Kitces & Carl Ep 160: Calming Clients With Anxiety About Trump Tariffs And Trade Wars

***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and YouTube Music.

Show Notes:

• Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary' Markets
• Nick Murray: Apocalypse du Jour

Kitces & Carl Transcript

Michael: Well, greetings, Carl.

Carl: Hello, Michael Kitces.

Michael: How are you doing?

Carl: Things are really, really, really good. Yeah, things are great.

Michael: Season is turning there?

Carl: Yeah. We alternate from storms with a foot of snow to grass. And it's that time of year, we call it mud season. There's the trails.

Michael: You don't have spring. You have winter, mud season, and summer. Is that how it works there?

Carl: What is it? Winter, mud season, summer, mud season, winter, mud season, yeah, like that. I have a friend that lives up in the mountains, and he says, "We have ten months of winter and two months of bad snowmobiling." That's great.

Michael: I like that.

Carl: It's not quite that bad. Yeah.

Michael: I like that.

Carl: Yeah.

Michael:  Well, I guess, notwithstanding beautiful weather when it's not too muddy there…

The "Scary Markets Conversation" When Clients Want To Sell [01:06]

Michael: I feel like we are back in one of those times where we need to have that conversation again. We need to have the scary markets conversation again. I went and looked it up. The last time we really had scary markets conversations was heading into COVID when markets got really, really scary.

Carl: That is wild.

Michael: And we had some hiccups over the past few years, but we are back in one of those places where things get really not just scary because volatile things are happening but scary because volatile things are happening, and no one's really sure what's coming next, right? And just it reminds me of COVID environments where March of 2020 and no one knows what's going to happen, financial crisis in 2008 where we're trying to keep clients on board, and it's, "No, no, you're going to be okay." I'm like, "I really hope you're going to be okay because I'm actually not 100% certain the financial system is going to be here on Monday. But I figure, if it's not, all this is going to be a moot point. So we're going to try to keep you on board."

And now we're getting into a new round of this as tariffs are firing off. Markets are reacting. And I don't even necessarily want to make this a political discussion around relative merits of tariffs. Someone else can go there. But a lot of us now are starting to get some of those conversations. Phone rings, email comes in, at least it gets brought up in a client review. Markets have gotten scary. I'm not sure how much more of this is coming. It kind of sounds like the administration still wants to do a lot more of this. Markets, as we know, generally don't do well with uncertainty. So that often makes them grind lower. And to me, there is something very fundamental from clients of I don't like it when markets go down. Some tariff things happen, the markets went down. The administration is saying more tariffs. It seems like the very straightforward answer is, well, then sell. Tariffs down, more tariffs. It's not hard to figure the logic chain here. And then we have to respond.

Carl: Yeah.

Michael: And so you are the great gifted one of scary markets conversations. So all I know how to do is logic my way through what are the possibilities where tariffs can actually end up having some partial positive effects for the economy, and then we'll see how it weighs out in the next year or two. But this is not a logic conversation for most clients. That's not the place it comes from. I'm intellectually curious about tariffs and all the scenarios that could play out in the economy. "Advisor, please talk to me about it," is not a conversation I've had. I'm scared the markets have been going down in response to tariffs. They say more are coming, and I'm not sure I should stay in.

Carl: Yeah. Man, it's hard because a fun conversation just because really I think the first step we all have to admit to ourselves is that it's actually hard, right? Standing between being the release valve for this sort of anxiety, I believe, is part of the job. And I think it's the hardest part of the job, and I think we have these long periods of time. Sometimes they're five, six, seven years, but often two or three years at least, where you kind of forget about it, right? It's smooth sailing, and this is all fun and games, and then things happen. So whether this is one of those things or whether this is just a week or two of weirdness, I don't know. But I know that these things happen. And so I think, first, acknowledging...I think it'd be fun to talk about this from two perspectives. One, how do you actually have the conversation with the client? And number two, what are you doing for yourself to make sure that you can continue to take care of clients and yourself, right? How are you building general resilience? So let me just start with a conversation, and I can take you through what I believe to be important steps. And I'll just pause, and we'll talk about them.

