Market volatility: What you should know

00:13 Lindsay Theodore There is no doubt that recent tariff developments have rattled financial markets. For individual investors, the sudden and sharp nature of the volatility has been especially challenging to digest and understandably stressful. Until we gain more clarity about the tariff situation, unfortunately, this volatility is likely to remain. But instead of hypothesizing about what could happen, we think it's perhaps more crucial than ever for investors to focus on what they can control. And today, we're here to discuss just that—tangible actions clients can take and how T. Rowe Price is working to support investors through this period of unrest and help them emerge stronger on the other side. I'm Lindsay Theodore, Thought Leadership senior manager and CERTIFIED FINANCIAL PLANNER™ professional here at T. Rowe Price. I am thrilled to have two inspirational leaders here with me today to discuss this market environment and what investors can do to navigate it. Toby Thompson, a portfolio manager in the Multi-Asset Division, and Craig Gross, head of Individual Investors Advisory Services. Welcome, Toby and Craig. 01:16 Craig Gross Thank you. 01:17 Toby M. Thompson Thank you. 01:19 Lindsay Theodore So Toby, I will start with you. Market volatility often signifies an overarching sense of fear or uncertainty about the financial future. It can be very easy to convince ourselves that every market downturn is totally unprecedented and that this is the one event that the economy and the market will never come back from. But the reality is that markets, economies do rebound and have grown. And it's tough to realize that through times of turbulence. But that said, and knowing things could change from day to day, what are T. Rowe Price’s views on the current market conditions and the economy? 01:52 Toby Thompson Well, thanks for having me again. So yeah, this one definitely feels a little bit different, right? They all...we always say that I've been through a lot of these in my career over the past 25 years, starting with the tech bubble. I think what feels uniquely different about this one is the on and off about it, right? These tariffs are being used as a means to sort of get action from other countries to come to the table. So we come into the office, you will have tariffs are on, and then tariffs are off two days later, right? If you think about Liberation Day when the market sold off and then the following week when there were a 90-day reprieve on those that you saw the market react positively. So important to stay invested for these turbulent times. What does it mean for us as investors thinking about the markets? There's two things really, I think the growth aspect here, the longer these tariffs are in place and the uncertainty exists, that is going to weigh on economic growth. Because investors as well as companies are going to stop spending, and that's a fear that's going to ultimately lead to lower growth trajectory. So that's one concern. And the other concern is inflation, right? Because tariffs, ultimately, for importing companies, or if you're an importer, you're paying this tariff—it's going right through our Treasury. You're either going to have that hit your bottom line and weigh on your company's profitability, or for individual investors, it's going to be inflationary, right, and hurt your real income. So those are the two main things that we're worried about. And again, as long as this continues to persist for longer, the more people are going to constrain spending. That's where there's real concern. As I said at the beginning, I think the important thing is investors, stay invested, right? I think one thing that we've learned through all these market drawdowns over history, and we have a chart that shows this, staying invested is what is key. And we're all better off had we done that for all of these, no matter the size of the downturn. So I think that's the most important takeaway. 03:34 Lindsay Theodore Or the time it took for it to come back. 03:35 Toby M. Thompson That's right. And some of our very V-shaped recovery, if you think about 2020, right, in COVID, that was all in the first quarter. By the end of that year, the market clearly recovered. So yes, very important to stay. 03:46 Lindsay Theodore ...and recovery back from the previous peak within the three months or so. 03:49 Toby M. Thompson and surpassed that by the end of the year... 03:51 Lindsay Theodore Of course. 03:51 Toby M. Thompson Indeed. 03:52 Lindsay Theodore So it can be longer or it can be shorter. So it's important to stay invested. Really helpful context there. So Toby, can you define for our audience what is a correction and a bear market? What does that mean? 04:03 Toby M. Thompson Sure, sure. So corrections is defined as markets down 10% or more, and then a bear market is when it's down 20%. And we just flirted with 20% this time around. Didn't get there, but similar to back in 2016, it was the same way during the last tariff crisis. I think, importantly, is that it's the duration of how long it takes to recover from these because over the past bear markets, we have for the past couple of decades, that length of time has varied quite significantly. Sometimes it takes years, but you want to be on that trend of recovery, and sometimes it's very sharp and you don't want to be out of the market. 2020 is a perfect example of that during COVID because the market was down sharply, went into a bear market in the first quarter and by the end of the year was way north, it was back way north of where it was to start. So important to stay invested. 04:47 Lindsay Theodore Yeah, I think two of the three bear markets we were back within a year. The biggest differentiator was the global financial crisis, which took a little bit. 04:56 Toby M. Thompson About 5, 5+ years. That's right. 