Shake Off Emotions and Control Your Portfolio

MIKE TOWNSEND: Emotions are an inevitable part of investing. When the market goes up, investors are happy. When it goes down, investors can feel anxious or frightened or discouraged.

There is also the emotional lift that comes with making a good stock pick—a winner that goes up sharply in value. And there's the frustration that comes with making a wrong pick—and seeing some of your hard-earned money disappear—at least on paper—as that stock drops in price. 

But more broadly I also think we are living in a time when emotions are higher just across the board. Some of that is driven by social media algorithms, which are designed to elicit a reaction in users—amazement, fear, anger, laughter, tears. Some of that is coming from Washington, where the president and his actions elicit strong reactions, both positive and negative, across the political spectrum—not surprisingly, these are the emotions that I see most directly when I travel around the country as a political analyst talking to investors about what's happening in Washington and how it impacts the markets and their finances. 

The trick, of course, is not letting these emotions affect your investing decisions. Easier said than done.

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 am going to be joined by Stephanie Shadel, senior wealth advisor at Charles Schwab, to talk about how investors can rein in their emotions by focusing on the things they can control, the steps they can consider to help keep their portfolios on track, and specific year-end planning ideas. 

But before we get to that conversation, here is a quick update on what I am following in Washington right now. And it won't surprise anyone listening that there's really only one thing to follow—the government shutdown.

The government has been shut down for more than three weeks and is now officially the longest full government shutdown in history. While the shutdown during the first Trump administration did run for 35 days, from December 2018 until January of 2019, it was technically only a partial shutdown. That's because prior to the shutdown Congress had already passed five of the 12 appropriations bills, so some agencies, including the Department of Defense, were fully funded and unaffected by that shutdown. 

Here's a quick recap of where things stand. Back on September 19, the House of Representatives approved a temporary extension of funding, known as a "continuing resolution," that would fund government operations until November 21. The Senate has now voted on that measure 11 different times, and the best outcome has been 55 votes in favor—still five votes shy of the 60-vote supermajority needed to pass. The House, meanwhile, has not taken any votes or been in session at all since that September vote. Speaker Mike Johnson has opted to keep the House out of Washington as a way to pressure Senate Democrats into providing the five additional votes needed to re-open the government. But it doesn't seem to be working. 

The Senate is stuck in an endless loop right now, the two parties not really talking to each other except through the media, another vote on the same extension of funding coming up every day or two, the outcome remaining unchanged each time. 

At the same time, the administration does not seem particularly interested in pushing for a resolution to the stalemate. Instead, it has been using the shutdown to further reduce the size of the federal workforce, firing more than 4,000 federal employees from seven different agencies and announcing its intention to fire more. A federal judge issued a court order putting a temporary stop to additional firings of federal workers. 

The administration also directed the Pentagon to use other resources to ensure that military personnel were paid last week, removing a traditional pressure point in shutdown negotiations. It's not clear that the administration has the legal authority to do this, but it's not likely to receive much pushback—one thing pretty much everyone on both sides of the aisle agrees on is that taking care of our servicemen and women is a priority.

The Department of Homeland Security said it would also continue to pay more than 70,000 law enforcement officers, including the Secret Service, TSA agents at airports; and customs, border patrol, and immigration officials. Exactly what resources are being used to pay them is not clear.

The administration also reallocated some tariff funds to cover the Special Supplemental Nutrition Program for Women, Infants and Children, known as WIC, which provides food aid and other assistance to about 6 million people.

All of these moves have the effect of removing potential pain points in this standoff that could increase public pressure on Congress to come to a solution. They also have the effect of raising the frustration among Democrats. Constitutionally, Congress has the power of the purse—it controls and directs all federal spending. The president is not allowed to tell a federal agency how it should spend money allocated to it by Congress. But so far, Republicans on Capitol Hill have been willingly ceding that authority to the president.

And that underscores the broader problem at the root of the shutdown: a complete breakdown of trust between the two parties. 