Michael: Please.

Carl: I think the first thing, what you acknowledge, is that the facts and the logic behind this, I've been accused of dismissing that, and I want to make it clear, if I was ever dismissive about that, I was wrong. I never meant to be. The facts and the logic really matter. I just think the order of presentation, the sequencing of it, is the important part. Because when that call first comes in, I think the way I think about it, I have a sketch about this, is, first, a hug. Lecture later, and a hug is probably metaphorical, right, but it's, first, a hug. Because when somebody calls, we've got to remember to actually send the email or to actually make the call, most likely represents, I don't know how long, but a lot of thinking and angst and worry and concern before. Don't you think that's reasonable?

Michael: Yeah. I think you may have said this in the past, in an episode many years ago, and it did very much strike home to me that, particularly, if it's a client relationship that we've had for any period of time, they know roughly what we're going to say, "No, of course, you're not supposed to sell. In fact, you're supposed to buy." "No, don't sell." So they know what we're going to say, and they called anyways.

Carl: Yep.

Michael: And once you recognize that, and asterisks, not true maybe if it's a much younger client who's just started working with you, a much younger client who's never been through scary markets themselves, that's not part of their career life experience yet. So, all asterisks, that can be genuinely different. Maybe they really don't know what you're going to say and how you're going to react. But for some clients that we've been with for some period of time or even if they're newer to us, but they are of an age and stage in life that I'm probably not the first advisor in their lives, they all kind of know that we're going to say some version of "No, you're not supposed to sell."

Carl: Right.

Michael: They're calling anyways. And to me, it just even gets interesting to reflect on, so why did they call when they knew what we were going to say? And what do they ask? What do they really ask?

Carl: Yeah. I think it's really important, empathetically, to remember that. They're not calling...they're most likely calling because they're nervous or scared or anxious. And when you're in that state, which we have all been in, and many of us, these scary markets are scary to us, too, so you probably can relate, what you want first is to be...now, you may not be aware of this. You may not be calling...you're not going to call and say, "Give me a hug," right? You're calling to get some relief, some help. But it doesn't work. When somebody is in an irrational state, it doesn't work to spray them with facts and figures. It doesn't work. You can't reason with somebody who's being irrational. Try that with your teenage son. It doesn't work. What you want to be is heard first. So I think that's stage one of the scary markets conversation, is greet with empathy, right?

So you answer that phone call, you see that email, there's a temptation, and I'm sure we're seeing it right now. I'm not on social media at all, but I'm sure we're seeing it right now on Twitter of just hold the course. No time is different. Don't do something stupid. All these things of look at the little humans making their little human mistakes. This sense of smugness that sort of enters sometimes are...and I'm talking about the collective investment industry, probably not this audience, but the collective investment industry, the sense of smugness. I think we need to drop that at the door and just realize, "Okay," and I'm using an example of Jerry and Vera are nervous.

So the very first thing I want to do is greet with empathy. So I can say without lying, if you're not scared, don't say you're scared. You don't have to enter it to be empathetic, but you can say something like, "Oh, Jerry, I can hear, that must have you really worried," right? And the honest thing I always said, and it's still true, is I get really worried when I watch the news right now, too. I got you. You know what I mean? So some version of greet with empathy, right? Tell me more.

Michael: I like that framing. This must have you really worried. I get really worried when I watch the news now as well. There's something just...

Carl: Because that's true.

Michael: Yeah. It's true, and it's neutral, and it's not binding me to any particular action, but I can sort of acknowledge that this is scary. I'll not even say the word scary. Worrisome is...

Carl: Yeah. Or concerned. I get concerned when I watch the news, too. So that's step one.

