Get Financially Prepared for Uncertain Times

MIKE TOWNSEND: Something I've been curious about since Donald Trump returned to the White House just over a month ago is how the market has seemed relatively unbothered by the level of what some are calling disruption and chaos brought on by the president and his team in Washington. 

I hear from a lot of individual investors who are stressed and anxious because of what feels like a non-stop barrage of news and information coming at them, particularly out of Washington. Frankly, I'm one of those investors.

But for the first few weeks of the new administration, the market appeared to be doing quite a good job of ignoring it all. On February 19, the S&P 500^® hit its high for the year so far, and at that point was up nearly 5% since the start of 2025.

Then, over the next three trading days, the market came off that high and started to show that maybe it does have a breaking point. The S&P 500 declined by more than 2.6% amid growing concerns about a bevy of warning signs: more tariff threats, federal worker layoffs, declining consumer sentiment, increasing inflation concerns. There's genuine uncertainty about the impact of the president's aggressive efforts to reshape the federal government on economic growth, and that seems to be making institutional and individual investors skittish. It may be that the accumulation of so much news, so much disruption, so many unknowns, and all of it coming so quickly, is causing the market to undergo a bit of a reset. So how does the ordinary investor find a way forward?

Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to.   

Coming up in just a few minutes, I want to focus on how investors can navigate this avalanche of news with Daniel Stein, who manages two Schwab branches in northern Virginia. In that role, Dan and his team are meeting with investors every single day, so they're hearing their concerns and questions directly. I'm looking forward to our conversation because I think it will take some of these big issues that everyone is talking about and bring them down to a very practical, everyday level.

But first, here are three things I'm watching in Washington.

On Capitol Hill, the House and Senate are on a collision course over how best to turn President Trump's massive policy agenda into legislation. The first step in the process is that both the House and the Senate must pass an identical "budget resolution," a framework that outlines the total spending and revenue targets over a period of several years. There are no policy specifics in a budget resolution—those come later, after the blueprint has been agreed to.

Approving the budget resolution also unlocks the ability to use the "budget reconciliation" process, the mechanism by which Republicans hope to pass the bulk of the president's policy priorities. Budget reconciliation is used when one party has full control of the White House, the Senate, and the House of Representatives. It provides for expedited consideration of tax and spending measures, with limited debate and limited amendments, and, most importantly, it can be passed with a simple majority vote in both the House and Senate. It cannot be filibustered in the Senate, obviating the need for a 60-vote supermajority. 

But that critical first step is already proving to be a challenge on Capitol Hill. At issue is whether to pass all of the president's priorities in one gigantic bill or break them into multiple bills. 

House Republican leaders, cognizant of the tiny majority they have, want to pass, in the words of House Speaker Mike Johnson, "one big, beautiful bill" that includes trillions of dollars in tax cuts and spending cuts, along with border policy, energy policy, defense spending, and likely an increase in the debt ceiling. They believe that they will only be able to corral their fractious majority once, with a bill that includes something for everyone. 

But the Senate has been pushing for a two-bill strategy. The thinking there is to focus on the areas of most urgent need that also have broad consensus among Republicans. Passing a small bill puts a win on the board early in the Trump administration and leaves what is likely to be a messy, complicated, and time-consuming negotiation over taxes and spending cuts until later in the year. 

Last week, senators approved a budget resolution that outlined spending only in the areas of border policy, energy, and defense, totaling about $340 billion. But this week House members narrowly voted for a budget resolution that dwarfs the Senate version. The House resolution would authorize $4.5 trillion in tax cuts, at least $1.5 trillion in spending cuts, and a $4 trillion increase in the debt ceiling. 

That puts the ball back in the Senate's court. Now they have to pass the House version to keep things moving forward, but some senators have already said they are skeptical about the size and scope of the House plan.

There are a lot of steps to negotiate in the budget process, but this one is a critical first test to see whether Republicans can find consensus within their party on a path forward.

A few blocks down Pennsylvania Avenue from the Capitol, President Trump has continued to sign executive orders—more than 70 in his first 30 days in office, which is more than any president in the last 40 years. But it's not just the number; it's the impact.