04:58 Lindsay Theodore So, Craig, as head of Advice, you're quite close to the sentiments of our clients. How are current conditions impacting clients, and what actions should investors consider taking or not taking? 05:11 Craig Gross Well, our investors, our clients, are certainly very understandably anxious at this time. And so I can share some thoughts on some actions they might consider and then maybe one big thing that I'd suggest they put on their to-don't list. Right? We all have a long to-do list. Sometimes it's also good to have a to-don't list. 05:30 Lindsay Theodore Especially at times like these. 05:31 Craig Gross Especially at times like these. It's a lot easier said than done, but our overarching guidance to clients at this time is to stay focused on their long-term strategy and to avoid making dramatic short-term decisions. And probably the biggest thing for clients to avoid is panic selling or having overconfidence that they can accurately time the exit and return to the market. What we find is that clients that cash out during sell-offs tend to destroy long-term value. And the reason for that is because it's really hard to time the exit and reentry to the market. As Toby and you mentioned earlier, Lindsay, the rebound can happen fast. And so what tends to happen is investors sell when the market’s already fallen and they don't buy back in until it's begun to rebound. And I'll share a practical example that brings that to life. So, if you started saving $2,000 a quarter in the S&P 500 30 years ago and you remained in the market through that period of time, you would have amassed about one-and-a-half million dollars by the end of 2024. 06:42 Lindsay Theodore Right. That's without even increasing your contributions. 06:45 Craig Gross Exactly... 06:45 …your savings. Yep. 06:47 Craig Gross If instead, you exited the market after quarters of poor performance and waited until you saw signals of a market rebound to reenter, you would have amassed about half of that. So I understand it is challenging to watch your portfolio value swing by 10% or more in just a few days, but try to keep in perspective. What if you looked back in the rearview mirror? What regret would you feel if you realized you had left twice as much value on the table through destructive short-term decisions? 07:19 Lindsay Theodore Certainly, I agree with that. I can actually think of clients who stuck with their strategy because I told them to stay the course and they had a really good plan and they thanked me several years later when the markets recovered and their portfolio values were higher. But I've also had the clients who didn't necessarily stay the course, and they came back and said I should have listened to you. So definitely, I think more regret in the second thing you said. So Craig, is your guidance that clients shouldn't do anything at this time? 07:46 Craig Gross So listen, at times that I'm anxious, I know the last thing I want to hear is just don't take any action, just don't do anything about it, right? And so I think the key for our clients is to help them find constructive actions versus actions that can be destructive to value. So I'll share a couple of thoughts. The first thing that households might consider is tightening the belt during this period of time. Consider your savings and spending patterns, and if possible, try to maybe moderate the household budget. For retirees, if it's feasible and comfortable for them, they might also want to consider moderating the amount that they're drawing from their investments during the market downturn, because what that ultimately does is it prevents selling at lower prices, right? And provide some longevity or stability to their retirement strategy. Second thing is, if clients don't already have a financial plan, I'd encourage them to consider one. Our clients who work with our advisors to develop a financial plan tend to find one of two things. Many of them find that their strategy’s already really sound and it's going to set them up for success in the long term to achieve their goals. Even when we stress-tested over some of the most extreme market assumptions, other clients find that if they make a couple of adjustments, they can meaningfully improve their long-term outlook. But regardless of the perspective, I think all clients who go through planning set a long-term view that's helpful to keep them disciplined in times like these. 09:13 Lindsay Theodore Sure. And they have a financial professional who partners with them who can coach them through when they really need that pep talk or to be talked off the ledge. 09:19 Craig Gross This is a really great time to have someone who could provide that professional second opinion. And to your point, Lindsay, what we find is many clients thank us when they look in the rearview mirror and they say, gee, maybe that one wasn't different than the other times. 09:31 Lindsay Theodore Yeah, and the big one that we've never come down from. 09:34 Craig Gross That's right. 09:34 Lindsay Theodore Yeah, in the pandemic… 09:36 Craig Gross I'll share two more ideas. 