Bringing Clients From Panic To Logic With Empathy [11:25]

Carl: And then step two I've always loved, and you can do this in person. You can do this on the phone. You definitely can do it on email. Step two, I always call...I just call "please hold," and it's metaphorical as if you were on the phone. You're just trying to create a little space between the stimulus and your response. So if it's on the phone, you can say, "Hey, before we get to that," so you've greeted with a little empathy and then you say, "Jerry, thanks. I got you. Hey, before we get that, do you mind if I grab your file real quick? I just want to pull up some of our notes, remind myself, right? Just a second, please hold." That's where "please hold" came from.

And if you were in person and you get kind of a little bit...ambushed is not the right word, but just a little bit surprised, you're in the conference room, and this comes up. Then it's pretty easy to go, "Hey, Jerry, totally, I hear you. I think I forgot some notes. Can I go grab some?" Or, "Hey, you know what, I'd love a glass of water. Would you, Jerry and Vera, would you like some water, too?" Just get something. And again, this may be silly, but I just love the idea of they just did the hard thing. They're in fight or flight. Let's just create a little space.

Michael: Okay.

Carl: So not a big deal, but I've always loved that. It feels generous to me. And so then we're like, "Okay, let's go." I think of it as maybe a pyramid of a sketch like this. The top of the sketch. It's a pyramid kind of like Maslow's hierarchy. The bottom says plan. And I've got a new one, an updated one that the bottom says purpose. But let's just stick with the plan and then the process, and then the top is the product. Remember, they're coming in at the product level, you know what I mean? That could be product, economy, markets. All these concerns come in at the product. Economy. Markets.

Michael: The things I own that might go down. That is a little bit so far already.

Carl: Up there. Up there. And I think sometimes that's out in the limbs of the tree. It's really wavy out there, a little bit of wind, and those limbs are moving all over the place. Scary place to be for any of us. So the question becomes, how do we take them from there down to the base of the pyramid first, back to the plan?

Michael: Okay.

Carl: So that's where I think we're, "Hey, let me grab my notes," come back in. And then we just go...we start at the plan. "Hey, let's just review a couple of things. Believe me, we're going to get to your concern." And I always address that because I don't want them to think I've forgotten. "Hey, believe me, we're going to get to your concern. But remind me, when you first came in, you told me this." And I always did some repeat of the values conversation, go back to our values conversation, or I call it a statement of financial purpose now. So I may say, "When you first started working with me, Jerry and Vera, you told me that...and in fact, you told me two months ago in our quarterly review that you never want to be burden to the kids and that you'd love to contribute to the community if there was some time and money to do so. Is that still the base of what we're doing?" "Yeah." "Okay, good." Then you just sort of slowly move up. What comes after values? Well, here's what this looked like. And I want to...

Michael: Walk me through it. Okay, so I'm setting this up. You told me that you never want to be a burden to the kids. You want to contribute to the community. Yeah. And that's evaporating because the market's crashing.

Carl: Yeah, yeah. Yes. Yeah, yeah. And you're still looking a little panicky. "Okay, great. I totally got you. I just want to make sure because we're worried." And then we can say, "What that looks like is you wanted to have a check." This was actually Jerry and Vera. "You want to have a check arrive in the mailbox for $6,000 a month. And then you wanted $10,000 a year for each of the grandkids. Is that still?" "Yeah." "Okay, cool."

Okay, then we just slowly work our way through up to the portfolio. Remember, we invested this way because that gave us the greatest chance of meeting these goals. Are we still good there? And then we end with, and I'm short circuiting this real quickly so we can spend a bunch of time talking about it, we end with the idea of, "Look, remember when we built this portfolio, the design of this portfolio was very, very intentional. It was built based on those values and goals we just talked about. And the design of the portfolio was to give you the greatest likelihood of meeting those values and goals over the long haul with the least amount of risk." And then I think this is really important. "Remember, when we built this portfolio, it included," and I always use this phrase, "it included the weighty evidence of history. The software, the calculator that we used to build these portfolios includes the fact that markets go up and down because they have historically."