And that brings me to the second thing I'm watching. Among the barrage of executive orders that President Trump has signed in his first month in office is one that goes directly at independent agencies, including the SEC, the Federal Reserve, and other banking regulators, as well as other agencies like the Federal Trade Commission, the FTC, and the Federal Communications Commission, the FCC. The order requires these agencies to submit proposed rules to the White House for review and gives the administration the power to review and adjust the agencies' budgets if they take positions that are contrary to the president's policies. It's a direct shot at the traditional independence of these agencies.

Notably, the executive order specifically carved out the Federal Reserve's monetary policy, indicating that the White House will not interfere in the Fed's critical role in setting interest rates. But it includes the Fed's responsibilities as a regulator of large banks. And that in itself raises questions about whether the Fed can be independent in one part of its job but not so independent in another part of its job.

The new executive order comes in the wake of the president firing several agency heads and inspectors general even though the laws creating these agencies specifically say that he cannot fire them without cause. One of these firings has already been temporarily delayed by the Supreme Court. 

Both of these developments tee up a host of legal questions around whether the president can exercise this level of oversight on agencies that were specifically created by Congress. And that may be exactly the point. The administration wants to challenge this in the courts—part of a sweeping effort of the Trump administration to consolidate power in the executive branch. All of this is almost certain to ultimately end up decided by the Supreme Court. 

For the regulatory agencies like the SEC, it means that their hands may be tied on which regulatory issues it pursues and what enforcement actions it can take when wrongdoing is found. The confirmation hearing for the president's nominee to chair the SEC, Paul Atkins, hasn't been scheduled but is expected to take place soon. It will be interesting to see how he articulates his vision for the SEC's role going forward.

Finally, we continue to watch the president's announcements with regard to tariffs, which among all of the executive actions over the last several weeks may be the ones that have the potential to have the most direct impact on the markets. Last week, the president threatened to impose 25% tariffs on pharmaceuticals, semiconductors, and automobiles that could go into effect on April 2. 

And he recently announced what are being referred to as "reciprocal tariffs," which could come about after a comprehensive study of tariff and non-tariff barriers. These would be customized to each country and would include consideration of value-added taxes as part of the tariff calculation. Value-added taxes (or VATs) are common in Europe. The White House asserts that its intention is to improve the fairness of trade by equalizing the tariffs that other countries impose on their imports from the United States. While it's also true that the president's tariffs would raise revenue that could help pay for tax cuts and other policy initiatives, usually it's the U.S. consumers who end up paying those tariffs in the form of higher prices.

As with other tariff announcements in recent weeks, the market is considering the new proposals as a starting point for negotiations. But trading partners like Mexico and the European Union are reportedly readying countermeasures that could spark a broader trade war.

The next tariff deadline to watch is March 4. The president announced 25% tariffs on imports from Canada and Mexico in early February, then delayed them for 30 days after both countries promised to take steps to strengthen security along their respective U.S. borders. That 30-day delay expires on March 4, but most observers expect it to be further delayed as negotiations continue.

The market had a strong negative reaction to the initial threat of tariffs on imports from Canada and Mexico but recovered once the delay was announced. The multiple tariff announcements since then have not caused a big ripple in the markets, as investors seem to be considering the tariff threats as more of a negotiating tactic. Investors should keep an eye on the March and April dates the White House has set as deadlines for the imposition of tariffs. It's likely the markets will react if and when any of those tariffs actually go into effect. 

On my deeper dive today, I want to get an on-the-ground perspective of what's on the minds of investors as they endeavor to navigate this uncertain environment. To do that, I'm going to turn to Daniel Stein, who manages two Charles Schwab branches in Northern Virginia. Dan has a 35-person team who are on the front lines, working directly with investors to help them achieve their financial goals. While I often focus on the macro, the broad market implications of what's going on, today's conversation is more micro, looking at the worries and concerns and opportunities for individual investors. Dan, thanks so much for joining the podcast today. 

DANIEL STEIN: My pleasure, Mike. It's great to be here. 

