%. So that $100 drill from China now potentially becomes about $160 because they're just going to pass that. China would pay this 60% tariff to the US, but then the consumer now says, okay, now my drill costs $160 roughly, right? And same thing now that drill from Mexico is going to cost $100. 10 or 120, depending what the tariff is. So you get a pretty big increase. The thought process beyond that, too, is like, hey, we want to bring manufacturing back.
Speaker #0
Yeah, which I get. I get that in the consumer standpoint, right? As we've been encouraged for years, right? Buy Made in America and buy Made in America. Read your labels. Where are things coming from? And it's a valid conversation about the quality of goods, the safetiness. The safetiness? Is that a word? That's a real word, yeah. Okay, great. the safetiness of goods, where things are being manufactured, that sort of travels that some of our goods go on, right? That like a product can have a material that's sourced in one country that's then sent to another country, and then it's processed partially in that country, and then it moves to a third country, and then more of it's processed until it finally ends up in our hands, and that's like convoluted and expensive. This would maybe combat a little bit of that.
Speaker #1
Yeah, and that's the theory behind it. It's either, hey, we're going to use this as a bargaining chip or we're going to try and get some manufacturing here. But Trump did put some tariffs on the first go-round and manufacturing actually decreased.
Speaker #0
Okay.
Speaker #1
So they've not proven that tariffs are one for one. Hey, we're going to bring things over here because, I mean, you still have to build. Let's say you don't have a drill factory here. You're going to have to build a new factory. That's going to be expensive.
Speaker #0
Is it worth it to just pay the extra $60?
Speaker #1
I just pay the extra $60, right? That's kind of what you're thinking of too.
Speaker #0
I didn't contemplate that. Right. Yeah. So it's not just a matter, right. So it costs $60, right, for your $100 drill is now 160. Cool. You can manufacture it here in the United States. If there is not a facility to do that, is it more cost beneficial for a company to pay the $60 or to build the plant?
Speaker #1
And the other thing is, well, two, two points, right? Tariffs can be temporary. We have no idea how long. So if you're going to plan out, all right, I've got to build a factory. It's going to take me three to five years to build this factory.
Speaker #0
Oh yeah.
Speaker #1
What if the tariffs are gone by then? Okay. So is that a smart business decision, right? The other thing that a lot of people realize, so the Tax Cuts and Jobs Act, that's going to have to go through Congress. Congress has to approve that.
Speaker #0
Okay.
Speaker #1
Presidents have a pretty much carte blanche power to implement tariffs.
Speaker #0
So that is a given that's going to happen?
Speaker #1
That depends. I mean, I don't know if the 60% is going to happen. I have no idea, but there is a greater likelihood that a president can implement a tariff. Okay. And they can change the tax code.
Speaker #0
Interesting. We're getting presidential history lessons too. I love it. I'm here for this.
Speaker #1
Yeah. So that's one thing to think about. So I mean, basically, depending on what study you're looking at, and I've come across, but they're saying generally the extra cost to most Americans is going to be between $2,500 and $3,900 extra a year.
Speaker #0
Okay. Wow. So not insignificant in your personal economy.
Speaker #1
No. So if we're combining the two tax cuts and inflation, let's say we're going to get from tariffs, you're probably looking at a net negative of still $2,600. Okay. So even with the tax cuts extending out,
Speaker #0
you're still not ahead at all. But if you make a lot of money, you might be ahead, right? If you're getting corporate tax breaks and all of that stuff. So it does depend a little bit on where your personal economy falls in the range of personal economies.
Speaker #1
Yeah, well, so surprise, surprise, the people on the low end of the personal economy are going to be in much worse shape because of the tariffs than the people on the high end. Yeah. Because they're going to get less of a benefit from the tax cut and they're going to get more impacted by the increased prices.
Speaker #0
Increased prices. But a tariff is not the same as inflation.
Speaker #1
No, a tariff can cause inflation. It can be like a root cause of it.
Speaker #0
Okay, but it's not the same. So we could see a decrease in inflation because that's what we're trying to do with an increase in tariffs. And that could maybe even equal out. So we may see not a price difference in our goods.
Speaker #1
that would be yeah once again it's all good independent like you know economies are complicated yeah like you just do one thing like even the 60 example may not exactly work out exactly like that right um but you know we get 17 and a half percent of our goods from china yeah so that's that's a lot well and i know like if you're and i i would venture to guess we're
Speaker #0
talking right this is the millennial show we're talking to millennials millennials probably get more of their goods from china than other maybe other generations before ours because we are the amazon generation where we love to amazon things and a lot of the stuff from amazon is purchased from overseas that's part of why it's so inexpensive that's kind of the model of of amazon is inexpensive goods from other countries so that may be different than your parent or grandparent who's like Maybe going to a local economy, something we could talk about in another episode, but going to local mom and pop stores and things made in America. And it is a little bit of a different there's a bit of a generation gap there.
Speaker #1
Yeah, exactly. And the thing about whether these are good or bad policies is not up for me to judge. But one of the things I'd say, we have to start with the notion that there's no perfect policy out there.
Speaker #0
Yeah,
Speaker #1
absolutely. Right. So something's going to help some segment of the population. It's probably going to negatively impact another segment of the population. There's just no like, oh, wow, we did this policy and there's rainbows and unicorns and everyone's winning.