So it includes this idea. This isn't a surprise that a market's going up or down. Now, the why and how much and when, yes, surprise. But the fact that it actually happened isn't a surprise. It was built into the plan. And then I just sort of...this is the part where it gets really hard, and I'm super curious about your feedback on this and how you've handled it, because this is the part where we just have to admit this is all based on the weighty evidence of history. New challenges arise. And scary markets are always new. We always say there's nothing ever new. The precipitating event is almost...it always feels new, right?

Why Each Market Decline ‘Feels Different' [17:05]

Michael: Always. Yeah, that, to me, having now seen a decent number of these through my career, we do the same cycle of, this time, it's never different, and every time, it feels different. We hadn't seen a pandemic in 100 years...

Carl: Yeah, that's a great example.

Michael: ...when COVID rolled through. We hadn't seen a financial crisis in 100 years since, ironically, the crashes in the 1900s and 1910s that basically made the Fed to prevent the exact same kind of financial crisis that we were going through. We'd never seen a bubble in tech stocks since the tulip mania by the time we got there. I will admit, it is part of the thing that's always been tough for me. At least, I know, I feel like I was trained early on that you're supposed to basically make the point that this time isn't different. It's never different. We always think it's different, but it's not really different. And now, I'm like, "No, it is different." Now, let me pull out a chart and show you how historically 25 different scary things that no one had ever seen before that were always different actually turn out to have remarkably similar drawdowns of about how much a bear market goes down until it's finished and then how long it takes to recover and that you can manage that path.

And you've got J.P. Morgan, "Guide to the Markets," Clearnomics. There's a lot of folks out there now that make versions of the charts that help to illustrate these. But I got tired of saying this time isn't different. Well, it really does kind of feel different. I've been doing this a long time, and I've never seen a tariff or a trade war break out. I can read some history books and get some sense of how it goes, which usually isn't great, at least in the short term. So, yeah, this feels different.

Talking Spiraling Clients Through The Worst Extremities [19:24]

Carl: Yeah, I agree. I think this is the part I really want to spend most of our time on, is, so far, we haven't said anything about, "Hey, silly you. Don't you know this time is always different?" So far, we're trying to build the foundation upon which we can have a discussion now about the idea of we built this portfolio based on the best science we have in terms of portfolio construction. And you better be darn sure of that. You better feel pretty calm. I think this is one of those times where you need to be able to look people in the eyes and go, "This is the best way I know to do this." And I always love Churchill's quote of, "Democracy is the worst form of government ever created by the mind of man, except for all the others." And I think it applies. I use that every single time. I'd say, "Look, this is the best way to invest money ever created," right? Sorry. This is the worst way to invest money ever created, except for all the others. And the reason it's the worst is it doesn't protect you from these periodic times where scary unknown things sort of happen.

And then I think we're almost to the point where we can now go to Michael Kitcesland, right? We can now go to logic and reason because we're sort of reasoning together. Okay, now, let's just look at how this is different. I'll give you that. So was the pandemic. So was 9/11. So was...

Michael: Financial crisis, 9/11, tech crash.

Carl: They all start...I started years ago. I started saying, "Look, they all start for different reasons. They all seem to end the same." Yeah, they all start for different reasons, and they all seem to end the same. And let me walk you through how they've ended. And I think even some acknowledgement here of...and it's reasonable for us to assume this one will end that way, too. Let me show you the data, the charts, that this is where we...I think we've now done the hug. We're slowly working our way into logic and reason. That's not even really fair. We've done the hug. We're slowly working our way into facts and data. Because I think the hug was part of logic and reason. We're slowly working our way into facts and data. And we're now walking through to the degree...because I find that some people don't...at the end of that discussion of, "Look, do you remember how we built this portfolio?"