MIKE: Well, Dan, obviously, we are in a pretty unusual time for investors right now, with a staggering amount of news coming out of Washington. It seems like every day brings a flurry of executive orders and other actions, and it's all happening so fast that it's difficult to process it all. I think what's been particularly difficult for investors is sorting out what, if any, impact all of this has had on the markets. As I was just noting in my opening comments, there's been a lot of tariff-related action coming from the president, but so far nothing has triggered a lasting market reaction. And that may be in part because the market is leaning into the idea that tariffs are more of a negotiating tactic and less of a real threat. But that could change. 

DAN: So tariffs and inflation are two of the topics that we're getting a lot of questions about. As you pointed out, nobody knows for certain what policy we'll actually put into place around tariffs in each country, and markets generally don't like uncertainty. Well, the concern is that tariffs are going to result in increased manufacturing costs that will be passed on to the consumer in the form of higher prices. 

One example of this was the recent threat of tariffs against Canada. Canada is the largest single source of aluminum imports in the United States, and aluminum is used in the production of many things—cars, ships, planes, cans, things that we all use and often purchase every day. So if the prices for these things goes up, it will lead to higher cost for consumers. Higher inflation could, in turn, keep interest rates higher for longer and impact economic growth, which then leads to recessionary fears. 

So it's important to point out that historically, stocks have been an effective defense against inflation in the long run, with inflation-adjusted returns for equities from 1970 through 2024 far outperforming cash, bonds, and gold. Also, for those that are concerned about economic policy, well, there's actually something called the U.S. Economic Policy Uncertainty Index. And when you track it against the S&P 500 returns since 1985, it's shown to be a pretty poor indicator of market returns. 

So the key message here is that nobody can say for certain how this is going to play out, but we do need to be prepared for volatility along the way. Even in the midst of long-term bull markets, there are always going to be questions about risks that we're watching for and our expectations for the year ahead. 

The velocity of news that we've seen over the past month has certainly heightened investor awareness around topics and government actions that could impact investments. Investors have real uncertainty about what will materialize, particularly whether market volatility will increase, and they worry that the market might get too complacent about tariffs and then get caught off guard if and when they do go into effect. And that uncertainty leads to discomfort for a lot of investors. 

But tariffs are just the latest potential source for market volatility. In reality, market volatility is ever present. In fact, tolerating it is the price that investors have to pay for the potential for higher long-term returns in the equity markets. However, we can find a silver lining here, as periods of volatility often reveal when investors have a lower risk tolerance than they think they do. When the market is going up for extended periods, most people feel pretty good about the risks that they take as stock market investors. But to have a high concentration in equities in relation to other holdings like fixed income, well, you have to be willing to ride out the storms. You have to be comfortable with the fact that the market can and does go through periods of large drawdowns. Each time this has happened in the past, it's recovered to make new highs, but if you panic and sell out in down periods, well, you might just miss the chance for the recovery. 

MIKE: Yeah, it's a really important point, Dan. You know, I speak to clients all over the country, and I have this great chart I use that shows how staying invested connects to the presidency and why it pays to stick with a long-term strategy regardless of what party is in office. That chart tracks the growth of a hypothetical $10,000 investment in large-cap U.S. stocks made in 1961 under three different scenarios. If you had that money invested only when we had a Republican president, it would have grown to just over $103,000 through 2024. If that $10,000 was invested only during periods when we had a Democrat in office, it would have grown to over $625,000. But if you kept that $10,000 invested the whole time, no matter which party occupied the White House, it would have grown to over $6.4 million. 

DAN: It's a great chart, Mike, and it's a great example that illustrates the folly in trying to time the market. So the problem with timing the market is that not only do you have to make a perfect call once, trying to sell out right at the high, then you have to make a perfect call a second time, which is when to get back into the market. In reality, this is nearly impossible to do, and oftentimes we see investors abandon their equity investments only to see continued growth in the stock market, and they miss what could have been important growth to fund their retirement plans. So as financial consultants, we're always reminding clients that time in the market is more important than trying to time the market. 