09:36 Craig Gross I'll share two more ideas. The next one is I think this could be a good time for clients to revisit their asset allocation. Now, what I wouldn't guide clients to do is to make dramatic changes in the mix of stocks, bonds, and cash that they hold. But this could be a good time to look and make sure, especially if you haven't reevaluated your overall strategy recently, this could be a good time to do a gut check and make sure that your investing strategy is well aligned with your time horizon, your risk tolerance, your goals. So the last thing I'd encourage clients to consider is to try to find opportunities in a down market that could add value. So I'll give a specific example. Roth conversion strategies can be really helpful to preretirees and retirees because what they essentially do is they convert Traditional IRA assets to Roth IRA assets. Investors pay taxes upfront, but potentially reduce total taxes over the course of their retirement. So the opportunity when your portfolio values are down, there's an opportunity to convert more shares at the same tax price. Then when the markets rebound, you end up with more assets in the tax-free category. So, it's things like this that clients might be able to do right now that could be constructive to value. In order to participate in the best of the market, you have to persevere in the worst of it. 10:57 Lindsay Theodore Love that. I think constructive, not destructive, for your long-term strategy, and your portfolio is really key. I completely agree with all of that, and things are changing quickly. But, we have 900 investment professionals across the globe who are reaching out to businesses, companies we invest in. Right, Toby? And asking them, what's the impact on you? How does this change your earnings forecast? So, a really good tool to have in your tool belt with active management. Speaking of which, can you talk more about tactical allocations? 11:25 Toby M. Thompson Absolutely. So, the investment enterprise is very busy, obviously, in an environment like this and I'm very fortunate to be backed by 900—or 899—other investment professionals. There's two ways that they help us in terms of implementation, implementing our portfolios actively. So, we have a strategic asset allocation portfolio that we manage around those— we tactically allocate. Harnessing the views of those 899 investors is pivotal to how we get our insights. We have a lot of tools to tell us about evaluations and what things look like in the marketplace. But having those boots-on-the-ground insights around the globe really help us make differentiated decisions. The way we apply tactic was more incremental. We're not taking big bets, 100% equities, 100% cash, we're not doing that. I think key to what you were saying, stay disciplined in your portfolio. Know how your risk tolerance is aligned with your asset allocation. But we use it to tilt when we find valuation opportunities, particularly in environments like this, we're tilting towards where we find value, but also using a way to tilt away from risk, as well, in the portfolio. So that's one way we use that— networking investors. But right now, there are all those investors and analysts are quite busy, obviously scouring all the companies we invest in because at the end of the day, we invest in companies and how those companies are being impacted by tariffs now. As I talked about earlier, the impacts on inflation, on the bottom line of those companies and profitability, our analysts, I'm watching and inundated by all the research coming into our teams on the winners and losers. And it's not just right now playing defense in this market, but it's also about playing offense. Because market dislocation creates opportunities. It creates opportunities at my level from as a tactical investor, but great opportunities underlying in terms of active management for us to identify opportunities. Oftentimes in these markets, it’s baby gets thrown out with the bathwater. And we find great companies that are trading at 30% discounts, 13:12 Lindsay Theodore ...but really good quality.... 13:14 Toby M. Thompson That's what our investment network is working on and that's how we add value. If I go back historically and look at some of these market drawdowns, T. Rowe Price has done a fantastic job in outperforming coming out of these because of our resources. 13:25 Lindsay Theodore And because we limit the downside as best we can by managing that risk. 13:29 Toby M. Thompson ...managing that risk of the tactical… 13:31 Lindsay Theodore And taking advantage of the lower cost or lower prices. So, Toby, what are you and your team doing to navigate the current market conditions for our clients? 13:39 Toby M. Thompson We went into this market environment pretty neutral in terms of our stock/bond mix, which was what was fortunate. We had no idea on the direction or how much tariffs were going to weigh on the market. But fortunately, because the valuations, particularly in U.S. equities, particularly large-cap U.S. equity, the Mag 7, were very expensive. We were close to neutral. So from a risk standpoint, not taking big bets. We also had this thesis that the markets are going to broaden, and that was broadening into international markets, which we know has underperformed for decades now. We also had a view that the broadening was going to be away from U.S. large-cap growth and potentially into value. And those are sectors— like utilities, health care, and consumer staples— they've all done fantastically. Obviously being more defensive in this market on the fixed income side, we were a little bit hesitant to extend out into bonds because of our fear about inflation and interest rates. Still, that's back on the table because of the fear of tariffs being inflationary. We were also overweight cash. Cash still got very attractive yields at 4 or 5% today. It's a great place to store value and look for opportunities when they come in the marketplace dislocation. So that's how we were positioned going in and kind of where we are today. As I said, we're also looking for opportunities in individual names, but also in parts of the market that are very cheap. Small-cap stocks in particular are incredibly cheap. They've been cheap for a lot of reasons because of interest rates and the economic backdrop, but they have gone through a bear market and continuing to underperform. So those are areas of the market we're keeping a keen eye on. 15:06 Lindsay Theodore ...and they're good opportunities for companies. 15:07 Toby M. Thompson ...the potential... 15:07 Lindsay Theodore ...the potential... 15:07 Lindsay Theodore ...could be the next mid-cap or large-cap. 15:09 Toby M. Thompson That's correct. 15:10 Lindsay Theodore If they thrive through this. Can you explain broadening for our audience, broadening of the market? 