And you're basically saying, "I know what I'm doing. And I know what I'm doing. And I'm looking into your eyes and telling you I know no better way to do this. And if you looked for 22 years under every rock, you wouldn't find a better way to do this either." That's the feeling I want on my bones. And some clients are like, "Oh, man, thanks. All right. Thank you. Forget I called." But then there's the others that are like, "Yeah, yeah, cute story. Get me out." And I think that's the point at which we're like, "Okay, let's walk through how these normally end. Let me show you all the data. Let me try to...now I'm going to spray you with facts and figures because, hopefully, we're at a spot where we can have a rational discussion." And that rational discussion even acknowledges some idea of, look, so far, they all have ended the same. And I think the only reasonable bet is that this one will end the same as well. But we got to remember that we're not actually sure of that. But if you're a rational, reasonable human, looking at probabilities in any way that makes sense, it's reasonable for you to conclude that that's how a rational human would behave.

And then one last bit, and then let's just break it down a little bit, is I always loved if somebody was really pushing. Yeah, yeah, yeah. And I only care. I can think of their names. I know exactly when it was. One of them was SARS. I only had two in my whole career where they blew out. Only two. One was SARS, and one was housing, 2009. And I can remember having these, but I had lots of these kind of conversations. And where you end up here is, okay, let's take the other. What's our alternative? We got all this data and experience and history that says this is the right way to do it. What's our alternative? Our alternative is...I always remember saying the markets are going to see...and 2009 was a good example of this. Maybe the markets are going to cease to exist in the way that they've existed in the past.

Okay, if that's true, what would be the appropriate portfolio for that? You exaggerate with guns and butter, something to protect yourself with and something to trade. And then I always like to say, what percentage of the time of your investing life or our investing history have guns and butter been the right portfolio? So, which one should we pick, the one that's never been the right portfolio or the one that has always been, knowing that we're still taking risk? And I think that's why it's called the risk premium. I think we underestimate the risk. I think we underestimate the reality that, hey, this is called risk.

And then the last thing I want to say, and then I promise I'll stop, and we can break it down a bit, is, remember, there's nothing that says you have to be investing in equity markets. Now is not the time to jump into the water, but let's remember, if we decide we don't like this, let's write ourselves a little note. I used to have people record a video. Actually, no, I didn't because it was before. If I was doing it now, I'd probably have people record a little video to themselves. I would save that video. I had a couple of clients write letters to themselves about how they felt, and I saved those letters until we were recovered. Because guess what happens when you're recovered and you go to get more conservative? Well, they don't want to do that. What risk? What are you talking about? Pull out the letter, read the letter. But I think it's important to remember, just because you're a financial planner doesn't mean you have to convince people that they have to invest in equity markets. You can build a plan that doesn't involve that. Okay. So that's that. What do you want to talk about?

Asking "What Has You Worried?" Can Help Advisors Give Specific Advice [25:52]

Michael: I'm kind of focused on just your sequencing around this, is where my head goes. Look, well, my brain goes immediately to the logic stuff, "Oh, client wants to sell? I'm so ready to have this debate. Let's go." And per the discussion of why are they calling when they kind of know what we're probably going to say, well, I guess, a double-edged sword. Sometimes they're not calling for a debate. They're calling because they're freaking out, and they know what you're going to say, but they're freaking out anyways. And sometimes they're literally calling for the debate, which is, "I'm freaking out, and I know you're going to try to talk me out of it. And I'm calling you because I need you to talk me out of it. And that's why I'm calling you when I know what you're going to say, but I need to hear you say it, and I need your calming voice and the way that you always bring me back to center and talk me off the proverbial ledge." I feel like there's a difference between those in how we handle them, and it's a difference I didn't appreciate in the past.