So the most important thing for investors is an asset allocation where you're comfortable riding the highs and lows. If you have a portfolio that is structured in a way where you have other asset classes, including short- and long-term fixed income, you have other investments to draw from for spending needs, and you're not required to sell stocks in an unfavorable time, like during a market pullback. In fact, Mike, most people wouldn't guess this, but if you go back to 1929, and you look at the S&P 500 each calendar year, you can see just how frequent large drawdowns occur. So a drawdown is the largest decline from market high to market low in a calendar year. Going back to 1929, just over a quarter of the time, in 26% of calendar years, there's been a drawdown of at least 20%. Sixty-three percent of the time there's been a drawdown of at least 10%. So these pullbacks are common, and investors need to be both financially and mentally prepared for them. 

Summing all this up, the current economic or political environment shouldn't be cause to panic and exit the market. It is, however, an opportunity to revisit your current asset allocation, and determine if it's still appropriate. Maybe you've gone through a financial plan with a professional in the past to determine the ideal asset allocation for you based on your goals and your risk tolerance. But ask yourself, when is the last time you did any rebalancing? We just saw the S&P 500 returns in excess of 20% for two consecutive years. Anyone that set their target allocation more than two years ago, they may now have a higher equity allocation than they intended. 

One of the most important things we can do as long-term investors is to have a disciplined approach to rebalancing. But in practice, many investors fail to take this action. Some people are hesitant to sell stocks in the midst of a bull market. Some people fear tax consequences, but we can help with a disciplined tax-conscious approach to rebalancing that can keep investors from inadvertently taking on too much risk, which increases discomfort during periods of volatility. 

MIKE: Yeah, it strikes me that around the switch of a presidency is a time to think about rebalancing because all presidential transitions cause, to some degree, a kind of resetting of the market. The market realizes that when there's a change in the party balance in Washington, it means that priorities change from the previous administration. So sectors, or industries, or even individual companies that may have been negatively impacted by policies from the previous administration may find themselves in a much better position in the new administration. Now, we don't know exactly how that will play out, we don't know how long it will take to produce a market reaction, and of course, those policy decisions could cut both ways. Tariffs, for example, could actually become a drag on inflation by forcing consumers to slow their spending, and that could lead to jobs being cut and ultimately lowering economic growth. On the other hand, the loosening of regulations that is likely under this administration could be a positive for companies. But revising your portfolio allocation, your risk tolerance, and other factors in the light of a change in environment is something all investors should be doing. 

You know, another way that the new administration is upending things is by trying to shrink the federal government. You and I live in the Washington, D.C., suburbs, so the announcements about layoffs in the federal workforce have hit particularly close to home. So Dan, with everything going on recently, I understand you and your teams have been busier than usual helping clients in a number of different ways. 

DAN: Mike, no question that the layoffs are the number one recent driver of client engagement in our area. As you mentioned, our offices and my own neighborhood, we're just about 20 minutes outside of D.C. So for the past several weeks, conversations both inside and outside of work have been dominated by the news and uncertainty. This may be felt more acutely by people in our area, Mike, but it's impacting people all over the U.S. and world. In addition to the agencies headquartered in D.C., there have been CDC layoffs in Atlanta, IRS reductions across multiple states, Park Services impacts across the U.S., it is all over. But it's not just federal employees. There are so many workers that have been or might be impacted because their work depends on the federal government. There are non-profit organizations whose federal funding has been disrupted, federal contractors whose contracts have been canceled as part of the cost-cutting efforts, consulting firms that work closely with the government that are seeing projects canceled. We are fielding questions from clients all over that have started to recognize the need for guidance. 

So for people that have already been impacted, there is still an opportunity to make adjustments to plans and portfolios. For those that have not yet been impacted, but they're concerned they could be, they're asking about what contingency plans they should have in place. Well, talking to a financial advisor helps. It gives you some control in a situation that might feel overwhelming. 