Speaker #0
Everybody's happy.
Speaker #1
Everyone's, yeah. Yeah. Babies are crying with happiness. Yeah. It's not applicable in real life. So we'll see the impacts of this stuff. We'll see how much will actually get done. I mean, with them controlling basically the Republicans were controlling about everything. They're probably going to get most of their wish list done. I mean, I've kind of noticed, I don't know if you have, but almost every president gets kind of one big bill that they can push out. So I'm curious to see which one it is. Is it going to be the tax cuts? Is it going to be something else? Because that's generally kind of their quote-unquote legacies, right? Like what do they do? Like Obama was the ACA. George W. was tax cuts. Trump's first one was tax cuts.
Speaker #0
is this next one gonna be tax guns yeah we don't know we don't know and i think the other thing too is from like a lot of people have a lot of feelings about this election so let's first off say no matter what side of the aisle that you sit on your feelings are valid um and i also think that the emotions that come into play with an election especially this particular election are make it really hard to look at data and fact right well can i tell you like a crazy stat yeah um so
Speaker #1
Republicans, if they're Republicans are in office, they see the economy is 16% better or worse, depending if they're not. So they swing 16%. Democrats tend to swing 9%. So just depending on who's in office and if you support them or don't support them is going to color how good you think this economy is, regardless of how actually good or bad it is.
Speaker #0
Interesting. And that, I guess, makes sense to me. And it makes sense, I think, regarding a lot of the... conversations that were happening leading up to this election. But yeah, I think for those of you who are out there listening, I think the biggest thing as far as your money is concerned is don't just sit and wait for things to happen to you. Don't just sit and wait for tax cuts to... Again, if you think these things are great or you don't think they're great one way or another, your finances are going to change. You need to take care of it.
Speaker #1
Well, to me, these are things you want to pay attention to, but the things you do on the margins. At the end of the day, you should still save on your 401k plan. Yeah. You still get your company match. You should still manage your cash flow. You should still pay attention to taxes. You should still make sure you have an estate plan. That has nothing to do like, yeah, these things change. Maybe you're a person God bless you. Maybe you have $10 million and previously you were like, I'm good. But now it may drop to below $10 million and maybe you need to do some estate planning from a tax standpoint. Those are the people that are going to be more affected by anything. But at the end of the day, you're going to want to do your personal economy things. keep making money, keep working towards a promotion, keep saving, keep investing, do all the things that you should be doing regardless of who's in office.
Speaker #0
Keep paying for baseball, keep putting money in your child's e-wallet for the Scholastic Book Fair. That's the biggest racket ever.
Speaker #1
My son last year bought the Guinness Book of World Records. He spent like $35 on this like 400-page book of Guinness World Record thing.
Speaker #0
I'm impressed that at least it was a book, Derek. I have to have... So it is book fair week at my children's school. You have to load money into this e-wallet. Don't worry, it's fake money that you can't get back. So once it's loaded in there, they got to spend it. Everybody got a set amount. And I have to have a conversation with my children that you have to buy at least one book.
Speaker #1
What do they buy instead?
Speaker #0
Calculators, journals, sticker books. My son last year bought like one of those like rocks that you dig dinosaur fake plastic dinosaur fossils out of. That was $17. A little metal tin that looks like an iPhone filled with pencils. We find like... the garbage a stitch poster those of you i have a daughter who loves stitch disney stitch and we bought a stitch poster so we have to have a conversation every year how much money did you put in this fake wallet okay i put thirty dollars because that's like a good it sounds like a lot of stuff for this yeah well they do that's the trick with it though is they do and i i started off getting ten dollars but like a lot of the books are like eleven dollars so i realized that wasn't enough and then My daughter, the first year, came home with a calculator, which she spent all her money on. So now, again, it's a discussion. You have to come home with a book and you can use it. But that's the stuff that you have to worry about, I think. And your personal economy is the little things. I want to have enough money to be able to do that. Not everybody does or not everybody has planned for it. But you can listen to all of this information that we're giving you. You can take what makes sense for you. But your personal economy, and I'm like latching on to that concept, Eric. I'm here for it. Your personal economy is the most important thing for you.
Speaker #1
It is. At the end of the day, you know, I've made money when Trump was in office. I've made money when Obama was in office. I've made money when Biden was in office. And I've done poorly at times with all of them. And generally, the economy at... you know, as a whole didn't really matter as much. It was kind of more about my business personally and what I was doing.
Speaker #0
And your personal financial decisions that you're making during those times.
Speaker #1
Right, right. So I mean, yeah, there's gonna be some things in the margin that will impact you financially. You know, we're not gonna get into the other stuff. But you know, for the most part, you control what really happens to you. And that's the main message I want to get here. These are things we want to be aware of. I think we want to know, okay, now we know what a tariff is. Great. What can I do about it? Honestly, not much.
Speaker #0
Yep.
Speaker #1
If you have a tax cuts and jobs act, we could probably do some more planning around. Yeah,
Speaker #0
I would agree with that. Awesome. Well, thank you for joining us in another episode and we will see you next time.
Speaker #1
See ya.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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