So I would treat everything like they're calling for a debate because I like to debate, and instead of at least trying to pause and say, okay, I'm going to kind of overgeneralize. There's three versions of how this goes from clients. "Carl, this tariff stuff is just freaking me out. We need to sell," which is, essentially, "Get me out now." There's, "Carl, I'm freaking out about this tariff stuff, and I'm thinking about selling," which I find is that's usually the "I want you to talk me out of it, that's why I started thinking about it." I've seen versions of that. And then there's one that's maybe one step further down in sort of the severity scale, that is, "So, Carl, what are we doing about this tariff stuff?" And obviously, client is reaching out because they're feeling some concern and anxiety about these.

But I feel like they deserve to be, A, I think they deserve different kind of process and prioritization because the client is like, "Carl, I'm freaking out about the tariffs. We need to sell. I'm in full blown panic mode," which, to me, gets right back to...I really appreciate your wording of, "Jerry, this sounds like you're really worried. Yeah, I get really worried when I watch the news right now as well. Hey, let me pull up your portfolio. Can I just put you on hold for a moment? I just want to pull up all the information so I've got it handy." And I can put you in the pause timeout box...

Carl: Please hold.

Michael: ...as you had framed it. And then I can come back and do the "We're going to get to your concern. Let's go back over goals. Let's go back over what we were trying to accomplish." And now, at least by the time we get there, hopefully, you're one step down on the panic scale.

Carl: Yeah. Let me just mention something right there because I think it's really important, is that the time of that, that obviously could vary. You might have a hardcore, stereotypical Kitces engineer where you're just, "Hey, I just got to double-check a few things. Okay, great. Let's talk about the facts." I'm not suggesting everybody needs 20 minutes of therapy.

Michael: That's why I think about tiering them. The next, "Carl, this tariff stuff is starting to freak me out. I'm thinking we might need to sell," or something to that effect, okay, so you're thinking about it. You haven't asked me to make a decision. You're going to ask me to take a trade for you, or I'm supposed to immediately talk you off. You're clearly upset and anxious, but you may not be in the same, I don't know its label, maybe a little hijack. My brain isn't even responding to logic right now, but I find those are the "I'm calling because I need you to talk me out of this."

Carl: And are you suggesting that that might need less time in the sort of empathy zone?

Michael: I think so. Although, ironically, even as I say that, it still feels right to at least start there. It sounds like you're really worried.

Carl: Yeah. Or it could even be maybe a little less. It could be more like, "Oh, got it. I'm hearing a lot about that in the news as well. Tell me what's got you worried." Because often, I remember Michael Bungay Stanier, who is a great coach about coaching, he's a great author, writes a lot about coaching. He says, this is his language, he's like, "Your advice almost always sucks because you're giving advice about the wrong thing." So sometimes we're immediately like, "Oh, yeah, you're calling about tariffs? Okay, let me la da da da da." And they might be, "Yeah, yeah, tariffs, but I'm also worried because my daughter just whatever."

Michael: Is going to college at McGill.

Carl: Or, hey, you know what, on top of it, I've been reading all this AI stuff. So I think it at least deserves empathy, and that can be part of the empathy piece of this conversation, is, "Hey, Michael, I'm worried a bit. Yeah, there's a lot going on in the news, isn't there? Tell me what specifically you're worried about." Just getting some sense of, "Help me understand. Let me hear you." I don't think anybody, even the most sort of engineer-brained person in the world isn't going to appreciate that question.

Michael: Yes. Yes. Then they'll start riffing on what's going on. At least I get more zeroed in on this. That's part of where it's going. If I think about the third version, in particular, the client that just kind of reached out, "So, Carl, what are we doing about this tariff stuff?" which I thought, for some clients, that's the oblique way to kind of say, "I'm sort of worried, and I know I'm supposed to not be freaking out, so I'm not calling you to say I'm freaking out. But I'm still sort of anxious. So, what are we doing about this tariffs thing?" Because you're supposed to be doing something, apparently, right? There's a lot that's actually loaded into that version of the question for which I find that takes me very quickly then to, "Yeah, there's been a lot of stuff in the news about that lately. Which part has you worried? What are you focused on right now?"