15:15 Toby M. Thompson So the market certainly was very narrow, and everyone's heard of the Magnificent Seven stocks that led the U.S. market. And there's 493 stocks in the S&P 500 that were really not doing as well as they were. But we finally start to see that the significant outperformance in earnings of those seven starts to wane a little bit. Still, very good earnings delivery, but we started to see that 493 come up and start to do better in earnings. And the valuations got so extended in those in this Mag 7, we started to bleed in a bunch. So, we started incrementally adding to those that brought into the market. And again, not just, it was very much growth-oriented, but there's value-oriented sectors as well, which played out to be more defensive. 15:55 Lindsay Theodore Yeah. And so hopefully we'll own them when they're making up more of the return on the S&P 500. 16:00 Toby M. Thompson And we've been adding into them incrementally today. Yeah, that's right. 16:02 Lindsay Theodore ...and at lower prices. 16:04 Toby M. Thompson At much lower prices. 16:04 Lindsay Theodore Because that is the thing— if the market only hit all-time highs every day, we'd never have an opportunity to buy low. 16:09 Toby M. Thompson I don't come into work every day hoping for the market to be down, but these opportunities are ones where that's why you have active managers in this environment. 16:16 Lindsay Theodore Totally. And for individual investors, great opportunity if you can, if you're in a financial position to do so, to increase your contributions if possible, because you're potentially, again based on historical market data, could be buying at a discount. So, good thing to consider. Thank you so much for all of that, Toby. Really helpful. So. back to Craig. What are some of the ways T. Rowe Price is supporting clients through this? What are the resources available for our clients as they're navigating these waters? 16:44 Craig Gross Sure. First, I want to share appreciation for you joining today. You know, I spoke earlier about taking constructive steps, and seeking additional insights and perspective is a great step. This webinar is just one example of the range of educational materials we provide to our clients, especially in our digital channels, featuring expert insights across the markets and economy, investing, planning, and retirement. And so, I'd encourage clients take advantage of those resources. We also offer a range of interactive tools like our new Portfolio Optimizer, our Social Security Optimizer, our Retirement Income Calculator. These are solutions that can help clients model different scenarios and to plan. But most importantly, what we want our clients to hear is that we're here for you. Especially in times like this, we value an opportunity to engage with you, to understand your personal retirement and investing objectives, and to see how we can bring our expertise more fully to support you in those strategies. These tariffs are being used as a means to sort of get action from other countries to come to the table. So we come into the office, you will have tariffs are on, and then tariffs are off two days later, right? If you think about Liberation Day when the market sold off and then the following week when there were a 90-day reprieve on those that you saw the market react positively. So important to stay invested for these turbulent times. What does it mean for us as investors thinking about the markets? There's two things really, I think the growth aspect here, the longer these tariffs are in place and the uncertainty exists, that is going to weigh on economic growth. Because investors as well as companies are going to stop spending, and that's a fear that's going to ultimately lead to lower growth trajectory. So that's one concern. And we offer a range of personalized engagements in this space, from financial consultation, all the way up to ongoing partnership with an advisor in our Retirement Advisory Service. And we actually find a lot of our clients have done a fantastic job investing and saving, but they find moments like this a point of inflection where maybe now's the moment where you want to get that second opinion, you want to gut check what you've been working with. So, I'd invite our clients to reach out to us. We'd love to consult with them and maybe share some thoughts on additional planning and investing strategies they can employ. Maybe help them to do a gut check on their portfolio strategy, or maybe just confirm for them that their overall plan is sound and they should continue down the path that they've selected. We also find clients that engage with us on an ongoing basis find value in a range of additional disciplines we can help them with. So, things like asset location, tax-aware rebalancing; things like tactical portfolio management, like you mentioned earlier, Toby, your team's thinking about how do we generate alpha both at the portfolio level and through the use of active products underneath. 18:54 Lindsay Theodore Right. 18:54 Craig Gross So that has a lot of value and additional things like tax-optimized retirement income. There's a lot of strategies we can employ with clients that tend to be designed to generate additional value over time. And we'd love to share with clients additional solutions that are tailored to their specific objectives. 19:14 Lindsay Theodore That's great, very helpful. And clients can get a formal financial plan and work with someone in the advisory service, or they can call and just get a consultation. Just explain what their goals are, what their strategy was coming into all of this, and just get some insight on whether that's the appropriate approach and what they could do to maybe firm up their situation. 19:33 Craig Gross Absolutely. 