One recent example—we met with a couple that was recently impacted close to when they planned to retire. They hadn't met with their advisor for a while, and they were very concerned about their situation. After sitting down and going through an in-depth wealth management plan, we were able to show them that they were actually in a position to retire several years ago. They asked us to stress test their plan, reduce their retirement pension benefits, and they still showed a successful retirement plan, meaning the modeling showed a very low likelihood of not being able to fund all of their goals throughout retirement. 

In another less fortunate recent example, we met an impacted individual that was far from retirement and needed to re-enter the workforce. Well, through that meeting, we were able to help restructure their portfolio to raise liquid funds for living expenses in a tax-efficient manner that still preserved their long-term investing approach. Creating this emergency fund alleviated the stress of thinking that they needed to find a new source of income immediately. 

We've also received a lot of questions from employees wondering what would happen if they opted to leave their job but then didn't receive the buyout package. Well, while we can't know for certain what the outcome there will be, what we can do is model for both scenarios and give people clarity around what their situation would look like in each case. 

So people in the federal workforce have generally felt secure in their jobs because they could only be fired for cause. But here we are with an entirely unforeseen situation, and that's the cautionary tale for all of us. Layoffs and job loss are an ongoing occurrence that can happen to anyone. Reductions in federal workforce are top of mind, but layoffs and job loss are always occurring in industries everywhere. 

So while my goal here is not to scare anyone, the key is not to be overconfident that it could never happen to you, and nor should you live in fear of it happening. The message is to be prepared for it even if you feel like the likelihood is low. The takeaway here for those that are still working is to ask yourself, if you unexpectedly lost your job tomorrow, would you be prepared? Do you have an emergency fund that you can draw on for an extended period of time? What kind of income replacement would you need to stay on track for your desired retirement? And if this scenario raises any doubts in your mind, then talk to a financial consultant because having a plan and being prepared is excellent peace of mind, and it can prepare you for the unexpected.

MIKE: Yeah, that's such an important reminder, and especially right now when a lot of federal workers took their jobs because of the perceived stability of those positions. Now that has been upended a bit. There are obviously no guarantees, and as you said, being prepared for the unexpected is a key part of financial planning. 

Speaking of the unexpected, another thing that has been raising its head recently, natural disasters. That's another of those major life events that just seem to be happening with increasing frequency these days. 

DAN: No question, and I don't mean to say this lightly, but it seems like with the frequency we've seen in the recent past that we're all used to seeing hurricanes in Florida, and while people all over the country are aware and have concerns for the people impacted, I think far too often these events are dismissed as something happening in another part of the country and not a concern for them. Then we recently saw the impact stretch up to North Carolina and cause devastating damage to areas like Asheville, where many would have never imagined flooding was a risk. We've seen wildfires in the news in California for years. Well, I had an outsized interest in the most recent ones in Southern California because I grew up in the Pacific Palisades. The home I grew up in and the homes of childhood friends whose families still live there burned down. And all of us saw the stories about people who didn't have fire insurance, or were underinsured, or had their fire insurance canceled not long before the tragedy. But we see these stories, and we feel for those impacted, maybe we even donate to relief funds because we're concerned for others, which is a great thing, but beyond contributing to charities, we should also be using these events as an opportunity to think about our own situations and our loved ones. Instead of putting these events off as something that happened in a different part of the country, we need to be asking ourselves if we would be prepared should the unexpected happen to us. 

MIKE: So you're talking about things like making sure you have adequate insurance. 

DAN: That's right. No one I've met ever finds it fun to go through their insurance policy, but seeing what others are going through is a good reminder of how important it is to take this action. So for anyone out there listening that might have just wondered to themselves what types of insurance coverage they have in place, you're not alone. Many people set up their casualty insurance policies when they buy a new car or they buy a new home, and then they don't actively monitor or update them. Well, your situation might've changed, or you may think that you have better coverage in place than you do. 

In another example, we help a lot of people with estate planning. Oftentimes, people will put assets like their home in the name of their trust. But what many people don't know is that if you don't update your insurance to have your trust listed as an additional insured, you could actually have a gap in insurance because the trust, which becomes the owner of the home, is not actually the one insured against losses. 

