Preview:

The thought of a market crash will often make investors rethink their portfolio and move into cash. That’s what one American Airlines pilot reached out to us about recently. He has concerns about the market so half of his 401K is in cash, but now he wants to know when he should start investing it again. Today we’re going to answer that question and have a broader discussion about the risks of trying to time the market.

Subscribe On Your Favorite App:

More About This Episode:

Every pilot needs to be aware that emotional decision-making can harm long-term financial health so we’ll dive into the challenges of accurately predicting market movements. We’ll also discuss the role time horizons play in building a portfolio and offer valuable insights on adopting a diversified approach, including safe money assets, to reduce volatility as pilots near retirement.

Join us to learn more the pitfalls of market timing and the importance of having a solid investment strategy.

Here’s what we cover in this episode:

0:00 – Intro

0:32 – Today’s question

2:50 – Changes as you approach retirement

7:22 – How investing has evolved

8:45 – Conservative doesn’t equal safe


Resources:

Retire Pilots – https://retirepilots.com

Get your FREE Retirement Toolkit – https://bit.ly/3ZmZsaX

Pilot Tax – https://pilot-tax.com/

The Pilot’s Advisor Podcast is also on video. Watch & Subscribe on YouTube: https://bit.ly/3EIEBW2

Connect with Pilot-Tax: https://pilot-tax.com/

Episode Transcription:

(Note, this is an automated transcription. Please forgive any errors.)

Walter Storholt: Uh, on today’s episode, we’ve got a question from a pilot. Michael, anticipating a market crash and feeling like he needs to go to cash in the 401k. Should he do it or not? And why? We’ll talk about it with Ryan Fleming, the pilot’s advisor. Coming up, Walter Storholt back with you alongside Ryan Fleming. And we’ve got a great episode today as Ryan.

Michael pulled half of his 401k out anticipating a market crash

We’re diving into this question from Michael, who I’m sure there are other people in this camp, that there are other folks that are kind of concerned like Michael is right now. Let me get to the question, and we’ll dive right in here. He says, I’m, um, anticipating a market crash any day right now. So I have half of my 401k in cash. That means I have about $350,000 that’s not really making any money. So I don’t want to just leave it there for too long. How long should I wait before I reinvest it? And I know this is causing alarm bells to go off in your brain.

Ryan Fleming: Oh, Michael. Oh, Michael. Let’s see. Michael is an American Airlines pilot from Dallas. All right, well, unfortunately, I would want to know how old Michael is. I mean, if he’s retiring tomorrow, maybe that’s something a little bit different. But there’s so much data on there or out there on how people, how investors hurt themselves and trying to time the market based off of emotion like this, where he thinks something’s going to happen, or I think, you know, the market’s going to crash, and what happens is you have to be right twice. Um, you know, so Michael pulled half of his money out. It’s not working for him. And maybe the market doesn’t do anything, or maybe it does go down and he saves himself, you know, a 5% downturn in the short term, but then becomes the big problem. When should he reinvest it? When. When should he get back in? Uh, should he dollar cost average back in? Well, the reality is, when you try to time the market, you have to be right twice, and that’s pretty hard to do. And, uh, in most cases, when investors get themselves on the sidelines, they don’t know when to get back in, and they end up holding out. I know people that have been sitting on the sidelines and missed all of 2024, and we had almost a 30% increase. So it’s really tough. And I don’t. I don’t recommend evertime in the market. I would never ask any of my clients to do that. Um, we build out portfolios to handle the ups and downs of the market. And of course, you know, things that go on in the market and when markets, uh, adjust, we make adjustments inside your portfolio to take advantage of those things. But going to cash and just sitting on the sidelines is definitely not the right answer. And like I said, we see time and time again how people hurt themselves doing that.

Walter Storholt: Yeah.

Ryan Fleming: So I really wish he had some sort of a system in place where he could be unemotional about it. Um, where you have some analytics that tell you long term what to do, but anticipating a market crash, um, you’re probably just hurting yourself.