On one level, the current dispute on Capitol Hill is relatively simple. Democrats want to extend enhanced subsidies that are used by millions of people to help purchase health care insurance through the Affordable Care Act. Those subsidies expire at the end of the year, and if they aren't extended, premiums will go up—in some cases more than doubling—on as many as 22 million people. Democrats want to link re-opening the government with extending those subsidies. Republicans, many of whom are open to extending the subsidies but want to see modifications, say they are happy to discuss the issue, but only after the Democrats vote to re-open the government. 

But the larger, more complicated issue is that Democrats simply don't trust Republicans, and particularly the White House, to stick to any agreement they make. 

Last summer, the White House rescinded about $9 billion in funding for foreign aid and the Corporation for Public Broadcasting. Republicans on Capitol Hill voted to approve those rescissions. More recently, the White House has frozen about $27 billion in federal funding for projects that are mostly—but not all—in Democrat-leaning cities and states. Again—Congress appropriated these funds, and the administration has simply decided not to spend them as Congress directed. That's why Democrats are reluctant to make a deal—they worry that the administration will just ignore the terms of that deal. 

Lost in all of this is that Congress could be working on the regular appropriations bills that would fund various parts of the government. It's not like funding the government the traditional way is impossible right now. In August, for example, the Senate approved a bill that combined appropriations for the Department of Agriculture with a bill appropriating funds for Military Construction and Veterans by a vote of 89-7. The Senate approved another bill funding the Legislative Branch by 81 to 15. That's how the process is supposed to work—the two parties sitting down, hashing out an agreement that most everyone can support. But the trust that underlies that process appears so strained that the shutdown could drag on for a while. 

There's one other big thing that I'm keeping my eye on, and that's next week's Fed meeting. The Federal Open Markets Committee, or FOMC, will gather for its next monetary policy meeting on October 28 and 29, at which it is widely expected to approve a second consecutive rate cut of 25 basis points. Chair Jerome Powell will hold his regular news conference on the afternoon of the 29th, following the meeting.

A key discussion topic at this Fed meeting is likely to be what's missing—federal data. There's been no official unemployment data released since the government shutdown began. We did not get the September jobs report, which was due to be released in early October, because employees at the Bureau of Labor Statistics, the BLS, have been furloughed. As the shutdown gets longer, we are missing more and more data that tell the story of how the economy is doing—no weekly reports on initial jobless claims, no updates on housing starts, retail sales, or factory orders, no report on the U.S. trade deficit. None of the usual cadence of federal data releases that are inputs into Fed decisions.

The only positive development on the data front is that we will get September's Consumer Price Index, or CPI, report at the end of this week. CPI is a critical inflation metric. That data was supposed to be released on October 15 but has been delayed by the shutdown. The White House called furloughed Bureau of Labor Statistics employees back to the office to produce the CPI report, and it will be available on October 24, just ahead of the Fed meeting. But the main catalyst for that was not the Fed meeting. Instead, it's the fact that the annual Social Security cost-of-living increase is calculated based on the inflation rate in July, August, and September. Officials need that September data in order to calculate the Social Security payout adjustments for 2026. The administration has said that the September CPI report will be the only data released during the shutdown. 

Fed Chair Jerome Powell, speaking at an event in Philadelphia last week, said he felt that there was adequate data, through private and public sources, available for the Fed's October meeting. But he acknowledged that it will get more difficult the longer the shutdown lasts, saying "We'll start to miss that data, particularly October data."

My colleagues Liz Ann Sonders and Kevin Gordon published an interesting article last week about private-sector sources of data. They called U.S. government data the "gold standard in terms of depth and breadth" but provided details on some of the other sources that economists are now using to try to fill in the gaps. We'll provide a link to that article in the show notes.

On my deeper dive this week, I want to take a look at how individual investors are navigating this unusual market, and what we can all do as we head toward the end of the year. For that, I'm pleased to welcome back to the podcast Stephanie Shadel, senior wealth advisor here at Charles Schwab. Steph spends her days working with clients to develop a strategy and put a plan in place for both the short term and the long term. Steph, thanks so much for joining me today.

STEPHANIE SHADEL: Thanks for having me, Mike.