What if you have a homeowner's policy when you bought your home, but since then you've accumulated more wealth to protect? Maybe you've started to raise a family. What if you're entertaining one of your child's friends in the home and they're seriously injured? It could be that you need an umbrella policy to protect you beyond what your homeowner's policy covers. 

The important takeaway is that it can't hurt to ask these questions. A simple call to your insurance carrier to discuss your situation, it can uncover necessary changes that can help protect you and your family. And heck, while we're here, maybe you do have plenty of coverage in place, but it's been years since you got your policies, and you've just been letting them auto renew ever since. There's an additional side to this where you might be able to assess if you're getting the best value or not, and if you have a chance to save money by doing some comparison shopping or possibly lowering your deductible, if you're now in a position to pay a larger amount out of pocket should you need to file a claim. 

MIKE: Well, Dan, I swear this is pure coincidence, not at all a set up for this podcast, but I actually had a phone meeting with my insurance agent about three weeks ago. We went over all my coverage, and I learned some useful things, like the fact that, based on my age from an insurance perspective, I recently became a mature driver, and I can reduce the cost of my car insurance by taking an online defensive driving course for mature drivers. 

We also talked about some things I've never thought about, like how the pipes that run from the street to my house are not covered by my insurance. So if I had a water pipe burst outside, I would have to pay for it. I'm doing some research now on that, but it's just a great example of the kinds of things, big and small, that you might not be thinking about. 

DAN: Mike, that's exactly the kind of conversation I'm talking about. Quite frankly, now I need to call mine back to find out if I might be a mature driver. But I'm sure that during that conversation you might have touched on probably the most uncomfortable, and for many people, the most complicated topic, whish is life insurance. Now, I don't need to point to any other tragic recent events to highlight this one because unfortunately, death is a part of life, and oftentimes it's an unexpected one. Nobody likes to talk about their mortality. When we do it around estate planning, it can be more tolerable because part of that discussion is the positive around the legacy that you'll be leaving behind. But when we talk about it through the lens of an event that could happen much sooner than anticipated, it's not fun, but it's necessary. So this is where a review of life insurance comes in.

Leading teams of investment professionals for a living, part of my job is to stay educated on the markets, investments, financial planning, overall wealth management. I hold the CERTIFIED FINANCIAL PLANNER™ and Chartered Financial Analyst designations, and through that education, there are a lot of ways that I'm prepared to manage my own family's finances. But like everyone else out there, I am not immune to the emotions and behavioral pitfalls that can get in the way of being a successful investor and planner. One of the ways that investors can put themselves at risk is by being overconfident. Being overconfident in your situation, your ability to invest, your ability to plan for the unknown, it can keep you from getting help and guidance from others that you might find that you need. 

Now, I'm not too proud to share my own story here. A few years back, my wife and I, who also works at Schwab, well, we met with our financial consultant. As part of a thorough review of our financial plan, our consultant asked if I felt like we had enough life insurance in the event that something unexpected happened to me or my wife. I, overconfidently, answered yes, partly because I believed I did, and partly because I was too sure that nothing untimely could ever happen to me. Well, the benefit of having a comprehensive financial plan in place is that it can be tested for the unknown, and that's exactly what our consultant did next. They modeled a scenario where I suddenly passed away. The life insurance proceeds from policies we had in place were added to my surviving spouse's assets, but all future income streams from me and the savings that they went to fund were shut off. The result was a scenario that I did not want for my wife and children. It was an important message that I needed to make some very easy and very affordable changes to my coverage to ensure that my family would be in the best place if something unexpected happened to me. 

So having a third party review your situation is critical. It can uncover risks in your financial plan that you weren't aware existed, and it provides solutions on how to close those gaps. So another big takeaway here, if you've never gone through a holistic wealth management plan with a financial consultant, or if you've done it in the past, but it's been several years, take action and schedule a meeting. The one-hour investment of your time could make a world of difference for you and your loved ones. 