Walter Storholt: Let’s say that he is a little bit closer to retirement because you kind of said, okay, well if you’re about to retire, maybe this is a little bit different conversation, so just pull on that thread a little bit if you could. And let’s say somebody is getting within a year of retirement. How does that start to change what you do as an advisor for that person?

Ryan Fleming: Well, absolutely, it uh, changes things. I mean, Michael might be 30 years old or he might be 45 and he has a ton, a long time horizon. So the time horizon for that money is way far off. So he should push the throttles up and be very, very aggressive with it and never have it sitting on the sidelines. But if Michael is retiring next month, well, then it might make a little bit of sense because he needs some safe money assets because he’s, as soon as he transitions into retirement, some of that money is going to need to be needed to produce income. So you know, if that money that’s needed for the next one to three years, we wouldn’t want it totally in the market. We want it in a much more conservative investment, whether that be fixed income or cash or some other, some other thing that’s guaranteed not to lose money, like some sort of an insurance policy. But um, we come up with a plan for that. We plan for that in our retirement income plan. Okay. So we’ve already thought about those things so that we don’t have to liquidate a portion of his assets in a down market. Um, so it drastically changes. I want to give something out there that many pilots think that they have to become more conservative as they get closer and closer to 65. That’s not necessarily the case. It really has a lot more to do with your time horizon for that money and not your age. For example, um, I have clients that serve 20 plus years in the military and they have a pension. Oh, and then they have a pension from FedEx or UPS. So the FAR majority of all their money, and then you add on Social Security to that, they have most of their income needs handled. And so the far majority of their 401k money, they’re not pulling off of it. So that’s still long term money, which means that individual probably still has the throttles up and they’re still letting their money grow. Versus we have a, uh, Delta pilot, we’ll say that never served in the military,

00:05:00

Ryan Fleming: doesn’t have a pension, that 401k and all the things that they’ve saved are going to immediately have to perform all that income that they need in retirement. That’s a totally different situation. We plan for it, uh, accordingly. So it really has to do with your time horizon and needs for the money you have saved.

Ryan’s retirement toolkit is tailor made for pilots like you

Walter Storholt: Attention aviators. When you’ve spent years in the cockpit managing the complexities of flight, isn’t it time you navigated your retirement with the same precision? Introducing retirepilots.com right at your touchdown zone. Uh, on our homepage there’s a beacon flashing. Get my free toolkit. Click that and you’ll be cleared for a direct route to Ryan’s retirement toolkit tailor made for pilots like you. Inside you’ll find two of his important works, the Pilot’s Advisor and Pilots Retire early. Between these two books, you can decipher the nine critical decisions when retiring before 65 and discover the seven lessons to help pilots land safely in retirement. But that’s not all. This toolkit is packed with with altitude high value, including extras to get your retirement plans off the Runway and light the afterburners on your 401k.

Get more conservative as you get older, move from stocks to bonds

Vector on over to retirepilots.com to grab your toolkit and let’s embark on this journey together. Yeah, I think that’s such a clear distinction from just the more generic, you know, get more conservative as you get older, um, move from stocks to bonds. Like that advice is old and tired and doesn’t apply to today’s world. It’s got to be a little bit more nuanced than that. And that’s where you step in to help kind of connect those dots for us. I’ve heard you talk about before too, like, um, just very specific examples that really drive this point home. I’m thinking of another one where somebody is, maybe they do have the pensions, they do have some of that additional support that’s going to come through, but they want to retire early. And so they’re going to use some of their, let’s say 401k dollars or some of their savings to help bridge the gap for healthcare into retirement. So for those dollars that you’re going to pay for the premiums for health care insurance until, you know, you get to 65 or something, we’re going to put that and be more conservative with it. But everything else that’s left we’re not going to need for several years. So that can stay more aggressive. And so you start breaking these things out into different pieces. Nothing’s just fascinating how all that comes together.