MIKE: Well, over the last few months on this podcast, we've been talking about the positives out there that have kept the market moving forward week after week, and there are still plenty. We have the expectation for another Fed rate cut later this month, which, at the beginning of this week, stood at 98.9% according to the CME's Fed Watch tool, which uses fed funds futures data to track investor expectations. That's pretty confident. 

Consumer spending is holding steady, corporate earnings have been good despite significant changes in trade policy, and even when there has been a bit of a pullback, investors have been jumping in to buy the dip, ultimately supporting the market. But we also have to acknowledge that the market has not exactly been on a straight path in 2025. The S&P 500® is up about 13% year-to-date, but that includes a rise in the first quarter, the dramatic pullback in early April that saw a 19% decline, and then a steady climb of about 34% since that low. 

It's tough to keep emotions from getting tangled up in decision-making. Nobody wants to get out of the market while it's going up. But we know there are a lot of catalysts out there that could cause problems for the market, from ongoing trade relations issues, tariffs really starting to hit consumers, sticky inflation, a weakening jobs outlook, even the government shutdown. 

The fact that gold, that traditional hedge against inflation, is at a record high is perhaps a warning sign. Wall Street's fear indicator, the VIX, has been ticking upwards. And The Wall Street Journal reported this week that the traditional defensive sectors—utilities, healthcare, and consumer staples—are on track to lead the S&P 500 this month for the first time since June of 2022. 

All of that can make you want to look for ways to protect your wealth. So Steph, how are you helping clients balance that kind of push-pull of staying in the market, while also acknowledging that there are real concerns out there? 

STEPH: Well, Mike, we start with a financial plan. Regardless of your age, it's helpful to put everything about your financial life in a comprehensive outline—expenses, income, assets, liabilities—and forecast those values. As life and the market change, it's very easy to revisit that plan and make adjustments. Given market levels continue to trade near all-time highs, it's a good time to rebalance, take some profit off the table, and reallocate into areas you're underweight. 

Now, this doesn't mean selling an entire position but just giving it a little haircut. I have three observations. Investors may want to stay in the money market fund, but yields are likely to drop if the Fed continues to cut. It might be time to put cash to work. 

Bonds have had a good year, and we still get decent yields in higher-quality intermediate-term bonds. We're favoring higher-quality bonds given some of the concerns you spoke about earlier. Now, bond returns are generally lower than stock returns, but we have them for a reason. Bonds help reduce risk while producing a reliable income stream, regardless of the direction of the market. 

And dividend-paying stocks have been overlooked this year. Valuations are currently more attractive compared to some of the momentum growth stocks. I typically tell clients that are interested in dividend-paying stocks look for stocks with strong cash flow, interest coverage, and a history of increasing dividends. 

More broadly, review liquidity needs in the coming year and start planning around them. Think about that now. Do you have a remodel you're working on? What about college expenses? Maybe you're thinking about a new car or replacing your roof. We don't want to be in a situation where the market is down, and we're forced to sell at inopportune prices for a cash need.

MIKE: Yeah, Steph, I've really got college expenses on my mind these days. I have a high school senior who is deep into the college application process, so the cost of college—very much in my head. I recently did a review of my plan with my financial advisor, and I got to see the degree of specificity with which he could tweak the financial plan. We could see the difference if I'm paying in-state college tuition versus out-of-state college tuition, for example. We could run different levels of inflation to see how that affected things, and we could put in different market scenarios. After all, it was only about six months ago that we saw a drop in the market of nearly 20%. While I'm certainly not forecasting that will happen again, I think it's a great reminder that a portfolio needs to be able to weather that. 

But let me ask you about something I'm getting a lot of questions about these days, and that's FOMO, the fear of missing out. While the market, in general, has gone up, there are some companies whose shares have really skyrocketed. Some are big names, some are companies few people had even heard of until their stock performance started attracting attention. It's difficult not to want to get in on something that's posting huge returns, especially when you hear other investors who jumped on crypto or artificial intelligence and saw their investments double or triple or even more, but you held back because you didn't understand it or were locked in with the investments you had. So how do you help people manage their fear of missing out? 

