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16:16

Announcer 00:00:01 This is Blue Money, a finance podcast made for cops by cops. With us. You know your money safe. Retired Lieutenant Jim Donnelly of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group come together to help protect and serve your financial needs. This is Blue Money.

Jim 00:00:20 I want to welcome everyone back to the Blue Money podcast. This is your host, Jim Donnelly. I’m here with my co-host, Kevin McGarry. What’s up Jimmy? Not much. Kev, what’s going on with you this year? Just ready for.

Kevin 00:00:29 The new year, man.

Jim 00:00:30 That’s right man. Starting right now, it’s January 2nd. We got the word. Barclay’s not playing this week, so not.

Kevin 00:00:36 Playing I’m a little disappointed.

Jim 00:00:37 Yeah. As a fan. Disappointed as you know someone that’s looking for hopefully they can win the Super Bowl I get it I understand where the coach is coming from. But like you said, as fans we want to watch something on Sunday. You know that’s that record stood for 40 years.

Jim 00:00:49 Yeah. And it would have been great to be against against the Giants.

Kevin 00:00:51 And Dickerson’s out there talking trash a little bit.

Jim 00:00:54 Did not want that broken boy.

Kevin 00:00:55 He got his wish.

Jim 00:00:57 I was seeing the highlights of Dickerson. Oh man he has those glasses. Oh man. He’s in The bad uniforms of the Rams.

Kevin 00:01:03 He stood straight up when he ran to. But here’s the thing, though. He he has 33 more rushes than Barkley.

Jim 00:01:10 Yeah. Now Barkley would have beat it with that I mean but listen man the Giants from a stock box this week. They it would have been difficult but they would have got it. They would just fed him the ball. They didn’t care about winning the game. He would have got that record. But we’ll never know. We’ll never see how it plays out. But it is what it is. Gotta move.

Kevin 00:01:24 Forward too. Worried. They’re worried that you know him. The line someone’s going to get hurt. And that kind of leads us into this year, right? Like, you know, I had a long time ago had a coach always tell me, you know, there’s a lot of things I worried about that never happened.

Kevin 00:01:39 No, I know you look at 20, 24. There was a lot of worry out there, right? You had inflation, election, geopolitical risk. With the wars going on, prices of stocks being overvalued, and the market still went up over 20% for the year. You were scaring me. Before we start the podcast on some positive things that can occur in January, January does well.

Jim 00:02:03 The first thing that jumps out is a January effect. If anyone hears that out there, and what that is, is basically 77% of the time, it’s how the rest of the year goes, how January goes. So if it’s positive year in January, you know, 77% of the time, or the more it still goes up and you can’t get so caught up on these trends. But it’s a high number, 77%. And when we look back at 2024 and 2023, it was back to back years. We gained over 20%. It’s the first time that happened in a century. So that’s huge. So it is it it’s big.

Jim 00:02:33 I mean that’s a big return.

Kevin 00:02:34 And I think to remember in August people got concerned because of that. I mean the yen carry trade. Yeah I think in August the index went down 8.5%. They had a drawdown of 8.5%, you know, which was scary. It’s happens quick. People get concerned I don’t know what’s occurring. But if you go back since 1980 to draw down the average draw down for a year for the index is 14.2%. So it is to be expected even to dive in a little deeper, Jim, you know, going back over time. You know, 3% drops happen seven times a year, a 5% drop happens a little around 3.5%, three and a half times a year. And a 10% drop happens once a year historically. So we gotta expect volatility, especially where stock prices are. They’re high you know and they shot up there. Yeah. So with these high you know we should expect volatility. But January starts out well historically like you’ve mentioned it’s been a good year.

Jim 00:03:32 And last year also was a record for ETFs $1 trillion was invest in ETFs which was big number a lot of crypto a lot of just ETFs are the way to go. Do this now and we’ll have a whole podcast against mutual funds. But ETFs is it’s the way to go. And $1 trillion last year that were invested in ETFs is a big number to look at. And also we’re looking at like the Trump effect. What’s that going to have.

Kevin 00:03:53 Well I think before we jump into Trump and politics I think the big thing is the economy. Right. Like you know inflation is coming down still. You know unemployment’s anyone.

Jim 00:04:03 That wants a jobs getting a job It’s.

Kevin 00:04:04 Slow, you know, economic growth is steady, right? You know, and so there’s a lot of positive out there. There’s a ton of cash flow on the sideline. So the economy’s still still moving forward and grinding.

Jim 00:04:17 Yeah I mean with the fed cut I mean they’re looking at two cuts or signal for two cuts next year.

Jim 00:04:21 They’re hoping to get down by half a you know percentage point. That’s half basis point I mean they’re looking at targeted range next year of three seven 5 to 4%. So I mean they’re coming down a little bit. It’s not going to be astronomical. But it’s they’re going to make cuts. It’s positive. It’s stimulus.