19:34 Lindsay Theodore Because even though we don't necessarily want clients to make drastic shifts at this time, if you have a short-term need and you don't already have the money in cash set aside, it's OK to set aside only what you'll maybe need in the next 13 months or 24 months, whatever your situation dictates. But keep the changes small and know that behind the scenes, we're doing what we can to maximize returns and hopefully reduce risk and help clients emerge stronger out of this. Anything else you all would add? Final takeaways? 20:05 Toby M. Thompson I would just like to say thank you to our clients for giving us the confidence to invest your money. So, I appreciate it. 20:09 Lindsay Theodore Thanks, Toby. 20:10 Toby M. Thompson Appreciate working with you guys here as well. 20:12 Lindsay Theodore Thank you so much. Thanks for joining me, Craig and Toby, it's been really great. We understand that staying the course during periods of market volatility is easier said than done, but it can reap significant rewards for those who continue investing despite the near-term unknowns. We believe that investors who have a goals-based financial plan, a deliberate investment strategy, and a trusted financial professional who can coach them through periods of market unrest are more likely to succeed. While we can't predict the future, we are here to support you and to help ensure that you're controlling what you can when it comes to your financial future. To speak with a financial consultant, please contact us at 1-800-401-1819. Thank you for your time and your confidence in T. Rowe Price. And the other concern is inflation, right? Because tariffs, ultimately, for importing companies, or if you're an importer, you're paying this tariff—it's going right through our Treasury. You're either going to have that hit your bottom line and weigh on your company's profitability, or for individual investors, it's going to be inflationary, right, and hurt your real income. So those are the two main things that we're worried about. And again, as long as this continues to persist for longer, the more people are going to constrain spending. That's where there's real concern. As I said at the beginning, I think the important thing is investors, stay invested, right? I think one thing that we've learned through all these market drawdowns over history, and we have a chart that shows this, staying invested is what is key. And we're all better off had we done that for all of these, no matter the size of the downturn. So I think that's the most important takeaway. 03:34 Lindsay Theodore Or the time it took for it to come back. 03:35 Toby M. Thompson That's right. And some of our very V-shaped recovery, if you think about 2020, right, in COVID, that was all in the first quarter. By the end of that year, the market clearly recovered. So yes, very important to stay. 03:46 Lindsay Theodore ...and recovery back from the previous peak within the three months or so. 03:49 Toby M. Thompson and surpassed that by the end of the year... 03:51 Lindsay Theodore Of course. 03:51 Toby M. Thompson Indeed. 03:52 Lindsay Theodore So it can be longer or it can be shorter. So it's important to stay invested. Really helpful context there. So Toby, can you define for our audience what is a correction and a bear market? What does that mean? 04:03 Toby M. Thompson Sure, sure. So corrections is defined as markets down 10% or more, and then a bear market is when it's down 20%. And we just flirted with 20% this time around. Didn't get there, but similar to back in 2016, it was the same way during the last tariff crisis. I think, importantly, is that it's the duration of how long it takes to recover from these because over the past bear markets, we have for the past couple of decades, that length of time has varied quite significantly. Sometimes it takes years, but you want to be on that trend of recovery, and sometimes it's very sharp and you don't want to be out of the market. 2020 is a perfect example of that during COVID because the market was down sharply, went into a bear market in the first quarter and by the end of the year was way north, it was back way north of where it was to start. So important to stay invested. 04:47 Lindsay Theodore Yeah, I think two of the three bear markets we were back within a year. The biggest differentiator was the global financial crisis, which took a little bit. 04:56 Toby M. Thompson About 5, 5+ years. That's right. 04:58 Lindsay Theodore So, Craig, as head of Advice, you're quite close to the sentiments of our clients. How are current conditions impacting clients, and what actions should investors consider taking or not taking? 05:11 Craig Gross Well, our investors, our clients, are certainly very understandably anxious at this time. And so I can share some thoughts on some actions they might consider and then maybe one big thing that I'd suggest they put on their to-don't list. Right? We all have a long to-do list. Sometimes it's also good to have a to-don't list. 05:30 Lindsay Theodore Especially at times like these. 05:31 Craig Gross Especially at times like these. It's a lot easier said than done, but our overarching guidance to clients at this time is to stay focused on their long-term strategy and to avoid making dramatic short-term decisions. And probably the biggest thing for clients to avoid is panic selling or having overconfidence that they can accurately time the exit and return to the market. What we find is that clients that cash out during sell-offs tend to destroy long-term value. And the reason for that is because it's really hard to time the exit and reentry to the market. As Toby and you mentioned earlier, Lindsay, the rebound can happen fast. And so what tends to happen is investors sell when the market’s already fallen and they don't buy back in until it's begun to rebound. And I'll share a practical example that brings that to life. So, if you started saving $2,000 a quarter in the S&P 500 30 years ago and you remained in the market through that period of time, you would have amassed about one-and-a-half million dollars by the end of 2024. 