STEPH: There will always be a recency bias of what's been hot, what other investors are doing, what you hear at a cocktail party, what you hear at the water cooler, or a post you're reading about on social media. So whether that's a particular stock, crypto, or gold, and it's tempting to jump in, but I think it's important to review whether a particular investment or idea is appropriate given an investor's risk tolerance and situation. Look before you jump. Cryptocurrency or commodities are not appropriate for every single investor. We've got a lot of momentum in the market right now. Fundamentals have taken a backseat. Investors are focusing on the idea, hoping that profit and proper execution come later. 

But at some point, fundamentals will matter, especially if we see a breakdown in the economic outlook. And take note of your emotions when you feel like you're missing out. "Is this actually a good investment for me, or am I getting worked up because somebody at work 20 years or younger than me brought it up, and it's doing well in their portfolio?" "Will this investment complement my portfolio?" If an idea is outside the norm for you, and you feel strongly about it, start small. Be prepared financially and emotionally for higher volatility. And that doesn't mean always to the upside, but the downside volatility, with some of these ideas. Can you handle it? 

MIKE: Yeah, emotions are probably the thing I've been talking about with investors the most this year as I've been traveling around the country. You definitely hit on one driver of emotions for investors, that kind of high that comes when you buy a stock that just seems like it can't stop going up, or conversely, the fear and disappointment that maybe you've missed out. 

But there's another catalyst of emotion right now very specific to my world, and that's the strong feelings people have about what's going on in Washington and the political situation in this country overall. People are very passionate about politics right now, whether their view is that everything is going great, and that changes to how Washington works are long overdue, or they have the sense that everything is falling apart, and that democracy itself is at risk. I'm sure you are hearing some of these feelings expressed in conversations with clients. So how are you helping them separate those kinds of emotions from their investing decisions? 

STEPH: So it can be extremely difficult to separate our emotions from investment decisions. Money is emotional. We've worked hard for it. So I like to update a client's financial plan and really try to quantify that emotion, like fear of large losses or running out of money. I'll incorporate higher spending because what if expenses are higher in the future? I'll incorporate lower returns because what if returns are just lower in the future? Or extend longevity and really stress-test the portfolio. So that means factoring in good years, bad years, flat years. And most client plans are still very successful depending on how pessimistic we make the assumptions. So focusing on the numbers can help overcome the emotion and give some peace of mind. 

MIKE: Can I just add to that, Steph, I think it can be easy right now to overemphasize political developments and their impact on the market. Maybe you're frustrated by policy decisions going on in Washington, but I think it's really important to step back and ask whether that decision is having any impact on companies or the markets or your portfolio. Some things do. I'd say tariffs is an example right now of something that the market is thinking about, but a lot of the daily political headlines don't really impact the market at all. 

On that note, I want to shift gears a bit and talk about some of the year-end planning strategies that I know you're very focused on as we move into the fourth quarter and toward the end of the year. And let's start with taxes. When it comes to wealth management, no matter how much you have, taxes play a big role, but the government shutdown is significantly impacting the IRS, which has a whole bunch of new tax provisions that became law this summer in the One Big Beautiful Bill Act that it needs to get out information, guidance, rules of the road for, and now it can't do that. We could go into the tax season without a lot of clarity about how some of these new rules will even work. 

But let's talk about what we do know. For starters, the IRS did just release the new expanded tax brackets, but of course the tax rates are going to stay the same. And there's the increase in the state and local tax deduction, known as the SALT deduction, which goes up to $40,000 after several years at $10,000. That could change the decision of a lot of folks on whether to take the standard deduction or itemize their deductions. There's also the increase in the estate tax exemption, which was finalized last summer. These will impact lots of our listeners. So what guidance can you offer as we start to think about taxes as we approach the end of the year? 

STEPH: With the federal income tax rates staying the same, more income will fall into the lower two brackets, which is a good thing. Our tax system is progressive. Income is taxed at lower rates first, so some of your income will be taxed at 10, 12, 22, 24%, before hitting the 32% bracket or beyond. There are multiple considerations for ways to reduce taxes, starting with whether to take the standard deduction or itemize. And the standard deduction went up for this year, another good thing. There's also a new deduction for those over 65, subject to income limits. And for itemizers, the SALT will benefit investors in high-tax states, but the phase out starts at 500,000 of income. The gift and estate tax exemption will be raised to 15 million per person next year instead of sunsetting at the end of this year. I know with a lot of clients we were kind of on pins and needles until July, thinking that gift and estate tax exemption could be cut in half by the end of this year, for next year. This can make estate planning easier for a lot of people. 