MIKE: Yeah, and another aspect of that kind of planning conversation is it takes into consideration your tax situation, and right now there's plenty of uncertainty around taxes, too. I think most everyone is aware that all of the 2017 tax cuts are set to expire at the end of the year. That includes lower individual income tax rates, the higher standard deduction, and dozens upon dozens of other provisions. But from a planning standpoint, perhaps the biggest one is the estate tax. So for 2025, the amount of assets that can be inherited without triggering the estate tax sits at $13.99 million per person. But if that expires at the end of the year, it would revert to where it was in 2017, adjusted for inflation. It's likely to be around $7 million. So essentially, the estate tax exemption would be cut in half. Now, with Republicans in control, I continue to think it is very likely that all of the expiring tax cuts will be extended, but there are no guarantees in Washington, particularly in this environment. So it probably makes sense to be prepared for anything. 

DAN: Well, Mike, my theme today is all about being prepared. So I absolutely agree here, as well. As you just mentioned, it now appears more likely that they will be extended, but that should not deter people from revisiting their estate plan. For one, nothing is certain, and there are still beneficial actions that people can take now to lock in the current higher exemption amounts. But perhaps even more importantly, the estate tax exemption limits are just one of many reasons to review an estate plan. 

So for our listeners out there that have an estate plan in place, try to remember when it was that you put it into effect. Think about when you had your trust documents drawn up and think about when the last time was that you had a professional review them. Now, think about all the material changes in your life and to your family since those dates. If this makes you realize that it might be time to have a second set of eyes revisit your plan, take action. This is another area where we help many clients ensure that their legacy goes to their intended heirs in the most tax-efficient way possible. 

And of course, the estate tax is far from the only tax issue on the table. President Trump has proposed several ideas that could be significant, such as ending the taxation of Social Security benefits—it's far too early to tell whether that could happen, but 2025 will be a big year for tax policy, and it will be important to have a conversation with a tax planner as this unfolds. Remember, also, any changes that happen this year won't take effect until 2026. So there'll still be time to plan, but getting a head start is important. 

And one more thing on this topic, don't let the possibility of changes to Tax Code actually have the effect of delaying taking action. One example of this is proposals that have been floated around changes to capital gains taxes. If you find yourself in a spot where you were considering my earlier comments about rebalancing or reducing risk from a concentrated position, but maybe you aren't taking action under the hopes that a reduction in capital gains taxes could be part of a future tax bill, well, don't let that unknown keep you from taking action today. Oftentimes, it's just a second set of eyes that helps confirm the actions you should be taking, and we can help you take that step. 

MIKE: Well, Dan, I think the hope for a change in the capital gains taxes is probably optimistic. That seems fairly low on the list right now of tax priorities, but we shall see. 

One other topic, Dan, I wanted to get your perspective on, and it's another good reminder about the unexpected and how it can crop up. Late last month, there was a somewhat out-of-the-blue announcement from a Chinese company called DeepSeek about its new artificial intelligence model. That announcement caused Nvidia to drop 17% in a single day, in what turned out to be the largest single day market cap loss in history. Nvidia has gained back some of that loss since then, but that must have sparked a lot of questions from clients who maybe had not experienced that kind of downturn in a stock before. 

DAN: Well, earlier I mentioned how frequently we see the overall market decline like this over the course of an entire year. But to your point, it's not often that we see an individual stock, one that captures headlines as much as Nvidia has over the past several years, see that kind of drop in one day. As a quick refresher, DeepSeek, a China-based AI startup founded two years ago, they launched an AI model claiming to use less data and computing power at a fraction of the cost of existing services. This challenged the dominant position of companies like Nvidia that provide the chips seen as necessary to power AI. And the concept of lower barriers to entry in the AI space challenged the competitive advantage that mega-cap companies like Microsoft, Meta, Google, and Amazon had, due to their large existing spending on AI and their vast resources to continue the growth. So if more companies can enter and effectively compete in the space, it could reduce their competitive advantage. Because of the popularity and growth of these companies, there are many investors that have outsized positions in these stocks. So when one of them loses 17% in one day, it's going to create a lot of concern. 