06:42 Lindsay Theodore Right. That's without even increasing your contributions. 06:45 Craig Gross Exactly... 06:45 …your savings. Yep. 06:47 Craig Gross If instead, you exited the market after quarters of poor performance and waited until you saw signals of a market rebound to reenter, you would have amassed about half of that. So I understand it is challenging to watch your portfolio value swing by 10% or more in just a few days, but try to keep in perspective. What if you looked back in the rearview mirror? What regret would you feel if you realized you had left twice as much value on the table through destructive short-term decisions? 07:19 Lindsay Theodore Certainly, I agree with that. I can actually think of clients who stuck with their strategy because I told them to stay the course and they had a really good plan and they thanked me several years later when the markets recovered and their portfolio values were higher. But I've also had the clients who didn't necessarily stay the course, and they came back and said I should have listened to you. So definitely, I think more regret in the second thing you said. So Craig, is your guidance that clients shouldn't do anything at this time? 07:46 Craig Gross So listen, at times that I'm anxious, I know the last thing I want to hear is just don't take any action, just don't do anything about it, right? And so I think the key for our clients is to help them find constructive actions versus actions that can be destructive to value. So I'll share a couple of thoughts. The first thing that households might consider is tightening the belt during this period of time. Consider your savings and spending patterns, and if possible, try to maybe moderate the household budget. For retirees, if it's feasible and comfortable for them, they might also want to consider moderating the amount that they're drawing from their investments during the market downturn, because what that ultimately does is it prevents selling at lower prices, right? And provide some longevity or stability to their retirement strategy. Second thing is, if clients don't already have a financial plan, I'd encourage them to consider one. Our clients who work with our advisors to develop a financial plan tend to find one of two things. Many of them find that their strategy’s already really sound and it's going to set them up for success in the long term to achieve their goals. Even when we stress-tested over some of the most extreme market assumptions, other clients find that if they make a couple of adjustments, they can meaningfully improve their long-term outlook. But regardless of the perspective, I think all clients who go through planning set a long-term view that's helpful to keep them disciplined in times like these. 09:13 Lindsay Theodore Sure. And they have a financial professional who partners with them who can coach them through when they really need that pep talk or to be talked off the ledge. 09:19 Craig Gross This is a really great time to have someone who could provide that professional second opinion. And to your point, Lindsay, what we find is many clients thank us when they look in the rearview mirror and they say, gee, maybe that one wasn't different than the other times. 09:31 Lindsay Theodore Yeah, and the big one that we've never come down from. 09:34 Craig Gross That's right. 09:34 Lindsay Theodore Yeah, in the pandemic… 09:36 Craig Gross I'll share two more ideas. 09:36 Craig Gross I'll share two more ideas. The next one is I think this could be a good time for clients to revisit their asset allocation. Now, what I wouldn't guide clients to do is to make dramatic changes in the mix of stocks, bonds, and cash that they hold. But this could be a good time to look and make sure, especially if you haven't reevaluated your overall strategy recently, this could be a good time to do a gut check and make sure that your investing strategy is well aligned with your time horizon, your risk tolerance, your goals. So the last thing I'd encourage clients to consider is to try to find opportunities in a down market that could add value. So I'll give a specific example. Roth conversion strategies can be really helpful to preretirees and retirees because what they essentially do is they convert Traditional IRA assets to Roth IRA assets. Investors pay taxes upfront, but potentially reduce total taxes over the course of their retirement. So the opportunity when your portfolio values are down, there's an opportunity to convert more shares at the same tax price. Then when the markets rebound, you end up with more assets in the tax-free category. So, it's things like this that clients might be able to do right now that could be constructive to value. In order to participate in the best of the market, you have to persevere in the worst of it. 10:57 Lindsay Theodore Love that. I think constructive, not destructive, for your long-term strategy, and your portfolio is really key. I completely agree with all of that, and things are changing quickly. But, we have 900 investment professionals across the globe who are reaching out to businesses, companies we invest in. Right, Toby? And asking them, what's the impact on you? How does this change your earnings forecast? So, a really good tool to have in your tool belt with active management. Speaking of which, can you talk more about tactical allocations? 