But if you're expecting a windfall in the future, whether from selling a business, from an inheritance, you'll want to review the numbers and check with your attorney as well as your financial advisor about any additional planning strategies. I like to remind clients that everyone has three beneficiaries, friends and family, charity, and the IRS. Choose wisely. 

MIKE: Yeah, Steph, from a planning standpoint, you mentioned the estate tax. I think that's really important. The current estate tax exemption amount, meaning the amount that can be inherited without triggering the estate tax, is $13.99 million for 2025, and as you noted, it was scheduled to sunset at the end of the year. So if Congress had not passed an extension, it would have been cut roughly in half for 2026. Now we know that it will be $15 million in 2026, and we know it will be indexed to inflation, so it should go up a bit each year in the future. And importantly, it's permanent, meaning there's no sunsetting, no reverting to a previous level. A future Congress will have to pass a law that changes it, and that's much harder than just letting it expire. So the estate tax exemption amount is here to say, at least for the foreseeable future. 

You know, another big topic for end-of-the-year planning is charitable giving—long been a favorite way for people to do good things and also save on their taxes. But in the One Big Beautiful Bill, one of the underreported items from that new law is the changes to charitable giving. There's now both a new deduction for people who don't itemize their deductions and a new floor for people who do itemize, which could impact charitable giving decisions for some of our listeners. So what do we need to know for 2025 and 2026 when it comes to charitable giving? 

STEPH: In 2026, for those that take the standard deduction, individuals can make a cash donation of $1,000 to charity, $2,000 for couples, and receive that deduction. 

Now, for itemizers, in 2025, there's no floor for charitable giving. So if you give $1,000 to charity, you write off $1,000, subject to limits. And as you said, next year, with the One Big Beautiful Bill, itemizers have a half a percent of adjusted gross income floor when making their charitable donations. So for instance, if your AGI is 100,000, the half a percent floor is $500. If you normally give $1,000 to charity, the first $500 is not deductible. That's the floor. The second $500 is deductible. So this will impact the attractiveness of charitable giving from a tax perspective. Now, taxes aren't the only reason people give to charity, but it's part of the conversation. 

And if you do give to charity, consider meeting with your CPA before year-end to decide whether charitable bunching in 2025 makes sense for you in light of the new floor next year. Now charitable bunching is a tax-planning strategy that consolidates multiple years of charitable donations into a single year. We typically use this with the donor-advised fund, which is an irrevocable charitable investment account. So once you contribute to the DAF, it can only go to a qualified charity. With a DAF, you contribute appreciated assets, avoid realizing capital gains, get an immediate tax deduction, and then make grants over time. 

For example, if you normally give $5,000 to charity, but you want to maximize your deduction in a given tax year, maybe it's a higher earning year, you can contribute five years' worth of donations to a donor-advised fund, or $25,000, get the full deduction, subject to limits, in the tax year you make the contribution, and then you can recommend grants directly from the DAF. 

Another idea, when reviewing your appreciated stock, and if you're thinking of trimming it, instead, you could donate to a DAF and incorporate that charitable bunching strategy. Because it goes straight into the DAF, you don't pay capital gains tax on it. And if you've held the stock for over a year, you can claim a charitable deduction for the full fair market value of the stock at the time of the donation, subject to limits. You can find more information on schwab.com about donor-advised funds.

Another way to avoid the floor in 2026 is donating directly from your IRA to a qualified charity to satisfy your required minimum distribution. This is called a qualified charitable distribution, or QCD. The QCD limit in 2025 is 108,000. In 2026, it goes up to 115,000. A QCD doesn't offer a tax deduction, but the QCD amount isn't included in your taxable income. In some cases, the tax benefits of a QCD could outweigh the charitable deduction you would have received from donating cash or other assets to an eligible charity. Now, there are a couple of ways to handle the QCD, and your financial consultant can help you. 