Now, we never like to see events that cause investors to lose money, but there can be a silver lining when these events prompt beneficial action. Diversification is one of the most important areas that we help investors with. Many investors are hesitant to sell big winners due to tax consequences and/or the fear that these stocks would continue to go up after they're sold. Well, in reality, there's several strategies we can deploy to help diversify out of these concentrated positions over time in a tax-efficient manner. We've talked to investors about this many times in the past, but the days after that drop in Nvidia, well, we saw a lot of immediate interest from clients that all of a sudden wanted to learn more. 

And while we're here, this is also a good opportunity to bring up the benefits of international diversification. With the recent outperformance of U.S. stocks and the perceived challenge of investing in international markets, we've seen more and more investors shun the idea of investing internationally. Well, in reality, it's common to see periods of U.S. outperformance and international outperformance trading places throughout history. Having an internationally diversified portfolio can actually help smooth out returns and volatility over time. And right now, global equity valuations are far less expensive than the S&P 500, which is important to note for those that might be concerned about current valuations in the markets. 

MIKE: Well, Dan, we've talked about a lot of financial planning and other actions that people can take to ensure that they have a plan in place around their portfolio. But when I speak to investors, I'm getting a lot of questions about potential impacts to their investments. I'm sure you're getting this too. So what are you telling people right now in regards to the market? 

DAN: Well, Mike, despite the fact that I've focused a lot on negative recent events impacting large groups of people and introduced ideas around the potential for negative personal events, my goal today is not to try to scare anyone out there or be the agent of doom. Fear and anxiety is not healthy, but humility can be, as it can lead to people asking for the type of help that can ease fear and anxiety and put them on a more successful path to financial success. We've talked about a number of recent events that have highlighted how the unexpected can impact any of us. The reality is we all have a lot of competing priorities and demands on our time, and sometimes when we hear or see something that makes us think that we should take action on our own situation, we can quickly let that thought pass when we don't take action. So my one goal coming out of this is if just one of the areas that we hit on today strikes a chord with a listener, that they walk away with a commitment to take action, to take control. 

So a couple of takeaways from today. Take a moment after this podcast to focus on yourself and reflect. Ask yourself, does the state of the market or the economy have you worrying about your investments? If you're still working, would you be prepared if your job was unexpectedly impacted tomorrow? If there was a natural disaster in your area, if an injury occurred on your property, if your house flooded from a broken pipe, would you be properly insured? When was the last time you had your estate plan reviewed, or have you ever put one into place? 

If any of these questions raises doubts or concerns for you, then reach out to us. This is my 19th year at Charles Schwab. My wife, Molly, has been here for 17 years. And the reason that we always say that our kids are going to work here is because we get the opportunity to help clients through all of these challenges and provide people with the best chance for financial success. So we are here to help. 

Finally, despite the themes of my comments today, one of the things that I'm most proud of is that my friends and colleagues actually see me as a very positive and optimistic person. The reason for that is that I know that I'm prepared. By having humility, recognizing the areas that I need help, and making the commitments of my time to actually seek that help, I know that while I can't predict the unexpected, I have put safeguards in place to protect my family no matter what comes our way. And it feels good to have that kind of control. 

MIKE: Well, that's great advice to end on, Dan. I've really enjoyed this conversation today. Thank you so much for taking the time to talk to me. 

DAN: It's been my pleasure, Mike. 

MIKE: That's Dan Stein, who manages two Schwab branches in Northern Virginia. As Dan said, it's always good to talk about these situations before they happen, so don't hesitate to contact your local Schwab branch today if you have questions or just need to talk through your strategy with someone. 

That's all for this week's episode of WashingtonWise. We'll be back with a new episode in two weeks, when Kevin Gordon, senior investment strategist at the Schwab Center for Financial Research, will join me to talk about how the markets are reacting to all the news coming out of Washington.

Take a moment now to follow the show in your listening app so you get an alert when that episode drops, and you don't miss any future episodes. And I'd be so grateful if you would leave us a rating or a review—those really help new listeners discover the show.   

For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript.   

I'm Mike Townsend, and this has been WashingtonWise, a podcast for investors. Wherever you are, stay safe, stay healthy, and keep investing wisely.