Kevin 00:04:37 Right. Think about it. If they the market’s saying maybe 1 to 2 cuts this year right. if you look at that historically that’s to get the economy moving. Right. So there’s some uncertainty where inflation is there’s a lot of different, you know, points out there that are pro and and negative on what the fed should do. But I can tell you this, if the fed does cut two times this year and on the short end, you know, comes down in the long end and the curve stays, you know, steady. Ten year. Stay steady. You know, the last three years for bonds, three and a half years for bonds haven’t been great for your portfolio.

Kevin 00:05:14 That could help, you know, bond prices in a diversified portfolio. And importantly if those rates come down the fed cuts rates. And there’s over 6 trillion, about $6 trillion on the sideline sitting there. That money historically has moved out and wanted to stocks which could be good for the economy if the fed continues to cut rates. Plus should help real estate and other industries.

Jim 00:05:40 Yeah, like you said, just on the one you just remember bonds. It’s like a seesaw with the interest rates. When they’re cutting down the bond prices can go up. So and it’s it’s just a seesaw between bonds and the interest rates. So when we looked at Trump the Trump effect you know there’s going to be three things that he really ran on. First was tax cuts. You know individual tax cuts. Are we going to see anyone anything less. Not really. But what is going to happen. We’re not going to go into a higher tax bracket. He’s going to just, you know, pass the same tax things that he passed, and they’re not going to expire now for an individuals, not a corporate tax.

Jim 00:06:10 He’s going to cut that corporations to make more money. Obviously, we think that they’re going to grow their businesses, which is good for the economy, which will grow. I mean, he talked about, you know, not paying tax on Social Security. Do I see that happening? No. could have happened. Sure. But we’re $34 trillion in debt as a country.

Kevin 00:06:28 Probably a little more. Yeah.

Jim 00:06:29 The US gets 51 billion from Social Security taxes. So that’s a lot of money that they would have to make up somewhere else that don’t go towards our all the programs are running. So I don’t know if that’s going to happen. Or do I do think that they can not tip tax. when you’re getting paid, when you’re making tips. Yeah. That’s something they talked about, not the tax tips. The majority of people are not paying tax on tips right now anyway. So it’s really that much of a gain for it. No, but it’s a token win. It’s great for people that are making money under the table here and there for, you know, the tip.

Jim 00:06:59 So I just don’t that might pass. I just don’t think Social Security would be. So that’s one thing. You got anything on so far on Trump.

Kevin 00:07:05 No I was the first thing just on your tax. We don’t know where tax laws are going to be in the future what they do. You know, historically there’s been situations where, you know, if you if you do that, the thought process is if you leave more money in consumers pockets, they spend it, which is good for the economy and good for stock prices, right, and good for corporations. What I think is with Trump or any, any president, if you look at Obama, if you look at Trump the first time, if you look at Biden, you know, people love them are dead and the stock market’s still there. What it did.

Jim 00:07:43 Yeah. Can’t get caught up in it. Right.

Kevin 00:07:45 You really got to separate politics and investing. And now that it’s 24 over seven news channels out there you know social media, I get it.

Kevin 00:07:53 I get why people are concerned about it. But at the end of the day, the markets still listen.

Jim 00:07:57 Tax cuts are going to be a stimulus for the economy like that. Another one that’s going to be a stimulus for the economy. And he ran on was loosening restrictions, especially for bank drilling developing. That’s going to be good. Now, the one thing that some people are worried about is tariffs. Obviously, you know tariffs could be a negative for the economy. And why we say that is it could be inflationary. And how is it inflationary. We think well we’re just bringing jobs back here and we’re having higher tariffs in Mexico. The manufacturing plants are going to be opening here. Business is going to start that. Well here’s the downfall though. Sometimes when we start paying us manufacturers, we’re making we pay a lot less for people that are working in Mexico. So what happens if you bring that job back to the United States? And these workers are making a lot more money, the product they’re selling, it’s going to be rise.

Jim 00:08:41 So that means prices are higher, people are paying for prices is going to get passed down to consumers which inflationary. So you know these tariffs are good. But a lot of economic people are really worried about the effect they could have on. But you said before cabinet Trump did have the tariffs before he was in here. So you can hit upon that a little bit Kev.

Kevin 00:09:00 No, I just think, you know, we’ve seen this movie movie before. could tariffs have an impact on inflation. Yes. You know, Trump had tariffs the last time he was president. And we didn’t see that. As a matter of fact, the Biden administration kept those tariffs. you know, at the end of the day, you know, we’ve had tariffs over the last 100 years and the market continue to grind. Right. We have you brought up the deficit, right? Well, I don’t believe we’re at a tipping point in the deficit. We’re high. It’s extremely high. But I can tell you this, the deficit was high last year and the market went up over 20%.

Kevin 00:09:39 Right. That services are high. You know, when rates come down, the fed cuts rates. Its debt services will go down. But at the end of the day the market’s had grind through any debt or deficit.