Carl: Yeah. And I even love...

Michael: Trying to turn it back to them, not because I'm dodging it. Just, what are you really actually anxious about so I don't spend a couple of minutes talking about the wrong version?

The Benefits Of Being Educated On Current Events As A Financial Advisor [33:09]

Carl: Yeah. And this is one interesting point, and I think it's important. How often have we seen proactively we reach out to clients and say, "Hey, I'm calling because it's been really crazy news. We want to talk," and they're, "What, it has? Should I be worried?" So even there where you were, "Hey, what are we doing about this tariff stuff?" you corrected yourself, which I loved, which was, "Hey, what are we doing about this tariff stuff?" What are you worried about you? And then you corrected yourself and said, "What are you thinking about?" You know what I mean? So if they're not using language around worry or scared or feared, let's not use language around that. But we can still ask a similar question, "Oh, tell me what's got you...what are you thinking?" That's, I think, what you said. What's got you thinking? I love that.

And then the one thing I want to mention about all three of these versions is I noticed this, and I did this for years, and I don't know if I'd ever stopped doing it, but I don't think it's a good idea. Because all bear markets to date have ended the same, all scary markets, because this isn't even a bear market, at least what we're talking about. It's not even close, right? All scary markets end the same. Sometimes there's a tendency to feel like we don't even need to have an opinion, an educated opinion, about the current news, right? Because we're trying to get everybody to ignore the news, don't live in the news. But I do think it's...and I might be wrong about this, but I do think it's...I don't know that it's expected or what the right word is even, but I think it's pretty reassuring to clients to know that you've thought about it and that you have an educated, defensible opinion about it that demonstrates that you can still arrive at the same spot. "Hey, you know what, we've given a lot of thought to this. We take this stuff seriously. Here's what we're thinking."

And it still ends up at the same place, but I think sometimes we are too quick to dismiss. I'm not sure if I'm right about this, but it feels like sometimes we're too quick to dismiss the need to be educated about what's going on in the news because the news is always just creating bad behavior. And there's some element of this that...clients live in the news. Clients live in the world. We're probably going to need to be able to at least be conversant in some of those things that are scary to them, I think. I might have that wrong.

Or you could have a whole client base. Because I know there are people listening to this. Because I had a client base close to this, and I know exactly who I could call right now, a guy named Matt. I could call right now, and he would be, "I don't even know what you guys are talking about because none of my clients are worried." He's just done such a crazy job of either self-selecting or training it out of them, detoxing clients. Largely, I think it's a self-selecting plus a little bit of detox that it's just not even an issue, even when it's getting really scary. Great. But for most of us, we deal with humans.

Michael: Yeah. Which, for me, once we're in logic place, it just tends to come back to... Once you get to the logic place, there's sort of two threads of conversation to me. There is, "Let's just kind of do the logic-y conversation." Tech crash, 9/11, financial crisis, global pandemics. Now it's tariffs. Okay. So, what are some of the ways that this plays out? What are the bad versions? What are the good versions?

There are actually good versions where this ends out reallocating what countries work on what, and we end up with a big domestic manufacturing boom because people don't want to send things back and forth across borders so much anymore. So we actually just bring stuff more back to the U.S. and make more stuff here in the U.S., which actually lifts income and economic growth so much that we can actually afford the fact that things are slightly more expensive. Oh, and our deficits go down because tariffs are literally revenue. Most people forget, we spent the first 150 years heavily financing the federal government by tariffs. The income tax came later. That's just the past 100 years of 250-plus years of history. So there's the logic points of tariffs.

And then there's just the "Let's just kind of talk this through from the financial planning perspective." I like how you said, "They all start for different reasons. They all end about the same." Look, the average bear market is 35% top to bottom. So let's just take a look. Here's how much down you're already. Here's how much more it'll go if this really plays out. Let's just get clear.