Ryan Fleming: Well, and I think the environment’s changing. I mean there’s so many different, you know, we’ll say products out there or technology, algorithms. I mean this is not the same world that we lived in even 10 years ago. And I look at, there’s some things that we do at the Pilot’s advisor that is drastically different from the average advisor out there. And just to give you a little taste of this, um, it used to be somebody would get into retirement and they would immediately go to a 6040 model. A 6040 asset allocation. What does that mean? Well, 60% of your money’s in equities, uh, or stock, and then 40% of that’s in fixed income or bonds. What does that do? Well, it actually lowers your standard deviation and it drastically reduces the volatility in your portfolio so that you can handle a little bit less of the up and down that you were when you’re a little bit more aggressive. Well, we learned in 2022 that that fixed income portion, those bonds can still get crushed. And we learned in 2022, when inflation was going way up, what was happening to your bonds? You were getting destroyed even in a conservative portfolio. So it really starts to make you wonder, hey, is there a better way? And one of the things that we’ve started doing is for that fixed income portion of somebody’s portfolio, why not have it in a safe money asset that’s guaranteed to never go down? You thought about that?

Walter Storholt: I think it’s great to bring that up. That conservative doesn’t necessarily equal safe. And that’s probably a common misnomer, right?

Ryan Fleming: Not at all. And there’s a lot of insurance products out there where you can actually take that fixed income and it’s guaranteed to have tax free dividends and interest. But you can’t just do it, you know, at the last minute you have to have a plan. And so if you plan for that every little bit of money that you want to be a safe money asset that you’re putting it in and like I said, I like to think of it as my fixed income portion of my portfolio. If you could put money in there and know it’s never going to go down, guess what that does to your overall portfolio. Standard deviation. It drops it significantly because you have guarantees on the other side. It also gives you permission to push the throttles up on your 401k even in retirement. Why? Because if you have a good year, you can pull all that income out of your 401k while it’s up and things are good. And when I say 401k, I mean Roth Ira and Ira, because a lot of people will roll that out of the 401k when they retire. But I call it the retirement jet engine. It gives you permission to keep the throttles up. And guess what? Hey, we have a down year. Maybe the market’s down 10%, 15%. You’re like, oh, gosh, I don’t want to take it from my 401k or IRA. Well, guess what? We’ve already built out safe money over here that

00:10:00

Ryan Fleming: we can produce income with in a down market. Now we’re not liquidating your portfolio while it’s down. So when we talk about a safe withdrawal rate, normally we talk about that 4%. Well, if you plan, we’ve created a system where you have permission now where you could easily pull 8 or 9% off your portfolio and still be safe because we’re never taking money in a down market. It’s pretty, um, it’s pretty wild. But just planning and building these things out, you can have so much more control in retirement.

Walter Storholt: Good points across the board there, Ryan. I know a great next step for anyone who’s thinking about taking more control of their retirement future. Who wants to learn a little bit more about proper financial planning, uh, on the way to those retirement years, is to pick up the retirement toolkit specifically for pilots that Ryan has put together. You can get Ryan’s books, get a free portfolio analysis as part of ordering that toolkit. And again, it’s all free. No cost or obligation to do anything. Just a great resource for pilots who are trying to get serious about planning for retirement. You can get that by going to retirepilots.com we’ve got that linked in the description of today’s show as well. That’s retirepilots.com Ryan, great recap.

Interesting thoughts today on that Great question from Michael. We appreciate you sending that one in and hope that helps

Interesting thoughts today on that Great question from Michael. We appreciate you sending that one in and hope that helps, uh, Michael and others in a similar situation.

Ryan Fleming: Just remember here at the Pilot’s Visor we’re here to help you land in retirement safely. Feel free to reach out. Information is for illustrative purposes only and does not constitute tax, investment or legal advice. Always consult with a qualified investment legal or tax professional before taking any action.