11:25 Toby M. Thompson Absolutely. So, the investment enterprise is very busy, obviously, in an environment like this and I'm very fortunate to be backed by 900—or 899—other investment professionals. There's two ways that they help us in terms of implementation, implementing our portfolios actively. So, we have a strategic asset allocation portfolio that we manage around those— we tactically allocate. Harnessing the views of those 899 investors is pivotal to how we get our insights. We have a lot of tools to tell us about evaluations and what things look like in the marketplace. But having those boots-on-the-ground insights around the globe really help us make differentiated decisions. The way we apply tactic was more incremental. We're not taking big bets, 100% equities, 100% cash, we're not doing that. I think key to what you were saying, stay disciplined in your portfolio. Know how your risk tolerance is aligned with your asset allocation. But we use it to tilt when we find valuation opportunities, particularly in environments like this, we're tilting towards where we find value, but also using a way to tilt away from risk, as well, in the portfolio. So that's one way we use that— networking investors. But right now, there are all those investors and analysts are quite busy, obviously scouring all the companies we invest in because at the end of the day, we invest in companies and how those companies are being impacted by tariffs now. As I talked about earlier, the impacts on inflation, on the bottom line of those companies and profitability, our analysts, I'm watching and inundated by all the research coming into our teams on the winners and losers. And it's not just right now playing defense in this market, but it's also about playing offense. Because market dislocation creates opportunities. It creates opportunities at my level from as a tactical investor, but great opportunities underlying in terms of active management for us to identify opportunities. Oftentimes in these markets, it’s baby gets thrown out with the bathwater. And we find great companies that are trading at 30% discounts, 13:12 Lindsay Theodore ...but really good quality.... 13:14 Toby M. Thompson That's what our investment network is working on and that's how we add value. If I go back historically and look at some of these market drawdowns, T. Rowe Price has done a fantastic job in outperforming coming out of these because of our resources. 13:25 Lindsay Theodore And because we limit the downside as best we can by managing that risk. 13:29 Toby M. Thompson ...managing that risk of the tactical… 13:31 Lindsay Theodore And taking advantage of the lower cost or lower prices. So, Toby, what are you and your team doing to navigate the current market conditions for our clients? 13:39 Toby M. Thompson We went into this market environment pretty neutral in terms of our stock/bond mix, which was what was fortunate. We had no idea on the direction or how much tariffs were going to weigh on the market. But fortunately, because the valuations, particularly in U.S. equities, particularly large-cap U.S. equity, the Mag 7, were very expensive. We were close to neutral. So from a risk standpoint, not taking big bets. We also had this thesis that the markets are going to broaden, and that was broadening into international markets, which we know has underperformed for decades now. We also had a view that the broadening was going to be away from U.S. large-cap growth and potentially into value. And those are sectors— like utilities, health care, and consumer staples— they've all done fantastically. Obviously being more defensive in this market on the fixed income side, we were a little bit hesitant to extend out into bonds because of our fear about inflation and interest rates. Still, that's back on the table because of the fear of tariffs being inflationary. We were also overweight cash. Cash still got very attractive yields at 4 or 5% today. It's a great place to store value and look for opportunities when they come in the marketplace dislocation. So that's how we were positioned going in and kind of where we are today. As I said, we're also looking for opportunities in individual names, but also in parts of the market that are very cheap. Small-cap stocks in particular are incredibly cheap. They've been cheap for a lot of reasons because of interest rates and the economic backdrop, but they have gone through a bear market and continuing to underperform. So those are areas of the market we're keeping a keen eye on. 15:06 Lindsay Theodore ...and they're good opportunities for companies. 15:07 Toby M. Thompson ...the potential... 15:07 Lindsay Theodore ...the potential... 15:07 Lindsay Theodore ...could be the next mid-cap or large-cap. 15:09 Toby M. Thompson That's correct. 15:10 Lindsay Theodore If they thrive through this. Can you explain broadening for our audience, broadening of the market? 15:15 Toby M. Thompson So the market certainly was very narrow, and everyone's heard of the Magnificent Seven stocks that led the U.S. market. And there's 493 stocks in the S&P 500 that were really not doing as well as they were. But we finally start to see that the significant outperformance in earnings of those seven starts to wane a little bit. Still, very good earnings delivery, but we started to see that 493 come up and start to do better in earnings. And the valuations got so extended in those in this Mag 7, we started to bleed in a bunch. So, we started incrementally adding to those that brought into the market. And again, not just, it was very much growth-oriented, but there's value-oriented sectors as well, which played out to be more defensive. 15:55 Lindsay Theodore Yeah. And so hopefully we'll own them when they're making up more of the return on the S&P 500. 16:00 Toby M. Thompson And we've been adding into them incrementally today. Yeah, that's right. 16:02 Lindsay Theodore ...and at lower prices. 16:04 Toby M. Thompson At much lower prices. 16:04 Lindsay Theodore Because that is the thing— if the market only hit all-time highs every day, we'd never have an opportunity to buy low. 16:09 Toby M. Thompson I don't come into work every day hoping for the market to be down, but these opportunities are ones where that's why you have active managers in this environment. 