Carl: Right, right.

Michael: How long does it typically take to recover? A year or two, depending on whose data you use and which dimensions that they measure from. So then that usually gets some version of the client saying, "Well, can't we just sell now and get back in later?" So then we can have the whole, how difficult is it to time? Look, I can sell here, but I'm just wondering, if we do that sale for you, what's your trigger going to be to get back in? How will you know when it's okay again?

Carl: Yeah, that's the Buddhist second arrow problem. The first arrow is don't make it worse because now you've got a second arrow, which is now you're going to be wondering when you should get back in. So there's all sorts of conversations around that ,for sure. But, yeah, you're right. We're also at the "missed the ten best days," and hopefully, at that point, we can have some logical discussion around those things.

Michael: And my goal, usually, in those conversations is if we can at least acknowledge this is difficult to time, maybe. How did you handle COVID or financial crisis? And I love... You held all the way through. Awesome. How did that go? You sold. Okay. How did that go? Oh, yeah, the market rebounded 47% before I got back in. Cool. So, do you want to do that risk again, or how are you feeling about riding this out? Conversely, every now and then, the client is, "Yeah, I sold out. I sold out. I actually got off before it was horrible. And then I got in much lower because I figured it had to be pretty bad." I'm like, "Well, good to know, because if you actually successfully timed the last one, then this is going to be a very hard conversation to not convince you try to get. Basically, we'll get clear."

Carl: Start your own hedge fund.

Michael: What did you do in COVID? What did you do in the financial crisis? But my goal, at least, was always, "Look, here's how far it typically goes, and it's a lot further than the word is now. So let's at least see if we're ready to prepare for what may come next. How long does it take to recover? How impossibly difficult is this to time? And if it's that hard to time to go down that far and it's going to take that much time to come back, are we going to be okay if we just ride this out?" And then, at some point, it gets dictated by your plan. "Can I run up data projections, and we'll see? If all the bad things, it goes down more than 35% top to bottom and it takes two or three years to fully recover, just to even get back to where we are today, can I just run the numbers? Let's see if that actually materially impacts your plan and all the goals that you said you wanted to accomplish."

Carl: Yeah, I think that's a really good end of scenarios, third level layer, "I'm still worried. I'm still worried. I'm still worried." I think going to that spot where you're like, "Look, we don't know." The reason this is so difficult is this could turn around tomorrow, and I've seen it over and over and over just about the time. "I can promise you right now, if we sell, the market is going to turn around. If we don't sell, the market is going to keep going down, I promise." I just don't know how to change that. And I think you kind of acknowledged the idea of we don't know where we are in this situation. This could all blow over. I've seen this a million times. Not a million, I've seen this a hundred times. This could all blow over. It could be no big deal. It could be apocalypse. What does Nick Murray call it, apocalypse du jour? It could be any of those things.

But I do love the idea of, "Hey, you know what, what if we just...let's just scenario test this." Because I remember doing that a couple of times, and the question is, how bad is it? Could you avoid the cost of living increase for a year or two? Can we just not give you your raise? Is that it? Yeah. Could you just not take your raise? That kind of idea. So I like that idea of ending, not ending this conversation necessarily, I'm just saying, getting to that spot where you're like, "Let me just stress test this for you. Let's pretend like this is what happens." Because I think clients think it's a lot worse than it normally is. In fact, I know they do. I know I do. As a human, I do.

Michael: Just warms my heart, Carl, that we're going to end with a spreadsheet and a financial...

Carl: Oh, the biggest spreadsheet you've ever seen.

Michael: And a Monte Carlo analysis. I'm feeling so much...

Carl: Yes, 100%.

Michael: I'm feeling better now. I'm feeling better now.

Carl: A hundred percent. Believe me, despite all my little games around this stuff, I know how to do that stuff, or at least I used to know how to do that stuff.

Michael: Awesome. Well, thank you, Carl.

Carl: Yeah, cheers.