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Stock market: 'If you're petrified, you're taking too much risk': Financial Advisor

Carson Group CEO, Ron Carson, joins Yahoo Finance to discuss how investors can manage their portfolio through this election uncertainty.

Video Transcript

JULIE HYMAN: We've been asking a lot of big questions. What does the election mean for the markets? What does it mean for currencies, as we were just discussing? What does it mean for racial justice measures in the US? We also want to know what it means for you and your retirement and if you should be making any moves right now.

We're joined now by Ron Carson. He is CEO of the Carson Group. And he's joining us as part of our Financial Advisors Corner, presented by PIMCO. Ron, so as we watched what was happening last night-- and obviously, we still do not know the outcome-- is there anything people need to be thinking about on an individual basis in terms of their 401(k), in terms of their taxes, or is it too early to make any moves on that front?

RON CARSON: I think it's anytime you're making moves just around that, Julie, I think it's a fool's game. I'm reminded-- I've been doing this since 1983. And someone once told me, when I first started in the profession, the markets will do whatever it needs to do to prove the largest number of people wrong at any given moment, right?

And I know people, just being-- traveling around the country, a lot of people shifted a few months ago into cash. They were really concerned about, you know, what the market was going to do. And by the way, this is the same group that did it right before when Trump won the election. First time around, they moved to cash. And then, of course, they moved back in just in time for the decline. Then they move out again.

And just in the last few months, the last five months, you know, you would've given up a 12% gain on the S&P 500. And trading activity last-- yesterday, twice as high for 401(k)s. This is your long-term capital.

And I want people to think about the markets being a flight of stairs with a yo-yo, right? In general, every day, we wake up. Every day, we consume. Things are generally going to go up. And if the world comes to an end, right, if everything goes to 0, it's not going to matter where you have your-- you can't plan for that.

So getting your risk budget right, Julie, is the single most important thing I've seen in my career-- being comfortable with your downside risk. In my entire career, I've never once had someone say, Ron, I made more money than I thought, and that really upsets me, although it should because you're probably taking too much risk.

But it's the downside where people capitulate. They do stupid things because they weren't expecting it. It's out of their comfort zone. So I'd say, take this opportunity to really set what your risk budget should be. Then you solve for all the other things you want to accomplish that that's a non-negotiable. Because if you do bad things and destroy wealth and try to time the market, you're going to end up on the short end of a great retirement someday.

BRIAN SOZZI: Well, Ron, let's stay on that destroying wealth thread. Listen, a President Joe Biden will very likely raise taxes on people earning over $400,000. If you fall in that income bracket and you've saved up a lot of money in your 401(k), what's the move you make? If you wake up this morning and you're petrified of your taxes going up and your 401(k) going down, what do you do?

RON CARSON: Yeah, I think if you're-- you said the word "petrified." If you're petrified, you're taking too much risk. You just are. You know, I said yesterday, I was actually-- I was on. And we were talking about the market and if there was a clear and decisive victory, then, you know, the markets were going to take off. If there was uncertainty, the markets were going to sell off.

Well, if you would have had, hey, we're going to have massive uncertainty. It's going to be close. We're not going to know. What would you have done? You would have probably had been more concerned. Here, we have the market actually going up.

So I think that it's silly to try and over steer this stuff. And I used to try to do it in my career. You know, I've cost myself a lot of money trying to time things that are not-- just simply are not timeable. And the thing that you can draw some conclusions to, no matter who gets in, there's going to be stimulus. There's going to be tax changes, but I think the stimulus is going to overshadow by a large margin anything happens on the tax side. Because we're going to have trillions of dollars. That is going to support the market.

I mean, the consumer alone over the last-- since the pandemic started, has saved-- savings rate went up from 8.3% to 14.3%. An additional $1.3 trillion has been saved. Forget the 401(k). That's just money. That's cash. That's canned up consumption for the future.

So I think, you know, you get this market's not inexpensive. That, listen, there's a lot of dry powder sitting there, and we've had a major seismic shift to the digital world. What we thought would take a decade has literally happened in just a few months. And now you need to sort through it and go who are the major winners and losers. And being surgical in this environment, I think, is really going to pay off.