16:16 Lindsay Theodore Totally. And for individual investors, great opportunity if you can, if you're in a financial position to do so, to increase your contributions if possible, because you're potentially, again based on historical market data, could be buying at a discount. So, good thing to consider. Thank you so much for all of that, Toby. Really helpful. So. back to Craig. What are some of the ways T. Rowe Price is supporting clients through this? What are the resources available for our clients as they're navigating these waters? 16:44 Craig Gross Sure. First, I want to share appreciation for you joining today. You know, I spoke earlier about taking constructive steps, and seeking additional insights and perspective is a great step. This webinar is just one example of the range of educational materials we provide to our clients, especially in our digital channels, featuring expert insights across the markets and economy, investing, planning, and retirement. And so, I'd encourage clients take advantage of those resources. We also offer a range of interactive tools like our new Portfolio Optimizer, our Social Security Optimizer, our Retirement Income Calculator. These are solutions that can help clients model different scenarios and to plan. But most importantly, what we want our clients to hear is that we're here for you. Especially in times like this, we value an opportunity to engage with you, to understand your personal retirement and investing objectives, and to see how we can bring our expertise more fully to support you in those strategies. These tariffs are being used as a means to sort of get action from other countries to come to the table. So we come into the office, you will have tariffs are on, and then tariffs are off two days later, right? If you think about Liberation Day when the market sold off and then the following week when there were a 90-day reprieve on those that you saw the market react positively. So important to stay invested for these turbulent times. What does it mean for us as investors thinking about the markets? There's two things really, I think the growth aspect here, the longer these tariffs are in place and the uncertainty exists, that is going to weigh on economic growth. Because investors as well as companies are going to stop spending, and that's a fear that's going to ultimately lead to lower growth trajectory. So that's one concern. And we offer a range of personalized engagements in this space, from financial consultation, all the way up to ongoing partnership with an advisor in our Retirement Advisory Service. And we actually find a lot of our clients have done a fantastic job investing and saving, but they find moments like this a point of inflection where maybe now's the moment where you want to get that second opinion, you want to gut check what you've been working with. So, I'd invite our clients to reach out to us. We'd love to consult with them and maybe share some thoughts on additional planning and investing strategies they can employ. Maybe help them to do a gut check on their portfolio strategy, or maybe just confirm for them that their overall plan is sound and they should continue down the path that they've selected. We also find clients that engage with us on an ongoing basis find value in a range of additional disciplines we can help them with. So, things like asset location, tax-aware rebalancing; things like tactical portfolio management, like you mentioned earlier, Toby, your team's thinking about how do we generate alpha both at the portfolio level and through the use of active products underneath. 18:54 Lindsay Theodore Right. 18:54 Craig Gross So that has a lot of value and additional things like tax-optimized retirement income. There's a lot of strategies we can employ with clients that tend to be designed to generate additional value over time. And we'd love to share with clients additional solutions that are tailored to their specific objectives. 19:14 Lindsay Theodore That's great, very helpful. And clients can get a formal financial plan and work with someone in the advisory service, or they can call and just get a consultation. Just explain what their goals are, what their strategy was coming into all of ll of this, and just get some
insight on whether that's the appropriate approach and what they could do to maybe firm up their situation.
19:33 Craig Gross Absolutely.
19:34 Lindsay Theodore
Because even though we don't necessarily want clients to make drastic shifts at this time, if you have a short-term need and you don't already have the money in cash set aside, it's OK to set aside only what you'll maybe need in the next 13 months or 24 months, whatever your situation dictates. But keep the changes small and know that behind the scenes, we're doing what we can to maximize returns and hopefully reduce risk and help clients emerge stronger out of this.
Anything else you all would add? Final takeaways?
20:05 Toby M. Thompson
I would just like to say thank you to our clients for giving us the confidence to invest your
money. So, I appreciate it.
20:09 Lindsay Theodore
Thanks, Toby.
20:10 Toby M. Thompson
Appreciate working with you guys here as well.
20:12 Lindsay Theodore Thank you so much. Thanks for joining me, Craig and Toby, it's been really great. We understand that staying the course during periods of market volatility is easier said than done, but it can reap significant rewards for those who continue investing despite the nearterm unknowns. We believe that investors who have a goals-based financial plan, a deliberate investment strategy, and a trusted financial professional who can coach them through periods of market unrest are more likely to succeed. While we can't predict the future, we are here to support you and to help ensure that you're controlling what you can when it comes to your financial future. To speak with a financial consultant, please contact us at 1-800-401-1819. Thank you for your time and your confidence in T. Rowe Price.