MIKE: Well, I know that thinking about charitable donations is an important part of your end-of-the-year strategies, and with the holidays packed in there, I know there's a lot that we need to be getting done now. So how about walking us through what else you're talking with your clients about? What should we be thinking about for tax purposes? 

STEPH: Well, if it's your first year for required minimum distributions, congratulations. Consider whether it makes sense to take it by December 31 or delayed until April 1 of next year. But be aware, if you delay it until April 1, you'll have to take two RMDs in 2026—2025's RMD and 2026 RMD. So that will mean more income in that tax year. Talk to your CPA about charitable bunching and using a DAF in 2025, given changes to the charitable donations next year that we talked about before. 

While we tend to do this at the end of the year, really, harvesting losses can be beneficial anytime there's volatility. We like to say we're trying to monetize the volatility and capture tax benefits throughout the year. And remember, capital losses carry forward. They can be used in future years to offset capital gains, but there is a limit to how much capital loss can be used against your tax return, so your non-capital gain income, which is $3,000 per year. 

Now another idea, if you're able to take some of these new deductions, it could make sense to actually harvest gains, depending on your tax situation. It's always best to run this by a CPA. That also goes for reviewing whether a Roth conversion makes sense. And so with the Roth conversion, it is going to be considered ordinary income. And if you're Medicare age, that could mean increased Medicare premiums, and frankly, more taxes. If you're trying to plan for the end of the year from a tax perspective, consider paying your January mortgage payment in December to capture more interest deduction. 

Also, for those still working, double-check your paycheck withholding. Do you need to increase it? There's still a few pay periods left in the year. But if you do, be sure to reduce it in January. Make sure you've made contributions to your health savings account, as well as 401(k)s, by December 31. HSAs can be offered if you're enrolled in a high-deductible healthcare plan. If you don't need the funds for medical expenses, the HSA can be invested. Down the road, you can access it for future eligible healthcare costs, but talk to your advisor about your specific situation. 

You'll also have until April to make IRA contributions for 2025. 

I have a lot of clients who like to do family giving around the holidays. As a friendly reminder, the annual exclusion for this year and next year is 19,000 per beneficiary. As long as you're within that exclusion amount, it's a bit easier from a tax reporting perspective. So that could go toward education expenses via a 529 for example. But if you have appreciated stock, you can make gifts to younger generations and really start getting them involved in investing or at least try to spark some interest in it.

MIKE: What about non-tax-related end-of-year items on your checklist? 

STEPH: So I think a lot of folks, once they select a Medicare plan, they kind of just set it and forget it. It's a good reminder to compare Medicare plans during open enrollment. Also, the Affordable Care Act premiums may be increasing, so you may need to plan around that. 

But it's good to use the end of your checklist as an opportunity to review your whole financial situation. Double-check beneficiaries on retirement accounts. Check that you actually funded your trust, if you created one recently. Is your estate plan up to date? Another idea is to review any expiring insurance policies. Do you need them? Talk to your advisor about that. And I think it's always a good throughout-the-year reminder, check if you have any high-interest debt. Does it make sense? You can talk to your advisor about how best to address that and pay it down. And finally, don't forget to check your portfolio weightings, and review whether you need to rebalance. When we're sitting at all-time highs, it's a good reminder to check if you're a bit over your skis. 

MIKE: Well, those are a lot of great thoughts, Steph. I hope our listeners have been jotting down a few notes about the kinds of issues they should raise in their end-of-the-year planning meeting with their financial advisor. Really appreciate you stopping by and sharing your ideas today. Thanks so much for your time. 

STEPH: It was my pleasure, Mike. Thanks for having me. 

MIKE: That's Stephanie Shadel, senior wealth advisor at Charles Schwab. You can learn more by going to schwab.com/advice.

Well, that's all for this week's episode of WashingtonWise. We'll be back with a new episode in two weeks, when Collin Martin, fixed income strategist at the Schwab Center for Financial Research, will join me to talk about the Fed meeting and the outlook for the rest of the year for bond investors.

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 don't forget to 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.