Jim 00:09:52 And now 2024 I was all over right. It was it just really drove the market a lot of these tech companies through. So that was great. I mean obviously I ain’t going anywhere. It’s only getting bigger and stronger, especially in 2025. We see some opportunities there, especially the thing that goes along with that is semiconductors they need. It takes so much power to generate these eyes and Nvidia with these chips. And that’s a big part of the problem with the AI. So much is getting involved with it. To just spend $10 billion on an AI data center in Louisiana. Everyone’s trying to get in the game these semiconductors, because it’s so much power. That needs to be. Another word that you hear a lot is automation. With the AI, it’s very similar, but it is different.

Jim 00:10:34 You know, automation is, you know, talk about machinery, how robots can do manufacturing tasks like assembly, packaging. That’s all automation. So if you do hear that it is separate, but it’s really taught in what AI. But automation is another key word you’re saying. And that’s just driving a lot a lot of and that’s a lot of concern for people as well. But it’s positive and we do see a lot of opportunity there.

Kevin 00:10:56 If you think about it. How do you get it stay diversified. Right? A lot of the companies you mentioned Nvidia, meta, Google, they’re you know, they’re in a profile. Apple they’re all they’re they’re spending a lot of money on the eye and you just remain diversified and you’ll get it just sitting there and trying to chase chase sectors. You, you you’ll do well. You could do well, but there’ll be a ton of volatility. So we want to remain diversified. You know I think the one thing people are talking about right now is because we’re at all time highs, people just concerned that, hey, stock prices are really high right now.

Kevin 00:11:33 You know, is it a good time to get into, you know, certain stocks? The way I look at the index, you know, the PE ratio for the index right. Price to earnings ratio is around 22.3, meaning investors are paying $22.30 today for every dollar of future earnings in the future. You know, historically the average is 15.7. So it’s high. But there doesn’t seem to be correlation with PE ratios and market returns. Right? PE ratios were high last year but the stock market is still down over 20 right. Yeah. So how do we get around that? We make sure make sure you’re diversified in your portfolios, in your retirement plans. Right. Make sure you diversified in large cap, small cap, mid-cap international companies and your bonds. All right. Based on all your, you know, your goals and your risk factor.

Jim 00:12:29 Yeah. You’re absolutely okay. You guys stay diversified. And for any law enforcement or anyone that’s listening out there, our audience, a lot of guys are probably in target funds or or money market funds and they’re doing it for you.

Jim 00:12:41 So if you’re on a target fund or a milestone, you know, you’re diversified. It’s not like you’re really heavy in just one sector, so you’re fine. Most people out there is not picking their own stocks or portfolios. So you know, with that, Kev, is there any takeaways you want everyone to remember from the show? Yeah.

Kevin 00:12:56 Just thinking about this. You know right now the economy appears strong right. Inflation’s coming down. Job market strong. Unemployment’s you know 4.2. You know 22. million jobs were created last year. yeah there’s some headwinds right now. The consumer will the consumer continue to spend? that for the consumer and corporations are up and asset prices, you know, up high quickly. They they drove so expect volatility. So these are all concerns out there. Tariffs all those noise. But just remember as I mentioned earlier volatility should be expected around those numbers. This isn’t a timing game. You know you’re 53% chance to call the stock market in a day over a week, 56% chance to get it right right.

Kevin 00:13:44 Be up over a week over a year, 71% chance. You know that the market’s up over a year, five year, 80% of the time it’s up and over a ten year period over 90%. So you got to stay in it stay diversified. And and you got to remember this too. markets average just index average around 9% over historically since 1950. Right. Since 1950 only four times is that return being between 8 and 10%. So don’t get freaked out if you’re down 15 or you’re up 22, right? That should be expected, right?

Jim 00:14:26 And with that, Kev, the last thing I just want to wrap it up with is reminding everyone January, it’s a great time to look to see what you’re contributing to the 457 or 401 or IRAs. And if you’re if you’re due array soon before that check even comes in, you see the raise to start putting it in. Put that 3%, 3.5% start. Maxing out those accounts is a great time. Or even if you can put half. But if you if you got paid all your bills last year and you still had some money saved, don’t even take that raise this time and try to put it in.

Jim 00:14:53 Save your money. Try to save for retirement the best thing that you could do. So with that card, we’re going to wrap up the Blue Money podcast for today. If anyone has any questions about this podcast or anything in your portfolio, any questions about finance at all, please don’t hesitate to reach out to Kevin. Our contact information is in the show notes. Be safe and thanks for listening.

Kevin 00:15:12 Be safe.

Announcer 00:15:14 Thanks for listening to Blue Money. To learn more about Jim and Kevin, or for a free financial assessment, visit Valley financial.com or click on the link in the podcast description or shownotes. Until next time safe investing. This material is intended to be educational in nature and not as a recommendation for any particular strategy, approach, product, or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset, class, security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own before participating in any investment program or making any investment.

Announcer 00:15:56 Clients, as well as all other readers, are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.